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03-26-2014 HUCMMINUTES Regular Meeting — Hutchinson Utilities Commission Wednesday, March 26, 2014 Call to order — 3:00 p.m. President Hanson called the meeting to order. Members present: President Anthony Hanson; Vice President Monty Morrow; Secretary Mark Girard; Commissioner Dwight Bordson; Commissioner Donna Luhring; Attorney Marc Sebora; Interim General Manager John Webster. Guests: Paul Harvego of Conway, Deuth & Schmiesing and City Administrator Jeremy Carter. 1. Approve Minutes of the February 26, 2014 Regular Meeting The minutes of the February 26, 2014 regular meeting were reviewed. A motion was made by Commissioner Bordson, seconded by Vice President Morrow to approve the minutes. Motion was unanimously carried. 2. Approve Financial Audit for 2013 Presentation by Paul Harvego of Conway, Deuth & Schmiesing Paul Harvego of Conway, Deuth & Schmiesing was welcomed to the meeting. Mr. Harvego presented the 2013 financial audit. A motion was made by Commissioner Luhring, seconded by Secretary Girard to approve the 2013 financial audit. Motion was unanimously carried. (Audit attached.) 3. Ratify Payment of Bills for February 2014 The February 2014 payables were discussed. After discussion, a motion was made by Commissioner Bordson, seconded by Commissioner Luhring to ratify the payment of bills in the amount of $3,822,906.71 (detailed listing in payables book). Motion was unanimously carried. 4. Approve Financial Statements /Budget Year to Date Jared Martig presented the February 2014 financial statements /budget year -to- date. The rate stabilization funds took a hit due to natural gas costs. After discussion, a motion was made by Commissioner Bordson, seconded by Vice President Morrow to approve the financial statements /budget year -to -date. Motion was unanimously carried. 5. Review Policies and Requirements Booklet Interim GM Webster presented the policies and requirements booklet, sections: • Meter Testing — Electric • Right -of -Way Clearing • Tree Removal or Trimming There were no recommended changes to the policies and requirements booklet. 1 6. Approve Changes to Exempt and Non - Exempt Handbooks Jan Sifferath presented changes to the exempt and non - exempt handbooks, sections: • Family & Medical Leave • Parental Leave • Sick Leave (Exempt Only) • Sick /Vacation Leave Donation Changes to the Family & Medical Leave section were due to changes in the FMLA regulations. Other changes were for clean -up purposes. Changes to the Parental Leave section were due to State mandate. The average hours per week worked changed from 40 to "at least twenty (20)" hours per week. Other changes were for clean -up purposes. Changes to the Sick Leave (Exempt Only) section were for clarification and clean- up purposes. The Board requested Jan Sifferath benchmark item #3 of Sick Leave regarding the 720 hours accumulation. Changes to the Sick/Vacation Leave Donation section were for clean -up purposes and it is what HUC currently practices. After discussion, a motion was made by Secretary Girard, seconded by Commissioner Luhring to approve the changes to the exempt and non - exempt handbooks. Motion was unanimously carried. (Changes attached.) 7. Approve Bid Tabulation for Horizontal Directional Drilling Machine (Tabled at the February 26 regular meeting) Dave Hunstad presented further analysis on the purchase of the Horizontal Directional Drilling Machine and explained the payback calculations. After discussion, a motion was made by Commissioner Bordson, seconded by Secretary Girard to approve the bid tabulation for Horizontal Directional Drilling Machine to RDO Equipment for $137,800.46. (Analysis and Bid Tabulation attached.) 8. Approve Changes to Parallel Generation Policy (40 kW or less) (Tabled at the January 2, January 29 and February 26, 2014 regular meetings) Interim GM Webster presented changes to the Parallel Generation Policy (40 kW or less), explaining HUC received information from MMUA that municipals are only required to have a 40 kW or less and a great than 40 kW policy, not the 100kW and less and greater than 100kW policies. Changes were made to provide clarity. Secretary Girard abstained from voting because of a conflict of interest. After discussion, a motion was made by Vice President Morrow, seconded by Commissioner Bordson to approve the changes to Parallel Generation Policy (40 kW or less). Motion was unanimously carried. (Changes attached.) 2 9. Approve HTI Natural Gas Transportation Agreement Interim GM Webster presented the HTI Natural Gas Transportation Agreement. After discussion, a motion was made by Vice President Morrow, seconded by Commissioner Luhring to approve the HTI Natural Gas Transportation Agreement. Commissioner Bordson abstained from voting because of a conflict of interest. Motion was unanimously carried. (Agreement attached.) 10. Approve Contract for Sale and Purchase of Natural Gas between Macquarie Energy LLC and Hutchinson Utilities Commission Interim GM Webster presented the Contract for Sale and Purchase of Natural Gas between Macquarie Energy LLC and Hutchinson Utilities Commission. It allows HUC to purchase natural gas from Macquarie. A motion was made by Commissioner Bordson, seconded by Commissioner Luhring. Motion unanimously carried. (Contract attached.) 11. Updates: a. Industrial Rate Subcommittee (President Hanson & Vice President Morrow) Vice President Morrow reported they met with 3M again with a proposal to offer 3M a revised industrial electric rate. The Board requested a special meeting take place to discuss the impact to HUC of a possible revised industrial electric rate. The goal is to make a recommendation to take to the City Council for approval. Commissioner Bordson abstained from this discussion due to conflict of interest. b. Compensation Subcommittee (Commissioner Luhring & Secretary Girard) Commissioner Luhring reported the subcommittee reviewed the compensation study. The subcommittee recommends securing a second compensation study to include regional, tri -state or quad -state areas along with specifics on what the Commission is looking for in the study. The Board requested Commissioner Luhring present a recommendation for a second study consultant at the April regular commission meeting. c. Joint Meeting Date with City (Commissioner Bordson) Commissioner Bordson reported Mayor Cook suggested the joint meeting be scheduled when the new general manager is hired. A potential date for the joint meeting will be discussed at the April regular meeting. 12. Communication from the City Administrator City Administrator Carter presented an update on what's going on at the City. 13. Division Reports Finance — Jared Martig • Tile project in the crew rooms is 50% complete. • Collateral at banks is being monitored. 3 Electric — Dave Hunstad • Not going to fill the vacant lineman position for now and hire seasonal summer help instead. Electric — Dan Lang • Interviews next week for the open mechanic position. Business — Jan Sifferath • HUC has earned the Tree Line USA Utility Award from the Arbor Day Foundation for the seventh year in a row. Tree Line USA is a national program recognizing public and private utilities for practices that protect and enhance America's urban forests. Natural Gas — John Webster • Purchased natural gas for November 2014 through October 2023 at $4.585. • HUC received income from BP for storing extra natural gas on RUC's pipeline last Friday and Saturday. 14. Legal Update Nothing to report. Unfinished Business • Discuss Separate Business Unit for Wholesale Business o Jared Martig has started working on this. New Business • Interim GM Webster reported the City of Hanska is interested in HUC transporting natural gas to their community. • Was contacted by U.S. Energy regarding their client's interest in purchasing natural gas from HUC to supply regarding the City of Stewart and City of Buffalo Lake. HUC would build an interconnection on Highway 212, funded by the customer. • President Hanson discussed the Charter Commission requested an HUC Board member present reasons for the request to consider changing the Charter to allow one non - resident to be on the Hutchinson Utilities board. The City of Hutchinson Planning Commission currently practices this. President Hanson will attend a Charter Commission meeting and present the reasoning behind HUC's request. • Commissioner Luhring and Commissioner Bordson gave an update on the hiring of a new general manager. Commissioner Bordson reported interviews took place last week and the final candidates will be interviewed by the Commissioners in a special commission meeting. 4 There being no further business, a motion was made by Commissioner Bordson, seconded by Secretary Girard to adjourn the meeting at 5:05 p.m. Motion was unanimously carried. Mark Girard, Secretary AT ow., TEST. Anthony HA son, Pre ident 5 HUTCHINSON UTILITIES COMMISSION HUTCHINSON, MINNESOTA MANAGEMENT LETTER DECEMBER 31, 2013 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS DECEMBER 31, 2013 PAGE Required Communications 1 -3 Comparative Financial Data Graphical Information 5 -12 Schedule of Findings on Accounting Issues and Internal Controls 13 CDS Conway, Dc:uth SChmie;mg.Pllr A,.. —. & (;—& . Quality I Dedication I Integrity REQUIRED COMMUNICATIONS March 26, 2014 Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2013. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated January 24, 2014. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by Hutchinson Utilities Commission, are described in Note 1 to the financial statements. As described in Note 14, the Commission implemented Governmental Accounting Standards Board Statement No. 65. Adoption of the provisions of this statement results in reclassifications for items previously reported as assets and liabilities as deferred outflows of resources and deferred inflows of resources or recognized certain items as outflows of resources and inflows of resources within the financial statements. We noted no transactions entered into by Hutchinson Utilities Commission during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Management's estimate of the allowance for doubtful accounts is based on historical electric and natural gas revenues, historical loss levels, and an analysis of the collectability of individual accounts. We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole. Management's estimate of depreciation is based on the number of years an asset is in service. We evaluated the key factors and assumptions used to develop the depreciation estimate in determining that it is reasonable in relation to the financial statements taken as a whole. Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated March 26, 2014. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the Commission's financial statements or a determination of the type of auditor's opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the Commission's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Information in Documents Containing Audited Financial Statements With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. 2 This information is intended solely for the use of the Commission and management of Hutchinson Utilities Commission and is not intended to be and should not be used by anyone other than these specified parties. 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O N r- M O O N - co M (D 00 co N Ln O c0 00 (D V 0) V' O) N N Ln 0) M N O O 0) 00 I- M V7 M U) M vi N N M N r- 69 69 69 ffi N N a) N N N C C (D a) CL Q X X W_ W_ N N rn cn U) N L N U) C a) N cn D C N N a) a) O N M C N > O z N> N LLI a X N N O � O a OX N in 0 x d' O CQ' x O (n U) m N O) m d > O 0) rn D1 d N U z a) D) L .� 0 .� N z Q' (0 O •C (6 (6 z Z CL _ O) U u r (D a) n a a`) n Q- c w .- ca(n n - n n c _ w O- 0 Ln ° O C rn > C Lv (D O w° O C rn V J W O O N L O S O La '6 E` m f""' m L O a) O a 0 C 0 z LO z N LLB y 7(D y 0 6 2 6 t N to E 0 0 0 0 0 6 t J a) 0) -0 ; a) H H 7 H N U Q a) O a H N F- :"3 a) U Lu � (D s cn � O a 0 z 0 w U s (D a- 0 z It HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) $35,000,000 $30,197,371 $30,679,150 $30,000,000 2s 193987 $27,679,311 $27,005,321 $27,708,122 $27,309,636 $25,557,305 $25,130,487 $25,781,013 $26,535,524 $25,798,047 $25,000,000 $25,063,230 $26,630,054 $20,000,000 $15,000,000 $10,000,000 - - — - $5,000,000 $775,934 $780,678 $0 , $852,948 $(1,082,723) $(727,681) $(329,483) $(529,363) - $5,000,000 2007 2008 2009 2010 2011 2012 2013 taTotal Operating Revenues WOW Operating Expenses ONet Nonoperating Revenues (Expenses) Change in Net Position $4,000,000 $3,371,008 $3,000,000 $2,261,097 $2,000,000 $1,207,496 $1,199,428 $1,000,000 $0 -$1,000,000 - A $(1,361,370) - $2,000,000 2007 2008 2009 2010 2011 2012 2013 ■Change in Net PosRion 5 $859,368 $444,929 5 $14,000,000 $13,000,000 $12,000,000 $11,000,000 $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 HUTCHINSON UTILITIES COMMISSION ELECTRIC DIVISION Major Revenue by Source 2007 2008 2009 2010 2011 2012 2013 ■Residential ■General Service 171ndustrial Purchased Power & Fuel Costs Compared to Total Sales $35,000,000 -- - $30,000,000 — $25,000,000 $20,000,000 — - $15,000,000 $10,000,000 $5,000,000 $0 + 2007 2008 2009 2010 2011 2012 2013 ■Purchased Power - Electric ■Total Electric Sales X HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31, 2013 AND 2012 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2013 and 2012. Operating revenues, kilowatt hours (KWH) sold, and average revenue per kilowatt hour sold by class of service are as follows: Year Ended December 31, 2013 Revenue Per Amount KWH Sold KWH CLASS Residential $ 4,922,373 51,175,792 $ 0.0962 All Electric 254,116 2,679,334 0.0948 Small General Service 1,646,365 17,474,937 0.0942 Large General Service 7,256,720 80,487,539 0.0902 Industrial 10,375,605 127,066,000 0.0817 Sale for Resale 891,276 15,466,000 0.0576 Street Lighting 143,002 103,772 1.3780 $ 25,489,457 294,453,374 0.0866 Year Ended December 31, 2012 Revenue Per Amount KWH Sold KWH CLASS Residential $ 4,972,887 50,726,492 $ 0.0980 All Electric 229,672 2,340,244 0.0981 Small General Service 1,723,012 18,027,490 0.0956 Large General Service 7,541,929 82,193,045 0.0918 Industrial 10,763,758 129,470,000 0.0831 Sale for Resale 1,618,582 35,092,000 0.0461 Street Lighting 148,968 104,320 1.4280 $ 26,998,808 317,953,591 0.0849 Sale for Resale Industrial Large General Service Small General Service All Electric Residential Industrial Large General Service Small General Service All Electric Residential HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS ELECTRIC DIVISION YEARS ENDED DECEMBER 31, 2013 AND 2012 KWH Sold 50,000,000 100,000,000 150,000,000 200,000,000 02013 KWH Sold 02012 KWH Sold Average $ /KWH $0.08 $0.09 $0.10 $0.11 02013 Revenue Per KWH 02012 Revenue Per KWH HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION Operating Revenues & Expenses and Net Nonoperating Revenues (Expenses) $20,000,000 $17,918,263 $15,652,921 $16,877,242 $15,000,000 $14,448,613 $14,646,836 $14,330,101 $14,221,916 $13,888,170 $13,311,332 $12,965,630 $12,123,271 $11,530,359 $10,853,097 $10,000,000 $9,727,396 $5,000,000 - _ - - $0 $(930,225) $(966,136) $(1,007,145) $(930,880) $(929,711) $(989,164) $(992,161) - $5,000,000 2007 2008 2009 2010 2011 2012 2013 Total Operating Revenues 8Total Operating Expenses ■Net Nonoperating Revenues (Expenses) $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 2007 Change in Net Position 2008 2009 2010 2011 2012 2013 Change in Net Position 0 HUTCHINSON UTILITIES COMMISSION NATURAL GAS DIVISION Major Revenue by Source $8,000,000 $7,000,000 -- - $6,000,000 $5,000,000 $4,000,000 - $3,000,000 $2,000,000 - - $1,000,000 $0 2007 2008 2009 2010 2011 2012 2013 •Residential ■Commercial Olndustrial Purchased Gas Compared to Total Sales $18,000,000 -- - - -- $16,000,000 $14,000,000 $12,000,000 - - - - $10,000,000 $8,000,000 — -- $6,000,000 $4,000,000 - - $2,000,000 - - -- $0 2007 2008 2009 2010 2011 2012 2013 •Purchased Power - Gas ■Total Gas Revenues 10 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2013 AND 2012 The Statement of Revenues and Expenses set forth the results of the operations in detail for the years ended December 31, 2013 and 2012. Operating revenues, cubic feet sold, and average revenue per thousand cubic feet sold by class of service are as follows: CLASS Residential Commercial Large industrial CLASS Residential Commercial Large industrial Year Ended December 31, 2013 11 Revenue Per Thousand Amount CF Sold MCF $ 4,626,722 470,677,695 $ 9.8299 3,729,790 392,469,297 9.5034 3,646,509 774,035,000 4.7110 $ 12,003,021 1,637,181,992 $ 7.3315 Year Ended December 31, 2012 Revenue Per Thousand Amount CF Sold MCF $ 3,697,538 364,652,428 $ 10.1399 3,150,925 325,027,042 9.6943 2,826,424 731,565,000 3.8635 $ 9,674,887 1,421,244,470 $ 6.8073 11 HUTCHINSON UTILITIES COMMISSION ANALYSIS OF OPERATIONS NATURAL GAS DIVISION YEARS ENDED DECEMBER 31, 2013 AND 2012 CF Sold 774,035,000 Large industrial _ g 731,565, 000 392,469,297 Commercial i;. 325,027,042 470,677,695 Residential 364,652,428 300 g313, 000 QOO 303 Op0 500 Opp Op0 60p Op0 Op0 100 Op0 Op0 300 Op0 Op0 900 Opp pp0 02013 CF Sold ■2012 CF Sold Large industrial Commercial Residential Average $ /MCF $5 00 $6.00 $7.00 $8.00 $9.00 $10.00 $11.00 02013 Revenue per 1000 MCF ■2012 Revenue Per 1000 MCF 12 HUTCHINSON UTILITIES COMMISSION SCHEDULE OF FINDINGS ON ACCOUNTING ISSUES AND INTERNAL CONTROLS We noted certain matters involving the internal control structure and its operation that we consider being deficiencies in internal control under standards established by the American Institute of Certified Public Accountants. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. INTERNAL CONTROL The objective of internal accounting control is to provide reasonable, but not absolute, assurance as to the safeguarding of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a system of internal accounting control should not exceed the benefits derived and also recognizes that the valuation of these factors necessarily requires estimates and judgments by management. It should be recognized that within the Commission, an inherent risk is present with certain positions. It is very common for entities such as Hutchinson Utilities Commission, to assign many major responsibilities to a few key individuals in an attempt to operate within limited budgets. The inherent risk is again addressed only to maintain the awareness of the internal control structure and to encourage the Commission's continual review of financial information at monthly meetings. GENERAL RECOMMENDATIONS INSUFFICIENT COLLATERAL As of December 31, 2013, the Commission's deposits were not fully collateralized. According to Minnesota State Statutes, the Commission is required to obtain collateral that is 110% over the FDIC insured amounts. At year end, the Commission had a bank balance of $8,779,199 with $203,564 uninsured and uncollateralized. 13 HUTCHINSON UTILITIES COMMISSION AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION DECEMBER 31, 2013 Conway, Deuth & Schmiesing, PLLP Certified Public Accountants Litchfield, Minnesota HUTCHINSON UTILITIES COMMISSION TABLE OF CONTENTS DECEMBER 31, 2013 ORGANIZATIONAL DATA 1 INDEPENDENT AUDITOR'S REPORT 2 -4 REQUIRED SUPPLEMENTARY INFORMATION Management's Discussion and Analysis 5 -9 BASIC FINANCIAL STATEMENTS Statement of Net Position 10 Statement of Revenues, Expenses and Changes in Net Position 11 Statement of Cash Flows 12 -13 Notes to the Financial Statements 14 -26 SUPPLEMENTARY INFORMATION Combining Statement of Net Position 27 Combining Statement of Revenues and Expenses 28 Statement of Net Position - Electric Division 29 Detailed Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Electric Division 30 -33 Statement of Net Position - Natural Gas Division 34 Detailed Schedule of Revenues, Expenses and Changes in Net Position - Budget and Actual - Natural Gas Division 35 -37 COMPLIANCE SECTION Independent Auditor's Report on Minnesota Legal Compliance 38 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 39 -40 HUTCHINSON UTILITIES COMMISSION ORGANIZATIONAL DATA DECEMBER 31, 2013 A Light and Power Commission was formed under the provisions of an amendment to the Hutchinson City Charter in 1936; the Commission was charged with the operation of the Municipal Electric Plant. Charter amendments approved December 17, 1954, provided for a change in the name to Hutchinson Utilities Commission. Additional duties under that amendment provided for the control and management of a municipal gas distribution system. A revised city charter was adopted at a special election September 17, 1987. Some of the pertinent sections of this new charter are briefly summarized in the following paragraphs. The Commission shall have control and management of the Light Plant, the Light Plant distribution system, the Gas Plant and the Gas Plant distribution system. The Commission shall consist of five persons, qualified voters of the City, who shall be appointed by the Council. A member shall be appointed every year for a term of five years, to fill the place of the member whose term has expired. No member shall be appointed to more than two successive terms. The members of the Commission shall receive compensation for their services as determined annually by the Council. The Commission shall provide for its own organization and rules of procedure and annually shall elect a president and vice president from among its members. It shall also appoint a secretary who may or may not be a member of the Commission. The Commissioners at December 31, 2013, and their official titles were as follows: Dwight Bordson President Anthony Hanson Vice President Monty Morrow Secretary Craig Lenz Commissioner Mark Girard Commissioner CDS Conway, Deuth &I Schmiesing,rf.l.r Ckrnt "nd t'ddK r4<uwmann & Gmvulrma Quality j Dedication j integrity INDEPENDENT AUDITOR'S REPORT Members of the Hutchinson Utilities Commission Hutchinson, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2013, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements as listed in the table of contents Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of December 31, 2013, and the respective changes in financial position, and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 14 to the basic financial statements, for the year ended December 31, 2013, the Commission adopted the new accounting guidance of Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets & Liabilities. Our opinion is not modified with respect to this matter. Report on Partial Comparative Information We have previously audited the Commission's 2012 financial statements, and we expressed unmodified audit opinions on those audited financial statements in our report dated March 27, 2013. In our opinion, the partial comparative information presented herein as of and for the year ended December 31, 2012 is consistent, in all material respects, with the audited financial statements from which it has been derived. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary and Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Commission's basic financial statements. The statements and schedules listed in the table of contents as supplementary information are presented for purposes of additional analysis and are not a required part of the basic financial statements. The supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3 The Organizational Data section has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not express an opinion or provide any assurance on the information presented. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated March 26, 2014 on our consideration of the Commission's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Hutchinson Utilities Commission's internal control over financial reporting and compliance. ", i &Amteat:, , PLLP CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 26, 2014 0 REQUIRED SUPPLEMENTARY INFORMATION HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 Overview of the Financial Statements Hutchinson Utilities Commission is a fund of the City of Hutchinson, Minnesota, and is responsible for the full operation and management of the electric and natural gas systems of the City. The annual report of Hutchinson Utilities Commission includes the financial statements, the independent auditor's report, and notes detailing the financial statements and this management's discussion and analysis report. The report also includes supplementary information for each of Hutchinson Utilities Commission's divisions. Financial Statements Required The financial statements report information about Hutchinson Utilities Commission using accounting methods similar to those used by private sector companies. These statements offer short-term and long -term financial information about its activities. The Statement of Net Position includes all of the Commission's assets, liabilities, and net position and provides information regarding the nature and amount of investments in various assets and obligations to the Commission's creditors. They also provide the basis for computing rate of return, evaluating the capital structure, and determining the liquidity and financial flexibility of the Commission. The Statement of Revenues, Expenses and Changes in Net Position accounts for all the current year's revenues and expenses. This statement measures the success of operations over the past year and can be used to determine whether all costs are recovered through user fees and other charges. This statement measures the Commission's profitability and credit worthiness. The Statement of Cash Flows provides information about the Commission's cash receipts and cash payments during the reporting period. This statement reports cash receipts, cash payments, and net changes in cash resulting in cash balances during the reporting period. Financial Statement Analysis Total gross investment in capital assets increased to $132,092,486 in 2013 from $128,688,606 in 2012. Capital assets increased in 2013 primarily because of the downtown engine upgrade project and the Unit 1 controls upgrade project. All other additions were for typical upgrades and improvements to the generating plant and distribution systems as well as equipment purchases. Operating revenues and expenses increased from 2012 by $846,222 and $1,220,231, respectively. Operating income decreased from 2012 by $374,009. The primary increase in operating revenues was due to an increase in gas sales in 2013, which increased by $2,328,134 from 2012 because of a colder than average winter. The primary area of the increase in operating expenses was due to an increase in operation expense both for production and transmission. Purchases of natural gas increased by $1,032,684 due to increased sales. Depreciation increased in 2013 by $307,617 due to a new generator installed. Payment in Lieu of Taxes increased by $260,434 due to a new agreement with the City of Hutchinson. HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 Significant Transactions In 2013, the Commission transferred $1,545,743 to the City of Hutchinson. This transfer represents 2.75% of the Commission's audited operating revenue for 2011, a one time payment of $250,000, and $142,667 to pay the City of Hutchinson's roadway lighting. Condensed Financial Statements A summary of the Statement of Net Position is presented in Table 1. Table 1 Condensed Statement of Net Position Net Position Net Investment in Capital Assets 58,112,622 57,673,622 Restricted 191,832 194,548 Unrestricted 7,963,833 7,718,575 _ Total Net Position 66,268,287 65,586,745 Total Liabilities and Net Position $ 94,305,563 $ 116,193,180 $ C. Increase Decrease (201,000) (20,908,324) (15, 771) 762, 522 21,887,617 (865,873) 21,703,286 (22, 569,159) 439,000 (2,716) 245,258 681,542 (21,887,617) 2013 2012 Net Capital Assets $ 78,802,622 _ $ 79,003,622 $ Restricted Assets 2,589,273 23,497,597 Current Assets 12,124,753 12,140,524 Other Assets 788,915 1,551,437 Total Assets $ 94,305,563 $ 116,193,180 $ Current Liabilities $ 5,829,446 $ 6,695,319 $ Long -Term Liabilities 22,207,830 43,911,116 _ Total Liabilities 28,037,276 50,606,435 Net Position Net Investment in Capital Assets 58,112,622 57,673,622 Restricted 191,832 194,548 Unrestricted 7,963,833 7,718,575 _ Total Net Position 66,268,287 65,586,745 Total Liabilities and Net Position $ 94,305,563 $ 116,193,180 $ C. Increase Decrease (201,000) (20,908,324) (15, 771) 762, 522 21,887,617 (865,873) 21,703,286 (22, 569,159) 439,000 (2,716) 245,258 681,542 (21,887,617) HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 Condensed Financial Statements (Cont'd) A summary of the Statement of Revenues, Expenses and Changes in Net Position is presented in Table 2. Table 2 Condensed Statement of Revenues, Expenses and Changes in Net Position Operating Revenues Operating Expenses Cost of Operations Depreciation Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Change in Net Position Net Position, Beginning of Year, as Restated Net Position, End of Year Budgetary Highlights Increase 2013 2012 (Decrease) $ 39,686,217 $ 38,839,995 $ 846,222 33,843,101 32,930,487 912,614 3,640,050 3,332,433 307,617 37,483,151 36,262,920 1,220,231 2,203,066 2,577,075 (374,009) (1,521,524) (1,318,647) 202,877 681,542 1,258,428 (576,886) 65,586,745 64,328,317 1,258,428 $ 66,268,287 $ 65,586,745 $ 681,542 The Commission adopts an annual Operating Budget and a Capital Improvement Budget. Because of its enterprise nature and in order to comply with Federal Energy Regulatory Commission accounting and reporting requirements, the budgets are not operated as statutory budgets. The Commission and Utilities staff review budget results monthly and the budget is used as a financial management tool. A summary of the 2013 Budget Analysis is presented in Table 3. 7 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 Budgetary Highlights (Cont'd) Operating Revenues Operating Expenses Cost of Operations Depreciation Expense Total Operating Expenses Operating Income (Loss) Nonoperating Revenues (Expenses) Change in Net Position Table 3 Condensed Budget Analysis 2013 Budget 2013 Actual Over Under $ 41,286,552 $ 39,686,217 $ (1,600,335) 33,504,495 3,456,000 36,960,495 4,326,057 33,843,101 3,640,050 37,483,151 2,203,066 338,606 184,050 522,656 (2,122,991) (1,560,530) (1,521,524) 39,006 2,765,527 681,542 (2,083,985) Net Position, Beginning of Year, as Restated 65,586,745 65,586,745 Net Position, End of Year $ 68,352,272 $ 66,268,287 $ 2,083 Actual operating revenues were $1,600,335 under budgeted revenues while operating income (loss) was under budget by $2,122,991. This is mainly due to electric utility sales revenues coming in under budget by $1,923,050. The actual operating revenues for the Commission had a negative variance of approximately 3.88% from budgeted operating revenues. This difference was caused entirely by the electric division, while the gas division had a positive variance of $244,625. Operating expenses were $522,656 higher than budgeted. This is mainly due to increased electric transmission and distribution expenses. Natural gas purchases were also higher due to higher than budgeted sales. In 2007, the Commission established a formula approach to the Payment in Lieu of Taxes (PILOT). The formula is 2.75% of the audited operating revenue from the previous year. In 2013, the Commission approved a one time payment of $250,000. In addition, we are also counting monies paid to the City for the Roadway Lighting as a PILOT. For calendar year 2007, the Commission reallocated its common expenses between the two divisions. Formulas were developed and used to establish the common expenses between the two utilities, in particular, Customer Service and Collection Accounts and the Administrative and General Accounts. Finally, the Commission "bundled" its wholesale electric rates beginning in July 2007. This was done in a fashion whereby the operating income generated from the sales for resale was applied to the wholesale electric rates charged to its retail customers. F:3 HUTCHINSON UTILITIES COMMISSION MANAGEMENT'S DISCUSSION AND ANALYSIS DECEMBER 31, 2013 Capital Assets and Lona -Term Debt Activit The Commission's investment in capital assets increased to $132,092,486 in 2013. This is an increase of $3,403,880 from 2012. Capital additions /expenditures included $1,251,838 for the downtown engine upgrade project. The Commission is also upgrading its controls for Unit 1. The 2013 expense for the controls upgrade was $948,653. Refer to Note 4 of the Notes to the Financial Statements for the Commission's 2013 capital asset activity. At year -end, the Commission had $20,690,000 in bonds outstanding. Refer to Note 6 of the Notes to the Financial Statements for a schedule showing the Commission's long -term debt activity. Economic Factors and Next Year's Budget The Commission considered many factors when setting the fiscal year 2014 budget, rates, and fees that will be charged to the users. Of particular significance for 2007 was the City and also the Commission used a formula approach to the General Funds Transfer. In the past, the General Funds Transfer has been accounted for like a transfer. Beginning in 2007, the Commission began accounting for the General Funds Transfer like a Payment in Lieu of Taxes (PILOT). This was done so that the Commission came into compliance with its by -laws. The practical result of this is the PILOT will show as an expense item above the Operating Income. This practice continued in 2013 and will continue into 2014 with the perception that it will no longer be formula based having been set at $1,900,000. In addition, the Commission "bundled" its electric wholesale rate to its retail customers. What this means is the operating income the Commission receives from its wholesale KWHR sales will be applied to the wholesale rate it charges its retail customers to stabilize the rate it charges its retail customers. Finally, in 2014, the Commission's electric division will realize $80,000 for a capacity contract sale to the Southern Minnesota Municipal Power Agency. Contact Information Any questions regarding information contained in this report and requests for additional information should be addressed to the Hutchinson Utilities Commission, 225 Michigan Street SE, Hutchinson, MN 55350 or by phone at (320) 587 -4746. 9 BASIC FINANCIAL STATEMENTS HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2012 ASSETS Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $82,100 and $77,601, Respectively) Inventory Sales Tax Receivable Prepaid Items Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Other Assets MRES Agreement Capital Assets Assets Not Being Depreciated Other Capital Assets, Net of Depreciation Net Capital Assets Total Noncurrent Assets Total Assets LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Accounts Payable Customer Deposits Accrued Expenses Interest Salaries Payable Total Current Liabilities Long -Term Liabilities Noncurrent Portion of Long -Term Debt Total Liabilities Net Position Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Liabilities and Net Position See Accompanying Notes to the Financial Statements 10 2013 2012 $ 6,189,926 $ 6,898,291 4,170,951 3,580,941 1,463,804 1,417,189 278,529 205,517 21,543 38,586 12,124, 753 12,140,524 2,589,273 23,497,597 788,915 1,551,437 5,538,940 13,818,262 73,263,682 65,185,360 78,802,622 79,003,622 82,180,810 104,052,656 $ 94,305,563 $ 116,193,180 $ 1,381,251 $ 3,393,045 3,628,308 2,495,738 406,317 364,912 75,666 152,957 337,904 288,667 5,829,446 6,695,319 22,207,830 43,911,116 28,037,276 50,606,435 58,112,622 57,673,622 191,832 194,548 7,963,833 7,718,575 66,268,287 65,586,745 $ 94,305,563 $ 116,193,180 HUTCHINSON UTILITIES COMMISSION STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET POSITION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 2013 2012 OPERATING REVENUES Electric Energy Sales $ 25,489,457 $ 26,998,808 Natural Gas Sales 12,003,021 9,674,887 Other Operating Revenues 2,193,739 2,166,300 Total Operating Revenues 39,686,217 38,839,995 OPERATING EXPENSES (2,400) (1,850) Production 185,608 Operations 3,445,140 2,961,378 Maintenance 499,301 452,915 Purchased Power /Gas 20,776,489 21,224,245 Other Power Supply 426,864 356,366 Transmission (1,521,524) (1,318,647) Operations 1,533,994 1,205,401 Maintenance 77,736 84,500 Distribution (611,238) Operations 966,803 958,780 Maintenance 506,058 493,626 Customer Accounts Expense 348,556 303,179 Sales Expense 263,654 274,113 Administrative and General 3,452,763 3,330,675 Depreciation 3,640,050 3,332,433 Contribution to City of Hutchinson 1,545,743 1,285,309 Total Operating Expenses 37,483,151 36,262,920 Operating Income (Loss) 2,203,066 2,577,075 NONOPERATING REVENUES (EXPENSES) Interest Income 75,940 133,589 Merchandise and Contract Work, Net 35,926 20,955 Miscellaneous Income 59,039 521,743 Gain (Loss) on Disposal of Assets 10,000 4,702 Bond Service Fees (2,400) (1,850) Bond Premium 185,608 Amortization of Development Study (525,953) (473,196) Amortization of Bond Discount and Issuance Costs (38,051) Interest Expense - Customer Deposits (2,346) (351) Interest Expense - Bonds (1,357,338) (1,486,188) Total Nonoperating Revenues (Expenses) (1,521,524) (1,318,647) Change in Net Position 681,542 1,258,428 NET POSITION, BEGINNING OF YEAR, AS ORIGINALLY STATED 65,586,745 64,939,555 PRIOR PERIOD ADJUSTMENT (611,238) NET POSITION, BEGINNING OF YEAR, AS RESTATED 65,586,745 64,328,317 NET POSITION, END OF YEAR $ 66,268,287 $ 65,586,745 See Accompanying Notes to the Financial Statements 11 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from Customers Payments Received from Other Sources Payments to Suppliers Payments to Employees Net Cash Provided (Used) by Operating Activities CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Other Noncapital Income Development Study Income Other Noncapital Expenses Net Cash Provided (Used) by Noncapital Financing Activities CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Additions to Utility Plant Principal Payments on Long -Term Debt Bond Service Fees Proceeds from Sale of Assets Net proceeds from Debt Issuance Interest Paid on Long -Term Debt Net Cash Provided (Used) by Capital and Related Financing Activities CASH FLOWS FROM INVESTING ACTIVITIES Interest Income Net Increase (Decrease) in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR RECONCILIATION OF CASH AND CASH EQUIVALENTS Current Assets - Cash and Investments Restricted Assets - Cash and Investments Total Cash and Cash Equivalents See Accompanying Notes to the Financial Statements 12 2013 2012 $ 36,943,873 $ 36,485,495 2,120,727 2,079,491 (28,356,401) (28,722,744) (4,279,820) (4,078,580) 6,428,379 5,763,662 94,965 542,698 236,567 57,589 (2,346) (351) 329,186 599,936 (3,439,050) (9,150,229) (23,584,115) (2,106,138) (2,400) (1,850) 10,000 4,702 23,140,150 (1,434,629) (1,414,267) (28,450,194) 10,472,368 75,940 56,252 (21,616,689) 16,892,218 30,395,888 13,503,670 $ 8,779,199 $ 30,395,888 $ 6,189,926 $ 6,898,291 2,589,273 23,497,597 $ 8,779,199 $ 30,395,888 HUTCHINSON UTILITIES COMMISSION STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 RECONCILIATION OF OPERATING INCOME (LOSS) TO CASH FLOWS FROM OPERATING ACTIVITIES Operating Income (Loss) Adjustments to Reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities Depreciation (Increase) Decrease in Assets Accounts Receivable Inventory Sales Tax Receivable Prepaid Items Increase (Decrease) in Liabilities Accounts Payable Customer Deposits Salaries Payable Compensated Absences Net Cash Provided (Used) by Operating Activities See Accompanying Notes to the Financial Statements 13 2013 2012 $ 2,203,066 $ 2,577,075 3,640,050 (590,010) (46,615) (73,012) 17,043 3,332,433 (249,770) 96,301 (86,809) (9,048) 1,132,570 2,586 41,405 61,570 49,237 26,077 54,645 13,247 $ 6,428,379 $ 5,763,662 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. REPORTING ENTITY Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, is governed by five members who are appointed by the Council of the City of Hutchinson, Minnesota. The accompanying financial statements present only the Hutchinson Utilities Commission fund and are not intended to present fairly the financial position of the City of Hutchinson, Minnesota. The financial statements present the Commission and its component units. The Commission includes all funds, organizations, institutions, agencies, departments and offices that are not legally separate from such. Component units are legally separate entities for which the Commission is financially accountable, or for which the exclusion of the component unit would render the financial statements of the Commission misleading. The criteria used to determine if the Commission is financially accountable for a component unit includes whether or not 1) the Commission appoints the voting majority of the potential component unit's governing body and is able to impose its will on the potential component unit or is in a relationship of financial benefit or burden with the potential component unit, or 2) the potential component unit is fiscally dependent on and there is a potential for the potential component unit to provide specific financial benefits to, or impose specific financial burdens on, the Commission. As a result of applying the component unit definition criteria above, it has been determined the Commission has no component units. B. FUND ACCOUNTING The operations of the Commission are recorded as a proprietary fund. The proprietary fund is used to account for operations (a) that are financed and operated in a manner similar to private business enterprises - where the intent of the governing body is that the costs (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and /or net income is appropriate for capital maintenance, public policy, management control, accountability or other purposes. C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION The financial statements include the operations of the City of Hutchinson Municipal Utilities. The Electric and Natural Gas divisions are treated as a single enterprise fund of the City of Hutchinson, Minnesota. The Utilities are governed by the Hutchinson Utilities Commission, which is appointed by the City Council. No other operations are controlled by the Hutchinson Utilities Commission. The accounts of the Commission are organized on the basis of fund accounting. The operation of the fund is accounted for with a separate set of self - balancing accounts that comprise its assets, liabilities, net position, revenues, and expenses. Government resources are allocated to and accounted for in the individual fund based upon the purposes for which they are to be spent and the means by which spending activities are controlled. Basis of accounting refers to when revenues and expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. 14 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) C. MEASUREMENT FOCUS, BASIS OF ACCOUNTING AND FINANCIAL STATEMENT PRESENTATION (Cont'd) The proprietary fund is accounted for using the accrual basis of accounting and economic resources measurement focus. Revenues are recognized when earned, and expenses are recognized when incurred. Revenue from electricity and gas sales is reflected in the accounts only at the time such revenue is actually billed to customers. Accordingly, no recognition is given in the accounts for revenue from sales between established cycle billing dates. The proprietary fund distinguishes operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the enterprise funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation of capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses. It is generally the Commission's policy to use restricted resources first, then unrestricted resources as they are needed when an expense is incurred for purposes for which both restricted and unrestricted net position is available. D. DEPOSITS AND INVESTMENTS The Commission's cash and cash equivalents are considered to be cash on hand, deposits and highly liquid debt instruments purchased with original maturities of three months or less from the date of acquisition. The Commission may invest in the following types of investments as authorized by Minn. Stat. § §118A.04 and 118A.05: (1) securities which are direct obligations or are guaranteed or insured issues of the United States, its agencies, its instrumentalities, or organizations created by an act of Congress, except mortgage - backed securities defined as "high risk" by Minn. Stat. §118A.04, subd. 6; (2) mutual funds through shares of registered investment companies provided the mutual fund receives certain ratings depending on its investments; (3) general obligations of the State of Minnesota and its municipalities, and in certain state agency and local obligations of Minnesota and other states provided such obligations have certain specified bond ratings by a national bond rating service; (4) time deposits that are fully insured by the Federal Deposit Insurance Corporation or bankers acceptances of United States bank; (5) commercial paper issued by United States corporations or their Canadian subsidiaries that is rated in the highest quality category by at least two nationally recognized rating agencies and matures in 270 days or less; and (6) with certain restrictions, in repurchase agreements, securities lending agreements, joint powers investment trusts, and guaranteed investment contracts. 15 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) D. DEPOSITS AND INVESTMENTS (Cont'd) Cash and investments at December 31, 2013, were comprised of a deposit account and a money market account. The Commission does not have an investment policy that further limits its investment choices. Custodial Credit Risk - Deposits: For deposits, this is the risk that in the event of bank failure, the Commission's deposits may not be returned to it. Minnesota Statutes requires that all Commission deposits be protected by insurance, surety bond, or collateral. The market value of collateral pledged must equal 110 percent. Interest Rate Risk: This is the risk that market values of securities in a portfolio would decrease due to changes in market interest rates. Credit Risk: Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. State law limits investments in commercial paper and corporate bonds to the top two ratings issued by nationally recognized statistical rating organizations. Concentration of Credit Risk: This is the risk of loss attributed to the magnitude of an investment in a single issuer. Investments should be diversified to avoid incurring unreasonable risk inherent in over investing in specific instruments, individual financial institutions or maturities. The Commission places no limit on the amount the Commission may invest in any one issuer. Custodial Credit Risk - Investments: For an investment, this is the risk that in the event of the failure of the counterparty, the Commission will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. E. RECEIVABLES AND OPERATING REVENUES AND EXPENSES An allowance for doubtful accounts is recorded based on historical electric and natural gas revenues, historical loss levels, and an analysis of the collectability of individual accounts. Meters are read throughout the month and revenues are recognized when utility services are billed to customers. Hutchinson Utilities Commission did not accrue revenues for services provided but not billed at the end of the year. Monthly billings from the wholesale power and natural gas suppliers, which are for power and natural gas costs to the last day of the month, are reflected in the accounts. F. INVENTORY Inventories of materials and supplies are recorded at average cost, which does not exceed market. G. PREPAID ITEMS Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in the financial statements. 16 NOTE 1 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) H. CAPITAL ASSETS Capital assets, both tangible and intangible, are recorded at cost. The cost of additions to capital assets includes contracted work, direct labor, and materials. Repairs, replacement, and the renewal of items determined to be less than units of property are charged to maintenance. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed. During the current period, the Commission did not have any capitalized interest. Depreciation of capital assets is computed using the straight -line method over the estimated service lives of the various assets as follows: Buildings 35 -60 years Transmission plant (electric) 20 -35 years Distribution plant (electric) 20 -35 years Building improvement 15 -30 years Transmission plant (gas) 10 -45 years Distribution plant (gas) 10 -45 years Generation plant 10 -30 years General plant 5 -10 years Vehicles 5 -10 years Office equipment 3 -5 years Computer equipment 3 -5 years I. COMPENSATED ABSENCES The liability for compensated absences reported in the financial statements consists of unpaid, accumulated vacation and sick leave balances. The liability has been calculated using the vesting method, in which leave amounts for both employees who currently are eligible to receive termination payments and other employees who are expected to become eligible in the future to receive such payments upon termination are included. Compensated absences are accrued when incurred in the financial statements. The Statement of Net Position reports both current and noncurrent portions of compensated absences using full accrual accounting. The current portion consists of an amount based on a trend analysis of current usage of vacation and vested sick leave. The noncurrent portion consists of the remaining amount of vacation and total vested sick leave. Nonunion employees can accrue a maximum of 200 hours per year of vacation pay, with a maximum carryover of 200 hours. Vacation pay is 100% payable at severance of employment. A maximum of 720 hours can be accrued for sick leave. After accumulation of 720 hours, a payback of one -third of the amount over 720 hours will be made annually. Upon retirement or death before retirement, a payback of one -third of the amount over 240 hours will be made. Union employees can accrue a maximum of 200 hours per year of vacation pay, with a maximum carryover of 40 hours. Vacation pay is 100% payable at severance of employment. A maximum of 1,264 hours of sick leave can be accrued. Upon retirement, union employees shall be paid one hour of sick leave per eight hours of unused sick leave at the rate of pay upon retirement. 17 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd) J. POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS Employees of the Commission pay premiums based on a negotiated schedule. Since the insurance rate is not based on age, the Commission has an implicit rate subsidy factor in postemployment health care expenses. Additionally, Minnesota Statutes require the Commission to allow retired employees to stay on the health care plan with the retiree responsible to pay the entire premium for continuation coverage. The Commission's bargaining agreement and personnel policy do not provide for any contributions upon employee retirement. Any liability for other postemployment benefits is considered immaterial and not recognized in the financial statements. K. LONG -TERM OBLIGATIONS Long -term debt and other long -term obligations are reported as liabilities in the financial statements. Bond discounts, and bond premiums are amortized over the terms of the related bond issues. L. BUDGETS AND BUDGETARY ACCOUNTING The General Manager is responsible for preparing and submitting an annual budget. Budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. M. NET POSITION Net position represents the difference between assets plus deferred outflows of resources and liabilities plus deferred inflows of resources in the financial statements. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long -term debt used to build or acquire the capital assets. Net position is reported as restricted in financial statements when there are limitations on its use through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Unrestricted net position consists of all other net position that does not meet the definition of restricted or net investment in capital assets. N. USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. O. PRIOR YEAR INFORMATION The basic financial statements include certain prior -year partial comparative information in total but not at the level of detail required for a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the government's financial statements for the year ended December 31, 2012, from which the partial information was derived. 18 NOTE 2 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 DEPOSITS AND INVESTMENTS A. DEPOSITS In accordance with applicable Minnesota Statutes, Hutchinson Utilities Commission maintains deposits at depository banks authorized by the Commission. Custodial Credit Risk - Deposits: As of December 31, 2013, the Commission's bank balances were exposed to custodial credit risk because they were not fully collateralized with collateralized securities held by the pledging institution's trust department or agent in the Commission's name. The amount uninsured and u ncol lateral ized was $203,564. Deposits in Bank Petty Cash Total Deposits $ 8,778,349 850 $ 8,779,199 Deposits and investments are presented in the December 31, 2013 basic financial statements as follows: Current Assets Cash and Investments $ 6,189,926 Noncurrent Assets Restricted Assets Cash and Investments 2,589,273 Total Deposits and Investments $ 8,779,199 19 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 3. DEPOSITS AND INVESTMENTS - RESTRICTED Restricted cash and investments are designated by bond covenants for specific purposes. At December 31, 2013 and 2012, restricted cash consisted of the following: 2013 2012 Public Utility Revenue Bond Sinking Fund - 2003 Funds designated under bond resolution which require monthly deposits of amounts necessary to meet annual principal and interest payments with an escrow agent. $ 400,579 $ 666,585 Escrow Agent Funds appropriated for the principal and interest payments to become due on the portion of the 2003 bonds that were callable on December 1, 2013. 20,642,318 Reserve Accounts Funds required to be held in amount equal to the maximum amount of principal and interest to become due on the bonds during the year. 2,188,694 2,188,694 Total Cash and Investments - Restricted $ 2,589,273 $ 23,497,597 The following items have been designated by the Commission for the following purposes: 2013 2012 Rate Stabilization - Electric $ 628,110 $ 320,008 Rate Stabilization - Gas 566,431 309,089 Payment in Lieu of Taxes 1,900,000 1,403,076 Catastrophic 500,000 500,000 Development Study 286,123 Expansion and Development Reserve Account Funds designated for the expansion and development of the utility 1,597,050 1,576,183 $ 5,191,591 $ 4,394,479 The above Commission designated amounts are included in the Current Assets -Cash and Investments total. 20 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 4. CAPITAL ASSETS Capital asset activity for the year ended December 31, 2013, was as follows: Capital Assets, Not Being Depreciated Land Construction in Progress Easements Total Capital Assets, Not Being Depreciated Capital Assets, Being Depreciated Structures and Improvements Equipment Software Total Capital Assets, Being Depreciated Less Accumulated Depreciation for Structures and Improvements Equipment Software Total Accumulated Depreciation Total Capital Assets, Being Depreciated, Net Net Capital Assets NOTE 5. INVENTORY Inventory consists of the following: Electric Division Fuel Oil and Lubricants Plant Systems Material Engine Parts Distribution Materials Transformers Total Electric Division Natural Gas Division Fittings Transmission Line Gas Total Natural Gas Division Total Inventory Beginning Ending Balance Increase Decrease Balance $ 559,527 $ $ $ 559,527 9,227,975 2,200,491 (10,479,813) 948,653 4,030,760 4,030,760 13,818,262 2,200,491 (10,479,813) 5,538,940 99,181, 728 11, 593, 546 110, 775, 274 15,139,381 124,826 (35,170) 15,229,037 549,235 549,235 114,870,344 11,718,372 (35,170) 126,553,546 41,237,059 3,018,479 44,255,538 8,041,409 557,000 (35,170) 8,563,239 406,516 64,571 471,087 49,684,984 3,640,050 (35,170) 53,289,864 65,185,360 8,078,322 0 73,263,682 $ 79,003,622 $ 10,278,813 $ (10,479,813) $ 78,802,622 2013 2012 $ 119,341 $ 89,363 10,089 13,100 348,186 305,796 444,813 448,424 117,874 127,733 1,040,303 984,416 21 119,931 129,203 303,570 303,570 423,501 432,773 $ 1,463,804 $ 1,417,189 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 6. LONG -TERM DEBT A. COMPONENTS OF LONG -TERM DEBT Interest Rates Public Utility Revenue Bonds, Final Balance Outstanding Maturity 2013 2012 Series 2003B 3.750 - 4.625% 12/01/2021 Public Utility Revenue Refunding Bonds, Series 2012A 4.00 -5.00% 12/01/2026 Bond Premium MRES Agreement 4.00% 03/01/2015 Compensated Absences Total Long -Term Debt $ 965,000 $ 21,330,000 19,725,000 20,720,000 2,397,441 2,583,049 2,224,115 501,640 446,997 $ 23,589,081 $ 47,304,161 On March 31, 2003, the Hutchinson Utilities Commission issued Public Utility Revenue Bonds of 2003 for $31,725,000. $3,340,000 of the issue was used for the refunding of the Temporary Public Utility Revenue Bonds of 2001, and $28,385,000 was used for the natural gas pipeline project. On March 31, 2010, Hutchinson Utilities Commission signed a repayment agreement with Missouri River Energy Services (MRES) for the Big Stone II Plant. The Commission was scheduled to pay equal monthly installments beginning April 1, 2010 and ending March 1, 2015 but paid in full during 2013. On July 19, 2012, Hutchinson Utilities Commission issued Public Utility Revenue Refunding Bonds, Series 2012A for $20,720,000, with an interest rate of 4.00% to 5.00 %. The Commission issued the bonds to advance refund a portion of the 2013 through 2025 maturities of the Public Utility Revenue Bonds, Series 20038. The Commission completed the refunding to reduce its debt service payment over the next 14 years by $1,638,277. This results in an economic gain (difference between the present values of the debt service payments on the old and new debt) of $1,245,620. B. MINIMUM DEBT PAYMENTS Annual debt service requirements to maturity for bonded debt is as follows: Year Ending December 31 Revenue Bonds, Series 2003B Principal Interest Refunding Bonds, Series 2012A Principal Interest 2014 $ 125,000 $ 40,488 $ 1,050,000 $ 867,500 2015 125,000 35,613 1,100,000 825,500 2016 125,000 30,613 1,160,000 781,500 2017 125,000 25,488 1,220,000 735,100 2018 125,000 20,238 1,295,000 674,100 2019 -2023 340,000 28,525 7,945,000 2,386,450 2024 -2026 5,955,000 585,800 $ 965,000 $ 180,965 $ 19,725,000 $ 6,855,950 22 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 6. LONG -TERM DEBT (Cont'd) C. CHANGES IN LONG -TERM LIABILITIES Beginning Ending Due Within Balance Additions Reductions Balance One Year Revenue Bonds $ 21,330,000 $ Revenue Refunding Bonds 20,720,000 Bond Premium 2,583,049 MIRES Agreement 2,224,115 Compensated $ (20,365,000) $ 965,000 $ 125,000 (995,000) 19,725,000 1,050,000 (185,608) 2,397,441 185,608 (2,224,115) Absences 446,997 339,847 (285,204) 501,640 20,643 $ 47,304,161 $ 339,847 $ (24,054,927) _$ 23,589,081 $ 1,381,251 D. PLEDGED REVENUES Future revenue pledged for the payment of long -term debt is as follows: Bond Issue/ Use of Proceeds/ Tvoe Revenue Bonds, Series 2003B Electric Utility Charges Revenue Bonds, Series 2012A Natural Gas Utility Charges Percent of Total Term of Debt Service Pledge NOTE 7. RISK MANAGEMENT 100% 100% Remaining Principal Pledged Principal and Interest Revenue and Interest Paid Received 2003 -2021 $ 1,145,965 $ 175,428 $ 25,489,457 2012 -2026 26,580,950 1,902,300 12,003,021 The Commission purchases commercial insurance coverage through the League of Minnesota Cities Insurance Trust (LMCIT), which is a public entity risk pool currently operating as a common risk management and insurance program, with cities in the state. The Commission pays an annual premium to the LMCIT for its insurance coverage. The LMCIT is self- sustaining through commercial companies for excess claims. The Commission is covered through the pool for any claims incurred but unreported, but retains risk for the deductible portion of its insurance policies. The amount of these deductibles is considered immaterial to the financial statements. There were no significant reductions in insurance from the previous year or settlements in excess of insurance coverage for any of the past three fiscal years. The Commission's workers' compensation insurance policy is retrospectively rated. With this type of policy, final premiums are determined after loss experience is known. The amount of premium adjustment for 2013 is estimated to be immaterial based on workers' compensation rates and salaries for the year. 23 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 7. RISK MANAGEMENT (Cont'd) At December 31, 2013, there are no other claims liabilities reported in the funds based on the requirements of accounting standards, which requires that a liability for claims be reported if information prior to the issuance of the financial statements indicates it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE A. PLAN DESCRIPTION All full -time and certain part-time employees of the Commission are covered by defined benefit plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees Retirement Fund (GERF), which is a cost - sharing, multiple - employer retirement plan. This plan is established and administered in accordance with Minnesota Statutes, Chapters 353 and 356. GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated Plan members are covered by Social Security and Basic Plan members are not. All new members must participate in the Coordinated Plan. PERA provides retirement benefits as well as disability benefits to members, and benefits to survivors upon death of eligible members. Benefits are established by state statute, and vest after five years of credited service. The defined retirement benefits are based on a member's highest average salary for any five successive years of allowable service, age, and years of credit at termination of service. Two methods are used to compute benefits for PERA's Coordinated and Basic Plan members. The retiring member receives the higher of a step -rate benefit accrual formula (Method 1) or a level accrual formula (Method 2). Under Method 1, the annuity accrual rate for a Basic Plan member is 2.2 percent of average salary for each of the first 10 years of service and 2.7 percent for each remaining year. The annuity accrual rate for a Coordinated Plan member is 1.2 percent of average salary for each of the first 10 years and 1.7 percent for each remaining year. Under Method 2, the annuity accrual rate is 2.7 percent of average salary for Basic Plan members and 1.7 percent for Coordinated Plan members for each year of service. For GERF members hired prior to July 1, 1989 whose annuity is calculated using Method 1, a full annuity is available when age plus years of service equal 90. Normal retirement age is 65 for Basic and Coordinated members hired prior to July 1, 1989. Normal retirement age is the age for unreduced Social Security benefits capped at 66 for Coordinated members hired on or after July 1, 1989. A reduced retirement annuity is also available to eligible members seeking early retirement. There are different types of annuities available to members upon retirement. A single -life annuity is a lifetime annuity that ceases upon the death of the retiree -no survivor annuity is payable. There are also various types of joint and survivor annuity options available which will be payable over joint lives. Members may also leave their contributions in the fund upon termination of public service in order to qualify for a deferred annuity at retirement age. Refunds of contributions are available at any time to members who leave public service, but before retirement benefits begin. 24 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 8. DEFINED BENEFIT PENSION PLANS - STATEWIDE (Cont'd) A. PLAN DESCRIPTION (Cont'd) The benefit provisions stated in the previous paragraphs of this section are current provisions and apply to active plan participants. Vested, terminated employees who are entitled to benefits but are not receiving them yet are bound by the provisions in effect at the time they last terminated their public service. PERA issues a publicly available financial report that includes financial statements and required supplementary information for GERF. That report may be obtained on the Internet at www.mnpera.org, by writing to PERA at 60 Empire Drive #200, St. Paul, Minnesota, 55103 -2088 or by calling (651) 296- 7460 or 1- 800 - 652 -9026. B. FUNDING POLICY Minnesota Statutes Chapter 353 sets the rates for employer and employee contributions. These statutes are established and amended by the state legislature. The Commission makes annual contributions to the pension plans equal to the amount required by state statutes. GERF Basic Plan members and Coordinated Plan members were required to contribute 9.10% and 6.25 %, respectively, of their annual covered salary in 2013. In 2013, the Commission was required to contribute the following percentages of annual covered payroll: 11.78% for Basic Plan members and 7.25% for Coordinated Plan members. The Commission's contributions to the Public Employees Retirement Fund for the years ending December 31, 2013, 2012, and 2011 were $310,293, $293,317, and $288,923, respectively. The Commission's contributions were equal to the contractually required contributions for each year as set by state statute. NOTE 9. DEFERRED COMPENSATION PLAN The Commission offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The plan, available to all Commission employees, permits them to defer a portion of their salary into future years. Participation in the plan is optional. The deferred compensation is not available to employees until termination, retirement, death or unforeseeable emergency. Investments are managed by the plan's trustee under one of four investment options, or a combination thereof. The choice of the investment option(s) is made by the participants. NOTE 10. COMMITMENTS The Commission has the following project in progress as of December 31, 2013: Original Contract Remaining Project Amount Commitments Unit 1 Controls Upgrade $ 1,090,013 $ 904,444 The Commission is committed to purchase 25 MW of its power requirements from Missouri River Power Company pursuant to the Power Sale Agreement dated April 28, 2010. This contract is effective through January 1, 2046. 25 HUTCHINSON UTILITIES COMMISSION NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2013 NOTE 11. MAJOR CUSTOMERS For the years ended December 31, 2013 and 2012, the Electric Division derived approximately 47% and 46% respectively, of utility revenue from the top five major industrial customers. For the years ended December 31, 2013 and 2012, the Natural Gas Division derived approximately 33% and 32% respectively, of its utility revenue from the top five major industrial customers. NOTE 12. NET POSITION Net Investment in Capital Assets Net Capital Assets Revenue Bonds Payable 2013 2012 $ 78,802,622 $ 79,003,622 (20,690,000) (21,330,000) $ 58,112,622 $ 57,673,622 Restricted Cash and Investments Designated by Bond Covenants for Specific Purposes $ 2,589,273 $ 23,497,597 Revenue Refunding Bonds Payable (20,720,000) Bond Premium (Unamortized) (2,397,441) (2,583,049) $ 191,832 $ 194,548 NOTE 13. RECLASSIFICATIONS Certain prior year financial statement amounts have been reclassified to conform to the current year's presentation. There was no affect on total Net Position. NOTE 14. IMPLEMENTATION OF NEW GASB The Commission adopted the provisions of Governmental Accounting Standards Board Statement No. 65, Items Previously Reported as Assets and Liabilities for the year ended December 31, 2013. This standard reclassified certain items previously reported as assets and liabilities as deferred outflows of resources or deferred inflows of resources or reclassified certain items as outflows of resources or inflows of resources. NOTE 15. PRIOR PERIOD ADJUSTMENT The beginning net position has been decreased to reflect a change in accounting principle. The Commission implemented GASB 65, Items Previously Reported as Assets and Liabilities which reclassifies deferred charges as outflows of resources. Beginning net position has been restated from $64,939,555 to $64,328,317 (a decrease of $611,238). 26 SUPPLEMENTARY INFORMATION HUTCHINSON UTILITIES COMMISSION COMBINING STATEMENT OF NET POSITION DECEMBER 31. 2013 ASSETS Current Assets Cash and Investments Accounts Receivable (Net of Allowance for Doubtful Accounts of $82,100 and $77,601, Respectively) Inventory Sales Tax Receivable Prepaid Items Total Current Assets Noncurrent Assets Restricted Assets Cash and Investments Other Assets MRES Agreement Capital Assets Assets Not Being Depreciated Other Capital Assets, Net of Depreciation Net Capital Assets Total Noncurrent Assets Total Assets LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Bonds Payable Bond Premium Accrued Vacation Accounts Payable Customer Deposits Accrued Expenses Interest Salaries Payable Total Current Liabilities Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable Bond Premium Accrued Vacation Accrued Severance Total Long -Term Liabilities Total Liabilities Net Position Net Investment in Capital Assets Restricted Unrestricted Total Net Position Total Liabilities and Net Position P451 Natural Electric Gas Division Division Total $ 5,337,406 $ 852,520 $ 6,189,926 1,852,892 2,318,059 4,170,951 1,040,303 423,501 1,463,804 278,529 1,218,328 278,529 16,157 5,386 21,543 8,525,287 3,599,466 12,124,753 23,912 2,565,361 2,589,273 788,915 788,915 1,639,021 42,804,572 3,899,919 30,459,110 5,538,940 73,263,682 44,443,593 34,359,029 78,802,622 45,256,420 36,924,390 82,180,810 $ 53,781,707 $ 40,523,856 $ 94,305,563 $ 125,000 $ 1,050,000 $ 1,175,000 23,912 185,608 185,608 16,205 4,438 20,643 2,409,980 1,218,328 3,628,308 264,106 142,211 406,317 3,374 72,292 75,666 264,078 73,826 337,904 3,082,743 2,746,703 5,829,446 840,000 18, 675, 000 19, 515, 000 2,211,832 2,211,832 307,891 84,326 392,217 67,600 21,181 88,781 1,215,491 20,992,339 22,207,830 4,298,234 23,739,042 28,037,276 43,478,593 14,634,029 58,112,622 23,912 167,920 191,832 5,980,968 1,982,865 7,963,833 49,483,473 16,784,814 66,268,287 $ 53,781,707 $ 40,523,856 $ 94,305,563 HUTCHINSON UTILITIES COMMISSION COMBINING STATEMENT OF REVENUES AND EXPENSES YEAR ENDED DECEMBER 31, 2013 OPERATING REVENUES Electric Energy Sales Natural Gas Sales Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Production Operations Maintenance Purchased Power /Gas Other Power Supply Transmission Operations Maintenance Distribution Operations Maintenance Customer Accounts Expense Sales Expense Administrative and General Depreciation Contribution to City of Hutchinson Total Operating Expenses Operating Income (Loss) NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Service Fees Bond Premium Amortization of Development Study Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position 28 3,445,140 2013 3,445,140 Electric Natural Gas 499,301 Division Division Total $ 25,489,457 $ $ 25,489,457 1,419,617 12,003,021 12,003,021 308,590 1,885,149 2,193,739 25,798,047 13,888,170 39,686,217 3,445,140 3,445,140 499,301 499,301 13,342,967 7,433,522 20,776,489 426,864 426,864 1,419,617 114,377 1,533,994 73,734 4,002 77,736 560,924 405,879 966,803 321,821 184,237 506,058 191,713 156,843 348,556 197,740 65,914 263,654 2,483,179 969,584 3,452,763 2,612,388 1,027,662 3,640,050 1,054,666 491,077 1,545,743 26,630,054 10,853,097 37,483,151 (832,007) 3,035,073 2,203,066 37,970 37,970 75,940 (21,474) 57,400 35,926 58,031 1,008 59,039 10,000 10,000 (2,400) (2,400) 185,608 185,608 (525,953) (525,953) (2,346) (2,346) (85,537) (1,271,801) (1,357,338) (529,363) (992,161) (1,521,524) $ (1,361,370) $ 2,042,912 $ 681,542 HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION ELECTRIC DIVISION DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2012 29 2013 2012 ASSETS Current Assets Cash and Investments $ 5,337,406 $ 6,032,493 Accounts Receivable (Net of Allowance for Doubtful Accounts of $53,365 and $50,441, Respectively) 1,852,892 2,018,199 Inventory 1,040,303 984,416 Sales Tax Receivable 278,529 205,517 Prepaid Items 16,157 19,000 Total Current Assets 8,525,287 9,259,625 Noncurrent Assets Restricted Assets Cash and Investments 23,912 33,329 Other Assets MRES Agreement 788,915 1,551,437 Capital Assets Assets Not Being Depreciated 1,639,021 9,918,343 Other Capital Assets, Net of Depreciation 42,804,572 35,726,930 Net Capital Assets 44,443,593 45,645,273 Total Noncurrent Assets 45,256,420 47,230,039 Total Assets $ 53,781,707 $ 56,489,664 LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Bonds Payable $ 125,000 $ 135,000 MRES Agreement 963,869 Accrued Vacation 16,205 14,466 Accounts Payable 2,409,980 1,507,418 Customer Deposits 264,106 237,193 Accrued Expenses Interest 3,374 3,786 Salaries Payable 264,078 224,201 Total Current Liabilities 3,082,743 3,085,933 Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable 840,000 960,000 MRES Agreement 1,260,246 Accrued Vacation 307,891 278,955 Accrued Severance 67,600 59,687 Total Long -Term Liabilities 1,215,491 2,558,888 Total Liabilities 4,298,234 5,644,821 Net Position Net Investment in Capital Assets 43,478,593 44,550,273 Restricted 23,912 33,329 Unrestricted 5,980,968 6,261,241 Total Net Position 49,483,473 50,844,843 Total Liabilities and Net Position $ 53,781,707 $ 56,489,664 29 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 OPERATING REVENUES Utility Revenues Residential General Service Industrial Street Lighting Resale Total Utility Revenues Other Operating Revenues Penalties /Fees Security Lights Pole Rental Total Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Production Operations Supervision and Engineering Other Employee Benefits Fuels Station Gas for Generation Transportation Waste Disposal Total Operations Maintenance Structures Generating Units Other Equipment Total Maintenance Total Production 2013 Over (Under) 2012 Budget Actual Budget Actual $ 5,218,500 $ 5,176,489 $ (42,011) $ 5,202,559 9,408,000 8,903,085 (504,915) 9,264,941 11,134,194 10,375,605 (758,589) 10,763,758 139,813 143,002 3,189 148,968 1,512,000 891,276 (620,724) 1,618,582 27,412,507 25,489,457 (1,923,050) 26,998,808 220,000 297,525 77,525 299,693 10,000 11,033 1,033 11,002 500 32 (468) 133 230,500 308,590 78,090 310,828 27,643,007 25,798,047 (1,844,960) 27,309,636 1,067,600 1,028,344 (39,256) 906,836 73,000 97,738 24,738 86,397 50,050 40,927 (9,123) 37,213 133,000 131,451 (1,549) 111,917 1,692,600 1,015,351 (677,249) 697,922 1,100,000 1,100,000 1,100,000 15,000 31,329 16,329 21,093 4,131,250 3,445,140 (686,110) 2,961,378 1,000 448 (552) 822 388,500 318,352 (70,148) 291,684 94,500 180,501 86,001 160,409 484,000 499,301 15,301 452,915 4,615,250 3,944,441 (670,809) 3,414,293 Power Costs Purchased Power 13,253,846 13,342,967 89,121 14,823,407 30 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 Maintenance Station Equipment 9,000 2013 9,151 6,786 Underground Lines 100,000 163,965 Over (Under) 2012 Lines Transformers Budget Actual Budget Actual OPERATING EXPENSES (Cont'd) 75,000 65,695 (9,305) 71,247 Other Power Supply 37,500 51,151 13,651 46,646 Supervision and General Salaries $ 268,600 $ 288,772 $ 20,172 $ 278,664 Training 6,000 5,560 (440) 4,721 Professional Services 110,000 132,532 22,532 72,981 Total Other Power Supply 384,600 426,864 42,264 356,366 Transmission Operations Transmission 984,489 1,289,968 305,479 969,927 Station 141,000 129,649 (11,351) 129,742 Total Operations 1,125,489 1,419,617 294,128 1,099,669 Maintenance Plant and Equipment 26,200 73,734 47,534 72,590 Total Transmission 1,151,689 1,493,351 341,662 1,172,259 Distribution Operations Supervision and Engineering 316,100 304,683 (11,417) 331,147 Line 45,000 58,258 13,258 71,222 Meter 21,000 67,369 46,369 30,932 Territory Service Agreement 26,965 26,965 26,763 Other 100,500 103,649 3,149 106,582 Total Operations 482,600 560,924 78,324 566,646 Maintenance Station Equipment 9,000 18,151 9,151 6,786 Underground Lines 100,000 163,965 63,965 131,927 Lines Transformers 11,000 22,859 11,859 10,595 Street Lighting 75,000 65,695 (9,305) 71,247 Other Equipment 37,500 51,151 13,651 46,646 Total Maintenance 232,500 321,821 89,321 267,201 Total Distribution 715,100 882,745 167,645 833,847 Customer Accounts Expense Meter Reading 17,050 18,794 1,744 30,835 Collection 112,200 114,554 2,354 81,055 Other Employee Benefits 4,950 10,242 5,292 5,343 Uncollectible Accounts 5,500 5,070 (430) 3,191 Customer Services 46,750 40,260 (6,490) 44,819 Meetings and Training 5,170 2,793 (2,377) 1,505 Total Customer Accounts Expense 191,620 191,713 93 166,748 31 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 OPERATING EXPENSES (Cont'd) Sales Expense Salaries Conservation Total Sales Expense Administrative and General Supervision and General Salaries Office Supplies Outside Services Employed Property Insurance Medical Insurance Other Employee Benefits Regulatory Commissioners Salaries Travel Miscellaneous Maintenance of General Plant Total Administrative and General Depreciation Contribution to City of Hutchinson 2013 Over (Under) Budget Actual Budget 2012 Actual $ 53,040 $ 51,965 $ (1,075) $ 51,712 153,960 145,775 (8,185) 153,873 207,000 197,740 (9,260) 205,585 480,000 520,388 40,388 486,057 242,625 281,574 38,949 256,262 109,030 147,846 38,816 150,240 117,150 102,512 (14,638) 104,135 603,750 648,400 44,650 627,506 570,380 592,387 22,007 559,286 31,900 23,980 (7,920) 52,925 14,300 14,127 (173) 15,874 15,400 9,378 (6,022) 8,611 77,000 71,484 (5,516) 77,111 47,355 71,103 23,748 48,356 2,308,890 2,483,179 174,289 2,386,363 2,400,000 2,612,388 212,388 2,289,200 Payment in Lieu of Taxes 935,667 912,000 (23,667) 738,871 Roadway Lighting 142,666 142,666 148,585 Total Contribution to City of Hutchinson 1,078,333 1,054,666 (23,667) 887,456 Total Operating Expenses 26,306,328 26,630,054 323,726 26,535,524 Operating Income (Loss) 1,336,679 (832,007) (2,168,686) 774,112 32 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - ELECTRIC DIVISION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Service Fees Amortization of Development Study Amortization of Bond Discount and Issuance Costs Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position NET POSITION, BEGINNING OF YEAR, AS ORIGINALLY STATED PRIOR PERIOD ADJUSTMENT NET POSITION, BEGINNING OF YEAR, AS RESTATED NET POSITION, END OF YEAR 2013 Over (Under) Budget Actual Budget $ 30,000 $ 37,970 $ 7,970 5,520 (21,474) (26,994) 15,000 58,031 43,031 10,000 10,000 (3,000) (2,400) 600 (200,000) (525,953) (325,953) (21,000) 21,000 (113,850) (85,537) 28,313 (277,330) (529,363) (252,033) $ 1,059,349 (1,361,370) $ (2,420,719) 33 50,844,843 50,844,843 $ 49,483,473 2012 Actual $ 28,126 (20,360) 294,300 4,582 (1,850) (473,196) (1,864) (159,221) (329,483) 444,629 50,422,893 (22,679) 50,400,214 $ 50,844,843 HUTCHINSON UTILITIES COMMISSION STATEMENT OF NET POSITION NATURAL GAS DIVISION DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2012 2013 2012 ASSETS Current Assets Cash and Investments $ 852,520 $ 865,798 Accounts Receivable (Net of Allowance for Doubtful Accounts of $28,735 and $27,160, Respectively) 2,318,059 1,562,742 Inventory 423,501 432,773 Prepaid Items 5,386 19,586 Total Current Assets 3,599,466 2,880,899 Noncurrent Assets Restricted Assets Cash and Investments 2,565,361 23,464,268 Capital Assets Assets Not Being Depreciated 3,899,919 3,899,919 Other Capital Assets, Net of Depreciation 30,459,110 29,458,430 Net Capital Assets 34,359,029 33,358,349 Total Noncurrent Assets 36,924,390 56,822,617 Total Assets $ 40,523,856 $ 59,703,516 LIABILITIES AND NET POSITION Current Liabilities Current Portion of Long -Term Debt Bonds Payable $ 1,050,000 $ 2,090,000 Bond Premium 185,608 185,604 Accrued Vacation 4,438 4,106 Accounts Payable 1,218,328 988,320 Customer Deposits 142,211 127,719 Accrued Expenses Interest 72,292 149,171 Salaries Payable 73,826 64,466 Total Current Liabilities 2,746,703 3,609,386 Long -Term Liabilities Noncurrent Portion of Long -Term Debt Bonds Payable 18,675,000 38,865,000 Bond Premium 2,211,832 2,397,445 Accrued Vacation 84,326 73,905 Accrued Severance 21,181 15,878 Total Long -Term Liabilities 20,992,339 41,352,228 Total Liabilities 23,739,042 44,961,614 Net Position Net Investment in Capital Assets 14,634,029 13,123,349 Restricted 167,920 161,219 Unrestricted 1,982, 865 1,457, 334 Total Net Position 16,784,814 14,741,902 Total Liabilities and Net Position $ 40,523,856 $ 59,703,516 34 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 OPERATING REVENUES Utility Revenues Residential Commercial Industrial Total Utility Revenues Other Operating Revenues Gas Transportation Contract - New Ulm Transportation - Electric Division Total Other Operating Revenues Total Operating Revenues OPERATING EXPENSES Purchased Natural Gas Transmission Operations Supervision and Engineering Other Total Operations Maintenance Supervision and Engineering Other Total Maintenance Total Transmission Distribution Operations Supervision and Engineering Other Employee Benefits Mains and Services Meters Other Total Operations Maintenance Mains and Services Meters Other Equipment Total Maintenance Total Distribution 2013 Over (Under) 2012 Budget Actual Budget Actual $ 3,990,000 $ 4,626,722 $ 636,722 $ 3,697,538 3,972,713 3,729,790 (242,923) 3,150,925 3,880,832 3,646,509 (234,323) 2,826,424 11,843,545 12,003,021 159,476 9,674,887 700,000 785,149 85,149 755,472 1,100,000 1,100,000 (6,998) 1,100,000 1,800,000 1,885,149 85,149 1,855,472 13,643,545 13,888,170 244,625 11,530,359 7,233,877 7,433,522 199,645 6,400,838 48,000 58,067 10,067 53,317 57,500 56,310 (1,190) 52,415 105,500 114,377 8,877 105,732 1,000 407 (593) 1,091 10,000 3,595 (6,405) 10,819 11,000 4,002 (6,998) 11,910 116,500 118,379 1,879 117,642 162,100 175,572 13,472 137,175 115,000 114,057 (943) 151,968 87,500 67,595 (19,905) 67,667 3,500 240 (3,260) 61 49,500 48,415 (1,085) 35,263 417,600 405,879 (11,721) 392,134 110,500 126,902 16,402 147,998 15,000 9,932 (5,068) 20,779 58,500 47,403 (11,097) 57,648 184,000 184,237 237 226,425 601,600 590,116 (11,484) 618,559 35 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 OPERATING EXPENSES (Cont'd) Customer Accounts Expense Meter Reading Collection Other Employee Benefits Uncollectible Accounts Customer Services Meetings and Training Total Customer Accounts Expense Sales Expense Salaries Conservation Total Sales Expense Administrative and General Supervision and General Salaries Office Supplies Outside Services Employed Property Insurance Medical Insurance Other Employee Benefits Regulatory Commissioners Salaries Travel Miscellaneous Maintenance of General Plant Total Administrative and General Depreciation Contribution to City of Hutchinson Payment in Lieu of Taxes Total Operating Expenses Operating Income (Loss) 2013 Over (Under) Budget Actual Budget 2012 Actual $ 13,950 $ 15,365 $ 1,415 $ 25,229 91,800 93,726 1,926 66,318 4,050 8,379 4,329 4,372 4,500 4,148 (352) 2,611 38,250 32,940 (5,310) 36,670 4,230 2,285 (1,945) 1,231 156,780 156,843 63 136,431 17,680 17,322 (358) 17,237 51,320 48,592 (2,728) 51,291 69,000 65,914 (3,086) 68,528 160,000 173,463 13,463 162,019 80,875 93,858 12,983 85,421 36,345 49,282 12,937 50,080 95,850 83,872 (11,978) 85,202 201,250 216,133 14,883 209,169 190,125 197,462 7,337 186,429 26,100 19,620 (6,480) 43,302 11,700 11,559 (141) 12,988 12,600 7,673 (4,927) 7,046 63,000 58,487 (4,513) 63,091 38,745 58,175 19,430 39,565 916,590 969,584 52,994 944,312 1,056,000 1,027,662 (28,338) 1,043,233 503,820 491,077 (12,743) 397,853 10,654,167 10,853,097 198,930 9,727,396 2,989,378 3,035,073 45,695 1,802,963 36 HUTCHINSON UTILITIES COMMISSION DETAILED SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION BUDGET AND ACTUAL - NATURAL GAS DIVISION YEAR ENDED DECEMBER 31, 2013 WITH PARTIAL COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2012 2013 NONOPERATING REVENUES (EXPENSES) Interest Income Merchandise and Contract Work, Net Miscellaneous Income Gain (Loss) on Disposal of Assets Bond Premium Amortization of Bond Discount and Issuance Costs Interest Expense - Customer Deposits Interest Expense - Bonds Total Nonoperating Revenues (Expenses) Change in Net Position NET POSITION, BEGINNING OF YEAR, AS ORIGINALLY STATED PRIOR PERIOD ADJUSTMENT Over (Under) 2012 Budget Actual Budget Actual $ 30,000 $ 37,970 $ 7,970 $ 105,463 34,480 57,400 22,920 41,315 1,000 1,008 8 227,443 120 185,608 185,608 (36,187) (1,000) (2,346) (1,346) (351) (1,347,680) (1,271,801) 75,879 (1,326,967) (1,283,200) (992,161) 291,039 (989,164) $ 1,706,178 2,042,912 $ 336,734 813,799 14, 741, 902 14, 516, 662 (588,559) NET POSITION, BEGINNING OF YEAR, AS RESTATED 14,741,902 13,928,103 NET POSITION, END OF YEAR $ 16,784,814 $ 14,741,902 37 COMPLIANCE SECTION CDS &Conway, I)et> th Schmicsing,rux c ;,rW VWA, A. ,,,, r. ", a ('--h— Quality I Dedication I Integrity INDEPENDENT AUDITOR'S REPORT ON MINNESOTA LEGAL COMPLIANCE Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited, in accordance with auditing standards generally accepted in the United States of America, and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2013, and the related notes to the financial statements, and have issued our report thereon dated March 26, 2014. The Minnesota Legal Compliance Audit Guide for Political Subdivisions, promulgated by the State Auditor pursuant to Minn. Stat. § 6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories, except that we did not test for compliance in tax increment financing because Hutchinson Utilities Commission does not have any tax increment financing. In connection with our audit, nothing came to our attention that caused us to believe that the Commission failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions, except the Commission's deposits were under collateralized at year end by $203,564. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the Commission's noncompliance with the above referenced provisions. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this communication is not suitable for any other purpose. Co WN, W& Ii &Jun�, PLOP CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 26, 2014 38 Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants CDS �> Conway, Deuth c4 Schrniesing,ru.r c—f—] Nhh, A...nuum¢, & (l—W- Quality j Dedication j Integrity INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Members of the Hutchinson Utilities Commission Hutchinson, Minnesota We have audited in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Hutchinson Utilities Commission, a fund of the City of Hutchinson, Minnesota, as of and for the year ended December 31, 2013, and the related notes to the financial statements, which collectively comprise the Commission's basic financial statements, and have issued our report thereon dated March 26, 2014. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the Commission's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Commission's internal control. Accordingly, we do not express an opinion on the effectiveness of the Commission's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 39 Members: American Institute of Certified Public Accountants, Minnesota Society of Certified Public Accountants Compliance and Other Matters As part of obtaining reasonable assurance about whether Hutchinson Utilities Commission's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the Commission's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Commission's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. NIU4, 40 CONWAY, DEUTH & SCHMIESING, PLLP Certified Public Accountants Litchfield, Minnesota March 26, 2014 40 EXEMPT Family and Medical Leave (FMLA) Pursuant to the Family and Medical Leave Act, employees are allowed up to 12 weeks unpaid leave during a 12 -month period for the following reasons: • Birth or care of the newborn child of the employee • Placement with the employee of a child for adoption or foster care • Serious health condition of the employee that makes the employee unable to perform the functions of the position of such employee • In order to care for an employee's dependent child, spouse, or parent suffering from a serious health condition • Any qualifying exigency arising out of the fact that the spouse, or a son, daughter or parent of the employee is on active duty, or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation. Up to twenty -six (26) weeks of protected leave per twelve (12) month period wi44shall be granted to all eligible employees for the following reasons: • An eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered service member shall be entitled to a total of 26 workweeks of leave during a twelve (12) month period to care for the service member. The leave described in this paragraph shall only be available during a single twelve (12) month period. • A covered service member is defined as a member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness. The term "serious injury or illness ", in the case of a member of the Armed Forces, including a member of the National Guard or Reserves, means an injury or illness incurred by the member in the line of duty on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member's office, grade, rank, or rating. Spouses employed by HUC, both in regular positions, are jointly entitled to a combined total of 12 work weeks of family leave for the birth and care of a newborn child, for placement of a child for adoption or foster care, and to care for a parent who has a serious health condition. Spouses are entitled to a combined total of 26 weeks during a single twelve (12) month period to care for an eligible service member. During the single twelve (12) month period, an eligible employee shall be entitled to a combined total of 26 work weeks of total leave allowed under the FMLA. To be eligible for FMLA leave, the employee must have worked at least one year for HUC and worked at least 1,250 1,040 hours during the previous 12 months. In order to receive the- FMLA-eave, the employee must request the leave by providing the employee's Difeet^r Manager or Supe ,,iser- Customer/HR Manager 30 -days notice prior to the employee's , requested starting date of the leave. If 30 -days notice is not possible, the employee must provide the DireeterA4anager- or- Supery as much notice as possible. The- Dir-ecter, Manager- of SupeFviser- will - infefm the Custerner4IR Manager of the request as seen - as possible.—The Customer/HR Manager wi44shall provide the employee a "Medical Certificate" which must be filled- completedeet by the employee's physician and returned to the Customer/HR Manager. Upon r-eeeipt of the neeessar-y medieA in&ifmation, the Gener-A Manager- will detefmine whether- the- employee will r-eeeive -the FMLA4eave-Pursuant to the FMLA, HUC may request a second opinion from another medical provider at HUC's expense. If the second opinion is different from the employee's physician's opinion, HUC willshall seek a third opinion at HUC's expense. The third opinion shall prevail. HUC may require that a request for leave related to active duty or call to active duty be supported by a certification issued by the health care provider of the service member being cared for by the employee. The 12 weeks of available FMLA leave xtend over 12 months. To determine whether the employee has any FMLA leave- remaining, the General Customer/HR Manager willshall leer back ovef-review the 12 months preceding the request for FMLA - leave. An employee may use the 12 weeks of FMLA leav-&-intermittently over the 12 -month period if necessary and may take the leave in increments of one hour or more. HUC may require a medical certificate attesting to the employee's fitness for duty prior to return to work. The fitness for duty report must be based on the particular health condition(s) for which the leave was approved and must address whether the employee can perform the essential functions of his/her regular position. An employee on FMLA leave for serious illness of the employee, the employee's spouse, dependent child or parent willshall be required to use vacation or sick leave concurrent with the FMLA - leave. HUC willshall continue to pay its contribution toward health and dental insurance while an employee is on FMLA leave. The employee shall be required to continue payment of the employee portion of the premiums duriniz the leave. If the emvlovee fails to pav their portion of the premiums, HUC may terminate their insurance coveraize subiect to COBRA requirements. At the end of FMLA-leave, an employee shall be returned to his/her former position or an equivalent position. For more information on FMLA leave, see the Customer/HR Manager. Parental Leave Pursuant to the Minnesota Parental Leave Act, employees who have worked for HUC for at least 12 months and average for-ty-(40 )-at least twenty(201_hours per week may take six (6) weeks unpaid leave for the birth or adoption of a child. This leave must begin within six weeks after the birth or adoption. Eligible employees must provide thirty (30) days written notice to the Geneml-Customer /HR Manager of their desire to take parental leave. Employees may use their paid leave banks, such as sick leave or vacation, but they are not required to do so. If the employee is also eligible for FMLA4eave, the parental leave under this section and the FMLA leave wshall run concurrently. Sick Leave 1. Sick leave shall be granted to all probationary and non - probationary employees at a rate of eight (8) hours per month. 2. Sick leave may be granted for absence from duty beeanse -endue to personal illness, or for the illness of an immediate family member on the same terms the employee is able to use sick leave benefits for their own illness, including appointments for necessary medical, dental or eye care, legal quarantine, or brief emergency situation (not to exceed one day) in the immediate family. 3. Sick leave cannot be accumulated beyond 720 hours. After the accumulation of 720 hours, a payback of one -third of the amount over 720 hours Y44shall be made annually on or about February 1. 4. AnUpon retirement or upe"eath before retirement, a payback of one -third of the amount over 240 hours willshall be made. If the employee resigns or is dismissed, the above payment shall not be made. In case of death during employment, the unused sick leave willshall be paid to his/her estate on the same m ie- percentage as above. 5. Requests for sick leave consideration in case of other emergency situations may be brought to the Director, Manager or Supervisor. 6. A maximum of five days sick- funeral leave may be allowed when necessary in the case of death in the immediate family. 7. If an employee becomes ill and must stay home from work, he /she shall notify their Director, Manager or Supervisor before their work day begins. 8. If an employee becomes ill during his/her regular work day, they shall notify their Director, Manager or Supervisor that it is necessary to leave due to illness. 9. Employees may be required to submit a medical certificate for any sick leave, at the discretion of the Director, Manager or Supervisor. 10. The use or claim of sick leave for a purpose not authorized may be cause for disciplinary action. 11. For the purpose of accumulating additional vacation or sick leave, an employee using earned vacation or sick leave is considered to be in a paid or working status. 12. Employees that are injured while engaged in after hours' employment of others or while self employed, shall not be covered under the Utility's HUC's Sick Leave Policy, or Worker's Compensation benefits. 13. An employee who is determined to be eligible for workers compensation benefits during absence from duty wiltshall receive such benefits pursuant to Section entitled "Worker's Compensation" in Exempt Employee Handbook. 14. The Empleyer HUC shall comply with the Family and Medical Leave Act, the Minnesota Parental Leave Act and the Americans with Disabilities Act. Sick /Vacation Leave Donation The HUC recognizes that a catastrophic illness and /or serious health condition of an employee or immediate family member (spouse or dependent child) may deplete an employee's available paid leave (sick/vacation/compensatory time). This policy is meant to provide employees with the option of assisting fellow employees at such a time. HUC employees having accrued sick or vacation leave wi44shall be allowed to donate a portion of such accrued leave to fellow employees experiencing a catastrophic illness and/or serious health condition suffered by the employee, the employee's spouse, or the employee's dependent child(ren). A catastrophic illness and/or serious health condition includes but is not limited to, heart attack, stroke, organ transplant, or other life threatening illness or debilitating condition as defined by a physician's diagnosis. The donation of leave from one employee to another shall be subject to the following terms and conditions. 1. An employee is only eligible to receive donated leave for time lost from normal work hours due to a life threatening disease or condition as defined above. 2. An employee wi44shall be eligible to receive donated leave only after the employee's accrued sick, vacation, and compensatory time have been exhausted. 3—.All requests to receive donated leave must be in writing to the general Customer /HR Manager and must be accompanied by supporting medical data. The requests willshall be r-eviewed by the Genefal Manager- and must be appr-eved to beeome eff-eetive. 4.3.No full time employee wi44shall be allowed to receive more than a total of twenty (20) work days or 160 hours of donated leave per single major life threatening disease or condition unless requested and approved by the General Manager. There is no limit on catastrophic events per year. 154.An employee may only use donated leave up to the time of eligibility for a long -term disability benefit (if applicable), or for the maximum number of days allowed to be donated, whichever occurs first. 6:5.A full time employee may donate no more than sixteen (16) hours of leave per calendar year to a single fellow employee. This shall not be construed to prohibit donating sixteen (16) hours per year to additional employees. Leave donation willshall be calculated using time and not an equivalent cash amount. 7-.6.An employee who is donating paid leave must do so from the employee's accrued sick and/or vacation leave balance. A written request to donate leave must be made to the Customer /HR Manager on forms designated by HUC for that purpose. All donations made shall be kept confidential. 8. A written r-eqttest to donate leave must be made to the GustomeF/14R Manager- on kiFms designated by 14UC for- that purpose. The CustomerIHR Manager shall submit requests to the General Manager- for final appr-oval. All donations ,,lade will be kept eenfidentiah. 9-.7.The General Manager shall have the right to deny use of donated leave or limit its use if it is determined to be in the best interests of HUC. Donated leave willshall be subtracted from the donor's accumulated balance and added to the requested employee as part of the payroll function. Donated time wiflshall be processed and used by the date of submission until the eligible amount of donated leave is reached. Contributions of leave hours exceeding the eligible amount wAlshall be returned to the donating employee, and wi4shall not be transferred. Donated hours wi4shall be used in the order they are received. NON - EXEMPT same as exempt Family and Medical Leave (FMLA) Pursuant to the Family and Medical Leave Act, employees are allowed up to 12 weeks unpaid leave during a 12 -month period for the following reasons: • Birth or care of the newborn child of the employee • Placement with the employee of a child for adoption or foster care • Serious health condition of the employee that makes the employee unable to perform the functions of the position of such employee • In order to care for an employee's dependent child, spouse, or parent suffering from a serious health condition • Any qualifying exigency arising out of the fact that the spouse, or a son, daughter or parent of the employee is on active duty, or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation. Up to twenty -six (26) weeks of protected leave per twelve (12) month period willshall be granted to all eligible employees for the following reasons: • An eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered service member shall be entitled to a total of 26 workweeks of leave during a twelve (12) month period to care for the service member. The leave described in this paragraph shall only be available during a single twelve (12) month period. • A covered service member is defined as a member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness. The term "serious injury or illness ", in the case of a member of the Armed Forces, including a member of the National Guard or Reserves, means an injury or illness incurred by the member in the line of duty on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member's office, grade, rank, or rating. Spouses employed by HUC, both in regular positions, are jointly entitled to a combined total of 12 work weeks of family leave for the birth and care of a newborn child, for placement of a child for adoption or foster care, and to care for a parent who has a serious health condition. Spouses are entitled to a combined total of 26 weeks during a single twelve (12) month period to care for an eligible service member. During the single twelve (12) month period, an eligible employee shall be entitled to a combined total of 26 work weeks of total leave allowed under the FMLA. To be eligible for FMLA leave, the employee must have worked at least one year for HUC and worked at least X50 1,040 hours during the previous 12 months. In order to receive the-FMLA leave, the employee must request the leave by providing the employee''Bir-eeter -, Manager or- Sup visor-- Customer/HR Manager 30 -days notice prior to the requested starting date of the leave. If 30 -days notice is not possible, the employee must provide theDireeter -, Manager iser -as much notice as possible. , Manager orr gupepvi- serer will fefm the GastomeF44R Manager- of request as soon as possible-.-The Customer/HR Manager willshall provide the employee a "Medical Certificate" which must be filled- completedout by the employee's physician and returned to the Customer/HR Manager. Upon r-eeeipt of the a heal infermmien, the General Manager will detefmine W-h the empleyee will r-eeeive tthe -PA4TLA4eave- Pursuant to the FMLA, HUC may request a second opinion from another medical provider at HUC's expense. If the second opinion is different from the employee's physician's opinion, HUC wi44shall seek a third opinion at HUC's expense. The third opinion shall prevail. HUC may require that a request for leave related to active duty or call to active duty be supported by a certification issued by the health care provider of the service member being cared for by the employee. The 12 weeks of available FMLA leave extend over 12 months. To determine whether the employee has any FMLA leave - remaining, the Customer/HR Manager willshall leer bash- ever - review the 12 months preceding the request for FMLA4eave. An employee may use the 12 weeks of FMLA leave - intermittently over the 12 -month period if necessary and may take the leave in increments of one hour or more. HUC may require a medical certificate attesting to the employee's fitness for duty prior to return to work. The fitness for duty report must be based on the particular health condition(s) for which the leave was approved and must address whether the employee can perform the essential functions of his/her re lar osp ition. An employee on FMLA leave for serious illness of the employee, the employee's spouse, dependent child or parent willshall be required to use vacation or sick leave concurrent with the FMLA4eave. HUC willshall continue to pay its contribution toward health and dental insurance while an employee is on FMLA leave. The employee shall be required to continue payment of the employee portion of the premiums during the leave. If the emplovee fails to pav their portion of the premiums, HUC may terminate their insurance coverage subiect to COBRA reauirements. At the end of FMLA4eave, an employee shall be returned to his/her former position or an equivalent position. For more information on FMLA leave, see the Customer/HR Manager. Parental Leave same as exempt Pursuant to the Minnesota Parental Leave Act, employees who have worked for HUC for at least 12 months and average forty (40)- ours per week may take six (6) weeks unpaid leave for the birth or adoption of a child. This leave must begin within six weeks after the birth or adoption. Eligible employees must provide thirty (30) days written notice to the General— Customer /HR Manager of their desire to take parental leave. Employees may use their paid leave banks, such as sick leave or vacation, but they are not required to do so. If the employee is also eligible for FMLA4eave, the parental leave under this section and the FMLA leave willshall run concurrently. Sick Leave See Union Contract. Sick /Vacation Leave Donation same as exempt The HUC recognizes that a catastrophic illness and/or serious health condition of an employee or immediate family member (spouse or dependent child) may deplete an employee's available paid leave (sick/vacation/compensatory time). This policy is meant to provide employees with the option of assisting fellow employees at such a time. HUC employees having accrued sick or vacation leave wi-14shall be allowed to donate a portion of such accrued leave to fellow employees experiencing a catastrophic illness and/or serious health condition suffered by the employee, the employee's spouse, or the employee's dependent child(ren). A catastrophic illness and/or serious health condition includes but is not limited to, heart attack, stroke, organ transplant, or other life threatening illness or debilitating condition as defined by a physician's diagnosis. The donation of leave from one employee to another shall be subject to the following terms and conditions. 1. An employee is only eligible to receive donated leave for time lost from normal work hours due to a life threatening disease or condition as defined above. 2. An employee willshall be eligible to receive donated leave only after the employee's accrued sick, vacation, and compensatory time have been exhausted. 3—All requests to receive donated leave must be in writing to the Customer /HR Manager and must be accompanied by supporting medical data. The requests willshall be feviewed by the Ge efal Manager- and must be approved to become effective. . 43.No full time employee willshall be allowed to receive more than a total of twenty (20) work days or 160 hours of donated leave per single major life threatening disease or condition unless requested and approved by the General Manager. There is no limit on catastrophic events per year. -5-.4.An employee may only use donated leave up to the time of eligibility for a long -term disability benefit (if applicable), or for the maximum number of days allowed to be donated, whichever occurs first. 6-.5.A full time employee may donate no more than sixteen (16) hours of leave per calendar year to a single fellow employee. This shall not be construed to prohibit donating sixteen (16) hours per year to additional employees. Leave donation Willshall be calculated using time and not an equivalent cash amount. 7:6.An employee who is donating paid leave must do so from the employee's accrued sick and/or vacation leave balance. A written request to donate leave must be made to the Customer /HR Manager on forms designated by HUC for that purpose. All donations made shall be kept confidential. V. A written request to donate leave must be made to the Coste2 eF44n Manager- on forms- designated requests to the General Manager-for- final appfoval. All donations Mad- . ,;ll be kept eonfidential, 9-.7.The General Manager shall have the right to deny use of donated leave or limit its use if it is determined to be in the best interests of HUC. Donated leave willshall be subtracted from the donor's accumulated balance and added to the requested employee as part of the payroll function. Donated time wiflshall be processed and used by the date of submission until the eligible amount of donated leave is reached. Contributions of leave hours exceeding the eligible amount wiRshall be returned to the donating employee, and wi4shall not be transferred. Donated hours wi44shall be used in the order they are received. 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Payback Period Calculation Payback Period in Years 3.24 Payback Period Calculation (Sell Equipment) Cumulative Year Year Cash Flow Cash Flow 2014 $ (83,550.43) $ (83,550.43) 2015 $ 46,824.91 $ (36,725.52) 2016 $ 30,263.28 $ (6,462.24) 2017 $ 26,950.95 $ 20,488.71 2018 $ 36,887.93 $ 57,376.64 Payback Period in Years 3.24 Payback Period Calculation (Sell Equipment) Payback Period in Years 2.49 Assumed Equipment Sold at 2/3 of Value. Cumulative Year Cash Flow Cash Flow 2014 $ (61,550.43) $ (61,550.43) 2015 $ 46,824.91 $ (14,725.52) 2016 $ 30,263.28 $ 15,537.76 2017 $ 26,950.95 $ 42,488.71 2018 $ 36,887.93 $ 79,376.64 Payback Period in Years 2.49 Assumed Equipment Sold at 2/3 of Value. Hutchinson Utilities Commission Bid Tabulation for Horizontal Directional Drilling Machine February 7, 2014 Recommend: RDO Equipment Bid Item Total Bid Bond RDO Equipment Directional Drill with Trailer $137,800.46 Yes (with Tax) Ditch Witch Directional Drill with Trailer $156,972.00 Yes (without Tax) Opend By: Dave Hunstad Date: 2/7/2014 Witness Roberta Yates Date: 2/7/2014 Recommend: RDO Equipment Hutchinson Utilities Commission Parallel Generation (40 kW or Less) — Net Energy Billing 1. Effective In All territories served by Hutchinson Utilities Commission (HUC). 2. Availabilitv Available fer to single -phase and three -phase customers where a part or all of the electrical requirements of the customer are supplied by the customer's generating facilities, where such facilities have a total generating capability of 40 kW or less, where such facilities are connected in parallel with the utilit HUC and where such facilities are approved by the Utility HUC. The budget payment plan wfl4 shall not be available to customers with parallel generation. 3. Rate The customer shall be billed monthly on a net energy basis and shall pay the fixed charge and energy charge as specified in the HUC's rate schedule under which he the customer is served. If, in any month, the Customer's bill has a credit balance of $100 or less, the amount shall be credited to subsequent bills until a debit balance is reestablished. If the credit balance is more than $100, the utility shall reimburse the customer by check upon request. Monthly credits shall be computed by taking the net excess kilowatt -hours produced times the average annual wholesale cost of power from the previous year. 4. Metering and Services Facilities 1 Hutchinson Utilities Commission Parallel Generation (40 kW or Less) — Net Energy Billing HUC shall utilize an electric meter capable of measuring electric energy in both the forward and reverse direction. 9. 5. Contract Required A contract (Contract for Parallel Generation Facilities (40 KW or Less)) is required between HUC and the customer -owned generation facility. The contract shall specify safety, system protection, and power quality requirements that generators must comply with. Contracts with customer -owned generation facilities selling energy under the standard (non- negotiated) rate have no specific term or length. 4.-6. Customer Obligation a. Metering Facilities The customer shall furnish, install and wire the necessary service entrance equipment, meter sockets, meter enclosure cabinets, or meter connection cabinets that may be required by HUC to properly meter usage and sales to HUC b. Interconnection Costs The owner of the generating facility shall be required to pay all interconnection costs, incurred by HUC. The owner shall pay said costs prior to the final service connection to the Utility's electrical system C. Insurance Hold Harmless and Government Approval The customer shall keep in force a policy of liability insurance, of at least $300,000.00, against personal or property damage to the utility's system, equipment and personnel arising from due to the installation, interconnection, and operation of the customer's generating facility. The customer shall provide proof of insurance to HUC on an annual basis with said policy specifically naming HUC as an insured. The management o 2 Hutchinson Utilities Commission Parallel Generation (40 kW or Less) — Net Energy Billing The customer shall indemnify and hold HUC harmless from all claims of damage whatsoever. The customer is responsible for obtaining all governmental permits and approvals. d. Interconnection and Operational (Safety and Power Quality) Requirements Electric Service to a customer -owned electric generation installation may be disconnected for failure to comply with the following requirements. 1) Interconnection of a generating facility with the HUC system shall not be permitted until application has been made to and approval received from HUC. The Utility may withhold approval only for good reason such as failure to comply with applicable HUC or governmental rules or laws. HUC shall require a contract specifying reasonable technical connection and operating aspects for the parallel generating facility. 2) HUC may require that for each generating facility there is provided, between the generator /s and the utility system, a lockable load - break disconnect switch. For installations interconnected at greater than 600 volts, a fused cutout switch may be substituted, where practicable. The switches shall be accessible to HUC for the purpose of isolating the parallel generating facility from the HUC system when necessary. 3) HUC shall require a separate distribution transformer, where necessary, for a customer having a generating facility for reasons of public and employee safety or where the potential exists for the generating facility causing problems with the service of other customers. 4) HUC shall require that each generating facility have a system for automatically isolating the generator from HUC's system upon loss of the HUC supply, unless HUC desires that the local generation be continued to supply isolated load. 3 Hutchinson Utilities Commission Parallel Generation (40 kW or Less) — Net Energy Billing 5) HUC shall require that the customer discontinue parallel generation operations when it so requests and HUC may isolate the generating installation from its system at times. During such times, HUC shall not be liable for revenue lost by the customer. Parallel generation may be disconnected: a) When considered necessary to facilitate maintenance or repair of HUC's facilities. b) When considered necessary during system emergencies. c) When considered necessary during such times as the generating facility is operating in a hazardous manner, or is operating such that it adversely affects service to other customers or to nearby communication systems or circuits. 6) The owner of the generating facility shall be required to make the equipment available and permit entry upon the property by electric and communication utility personnel at reasonable times for the purpose of testing isolation and protective equipment, evaluating the quality of power delivered to HUC's system and testing to determine whether the local generating facility is the source of any electric service or communication systems problems. 7) The power output of the generating facility shall be maintained such that the frequency and voltage are compatible with normal HUC service and do not cause that HUC service to fall outside the prescribed limits of Commission rules and other standard limitations. 8) The generating facility shall be operated so that variations from acceptable voltage levels and other service impairing disturbances do not result in adverse effects on the service or equipment of other customers, and in a manner that does not produce undesirable levels of harmonics in the HUC power supply. The customer agrees to disconnect the generating facility from HUC's distribution system or reimburse HUC for the cost of necessary system modifications if operation of the generating facility causes radio, television, internet, or electrical service interference to other customers, or interference with the operation of HUC's electrical system. 4 Hutchinson Utilities Commission Parallel Generation (40 kW or Less) — Net Energy Billing 9) The owner of the generating facility shall be responsible for providing protection for the owner's equipment and for adhering to all applicable national, state and local codes. 10) Customer agrees to locate the generating facility so as to not interfere with HUC's distribution system. Customer agrees that the installation shall be in compliance with all applicable electric codes and the generating facility shall be operated only after the installation has been inspected and approved by appropriate authorities. Customer agrees to obtain all required permits, abide by all building and zoning requirements and applicable inspections. 11) The customer agrees to reimburse HUC for any addition, modification, or replacement of distribution components made necessary by the customer's installation. 12) Customer agrees to effectively install grounding and provide surge arrestor protection to prevent lightning damage to HUC's distribution system. 44.7. Utility Obligation a. Metering Facilities HUC shall own and install an appropriate meter in order to record all flows of energy necessary to bill in accordance with the charges and credits of the rate schedule. b. Notice to Communication Firms HUC shall notify telephone utility and cable television firms in the area when it knows that a customer -owned generating facility is to be interconnected with its system. This notification shall be as early as practicable to permit coordinated analysis and testing in advance of interconnection. 42.8. Right to Appeal The owner of the generating facility interconnected, or proposed to be interconnected, with HUC's system may appeal to the Commission should any requirement of HUC's service rules or the required contract be considered to be excessive or unreasonable. Such appeal shall be reviewed and the customer notified of the Commission's determination. 5 Contract for Parallel Generation Facilities (40 kW or Less) This contract is entered into , by Hutchinson Utilities Commission (hereafter called "Utility ") and (hereafter called "Customer") RECITALS The Customer has installed electric rated at located at generating facilities, consisting of _ kilowatts of electricity, on property The Customer is prepared to generate electricity in parallel with the Utility. The Customer meets the requirements of the Utility's rules on parallel generation and any technical standards for interconnection the Utility has established that are authorized by those rules. The Utility is obligated under Federal and Minnesota law to interconnect with the Customer and to purchase electricity offered for sale by the Customer. AGREEMENTS The Customer and the Utility agree: 1. The Utility shall sell electricity to the Customer under the rate schedule in force for the class of customer to which the Customer belongs. 2. Payment per KWH for energy delivered to the Utility, in excess of energy used by the Customer. $ see #3, Rate, Hutchinson Utilities Commission Parallel Generation (40 kW or Less) — Net Energy Billing policy. 3. The rates for sale and purchase of electricity may change over the time this contract is in force, due to actions of the Utility. The Customer and the Utility agree that sales and purchases shall be made under the rates in effect each month during the time this contract is in force. 4. The Customer must operate its electric generating facilities within any rules, regulations, and policies adopted by the Utility, which provide reasonable technical connection and operating specifications for the customer (Hutchinson 101 Utility Commission's rules and regulations applicable to parallel generation are attached). 5. The Customer will operate its electric generating facilities so that they conform to the national, state, and local electric and safety codes, and will be responsible for the costs of conformance. 6. The Customer is responsible for the actual, reasonable costs of interconnection which are estimated to be $ . The customer shall pay the Utility in this manner: 7. The Customer shall provide the Utility reasonable access to its property and electric generating facilities in the event the configurations of those facilities do not permit disconnection or testing from the Utility's side of the interconnection. If the Utility enters the Customer's property, the Utility shall remain responsible for its personnel. 8. The Utility may discontinue providing electricity to the Customer during a system emergency. The Utility shall not discriminate against the Customer when it discontinues providing electricity or when it resumes providing electricity. 9. The Utility may discontinue purchasing electricity from the Customer when necessary for the Utility to construct, install, maintain, replace, remove, investigate, or inspect equipment or facilities within its electrical system. The Utility shall notify the Customer prior to discontinuing the purchase of electricity in this manner: 10. The customer shall keep in force a policy of liability insurance, of at least $300,000.00, against personal or property damage to the Utility's system, equipment and personnel arising from due to the installation, interconnection, and operation of customer's generating facility and shall provide annual proof of the insurance to the Utility with said policy specifically naming the Utility as an Insured. Te pr-oteGt the assets of the Utility's system, the nu i 4nmor hall provide to_ the Utility seG irit t�hefGrm ff a in the ame ant of $ The customer agrees to indemnify and hold harmless the Utility from all claims whatsoever arising from customer's generating system. 11. This contract becomes effective when signed by the Customer and the Utility. This contract will remain in force until either the Customer or the Utility provides written notice to the other that the contract is canceled. This contract shall be canceled 30 days after notice is given. 12. This contract does not serve as an approval of the Customer's generating system for planning, zoning or permit purposes. The Customer shall have the responsibility to obtain proper approval and permits from the City of Hutchinson 7 or other governmental entities pertaining to the construction and operation of the Customer's generating system. 13. This contract contains all the agreements made between the Customer and the Utility. The Customer and the Utility are not responsible for any agreements other than those stated in this contract. THE CUSTOMER AND THE UTILITY HAVE READ THIS CONTRACT AND AGREE TO BE BOUND BY ITS TERMS. AS EVIDENCE OF THEIR AGREEMENT, THEY HAVE EACH SIGNED THIS CONTRACT BELOW ON THE DATE WRITTEN AT THE BEGINNING OF THIS CONTRACT. Customer go Date: E1' HUTCHINSON UTILITIES COMMISSION xa- Date: �dtcxl�ao+ d7I l ITtfs HUTCHINSON UTILITIES COMMISSION 225 MICHIGAN STREET HUTCHINSON MINNESOTA 55350 DWIGHT BORDSON PRESIDENT ANTHONY HANSON VICE PRESIDENT MONTY MORROW SECRETARY CRAIG LENZ COMMISSIONER MARK GIRARD COMMISSIONER MICHAEL KUMM GENERAL MANAGER TEL 320 - 587.4746 FAx 320 -587 -4721 AGREEMENT THIS AGREEMENT ( "AGREEMENT ") IS MADE AND ENTERED INTO THIS 17TH DAY OF MARCH, 2014, TO BE EFFECTIVE AS OF THE 1 sT DAY OF MAY, 2014, BY AND BETWEEN HUTCHINSON TECHNOLOGY, INC. ( "HTI ") WITH OFFICES LOCATED AT 40 WEST HIGHLAND PARK DRIVE NE, HUTCHINSON, MINNESOTA, 55350 AND HUTCHINSON UTILITIES COMMISSION ( "HUC ") A MINNESOTA MUNICIPAL UTILITY LOCATED AT 225 MICHIGAN ST SE, HUTCHINSON, MINNESOTA, 55350. HTI AND HUTCHINSON SHALL HEREINAFTER SOMETIMES BE REFERRED TO SEPARATELY AS "PARTY" OR JOINTLY AS "PARTIES." WHEREAS, HTI DESIRES TO PURCHASE, AND HUC SHALL PROVIDE, FIRM GAS FOR USE AT HTI'S HUTCHINSON HEADQUARTERS /PLANT; AND, WHEREAS, HTI DOES ACKNOWLEDGE THAT HUC WILL, IN RELIANCE UPON THIS AGREEMENT, ENTER INTO AN AGREEMENT TO PROVIDE FIRM GAS AND TRANSPORTATION. NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES MAKE THE FOLLOWING AGREEMENT: HUC SHALL PROVIDE, AND HTI SHALL ACCEPT. FIRM GAS COMMENCING MAY 1, 2014, AT 9:00 A.M. AND TERMINATING ON MAY 1, 2015, AT 9:00 A.M. I. AVAILABILITY A. GENERAL FIRM TRANSPORTATION SERVICE UNDER THIS AGREEMENT SHALL BE AVAILABLE TO HTI UNDER THE TERMS AND CONDITIONS OF THIS AGREEMENT. THIS SERVICE MAY NOT BE CURTAILED OR INTERRUPTED EXCEPT PURSUANT TO THE TERMS OF THIS AGREEMENT. B. THE COST FOR ADDITIONAL CAPACITY OR NEW INSTALLATIONS UTILIZING THIS SERVICE SHALL BE BILLED TO HTI. HTI MUST SUBMIT A WRITTEN REQUEST TO HUC FOR ADDITIONAL CAPACITY /NEW INSTALLATIONS. ALL ADDITIONAL COSTS MUST BE PRE- APPROVED, IN WRITING, BY HTI. C. COMPLIANCE WITH AGREEMENTS SERVICE UNDER THIS AGREEMENT SHALL NOT COMMENCE UNTIL BOTH PARTIES HAVE FULLY EXECUTED THIS AGREEMENT AND COMPLIED WITH ALL RELEVANT REQUIREMENTS CONTAINED HEREIN. D. AGREEMENT CHANGES HUC HAS THE RIGHT TO MODIFY THIS AGREEMENT DUE TO CHANGES IMPOSED BY HUC'S CURRENT NATURAL GAS TRANSMISSION PROVIDERS AND FEDERAL, STATE AND LOCAL REGULATORS /AUTHORITIES. 2. TERM THE INITIAL TERM FOR SERVICE UNDER THIS AGREEMENT IS ONE (1) YEAR. HTI MUST NOTIFY HUC IN WRITING THREE (3) MONTHS PRIOR TO THE EXPIRATION OF THE TERM IF HTI DESIRES TO CONTINUE SERVICE UNDER THIS AGREEMENT. IF HTI HAS COMPLIED WITH ALL TERMS OF THIS AGREEMENT, AND HAS NO OUTSTANDING ARREARAGES, HTI MAY, UPON WRITTEN NOTICE PROVIDED TO HUC THREE (3) MONTHS PRIOR TO THE EXPIRATION OF THE CURRENT TERM, EXTEND THIS AGREEMENT FOR A MUTUALLY AGREED -UPON PERIOD. IF A TERM FOR THE EXTENSION CANNOT BE AGREED UPON BY HTI AND HUC, THE PARTIES AGREE TO A MINIMUM TERM OF ONE (1) YEAR. IF SUCH TIMELY NOTICE IS NOT PROVIDED BY HTI, HUC IS NOT OBLIGATED TO RENEW SERVICE FOR HTI. (21 3. RATES A. RATES FOR SERVICE THE FOLLOWING CHARGES SHALL APPLY TO THE FIRM COMMODITY AND TRANSPORTATION CAPACITY TO BE PROVIDED TO HTI BY HUC: 1. COMMODITY MONTHLY INSIDE FERC VENTURA INDEX, AS PUBLISHED BY PLATT'S "GAS DAILY ", PLUS /MINUS THE NNG VENTURA TO NBPL VENTURA MONTHLY PREMIUM. MONTHLY INDEX AS PUBLISHED IN PLATTS FERC GAS MARKET REPORT FOR NORTHERN NATURAL GAS CO. AT VENTURA, IOWA PLUS OR MINUS ANY INDEX PREMIUM OR DISCOUNT BASED ON CURRENT MARKET CONDITIONS AT THE TIME THE GAS IS PURCHASED. HUC SHALL PURCHASE HTI'S FIRM BASE LOAD NATURAL GAS REQUIREMENTS, FOR THE FOLLOWING MONTH, WITHIN 24 BUSINESS HOURS OF RECEIPT OF HTI'S FIRST OF THE MONTH BASE LOAD NOMINATION. (SEE SECTION 7, PARAGRAPH "A ") 2. MONTHLY DEMAND CHARGE MONTHLY DEMAND CHARGE PER -- $10.33 MCF OF BILLING DEMAND 3. TRANSPORTATION CHARGE TRANSPORTATION CHARGE, PER METERED MCF-- $0.87 THIS CHARGE SHALL BE ADJUSTED, STARTING ON MAY 1. 2012 AND ON EACH MAY 1 THEREAFTER, ACCORDING TO ANY CHANGE IN THE CPI-U FROM THE PREVIOUS YEAR; PROVIDED HOWEVER, THAT SUCH CHARGE SHALL NEVER BE LESS THAN $0.83. CPI -U SHALL MEAN THE ANNUAL AVERAGE CONSUMER PRICE INDEX - ALL URBAN CONSUMERS AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF LABOR, BUREAU OF STATISTICS, WASHINGTON, C.C.. 4. TAXES THE ABOVE CHARGES DO NOT INCLUDE ANY TAXES. (31 B. METERING HTI SHALL PAY ALL COSTS ASSOCIATED WITH THE INSTALLATION OF METERS AND ANY OTHER EQUIPMENT NECESSARY FOR HTI TO RECEIVE SERVICE UNDER THIS AGREEMENT UNLESS OTHERWISE AGREED TO IN WRITING BETWEEN HTI AND HUC. 4. RECONNECTION CHARGE ANY TRANSPORTATION CUSTOMER RECEIVING SERVICE PURSUANT TO THIS AGREEMENT MUST PAY THE "RECONNECTION CHARGE" AS SET FORTH WHEN REQUESTING A RETURN TO HOC'S SYSTEM SUPPLY FOR ALL OR ANY PORTION OF THE TRANSPORTATION CUSTOMER'S DAILY REQUIREMENTS. THE RECONNECTION CHARGE SHALL BE CALCULATED ON A MONTHLY BASIS AND SHALL CONSIST OF A REALIGNMENT SURCHARGE THAT APPLIES TO ALL VOLUMES MEASURED BY HTI'S INDUSTRIAL METER. A. TERM SIX MONTHS - COMMENCING WITH THE FIRST MONTH FOLLOWING THE TERMINATION OF THIS AGREEMENT B. REALIGNMENT SURCHARGE THE REALIGNMENT SURCHARGE SHALL BE IN ADDITION TO THE INDUSTRIAL RATE AS PUBLISHED BY HUC. THE REALIGNMENT SURCHARGE (RS) SHALL BE CALCULATED AS FOLLOWS: RS = MONTHLY INSIDE FERC VENTURA INDEX, AS PUBLISHED BY PLATT'S "GAS DAILY ", PLUS /MINUS THE NNG VENTURA TO NBPL VENTURA MONTHLY PREMIUM MINUS HUC'S "BASE RATE" ($7.85 IN 2010). PROVIDED, HOWEVER, THAT SUCH SURCHARGE SHALL NEVER BE LESS THAN $0.00. 5. BILLING AND PAYMENT A. BILLING INVOICE WILL BE RENDERED TO HTI, OR ITS AGENT, BY THE FIFTEENTH DAY OF THE MONTH FOLLOWING THE MONTH IN WHICH SERVICE IS RENDERED BY HUC. [41 B. PAYMENT PAYMENT IS DUE FROM HTI ON OR BEFORE THE TENTH DAY FOLLOWING THE DATE THE BILL IS ISSUED BY HUC. A LATE PAYMENT CHARGE OF ONE AND ONE -HALF PERCENT PER MONTH, OR THE LEGALLY AUTHORIZED MAXIMUM INTEREST RATE, WHICHEVER IS LOWER, SHALL BE LEVIED ON ANY UNPAID BALANCE. 6. CONDITIONS OF SERVICE A. HUC HEREBY CERTIFIES THAT IT HAS SUFFICIENT FIRM TRANSPORTATION CAPACITY TO PROVIDE THE AMOUNT OF FIRM TRANSPORTATION SERVICE TO HTI PURSUANT TO THE TERMS OF THIS AGREEMENT FOR THE TERM OF THIS AGREEMENT. C. UNLESS OTHERWISE AGREED BETWEEN HTI AND HUC, HTI WILL REIMBURSE HUC FOR THE COST OF METERING AND ANY OTHER EQUIPMENT AS REQUIRED BY HUC TO PROVIDE SERVICE TO HTI UNDER THIS AGREEMENT. ALL SUCH EQUIPMENT SHALL REMAIN THE PROPERTY OF HUC. HUC SHALL SUBMIT A WRITTEN ESTIMATE TO HTI ITEMIZING ALL COSTS ASSOCIATED WITH THE INSTALLATION OF REQUIRED METERING AND OTHER EQUIPMENT NECESSARY FOR HTI TO RECEIVE SERVICE UNDER THIS AGREEMENT. HTI MUST PROVIDE WRITTEN APPROVAL TO HUC AUTHORIZING PURCHASE OF SAID EQUIPMENT. D. UNLESS OTHERWISE AGREED TO IN WRITING BY HUC AND HTI, AUTOMATIC TELEMETERING EQUIPMENT IS REQUIRED. HTI SHALL PROVIDE TELEPHONE, COMPUTER AND OTHER INTERFACES, AS WELL AS ELECTRIC CONNECTIONS TO THE METER(S), AS AGREED TO BY HTI AND HUC. ALL MONTHLY UTILITY FEES (TELEPHONE, ELECTRICITY, ETC.) SHALL BE BORNE BY HTI. HTI SHALL PROVIDE HUC WITH ACCESS SO THAT HUC MAY OPERATE AND MAINTAIN SAID EQUIPMENT. E. HUC SHALL PROVIDE HTI (OR AGENT) WITH A DAILY USAGE REPORT VIA EMAIL FOR NOMINATION PURPOSES. 7. NOMINATIONS A. FIRST OF THE MONTH NOMINATIONS BY 7:00 A.M. CENTRAL CLOCK TIME ( "C.C.T. "), BY THE 15TH DAY OF THE MONTH PRIOR TO GAS FLOW, HTI, OR ITS DESIGNATED AGENT, SHALL PROVIDE HUC A WRITTEN ESTIMATE OF HTI'S DAILY FIRM BASE LOAD [51 LEVEL OF NATURAL GAS REQUIRED FOR THE FOLLOWING MONTH. IN THE EVENT HUC HAS NOT RECEIVED THE BASE LOAD NOMINATION FROM HTI BY THE ABOVE DESIGNATED TIME, HUC SHALL NOMINATE THE CURRENT MONTH'S BASE LOAD LEVEL FOR THE FOLLOWING MONTH. B. DAILY NOMINATIONS HTI, OR ITS DESIGNATED AGENT, SHALL NOTIFY HUC OF ANY REQUESTED CHANGE TO ITS NOMINATION, IN WRITING, BY 7:00 A.M. C.C.T AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF THE REQUESTED CHANGE. HUC SHALL GRANT SUCH REQUESTS IN ITS REASONABLE DISCRETION. C. GAS DAY THE GAS DAY SHALL RUN FROM 9:00 A.M. TO 9:00 A.M. CENTRAL STANDARD TIME. 8. DAILY SWING SUPPLY HUC AGREES TO PROVIDE DAILY SWING SUPPLY TO HTI AT THE APPLICABLE PRICE, AS PUBLISHED FOR THE DAY BY PLATT'S "GAS DAILY" IN ITS "DAILY PRICE SURVEY ($ /DTH)" FOR "NORTHERN, VENTURA" "MIDPOINT" ( "DAILY INDEX ") PLUS /MINUS $0.01. SWING SUPPLY IS DEFINED AS SUPPLY INCREASES OR DECREASES, FROM CONTRACTED LEVELS, NOMINATED AT LEAST 24 HOURS PRIOR TO THE START OF THE GAS DAY. 9. REAL -TIME BALANCING HUC SHALL PROVIDE HTI WITH REAL -TIME BALANCING, BASED ON THE FOLLOWING: BEST EFFORTS REAL-TIME SWING NOMINATED LESS THAN 24 HOURS PRIOR TO THE END OF THE GAS DAY ON A BEST EFFORTS BASIS, PRICED AT THE APPLICABLE PRICE, AS PUBLISHED FOR THE DAY BY PLATT'S "GAS DAILY" IN ITS "DAILY PRICE SURVEY ($ /DTH)" FOR "NORTHERN, VENTURA" "MIDPOINT" ( "DAILY INDEX "), PLUS /MINUS $0.15. [61 10. AGENTS A. DESIGNATION OF AGENTS HTI MAY DESIGNATE AN AGENT FOR NOMINATING VOLUMES FOR TRANSPORTATION ON HUC'S SYSTEM. HTI SHALL NOTIFY HUC IN WRITING AT LEAST FIFTEEN (1 5) BUSINESS DAYS PRIOR TO THE FIRST DAY OF THE MONTH IN WHICH SUCH SERVICES WILL BE UTILIZED THAT A THIRD PARTY HAS BEEN DESIGNATED AS HTI'S AGENT AND SHALL ACT AS AGENT FOR HTI FOR PURPOSES OF NOMINATIONS, BILLING, AND /OR OTHER FUNCTIONS AS SPECIFIED BY HTI. IF HTI UTILIZES AN AGENT FOR ANY OR ALL OF THESE PURPOSES, HTI AGREES THAT INFORMATION TO BE SUPPLIED BY HUC TO HTI MAY BE SUPPLIED ONLY TO THE AGENT AND THAT INFORMATION SUPPLIED BY THE AGENT TO HUC SHALL BE RELIED UPON BY HUC AS IF PROVIDED BY HTI. HUC SHALL BE HELD HARMLESS FOR ANY ERRORS BETWEEN HTI AND SAID AGENT. SUCH DESIGNATION SHALL REMAIN IN EFFECT UNTIL HTI NOTIFIES HUC IN WRITING THAT THE PREVIOUSLY DESIGNATED AGENT IS NO LONGER ITS AGENT. B. INFORMATION REQUIRED HTI SHALL PROVIDE THE FOLLOWING INFORMATION TO HUC CONCERNING EACH AGENT USED BY HTI FOR ANY PURPOSE: 1 . NAME AND ADDRESS OF THE AGENT OR AGENTS; 2. PRIMARY AND SECONDARY CONTACT PERSONS FOR THE AGENT OR AGENTS; 3. TELEPHONE AND FACSIMILE NUMBER FOR PRIMARY AND SECONDARY CONTACT PERSONS FOR THE AGENT OR AGENTS, AND 4. TWENTY -FOUR HOUR TELEPHONE NUMBER FOR WEEKENDS AND HOLIDAYS FOR THE AGENT OR AGENTS. [71 C. HTI TO REMAIN LIABLE HTI MAY ELECT TO HAVE ITS BILL FOR SERVICES UNDER THIS AGREEMENT SENT DIRECTLY TO ITS AGENT. HOWEVER, IF HTI SELECTS THIS OPTION, HTI REMAINS FULLY LIABLE FOR ANY BILL RENDERED BY HUC. ALL DEADLINES SET FORTH IN THIS AGREEMENT SHALL CONTINUE TO APPLY, REGARDLESS OF WHETHER HUC'S BILL IS SENT DIRECTLY TO HTI OR TO HTI'S DESIGNATED AGENT. 1 1. FORCE MAJEURE. A. DEFINITION EITHER PARTY SHALL BE EXCUSED FROM PERFORMANCE UNDER THIS AGREEMENT BY FORCE MAJEURE ACTS AND EVENTS. "FORCE MAJEURE" SHALL MEAN ACTS AND EVENTS NOT WITHIN THE CONTROL OF THE PARTY CLAIMING FORCE MAJEURE, AND SHALL INCLUDE, BUT NOT BE LIMITED TO, ACTS OF GOD, STRIKES, LOCKOUTS, MATERIAL, EQUIPMENT, OR LABOR SHORTAGES, WARS, RIOTS, INSURRECTIONS, EPIDEMICS, LANDSLIDES, EARTHQUAKES, FLOODS, FIRES, STORMS, GOVERNMENT OR COURT ORDERS, CIVIL DISTURBANCES, EXPLOSIONS, BREAKAGE OR ACCIDENT TO MACHINERY OR PIPELINES, FREEZING OF WELLS OR PIPELINES, OR ANY OTHER CAUSE OF WHATEVER KIND, WHETHER SPECIFICALLY ENUMERATED HEREIN OR NOT, THAT IS NOT WITHIN THE CONTROL OF THE PARTY CLAIMING FORCE MAJEURE. B. EFFECT 1. IF HUC IS UNABLE TO PROVIDE SERVICE UNDER THIS AGREEMENT DUE TO A FORCE MAJEURE ACT OR EVENT, HUC'S OBLIGATION TO PROVIDE SERVICE UNDER THIS AGREEMENT SHALL BE SUSPENDED FOR THE DURATION OF THE ACT OR EVENT. HUC SHALL NOTIFY HTI OF THE FORCE MAJEURE EVENT AS SOON AS REASONABLY POSSIBLE BY ANY MEANS PRACTICABLE, INCLUDING. BUT NOT LIMITED TO, TELEPHONE OR FACSIMILE, AND SHALL CONFIRM THE DETAILS OF THE FORCE MAJEURE ACT OR EVENT IN WRITING WITHIN A REASONABLE AMOUNT OF TIME THEREAFTER. HUC SHALL WORK TO 181 REMEDY THE FORCE MAJEURE ACT OR EVENT AS SOON AS REASONABLY POSSIBLE AND SHALL KEEP HTI APPRISED OF THE TIME, DATE, AND CIRCUMSTANCES WHEN SERVICE UNDER THIS AGREEMENT SHALL BE RESTORED. HTI IS NOT REQUIRED TO PAY ANY CHARGES UNDER THIS AGREEMENT DURING THE TERM OF THE FORCE MAJEURE ACT OR EVENT. 2. IF HTI IS UNABLE TO TAKE SERVICE UNDER THIS AGREEMENT DUE TO A FORCE MAJEURE ACT OR EVENT, HUC'S OBLIGATION TO PROVIDE SERVICE UNDER THIS AGREEMENT SHALL BE SUSPENDED FOR THE DURATION OF THE ACT OR EVENT. HTI SHALL NOTIFY HUC OF THE FORCE MAJEURE EVENT AS SOON AS REASONABLY POSSIBLE BY ANY MEANS PRACTICABLE, INCLUDING, BUT NOT LIMITED TO, TELEPHONE OR FACSIMILE, AND SHALL CONFIRM THE DETAILS OF THE FORCE MAJEURE ACT OR EVENT IN WRITING WITHIN A REASONABLE AMOUNT OF TIME THEREAFTER. HTI SHALL WORK TO REMEDY THE FORCE MAJEURE ACT OR EVENT AS SOON AS REASONABLY POSSIBLE AND SHALL KEEP HUC APPRISED OF THE TIME, DATE, AND CIRCUMSTANCES WHEN HTI WILL RESUME SERVICE UNDER THIS AGREEMENT. HUC IS NOT REQUIRED TO PROVIDE SERVICE UNDER THIS AGREEMENT DURING THE TERM OF THE FORCE MAJEURE ACT OR EVENT. 12. LAWS, REGULATIONS, AND ORDERS. SERVICE UNDER THIS AGREEMENT IS SUBJECT TO ALL PRESENT AND FUTURE VALID LAWS, ORDERS, RULES, REGULATIONS, ETC, ISSUED BY ANY FEDERAL, STATE, OR LOCAL AUTHORITY HAVING JURISDICTION OVER THE MATTERS SET FORTH HEREIN. 13. MISCELLANEOUS PROVISIONS. A. DECLARATION OF INVALIDITY IF ANY PROVISION OF THIS AGREEMENT IS DETERMINED TO BE INVALID, VOID, OR UNENFORCEABLE BY ANY COURT OR OTHER ENTITY HAVING JURISDICTION, SUCH 191 DETERMINATION SHALL NOT INVALIDATE, VOID, OR MAKE UNENFORCEABLE ANY OTHER PROVISION, AGREEMENT OR COVENANT OF THIS AGREEMENT, AND THE PARTIES AGREE TO NEGOTIATE IN GOOD FAITH A REPLACEMENT TO SUCH INVALID, VOID OR UNENFORCEABLE PROVISION AND /OR ANY OTHER AMENDMENTS AS MAY BE NECESSARY TO ENSURE THAT THE AGREEMENT AS A WHOLE REFLECTS THE ORIGINAL INTENTIONS OF THE PARTIES. B. NO CONTINUING WAIVER NO WAIVER OF ANY BREACH OF THIS AGREEMENT SHALL BE HELD TO BE A WAIVER OF ANY OTHER OR SUBSEQUENT BREACH. C. LIMITATION ON AGREEMENT THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT IT IS NEITHER THE PURPOSE OF THIS AGREEMENT NOR THEIR INTENT TO CREATE A PARTNERSHIP, JOINT VENTURE CONTRACT OR COMPANY, ASSOCIATION OR TRUST, FIDUCIARY RELATIONSHIP OR PARTNERSHIP BETWEEN THEM. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY SHALL HAVE ANY AUTHORITY TO ACT FOR OR ASSUME ANY OBLIGATIONS, OR RESPONSIBILITIES ON BEHALF OF, THE OTHER PARTY. D. COMPLETE AGREEMENT THIS AGREEMENT SETS FORTH ALL UNDERSTANDINGS BETWEEN THE PARTIES AS OF THE EFFECTIVE DATE HEREIN. ANY PRIOR CONTRACTS, UNDERSTANDINGS AND REPRESENTATIONS, WHETHER ORAL OR WRITTEN, RELATING TO THE MATTERS ADDRESSED IN THIS AGREEMENT ARE MERGED INTO AND SUPERSEDED BY THIS AGREEMENT. THIS AGREEMENT MAY BE AMENDED ONLY BY A WRITING EXECUTED BY BOTH PARTIES. E. GOVERNING LAW THE INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF MINNESOTA, EXCLUDING, HOWEVER, ANY CONFLICT OF LAW THAT WOULD APPLY THE LAW OF ANOTHER JURISDICTION. [101 F. CONFIDENTIALITY REQUIRED NEITHER PARTY SHALL DISCLOSE DIRECTLY OR INDIRECTLY WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTY THE TERMS OF THIS AGREEMENT TO A THIRD PARTY, EXCLUDING HTI'S AGENT, EXCEPT (1) IN ORDER TO COMPLY WITH ANY APPLICABLE LAW, LEGAL PROCESS, ORDER, REGULATION, OR EXCHANGE RULE; (II) TO THE EXTENT NECESSARY FOR THE ENFORCEMENT OF THIS AGREEMENT, AND (III) TO THE EXTENT NECESSARY TO IMPLEMENT AND PERFORM THIS AGREEMENT. EACH PARTY SHALL NOTIFY THE OTHER PARTY OF ANY DEMAND OR PROCEEDING OF WHICH IT IS AWARE WHICH MAY RESULT IN DISCLOSURE OF THE TERMS OF THIS AGREEMENT (OTHER THAN AS PERMITTED HEREUNDER) AND USE REASONABLE EFFORTS TO PREVENT OR LIMIT THE DISCLOSURE. THE PARTIES SHALL BE ENTITLED TO ALL REMEDIES AVAILABLE AT LAW OR IN EQUITY TO ENFORCE OR SEEK RELIEF IN CONNECTION WITH THIS CONFIDENTIALITY OBLIGATION. THE TERMS OF THIS AGREEMENT SHALL BE KEPT CONFIDENTIAL BY THE PARTIES HERETO FOR TWO YEARS FROM THE EXPIRATION OR TERMINATION OF THIS AGREEMENT. IN THE EVENT THAT DISCLOSURE 1S REQUIRED BY A GOVERNMENTAL BODY OR APPLICABLE LAW, THE PARTY SUBJECT TO SUCH REQUIREMENT MAY DISCLOSE THE MATERIAL TERMS OF THIS AGREEMENT TO THE EXTENT SO REQUIRED, BUT SHALL PROMPTLY NOTIFY THE OTHER PARTY, PRIOR TO DISCLOSURE, AND SHALL COOPERATE (CONSISTENT WITH THE DISCLOSING PARTY'S LEGAL OBLIGATIONS) WITH THE OTHER PARTY'S EFFORTS TO OBTAIN PROTECTIVE ORDERS OR SIMILAR RESTRAINTS WITH RESPECT TO SUCH DISCLOSURE AT THE EXPENSE OF THE OTHER PARTY. G. AUTHORITY TO ENTER AGREEMENT EACH PARTY TO THIS AGREEMENT REPRESENTS AND WARRANTS THAT IT HAS FULL AND COMPLETE AUTHORITY TO ENTER INTO AND PERFORM THIS AGREEMENT. EACH PERSON WHO EXECUTES THIS AGREEMENT ON BEHALF OF EITHER PARTY REPRESENTS AND WARRANTS THAT IT HAS FULL AND COMPLETE AUTHORITY TO DO SO AND THAT SUCH PARTY WILL BE BOUND THEREBY. NO THIRD PARTY BENEFICIARY THERE IS NO THIRD PARTY BENEFICIARY TO THIS AGREEMENT. [ 1 21 THIS AGREEMENT SETS FORTH ALL TERMS AGREED UPON BETWEEN THE PARTIES, AND NO PRIOR ORAL OR WRITTEN AGREEMENTS SHALL BE BINDING. THIS AGREEMENT SHALL NOT BE ALTERED, AMENDED OR MODIFIED EXCEPT AS IN WRITING AND EXECUTED BY BOTH PARTIES. HUTCHINSON UTILITIES COMMISSION C NAME: TITLE: COMMISSION VICE - PRESIDENT DATE: WITNESS: DATE: [ 13] HUTCHINSON TECHNOLOGIES, INC. BY: NAME: -} Fi L,, R L a rS, 0 vk TITLE: k-a 5 V yr DATE: j :,70 ly l IJ,WITNESS: t ,� .r --I, DATE: 3 r 1 cv C. Base Contract for Sale and Purchase of Natural Gas This Base Contract is entered into as of the following date: The parties to this Base Contract are the following: PARTY A PARTY B MACQUARIE ENERGY LLC Hutchinson Utilities Commission One Allen Center 500 Dallas Street, Suite 3100 ADDRESS 225 Michigan St. SE Houston, TX 77002 Hutchinson, MN 55350 www.macquarie.com /mgl /com /energy BUSINESS WEBSITE www.hutchinsonutilities.com CONTRACTNUMBER 79 -884 -6036 D- U -N -S® NUMBER 154- 439 -301 O US FEDERAL: 93- 1043421 0 US FEDERAL: 41- 6005251 • OTHER: TAX IDNUMBERS ❑ OTHER: Delaware JURISDICTION OF Minnesota ORGANIZATION • Corporation 0 LLC ❑ Corporation ❑ LLC • Limited Partnership ❑ Partnership COMPANY TYPE ❑ Limited Partnership ❑ Partnership • LLP ❑ Other: ❑ LLP 0 Other: Municipal Utility GUARANTOR (IF APPLICABLE) CONTACT INFORMATION Macquarie Energy LLC • COMMERCIAL Hutchinson Utilities Commission ATTN: Wholesale Marketing ATTN: John Webster TEL #: 713 - 275 -6100 FAX #: 713- 275 -8979 TEL #: 320 - 234 -0507 FAX #: 320 - 587 -4721 EMAIL: FICCEMDMCETradM rs Mac uarie.com EMAIL: 'webster ci.hutchinson.mmus Macquarie Energy LLC • SCHEDULING Hutchinson Utilities Commission ATTN: Scheduling ATTN: John Webster TEL #: 713 - 275 -8900 FAX #: 713- 275 -8980 TEL #: 320 - 234 -0507 FAX #: 320 - 587 -4721 EMAIL: GasSchedulin Macquarie. corn EMAIL: 'webster ci.hutchinson.mn.us Macquarie Energy LLC • CONTRACT AND LEGAL NOTICES Hutchinson Utilities Commission ATTN: Legal Risk Management ATTN: Marc Sebora TEL #: 320 - 234 -5662 FAX #: TEL #: 713 - 275 -6100 FAX #: 713- 275 -8978 EMAIL: FICCle alhouston Macquarie. com EMAIL: msebora ci.hutchinson.mn.us Macquarie Energy LLC • CREDIT Hutchinson Utilities Commission ATTN: Credit Risk Management ATTN: Jared Martiq TEL #: 713- 275 -6100 FAX #: 713- 275 -8979 TEL #: 320 - 234 -0512 FAX #: 320 - 587 -4721 EMAIL: FICCEMDUSGasCredit Mac uarie.com EMAIL: 'marti ci.hutchinson.mmus Macquarie Energy LLC • TRANSACTION CONFIRMATIONS Hutchinson Utilities Commission ATTN: Settlements — Deal Support Unit ATTN: John Webster TEL #: 713- 255 -5873 FAX #: 713- 255 -5822 TEL #: 320- 234 -0507 FAX #: 320 -587 -4721 EMAIL: modconfirmshouston(a)macguarie .com EMAIL: iwebsterCEDd.hutchinson.mmus ACCOUNTING INFORMATION Macquarie Energv LLC • INVOICES • PAYMENTS Hutchinson Utilities Commission ATTN: Settlements -ME ATTN: Jennifer Tramp TEL #: 713 - 275 -6283 FAX #: 713- 275 -6369 TEL #: 320 - 234 -0569 FAX #: 320 - 587 -4721 EMAIL: modsettsgasvolumeac countinghouCcilmacguarie com .SETTLEMENTS EMAIL: itrampC&ci.hutchinson mn us" BANK: Bank of New York New York NY 10286 WIRE TRANSFER NUMBERS BANK: Citizens Bank 8 Trust Co. ABA: 021000018 ACCT: 8900055375 ABA: 091 - 901 -862 ACCT: 000086 OTHER DETAILS:Macguarie Energy—Acct: ENCONBRKHS (IFAPPLICABLE) OTHER DETAILS: BANK: Bank of New York New York NY 10286 ACH NUMBERS BANK: ABA: 021000018 ACCT: 8900055375 ABA: ACCT: OTHER DETAILS: Macquarie Energv— Acct ENCONBRKHS (IFAPPLICABLE) OTHER DETAILS: ATTN: Settlements Department ATTN: ADDRESS: 500 Dallas Street FL31, Houston TX 77002 CHECKS ADDRESS: (IFAPPLICABLE) Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved September 5, 2006 Base Contract for Sale and Purchase of Natural Gas (Continued) This Base Contract incorporates by reference for all purposes the General Terms and Conditions for Sale and Purchase of Natural Gas published by the North American Energy Standards Board. The parties hereby agree to the following provisions offered in said General Terms and Conditions. In the event the parties fail to check a box, the specified default provision shall apply. Select the appropriate box(es) from each section: Section 1.2 0 Oral (default) Section 10.2 0 No Additional Events of Default (default) Transaction OR —By: Additional TITLE Procedure ❑ Written Events of Default ❑ Indebtedness Cross Default Section 2.7 0 2 Business Days after receipt (default) ❑ Party A: Confirm Deadline OR ❑ Party B: ❑ Business Days after receipt ❑ Transactional Cross Default Specified Transactions: Section 2.8 ❑ Seller (default) Confirming Party OR ❑ Buyer 0 Macquarie Energy Section 3.2 0 Cover Standard (default) Section 10.3.1 0 Early Termination Damages Apply (default) Performance OR Early Obligation ❑ Spot Price Standard Termination OR Damages ❑ Early Termination Damages Do Not Apply Note: The following Spot Price Publication applies to both of the immediately preceding. Section 10.3.2 Other 0 Other Agreement Setoffs Apply (default) Section 2.31 0 Gas Daily Midpoint (default) Agreement 0 Bilateral (default) Spot Price OR Setoffs Publication ❑ ❑ Triangular OR ❑ Other Agreement Setoffs Do Not Apply Section 6 0 Buyer Pays At and After Delivery Point (default) Taxes OR ❑ Seller Pays Before and At Delivery Point Section 7.2 0 25'" Day of Month following Month of delivery Section 15.5 NEW YORK Payment Date (default) Choice Of Law OR ❑ Da of Month follovrin Month of delive Section 7.2 0 Wire transfer (default) Section 15.10 0 Confidentiality applies (default) Method of Payment ❑ Automated Clearinghouse Credit (ACH) Confidentiality OR ❑ Check ❑ Confidentiality does not apply Section 7.7 0 Netting applies (default) Netting OR ❑ Nettin does not a I OSpecial Provisions Number of sheets attached: One (1) Addendum(s): IN WITNESS WHEREOF, the parties hereto have executed this Base Cnntrart in rftinlirato MACQUARIE ENERGY LLC PARTYNAME Hutchinson Utilities Commission B SIGNATURE PRINTED NAME —By: TITLE %1UPY1IYIIL v cuvo rvonn American Lnergy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 2 of 13 September 5, 2006 General Terms and Conditions Base Contract for Sale and Purchase of Natural Gas SECTION 1. PURPOSE AND PROCEDURES 1.1. These General Terms and Conditions are intended to facilitate purchase and sale transactions of Gas on a Firm or Interruptible basis. "Buyer" refers to the party receiving Gas and "Seller" refers to the party delivering Gas. The entire agreement between the parties shall be the Contrnrt as riafinari in Santinn 9 4 The parties have selected either the "Oral Transaction Procedure" or the "Written Transaction Procedure" as indicated on the Base Contract. Oral Transaction Procedure: 1.2. The parties will use the following Transaction Confirmation procedure. Any Gas purchase and sale transaction may be effectuated in an EDI transmission or telephone conversation with the offer and acceptance constituting the agreement of the parties. The parties shall be legally bound from the time they so agree to transaction terms and may each rely thereon. Any such transaction shall be considered a "writing" and to have been "signed ". Notwithstanding the foregoing sentence, the parties agree that Confirming Party shall, and the other party may, confirm a telephonic transaction by sending the other party a Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means within three Business Days of a transaction covered by this Section 1.2 (Oral Transaction Procedure) provided that the failure to send a Transaction Confirmation shall not invalidate the oral agreement of the parties. Confirming Party adopts its confirming letterhead, or the like, as its signature on any Transaction Confirmation as the identification and authentication of Confirming Party. If the Transaction Confirmation contains any provisions other than those relating to the commercial terms of the transaction (i.e., price, quantity, performance obligation, delivery point, period of delivery and /or transportation conditions), which modify or supplement the Base Contract or General Terms and Conditions of this Contract (e.g., arbitration or additional representations and warranties), such provisions shall not be deemed to be accepted pursuant to Section 1.3 but must be expressly agreed to by both parties; provided that the foregoing shall not invalidate any transaction agreed to by the parties. Written Transaction Procedure: 1.2. The parties will use the following Transaction Confirmation procedure. Should the parties come to an agreement regarding a Gas purchase and sale transaction for a particular Delivery Period, the Confirming Party shall, and the other party may, record that agreement on a Transaction Confirmation and communicate such Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means, to the other party by the close of the Business Day following the date of agreement. The parties acknowledge that their agreement will not be binding until the exchange of nonconflicting Transaction Confirmations or the passage of the Confirm Deadline without objection from the receiving party, as provided in Section 1.3. 1.3. If a sending party's Transaction Confirmation is materially different from the receiving party's understanding of the agreement referred to in Section 1.2, such receiving party shall notify the sending party via facsimile, EDI or mutually agreeable electronic means by the Confirm Deadline, unless such receiving party has previously sent a Transaction Confirmation to the sending party. The failure of the receiving party to so notify the sending party in writing by the Confirm Deadline constitutes the receiving party's agreement to the terms of the transaction described in the sending party's Transaction Confirmation. If there are any material differences between timely sent Transaction Confirmations governing the same transaction, then neither Transaction Confirmation shall be binding until or unless such differences are resolved including the use of any evidence that clearly resolves the differences in the Transaction Confirmations. In the event of a conflict among the terms of (i) a binding Transaction Confirmation pursuant to Section 1.2, (ii) the oral agreement of the parties which may be evidenced by a recorded conversation, where the parties have selected the Oral Transaction Procedure of the Base Contract, (iii) the Base Contract, and (iv) these General Terms and Conditions, the terms of the documents shall govern in the priority listed in this sentence. 1.4. The parties agree that each party may electronically record all telephone conversations with respect to this Contract between their respective employees, without any special or further notice to the other party. Each party shall obtain any necessary consent of its agents and employees to such recording. Where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, the parties agree not to contest the validity or enforceability of telephonic recordings entered into in accordance with the requirements of this Base Contract. SECTION 2. DEFINITIONS The terms set forth below shall have the meaning ascribed to them below. Other terms are also defined elsewhere in the Contract and shall have the meanings ascribed to them herein. 2.1. "Additional Event of Default" shall mean Transactional Cross Default or Indebtedness Cross Default, each as and if selected by the parties pursuant to the Base Contract. 2.2. "Affiliate" shall mean, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of at least 50 percent of the voting power of the entity or person. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 3 of 13 September 5, 2006 2.3. "Alternative Damages" shall mean such damages, expressed in dollars or dollars per MMBtu, as the parties shall agree upon in the Transaction Confirmation, in the event either Seller or Buyer fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer. 2.4. "Base Contract" shall mean a contract executed by the parties that incorporates these General Terms and Conditions by reference; that specifies the agreed selections of provisions contained herein; and that sets forth other information required herein and any Special Provisions and addendum(s) as identified on page one. 2.5. "British thermal unit" or "Btu" shall mean the International BTU, which is also called the Btu (IT). 2.6. "Business Day(s)" shall mean Monday through Friday, excluding Federal Banking Holidays for transactions in the U.S. 2.7. "Confirm Deadline" shall mean 5:00 p.m. in the receiving party's time zone on the second Business Day following the Day a Transaction Confirmation is received or, if applicable, on the Business Day agreed to by the parties in the Base Contract; provided, if the Transaction Confirmation is time stamped after 5:00 p.m. in the receiving party's time zone, it shall be deemed received at the opening of the next Business Day. 2.8. "Confirming Party" shall mean the party designated in the Base Contract to prepare and forward Transaction Confirmations to the other party. 2.9. "Contract" shall mean the legally- binding relationship established by (i) the Base Contract, (ii) any and all binding Transaction Confirmations and (iii) where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, any and all transactions that the parties have entered into through an EDI transmission or by telephone, but that have not been confirmed in a binding Transaction Confirmation, all of which shall form a single integrated agreement between the parties. 2.10. "Contract Price" shall mean the amount expressed in U.S. Dollars per MMBtu to be paid by Buyer to Seller for the purchase of Gas as agreed to by the parties in a transaction. 2.11. "Contract Quantity" shall mean the quantity of Gas to be delivered and taken as agreed to by the parties in a transaction. 2.12. "Cover Standard ", as referred to in Section 3.2, shall mean that if there is an unexcused failure to take or deliver any quantity of Gas pursuant to this Contract, then the performing party shall use commercially reasonable efforts to (i) if Buyer is the performing party, obtain Gas, (or an alternate fuel if elected by Buyer and replacement Gas is not available), or (ii) if Seller is the performing party, sell Gas, in either case, at a price reasonable for the delivery or production area, as applicable, consistent with: the amount of notice provided by the nonperforming party; the immediacy of the Buyer's Gas consumption needs or Seller's Gas sales requirements, as applicable; the quantities involved; and the anticipated length of failure by the nonperforming party. 2.13. "Credit Support Obligation(s)" shall mean any obligation(s) to provide or establish credit support for, or on behalf of, a party to this Contract such as cash, an irrevocable standby letter of credit, a margin agreement, a prepayment, a security interest in an asset, guaranty, or other good and sufficient security of a continuing nature. 2.14. "Day" shall mean a period of 24 consecutive hours, coextensive with a "day" as defined by the Receiving Transporter in a particular transaction. 2.15. "Delivery Period" shall be the period during which deliveries are to be made as agreed to by the parties in a transaction. 2.16. "Delivery Point(s)" shall mean such point(s) as are agreed to by the parties in a transaction. 2.17. "EDI" shall mean an electronic data interchange pursuant to an agreement entered into by the parties, specifically relating to the communication of Transaction Confirmations under this Contract. 2.18. "EFP" shall mean the purchase, sale or exchange of natural Gas as the "physical" side of an exchange for physical transaction involving gas futures contracts. EFP shall incorporate the meaning and remedies of "Firm ", provided that a party's excuse for nonperformance of its obligations to deliver or receive Gas will be governed by the rules of the relevant futures exchange regulated under the Commodity Exchange Act. 2.19. "Firm" shall mean that either party may interrupt its performance without liability only to the extent that such performance is prevented for reasons of Force Majeure; provided, however, that during Force Majeure interruptions, the party invoking Force Majeure may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and /or receipts is confirmed by the Transporter. 2.20. "Gas" shall mean any mixture of hydrocarbons and noncombustible gases in a gaseous state consisting primarily of methane. 2.21. "Guarantor" shall mean any entity that has provided a guaranty of the obligations of a party hereunder. 2.22. "Imbalance Charges" shall mean any fees, penalties, costs or charges (in cash or in kind) assessed by a Transporter for failure to satisfy the Transporter's balance and /or nomination requirements. 2.23. "Indebtedness Cross Default" shall mean if selected on the Base Contract by the parties with respect to a party, that it or its Guarantor, if any, experiences a default, or similar condition or event however therein defined, under one or more agreements or instruments, individually or collectively, relating to indebtedness (such indebtedness to include any obligation whether present or future, contingent or otherwise, as principal or surety or otherwise) for the payment or repayment of borrowed money in an aggregate amount greater than the threshold specified in the Base Contract with respect to such party or its Guarantor, if any, which results in such indebtedness becoming immediately due and payable. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 4 of 13 September 5, 2006 2.24. "Interruptible" shall mean that either party may interrupt its performance at any time for any reason, whether or not caused by an event of Force Majeure, with no liability, except such interrupting party may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and /or receipts is confirmed by Transporter. 2.25. "MMBtu" shall mean one million British thermal units, which is equivalent to one dekatherm. 2.26. "Month" shall mean the period beginning on the first Day of the calendar month and ending immediately prior to the commencement of the first Day of the next calendar month. 2.27. "Payment Date" shall mean a date, as indicated on the Base Contract, on or before which payment is due Seller for Gas received by Buyer in the previous Month. 2.28. "Receiving Transporter" shall mean the Transporter receiving Gas at a Delivery Point, or absent such receiving Transporter, the Transporter delivering Gas at a Delivery Point. 2.29. "Scheduled Gas" shall mean the quantity of Gas confirmed by Transporter(s) for movement, transportation or management. 2.30. "Specified Transaction(s)" shall mean any other transaction or agreement between the parties for the purchase, sale or exchange of physical Gas, and any other transaction or agreement identified as a Specified Transaction under the Base Contract. 2.31. "Spot Price " as referred to in Section 3.2 shall mean the price listed in the publication indicated on the Base Contract, under the listing applicable to the geographic location closest in proximity to the Delivery Point(s) for the relevant Day; provided, if there is no single price published for such location for such Day, but there is published a range of prices, then the Spot Price shall be the average of such high and low prices. If no price or range of prices is published for such Day, then the Spot Price shall be the average of the following: (i) the price (determined as stated above) for the first Day for which a price or range of prices is published that next precedes the relevant Day; and (ii) the price (determined as stated above) for the first Day for which a price or range of prices is published that next follows the relevant Day. 2.32. "Transaction Confirmation" shall mean a document, similar to the form of Exhibit A, setting forth the terms of a transaction formed pursuant to Section 1 for a particular Delivery Period. 2.33. "Transactional Cross Default" shall mean if selected on the Base Contract by the parties with respect to a party, that it shall be in default, however therein defined, under any Specified Transaction. 2.34. 'Termination Option' shall mean the option of either party to terminate a transaction in the event that the other party fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer for a designated number of days during a period as specified on the applicable Transaction Confirmation. 2.35. "Transporter(s)" shall mean all Gas gathering or pipeline companies, or local distribution companies, acting in the capacity of a transporter, transporting Gas for Seller or Buyer upstream or downstream, respectively, of the Delivery Point pursuant to a particular transaction. SECTION 3. PERFORMANCE OBLIGATION 3.1. Seller agrees to sell and deliver, and Buyer agrees to receive and purchase, the Contract Quantity for a particular transaction in accordance with the terms of the Contract. Sales and purchases will be on a Firm or Interruptible basis, as agreed to by the parties in a transaction. The parties have selected either the "Cover Standard" or the "Spot Price Standard" as indicated on the Base Contiact Cover Standard: 3.2. The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the positive difference, if any, between the purchase price paid by Buyer utilizing the Cover Standard and the Contract Price, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller for such Day(s) excluding any quantity for which no replacement is available; or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in the amount equal to the positive difference, if any, between the Contract Price and the price received by Seller utilizing the Cover Standard for the resale of such Gas, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually taken by Buyer for such Day(s) excluding any quantity for which no sale is available; and (iii) in the event that Buyer has used commercially reasonable efforts to replace the Gas or Seller has used commercially reasonable efforts to sell the Gas to a third party, and no such replacement or sale is available for all or any portion of the Contract Quantity of Gas, then in addition to (i) or (ii) above, as applicable, the sole and exclusive remedy of the performing party with respect to the Gas not replaced or sold shall be an amount equal to any unfavorable difference between the Contract Price and the Spot Price, adjusted for such transportation to the applicable Delivery Point, multiplied by the quantity of such Gas not replaced or sold. Imbalance Charges shall not be recovered under this Section 3.2, but Seller and /or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3. The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party's invoice, which shall set forth the basis upon which such amount was calculated L;opyngnt v 1UU6 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 5 of 13 September 5, 2006 Price Standard: 3.2. The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the Contract Price from the Spot Price; or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the applicable Spot Price from the Contract Price. Imbalance Charges shall not be recovered under this Section 3.2, but Seller and /or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3. The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party's invoice, which shall set forth the basis upon which such amount was calculated. 3.3. Notwithstanding Section 3.2, the parties may agree to Alternative Damages in a Transaction Confirmation executed in writing by both parties. 3.4. In addition to Sections 3.2 and 3.3, the parties may provide for a Termination Option in a Transaction Confirmation executed in writing by both parties. The Transaction Confirmation containing the Termination Option will designate the length of nonperformance triggering the Termination Option and the procedures for exercise thereof, how damages for nonperformance will be compensated, and how liquidation costs will be calculated. SECTION 4. TRANSPORTATION, NOMINATIONS, AND IMBALANCES 4.1. Seller shall have the sole responsibility for transporting the Gas to the Delivery Point(s). Buyer shall have the sole responsibility for transporting the Gas from the Delivery Point(s). 4.2. The parties shall coordinate their nomination activities, giving sufficient time to meet the deadlines of the affected Transporter(s). Each party shall give the other party timely prior Notice, sufficient to meet the requirements of all Transporter(s) involved in the transaction, of the quantities of Gas to be delivered and purchased each Day. Should either party become aware that actual deliveries at the Delivery Point(s) are greater or lesser than the Scheduled Gas, such party shall promptly notify the other party. 4.3. The parties shall use commercially reasonable efforts to avoid imposition of any Imbalance Charges. If Buyer or Seller receives an invoice from a Transporter that includes Imbalance Charges, the parties shall determine the validity as well as the cause of such Imbalance Charges. If the Imbalance Charges were incurred as a result of Buyer's receipt of quantities of Gas greater than or less than the Scheduled Gas, then Buyer shall pay for such Imbalance Charges or reimburse Seller for such Imbalance Charges paid by Seller. If the Imbalance Charges were incurred as a result of Seller's delivery of quantities of Gas greater than or less than the Scheduled Gas, then Seller shall pay for such Imbalance Charges or reimburse Buyer for such Imbalance Charges paid by Buyer. SECTION 5. QUALITY AND MEASUREMENT All Gas delivered by Seller shall meet the pressure, quality and heat content requirements of the Receiving Transporter. The unit of quantity measurement for purposes of this Contract shall be one MMBtu dry. Measurement of Gas quantities hereunder shall be in accordance with the established procedures of the Receiving Transporter. SECTION 6. TAXES The parties have selected either "Buyer Pays At and After Delivery Point" or "Seller Pays Before and At Delivery Point" as indicated on the Base Contract. Buyer Pays At and After Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ( "Taxes ") on or with respect to the Gas prior to the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas at the Delivery Point(s) and all Taxes after the Delivery Point(s). If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall fumish the other party any necessary documentation thereof. Seller Pays Before and At Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ( "Taxes ") on or with respect to the Gas prior to the Delivery Point(s) and all Taxes at the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas after the Delivery Point(s). If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall fumish the other party any necessary documentation thereof. SECTION 7. BILLING, PAYMENT, AND AUDIT 7.1. Seller shall invoice Buyer for Gas delivered and received in the preceding Month and for any other applicable charges, providing supporting documentation acceptable in industry practice to support the amount charged. If the actual quantity delivered is not known by the billing date, billing will be prepared based on the quantity of Scheduled Gas. The invoiced quantity will then be adjusted to the actual quantity on the following Month's billing or as soon thereafter as actual delivery information is available. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 6 of 13 September 5, 2006 7.2. Buyer shall remit the amount due under Section 7.1 in the manner specified in the Base Contract, in immediately available funds, on or before the later of the Payment Date or 10 Days after receipt of the invoice by Buyer; provided that if the Payment Date is not a Business Day, payment is due on the next Business Day following that date. In the event any payments are due Buyer hereunder, payment to Buyer shall be made in accordance with this Section 7.2. 7.3. In the event payments become due pursuant to Sections 3.2 or 3.3, the performing party may submit an invoice to the nonperforming party for an accelerated payment setting forth the basis upon which the invoiced amount was calculated. Payment from the nonperforming party will be due five Business Days after receipt of invoice. 7.4. If the invoiced party, in good faith, disputes the amount of any such invoice or any part thereof, such invoiced party will pay such amount as it concedes to be correct; provided, however, if the invoiced party disputes the amount due, it must provide supporting documentation acceptable in industry practice to support the amount paid or disputed without undue delay. In the event the parties are unable to resolve such dispute, either party may pursue any remedy available at law or in equity to enforce its rights pursuant to this Section. 7.5. If the invoiced party fails to remit the full amount payable when due, interest on the unpaid portion shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then - effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate. 7.6. A party shall have the right, at its own expense, upon reasonable Notice and at reasonable times, to examine and audit and to obtain copies of the relevant portion of the books, records, and telephone recordings of the other party only to the extent reasonably necessary to verify the accuracy of any statement, charge, payment, or computation made under the Contract. This right to examine, audit, and to obtain copies shall not be available with respect to proprietary information not directly relevant to transactions under this Contract. All invoices and billings shall be conclusively presumed final and accurate and all associated claims for under- or overpayments shall be deemed waived unless such invoices or billings are objected to in writing, with adequate explanation and/or documentation, within two years after the Month of Gas delivery. All retroactive adjustments under Section 7 shall be paid in full by the party owing payment within 30 Days of Notice and substantiation of such inaccuracy. 7.7. Unless the parties have elected on the Base Contract not to make this Section 7.7 applicable to this Contract, the parties shall net all undisputed amounts due and owing, and /or past due, arising under the Contract such that the party owing the greater amount shall make a single payment of the net amount to the other party in accordance with Section 7; provided that no payment required to be made pursuant to the terms of any Credit Support Obligation or pursuant to Section 7.3 shall be subject to netting under this Section. If the parties have executed a separate netting agreement, the terms and conditions therein shall prevail to the extent inconsistent herewith. SECTION 8. TITLE, WARRANTY, AND INDEMNITY 8.1. Unless otherwise specifically agreed, title to the Gas shall pass from Seller to Buyer at the Delivery Point(s). Seller shall have responsibility for and assume any liability with respect to the Gas prior to its delivery to Buyer at the specified Delivery Point(s). Buyer shall have responsibility for and assume any liability with respect to said Gas after its delivery to Buyer at the Delivery Point(s). 8.2. Seller warrants that it will have the right to convey and will transfer good and merchantable title to all Gas sold hereunder and delivered by it to Buyer, free and clear of all liens, encumbrances, and claims. EXCEPT AS PROVIDED IN THIS SECTION 8.2 AND IN SECTION 15.8, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE, ARE DISCLAIMED. 8.3. Seller agrees to indemnify Buyer and save it harmless from all losses, liabilities or claims including reasonable attorneys' fees and costs of court ( "Claims "), from any and all persons, arising from or out of claims of title, personal injury (including death) or property damage from said Gas or other charges thereon which attach before title passes to Buyer. Buyer agrees to indemnify Seller and save it harmless from all Claims, from any and all persons, arising from or out of claims regarding payment, personal injury (including death) or property damage from said Gas or other charges thereon which attach after title passes to Buyer. 8.4. The parties agree that the delivery of and the transfer of title to all Gas under this Contract shall take place within the Customs Territory of the United States (as defined in general note 2 of the Harmonized Tariff Schedule of the United States 19 U.S.C. §1202, General Notes, page 3); provided, however, that in the event Seller took title to the Gas outside the Customs Territory of the United States, Seller represents and warrants that it is the importer of record for all Gas entered and delivered into the United States, and shall be responsible for entry and entry summary filings as well as the payment of duties, taxes and fees, if any, and all applicable record keeping requirements. 8.5. Notwithstanding the other provisions of this Section 8, as between Seller and Buyer, Seller will be liable for all Claims to the extent that such arise from the failure of Gas delivered by Seller to meet the quality requirements of Section 5. SECTION 9. NOTICES 9.1. All Transaction Confirmations, invoices, payment instructions, and other communications made pursuant to the Base Contract ( "Notices ") shall be made to the addresses specified in writing by the respective parties from time to time. 9.2. All Notices required hereunder shall be in writing and may be sent by facsimile or mutually acceptable electronic means, a nationally recognized overnight courier service, first class mail or hand delivered. 9.3. Notice shall be given when received on a Business Day by the addressee. In the absence of proof of the actual receipt date, the following presumptions will apply. Notices sent by facsimile shall be deemed to have been received upon the sending party's receipt of its facsimile machine's confirmation of successful transmission. If the day on which such facsimile is received is Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 7 of 13 September 5, 2006 not a Business Day or is after five p.m. on a Business Day, then such facsimile shall be deemed to have been received on the next following Business Day. Notice by overnight mail or courier shall be deemed to have been received on the next Business Day after it was sent or such earlier time as is confirmed by the receiving party. Notice via first class mail shall be considered delivered five Business Days after mailing. 9.4. The party receiving a commercially acceptable Notice of change in payment instructions or other payment information shall not be obligated to implement such change until ten Business Days after receipt of such Notice. SECTION 10. FINANCIAL RESPONSIBILITY 10.1. If either parry ( "X") has reasonable grounds for insecurity regarding the performance of any obligation under this Contract (whether or not then due) by the other party ( "Y ") (including, without limitation, the occurrence of a material change in the creditworthiness of Y or its Guarantor, if applicable), X may demand Adequate Assurance of Performance. "Adequate Assurance of Performance" shall mean sufficient security in the form, amount, for a term, and from an issuer, all as reasonably acceptable to X, including, but not limited to cash, a standby irrevocable letter of credit, a prepayment, a security interest in an asset or guaranty. Y hereby grants to X a continuing first priority security interest in, lien on, and right of setoff against all Adequate Assurance of Performance in the form of cash transferred by Y to X pursuant to this Section 10.1. Upon the return by X to Y of such Adequate Assurance of Performance, the security interest and lien granted hereunder on that Adequate Assurance of Performance shall be released automatically and, to the extent possible, without any further action by either party. 10.2. In the event (each an "Event of Default") either party (the "Defaulting Party ") or its Guarantor shall: (i) make an assignment or any general arrangement for the benefit of creditors; (ii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a proceeding or case under any bankruptcy or similar law for the protection of creditors or have such petition filed or proceeding commenced against it; (iii) otherwise become bankrupt or insolvent (however evidenced); (iv) be unable to pay its debts as they fall due; (v) have a receiver, provisional liquidator, conservator, custodian, trustee or other similar official appointed with respect to it or substantially all of its assets; (vi) fail to perform any obligation to the other party with respect to any Credit Support Obligations relating to the Contract; (vii) fail to give Adequate Assurance of Performance under Section 10.1 within 48 hours but at least one Business Day of a written request by the other party; (viii) not have paid any amount due the other party hereunder on or before the second Business Day following written Notice that such payment is due; or ix) be the affected party with respect to any Additional Event of Default; then the other party (the "Non- Defaulting Party ") shall have the right, at its sole election, to immediately withhold and /or suspend deliveries or payments upon Notice and /or to terminate and liquidate the transactions under the Contract, in the manner provided in Section 10.3, in addition to any and all other remedies available hereunder. 10.3. If an Event of Default has occurred and is continuing, the Non - Defaulting Party shall have the right, by Notice to the Defaulting Party, to designate a Day, no earlier than the Day such Notice is given and no later than 20 Days after such Notice is given, as an early termination date (the "Early Termination Date ") for the liquidation and termination pursuant to Section 10.3.1 of all transactions under the Contract, each a 'Terminated Transaction ". On the Early Termination Date, all transactions will terminate, other than those transactions, if any, that may not be liquidated and terminated under applicable law ( "Excluded Transactions "), which Excluded Transactions must be liquidated and terminated as soon thereafter as is legally permissible, and upon termination shall be a Terminated Transaction and be valued consistent with Section 10.3 .1 halnw With mcnam to onrh txcivaea i ransaction, its actual termination date shall be the Early Termination Date for purposes of Section 10.3.1. The parties have selected either "Early Termination Damages Apply" or "Early Termination Damages Do Not Apply" as indicated on the Base Contract. Early Termination Damages Apply: 10.3.1. As of the Early Termination Date, the Non - Defaulting Party shall determine, in good faith and in a commercially reasonable manner, (i) the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract and (ii) the Market Value, as defined below, of each Terminated Transaction. The Non - Defaulting Party shall (x) liquidate and accelerate each Terminated Transaction at its Market Value, so that each amount equal to the difference between such Market Value and the Contract Value, as defined below, of such Terminated Transaction(s) shall be due to the Buyer under the Terminated Transaction(s) if such Market Value exceeds the Contract Value and to the Seller if the opposite is the case; and (y) where appropriate, discount each amount then due under clause (x) above to present value in a commercially reasonable manner as of the Early Termination Date (to take account of the period between the date of liquidation and the date on which such amount would have otherwise been due pursuant to the relevant Terminated Transactions). For purposes of this Section 10.3.1, "Contract Value" means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the Contract Price, and "Market Value" means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the market price for a similar transaction at the Delivery Point determined by the Non - Defaulting Party in a commercially reasonable manner. To ascertain the Market Value, the Non - Defaulting Party may consider, among other valuations, any or all of the settlement prices of NYMEX Gas futures contracts, quotations from leading dealers in energy swap contracts or physical gas trading markets, similar sales or purchases and any other bona fide third -party offers, all adjusted for the length of the term and differences in transportation costs. A party shall not be required to enter into a replacement transaction(s) in order to determine the Market Value. Any extension(s) of the term of a transaction to which parties are not bound as of the Early Termination Date (including but not limited to "evergreen provisions ") shall not be considered in determining Contract Values and Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 8 of 13 September 5, 2006 Market Values. For the avoidance of doubt, any option pursuant to which one party has the right to extend the term of a transaction shall be considered in determining Contract Values and Market Values. The rate of interest used in calculating net resent value shall be determined by the Non-Defaulting Party in a commercially reasonable manner. Early Termination Damages Do Not Apply: 10.3.1. As of the Early Termination Date, the Non - Defaulting Party shall determine, in good faith and in a commercially reasonable manner, the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract. The parties have selected either "Other Agreement Setoffs Apply" or "Other Agreement Setoffs Do Not Apply" as indicated on the Base Contract. Other Agreement Setoffs Apply: Bilateral Setoff Option: 10.3.2. The Non - Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount "). At its sole option and without prior Notice to the Defaulting Party, the Non - Defaulting Party is hereby authorized to setoff any Net Settlement Amount against (i) any margin or other collateral held by a party in connection with any Credit Support Obligation relating to the Contract; and (ii) any amount(s) (including any excess cash margin or excess cash collateral) owed or held by the party that is entitled to the Net Settlement Amount under any other agreement or arrangement between the parties. Triangular Setoff Option: 10.3.2. The Non - Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount "). At its sole option, and without prior Notice to the Defaulting Party, the Non - Defaulting Party is hereby authorized to setoff (i) any Net Settlement Amount against any margin or other collateral held by a party in connection with any Credit Support Obligation relating to the Contract; (ii) any Net Settlement Amount against any amount(s) (including any excess cash margin or excess cash collateral) owed by or to a party under any other agreement or arrangement between the parties; (iii) any Net Settlement Amount owed to the Non - Defaulting Party against any amount(s) (including any excess cash margin or excess cash collateral) owed by the Non - Defaulting Party or its Affiliates to the Defaulting Party under any other agreement or arrangement; (iv) any Net Settlement Amount owed to the Defaulting Party against any amount(s) (including any excess cash margin or excess cash collateral) owed by the Defaulting Party to the Non - Defaulting Party or its Affiliates under any other agreement or arrangement; and /or (v) any Net Settlement Amount owed to the Defaulting Party against any amount(s) (including any excess cash margin or excess cash collateral) owed by the Defaulting Party or its Affiliates to the Non - Defaulting Party under any other agreement or arrangement. Other Agreement Setoffs Do Not Apply: 10.3.2. The Non - Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount "). At its sole option and without prior Notice to the Defaulting Party, the Non - Defaulting Party may setoff any Net Settlement Amount against any margin or other collateral held by a party in connection with any Credit Support Obligation relating to the Contract. IU.S.J. It any obligation that is to be included in any netting, aggregation or setoff pursuant to Section 10.3.2 is unascertained, the Non - Defaulting Party may in good faith estimate that obligation and net, aggregate or setoff, as applicable, in respect of the estimate, subject to the Non - Defaulting Party accounting to the Defaulting Party when the obligation is ascertained. Any amount not then due which is included in any netting, aggregation or setoff pursuant to Section 10.3.2 shall be discounted to net present value in a commercially reasonable manner determined by the Non - Defaulting Party. 10.4. As soon as practicable after a liquidation, Notice shall be given by the Non - Defaulting Party to the Defaulting Party of the Net Settlement Amount, and whether the Net Settlement Amount is due to or due from the Non - Defaulting Party. The Notice shall include a written statement explaining in reasonable detail the calculation of the Net Settlement Amount, provided that failure to give such Notice shall not affect the validity or enforceability of the liquidation or give rise to any claim by the Defaulting Party against the Non - Defaulting Party. The Net Settlement Amount as well as any setoffs applied against such amount pursuant to Section 10.3.2, shall be paid by the close of business on the second Business Day following such Notice, which date shall not be earlier than the Early Termination Date. Interest on any unpaid portion of the Net Settlement Amount as adjusted by setoffs, shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then- effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate. 10.5. The parties agree that the transactions hereunder constitute a "forward contract" within the meaning of the United States Bankruptcy Code and that Buyer and Seller are each "forward contract merchants" within the meaning of the United States Bankruptcy Code. 10.6. The Non - Defaulting Party's remedies under this Section 10 are the sole and exclusive remedies of the Non - Defaulting Party with respect to the occurrence of any Early Termination Date. Each party reserves to itself all other rights, setoffs, counterclaims and other defenses that it is or may be entitled to arising from the Contract. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 9 of 13 September 5, 2006 10.7. With respect to this Section 10, if the parties have executed a separate netting agreement with close -out netting provisions, the terms and conditions therein shall prevail to the extent inconsistent herewith. SECTION 11. FORCE MAJEURE 11.1. Except with regard to a party's obligation to make payment(s) due under Section 7, Section 10.4, and Imbalance Charges under Section 4, neither party shall be liable to the other for failure to perform a Firm obligation, to the extent such failure was caused by Force Majeure. The term "Force Majeure" as employed herein means any cause not reasonably within the control of the party claiming suspension, as further defined in Section 11.2. 11.2. Force Majeure shall include, but not be limited to, the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings, such as hurricanes, which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines of pipe; (iii) interruption and /or curtailment of Firm transportation and /or storage by Transporters; (iv) acts of others such as strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections or wars, or acts of terror; and (v) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, regulation, or policy having the effect of law promulgated by a governmental authority having jurisdiction. Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance. 11.3. Neither party shall be entitled to the benefit of the provisions of Force Majeure to the extent performance is affected by any or all of the following circumstances: (i) the curtailment of interruptible or secondary Firm transportation unless primary, in -path, Firm transportation is also curtailed; (ii) the party claiming excuse failed to remedy the condition and to resume the performance of such covenants or obligations with reasonable dispatch; or (iii) economic hardship, to include, without limitation, Seller's ability to sell Gas at a higher or more advantageous price than the Contract Price, Buyer's ability to purchase Gas at a lower or more advantageous price than the Contract Price, or a regulatory agency disallowing, in whole or in part, the pass through of costs resulting from this Contract; (iv) the loss of Buyer's market(s) or Buyer's inability to use or resell Gas purchased hereunder, except, in either case, as provided in Section 11.2; or (v) the loss or failure of Seller's gas supply or depletion of reserves, except, in either case, as provided in Section 11.2. The party claiming Force Majeure shall not be excused from its responsibility for Imbalance Charges. 11.4. Notwithstanding anything to the contrary herein, the parties agree that the settlement of strikes, lockouts or other industrial disturbances shall be within the sole discretion of the party experiencing such disturbance. 11.5. The party whose performance is prevented by Force Majeure must provide Notice to the other party. Initial Notice may be given orally; however, written Notice with reasonably full particulars of the event or occurrence is required as soon as reasonably possible. Upon providing written Notice of Force Majeure to the other party, the affected party will be relieved of its obligation, from the onset of the Force Majeure event, to make or accept delivery of Gas, as applicable, to the extent and for the duration of Force Majeure, and neither party shall be deemed to have failed in such obligations to the other during such occurrence or event. 11.6. Notwithstanding Sections 11.2 and 11.3, the parties may agree to alternative Force Majeure provisions in a Transaction Confirmation executed in writing by both parties. SECTION 12. TERM This Contract may be terminated on 30 Day's written Notice, but shall remain in effect until the expiration of the latest Delivery Period of any transaction(s). The rights of either party pursuant to Section 7.6, Section 10, Section 13, the obligations to make payment hereunder, and the obligation of either party to indemnify the other, pursuant hereto shall survive the termination of the Base Contract or any transaction. SECTION 13. LIMITATIONS FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY. A PARTY'S LIABILITY HEREUNDER SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED HEREIN OR IN A TRANSACTION, A PARTY S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY. SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS. ,.upyngni U Zuub ivortn American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 10 of 13 September 5, 2006 SECTION 14. MARKET DISRUPTION If a Market Disruption Event has occurred then the parties shall negotiate in good faith to agree on a replacement price for the Floating Price (or on a method for determining a replacement price for the Floating Price) for the affected Day, and if the parties have not so agreed on or before the second Business Day following the affected Day then the replacement price for the Floating Price shall be determined within the next two following Business Days with each party obtaining, in good faith and from non- affiliated market participants in the relevant market, two quotes for prices of Gas for the affected Day of a similar quality and quantity in the geographical location closest in proximity to the Delivery Point and averaging the four quotes. If either party fails to provide two quotes then the average of the other party's two quotes shall determine the replacement price for the Floating Price. "Floating Price" means the price or a factor of the price agreed to in the transaction as being based upon a specified index. "Market Disruption Event" means, with respect to an index specified for a transaction, any of the following events: (a) the failure of the index to announce or publish information necessary for determining the Floating Price; (b) the failure of trading to commence or the permanent discontinuation or material suspension of trading on the exchange or market acting as the index; (c) the temporary or permanent discontinuance or unavailability of the index; (d) the temporary or permanent closing of any exchange acting as the index; or (e) both parties agree that a material change in the formula for or the method of determining the Floating Price has occurred. For the purposes of the calculation of a replacement price for the Floating Price, all numbers shall be rounded to three decimal places. If the fourth decimal number is five or greater, then the third decimal number shall be increased by one and if the fourth decimal number is less than five, then the third decimal number shall remain unchanged. SECTION 15. MISCELLANEOUS 15.1. This Contract shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, and heirs of the respective parties hereto, and the covenants, conditions, rights and obligations of this Contract shall run for the full term of this Contract. No assignment of this Contract, in whole or in part, will be made without the prior written consent of the non - assigning party (and shall not relieve the assigning party from liability hereunder), which consent will not be unreasonably withheld or delayed; provided, either party may (i) transfer, sell, pledge, encumber, or assign this Contract or the accounts, revenues, or proceeds hereof in connection with any financing or other financial arrangements, or (ii) transfer its interest to any parent or Affiliate by assignment, merger or otherwise without the prior approval of the other party. Upon any such assignment, transfer and assumption, the transferor shall remain principally liable for and shall not be relieved of or discharged from any obligations hereunder. 15.2. If any provision in this Contract is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Contract. 15.3. No waiver of any breach of this Contract shall be held to be a waiver of any other or subsequent breach. 15.4. This Contract sets forth all understandings between the parties respecting each transaction subject hereto, and any prior contracts, understandings and representations, whether oral or written, relating to such transactions are merged into and superseded by this Contract and any effective transaction(s). This Contract may be amended only by a writing executed by both parties. 15.5. The interpretation and performance of this Contract shall be governed by the laws of the jurisdiction as indicated on the Base Contract, excluding, however, any conflict of laws rule which would apply the law of another jurisdiction. 15.6. This Contract and all provisions herein will be subject to all applicable and valid statutes, rules, orders and regulations of any governmental authority having jurisdiction over the parties, their facilities, or Gas supply, this Contract or transaction or any provisions thereof. 15.7. There is no third party beneficiary to this Contract. 15.8. Each party to this Contract represents and warrants that it has full and complete authority to enter into and perform this Contract. Each person who executes this Contract on behalf of either party represents and warrants that it has full and complete authority to do so and that such party will be bound thereby. 15.9. The headings and subheadings contained in this Contract are used solely for convenience and do not constitute a part of this Contract between the parties and shall not be used to construe or interpret the provisions of this Contract. 15.10. Unless the parties have elected on the Base Contract not to make this Section 15.10 applicable to this Contract, neither party shall disclose directly or indirectly without the prior written consent of the other party the terms of any transaction to a third party (other than the employees, lenders, royalty owners, counsel, accountants and other agents of the party, or prospective purchasers of all or substantially all of a party's assets or of any rights under this Contract, provided such persons shall have agreed to keep such terms confidential) except (i) in order to comply with any applicable law, order, regulation, or exchange rule, (ii) to the extent necessary for the enforcement of this Contract , (iii) to the extent necessary to implement any transaction, (iv) to the extent necessary to comply with a regulatory agency's reporting requirements including but not limited to gas cost recovery proceedings; or (v) to the extent such information is delivered to such third party for the sole purpose of calculating a published index. Each party shall notify the other party of any proceeding of which it is aware which may result in disclosure of the terms of any transaction (other than as permitted hereunder) and use reasonable efforts to prevent or limit the disclosure. The existence of this Contract is not subject to this confidentiality obligation. Subject to Section 13, the parties shall be entitled to all remedies available at law or in equity to enforce, or seek relief in connection with this confidentiality obligation. The terms of any transaction hereunder shall be kept confidential by the parties hereto for one year from the expiration of the transaction. In the event that disclosure is required by a governmental body or applicable law, the party subject to such requirement may disclose the material terms of this Contract to the extent so required, but shall promptly notify the other party, prior to disclosure, L,opyngnt v LUU6 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 11 of 13 September 5, 2006 and shall cooperate (consistent with the disclosing party's legal obligations) with the other party's efforts to obtain protective orders or similar restraints with respect to such disclosure at the expense of the other party. 15.11. The parties may agree to dispute resolution procedures in Special Provisions attached to the Base Contract or in a Transaction Confirmation executed in writing by both parties 15.12. Any original executed Base Contract, Transaction Confirmation or other related document may be digitally copied, photocopied, or stored on computer tapes and disks (the "Imaged Agreement "). The Imaged Agreement, if introduced as evidence on paper, the Transaction Confirmation, if introduced as evidence in automated facsimile form, the recording, if introduced as evidence in its original form, and all computer records of the foregoing, if introduced as evidence in printed format, in any judicial, arbitration, mediation or administrative proceedings will be admissible as between the parties to the same extent and under the same conditions as other business records originated and maintained in documentary form. Neither Party shall object to the admissibility of the recording, the Transaction Confirmation, or the Imaged Agreement on the basis that such were not originated or maintained in documentary form. However, nothing herein shall be construed as a waiver of any other objection to the admissibility of such evidence. DISCLAIMER: The purposes of this Contract are to facilitate trade, avoid misunderstandings and make more definite the terms of contracts of purchase and sale of natural gas. Further, NAESB does not mandate the use of this Contract by any party. NAESB DISCLAIMS AND EXCLUDES, AND ANY USER OF THIS CONTRACT ACKNOWLEDGES AND AGREES TO NAESB'S DISCLAIMER OF, ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THIS CONTRACT OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF TITLE, NON - INFRINGEMENT, MERCHANTABILITY, OR FITNESS OR SUITABILITY FOR ANY PARTICULAR PURPOSE (WHETHER OR NOT NAESB KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE), WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF DEALING. EACH USER OF THIS CONTRACT ALSO AGREES THAT UNDER NO CIRCUMSTANCES WILL NAESB BE LIABLE FOR ANY DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY USE OF THIS CONTRACT. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 12 of 13 September 5, 2006 TRANSACTION CONFIRMATION FOR IMMEDIATE DELIVERY EXHIBIT A Letterhead /Logo Date: Transaction Confirmation #: This Transaction Confirmation is subject to the Base Contract between Seller and Buyer dated The terms of this Transaction Confirmation are binding unless disputed in writing within 2 Business Days of receipt unless otherwise specified in the Base Contract. SELLER: BUYER: Attn: Attn: Phone: Phone: Fax: Fax: Base Contract No. Base Contract No. Transporter: Transporter: Transporter Contract Number: Transporter Contract Number: Contract Price: $ /MMBtu or Delivery Period: Begin: End: Performance Obligation and Contract Quantity: (Select One) Firm (Fixed Quantity): Firm (Variable Quantity): Interruptible: MMBtus /day MMBtus /day Minimum Up to MMBtus /day i EFP MMBtus /day Maximum subject to Section 4.2. at election of I Buyer or I Seller Delivery Point(s): (If a pooling point is used, list a specific geographic and pipeline location): Special Conditions: Seller: Buyer: By: By: Title: Title: Date: Date: wpynyn[ v z o ijonn American Lnergy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 13 of 13 September 5, 2006 SPECIAL PROVISIONS to the Base Contract for Sale and Purchase of Natural Gas between Macquarie Energy LLC and Hutchinson Utilities Commission dated as of The following provisions (the "Special Provisions') to the Base Contract shall supplement and form part of the Base Contract between the parties. The parties do hereby represent and warrant that the General Terms and Conditions of the Base Contract for Sale and Purchase of Natural Gas have not been modified, altered or amended in any respect except as outlined in these Special Provisions. In the event of any conflict or inconsistency between the Special Provisions and the Base Contract, the Special Provisions shall govern. All capitalized terms and section references used in these Special Provisions but not defined herein shall have the respective meanings ascribed to them in the Base Contract. 1. Section 2 is modified by adding the following: 2.36. "Costs" means all costs, expenses and losses which the Non - Defaulting Party may reasonably incur in terminating and liquidating under Section 10 any Terminated Transactions, including, without limitation, attorneys' and brokers fees and the costs, expenses and losses associated with transportation and incurred in maintaining, terminating and /or re- establishing any related hedges, except for such amounts already included in the Net Settlement Amount. 2. Section 10 is amended by adding the following: 10.8 In calculating early termination damages pursuant to Section 10.3.1, the Non - Defaulting Party may take into account its Costs incurred as a result of terminating the transactions. 3. Section 15 is amended by adding the following after the last sentence of 15.8: 15.8. On the effective date and the date of entering into each transaction hereunder, each party represents and warrants to the other party that: (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all regulatory authorizations necessary for it to legally perform its obligations under this Base Contract and each transaction hereunder; (ii) the execution, delivery and performance of this Base Contract and each transaction hereunder are within its powers, and do not violate any contracts to which it is a party or any law, rule, regulation, order; (iii) this Base Contract, each transaction hereunder, and each other document executed and delivered in accordance with this Base Contract constitutes a legally valid and binding obligation enforceable against it in accordance with the terms of said document, subject to any equitable defenses; (iv) it, or its credit support provider, if applicable, is not bankrupt and there are no proceedings pending or being contemplated by it, its credit support provider, if any, or, to its knowledge, threatened against it which would result in it being or becoming bankrupt and there is not pending or, to its knowledge, threatened against it, or its credit support provider, if any, any legal proceedings that could materially adversely affect its ability to perform its obligations under this Base Contract and each transaction hereunder; (v) no Event of Default with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Base Contract and each transaction hereunder; (vi) it is acting for its own account, has made its own independent decision to enter into this Base Contract and each transaction hereunder and as to whether this Base Contract and each such transaction is appropriate or proper for it based upon its own judgment, is not relying upon the advice or recommendations of the other party in so doing, and is capable of assessing the merits of and understanding, and understands and accepts, the terms, conditions and risks of this Base Contract and each transaction hereunder; and (vii) it is an "eligible contract participant" as that term is defined in Section 1 a(12) of the Commodity Exchange Act. 4. Section 15 is further amended by adding the following: 15.13. This Contract, and the rights and duties of the parties arising therefrom, shall be governed by, and interpreted and construed in accordance with, the law of the State of New York (without reference to choice of law doctrine). With respect to any suit, action or proceeding relating to the foregoing ( "Proceeding ") each party irrevocably submits to the non - exclusive jurisdiction of the State and Federal Courts located in New York City, Borough of Manhattan, New York and any appellate court therefrom, and waives any objection to the laying of venue of any Proceeding brought in any such court, waives any claim that any Proceeding has been brought in an inconvenient forum and waives claim of sovereign immunity. ANY PROCEEDINGS ARISING OUT OF OR RELATING TO THIS BASE CONTRACT OR ANY TRANSACTION HEREUNDER SHALL BE RESOLVED BY A JUDGE TRIAL WITHOUT A JURY AND THE RIGHT TO A JURY TRIAL IS WAIVED, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. IN WITNESS WHEREOF, the parties hereto have executed these Special Provisions in duplicate. MACQUARIE ENERGY LLC Hutchinson Utilities Commission By: Name: Title: MACQUARIE ENERGY LLC By: By: Name: Title: Name: Title: �Tf LITIES HUTCHINSON UTILITIES COMMISSION 225 MICHIGAN STREET HUTCHINSON MINNESOTA 55350 DWIGHT BORDSON PRESIDENT ANTHONY HANSON VICE PRESIDENT MONTY MORROW SECRETARY CRAIG LENZ COMMISSIONER MARK GIRARD COMMISSIONER MICHAEL KUMM GENERAL MANAGER TEL 320-587 -4746 FAx 320 -587 -4721 AGREEMENT THIS AGREEMENT ( "AGREEMENT ") IS MADE AND ENTERED INTO THIS 17TH DAY OF MARCH, 2014, TO BE EFFECTIVE AS OF THE 1 ST DAY OF MAY, 2014, BY AND BETWEEN HUTCHINSON TECHNOLOGY, INC. ( "HTI ") WITH OFFICES LOCATED AT 40 WEST HIGHLAND PARK DRIVE NE, HUTCHINSON, MINNESOTA, 55350 AND HUTCHINSON UTILITIES COMMISSION ("HUC') A MINNESOTA MUNICIPAL UTILITY LOCATED AT 225 MICHIGAN ST SE, HUTCHINSON, MINNESOTA, 55350. HTI AND HUTCHINSON SHALL HEREINAFTER SOMETIMES BE REFERRED TO SEPARATELY AS "PARTY" OR JOINTLY AS "PARTIES." WHEREAS, HTI DESIRES TO PURCHASE, AND HUC SHALL PROVIDE, FIRM GAS FOR USE AT HTI'S HUTCHINSON HEADQUARTERS/ PLANT; AND, WHEREAS, HTI DOES ACKNOWLEDGE THAT HUC WILL, IN RELIANCE UPON THIS AGREEMENT, ENTER INTO AN AGREEMENT TO PROVIDE FIRM GAS AND TRANSPORTATION. NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED, THE PARTIES MAKE THE FOLLOWING AGREEMENT: HUC SHALL PROVIDE, AND HTI SHALL ACCEPT. FIRM GAS COMMENCING MAY 1, 2014, AT 9:00 A.M. AND TERMINATING ON MAY 1, 2015. AT 9:00 A.M. AyAiLABILrTY A. GENERAL FIRM TRANSPORTATION SERVICE UNDER THIS AGREEMENT SHALL BE AVAILABLE TO HTI UNDER THE TERMS AND CONDITIONS OF THIS AGREEMENT. THIS SERVICE MAY NOT BE CURTAILED OR INTERRUPTED EXCEPT PURSUANT TO THE TERMS OF THIS AGREEMENT. B. THE COST FOR ADDITIONAL CAPACITY OR NEW INSTALLATIONS UTILIZING THIS SERVICE SHALL BE BILLED TO HTI. HTI MUST SUBMIT A WRITTEN REQUEST TO HUC FOR ADDITIONAL CAPACITY /NEW INSTALLATIONS. ALL ADDITIONAL COSTS MUST BE PRE - APPROVED, IN WRITING, BY HTI. C. COMPLIANCE WITH AGREEMENTS SERVICE UNDER THIS AGREEMENT SHALL NOT COMMENCE UNTIL BOTH PARTIES HAVE FULLY EXECUTED THIS AGREEMENT AND COMPLIED WITH ALL RELEVANT REQUIREMENTS CONTAINED HEREIN. D. AGREEMENT CHANGES HUC HAS THE RIGHT TO MODIFY THIS AGREEMENT DUE TO CHANGES IMPOSED BY HUC'S CURRENT NATURAL GAS TRANSMISSION PROVIDERS AND FEDERAL, STATE AND LOCAL REGULATORS /AUTHORITIES. 2. TERM THE INITIAL TERM FOR SERVICE UNDER THIS AGREEMENT IS ONE (1) YEAR. HTI MUST NOTIFY HUC IN WRITING THREE (3) MONTHS PRIOR TO THE EXPIRATION OF THE TERM IF HTI DESIRES TO CONTINUE SERVICE UNDER THIS AGREEMENT. IF HTI HAS COMPLIED WITH ALL TERMS OF THIS AGREEMENT, AND HAS NO OUTSTANDING ARREARAGES, HTI MAY, UPON WRITTEN NOTICE PROVIDED TO HUC THREE (3) MONTHS PRIOR TO THE EXPIRATION OF THE CURRENT TERM, EXTEND THIS AGREEMENT FOR A MUTUALLY AGREED -UPON PERIOD. IF A TERM FOR THE EXTENSION CANNOT BE AGREED UPON BY HTI AND HUC, THE PARTIES AGREE TO A MINIMUM TERM OF ONE (1) YEAR. IF SUCH TIMELY NOTICE IS NOT PROVIDED BY HTI, HUC IS NOT OBLIGATED TO RENEW SERVICE FOR HTI. [21 3. RATES A. RATES FOR SERVICE THE FOLLOWING CHARGES SHALL APPLY TO THE FIRM COMMODITY AND TRANSPORTATION CAPACITY TO BE PROVIDED TO HTI BY HUC: COMMODITY MONTHLY INSIDE FERC VENTURA INDEX, AS PUBLISHED BY PLATT'S "GAS DAILY ", PLUS /MINUS THE NNG VENTURA TO NBPL VENTURA MONTHLY PREMIUM. MONTHLY INDEX AS PUBLISHED IN PLATYS FERC GAS MARKET REPORT FOR NORTHERN NATURAL GAS CO. AT VENTURA, IOWA PLUS OR MINUS ANY INDEX PREMIUM OR DISCOUNT BASED ON CURRENT MARKET CONDITIONS AT THE TIME THE GAS IS PURCHASED. HUC SHALL PURCHASE HTI'S FIRM BASE LOAD NATURAL GAS REQUIREMENTS, FOR THE FOLLOWING MONTH, WITHIN 24 BUSINESS HOURS OF RECEIPT OF HTI'S FIRST OF THE MONTH BASE LOAD NOMINATION. (SEE SECTION 7, PARAGRAPH "A ") 2. MONTHLY DEMAND CHARGE MONTHLY DEMAND CHARGE PER -- $10.33 MCF OF BILLING DEMAND 3. TRANSPORTATION CHARGE TRANSPORTATION CHARGE, PER METERED MCF - - $0.87 THIS CHARGE SHALL BE ADJUSTED, STARTING ON MAY 1, 2012 AND ON EACH MAY 1 THEREAFTER, ACCORDING TO ANY CHANGE IN THE CPI -U FROM THE PREVIOUS YEAR, PROVIDED HOWEVER, THAT SUCH CHARGE SHALL NEVER BE LESS THAN $0.83. CPI -U SHALL MEAN THE ANNUAL AVERAGE CONSUMER PRICE INDEX - ALL URBAN CONSUMERS AS PUBLISHED BY THE UNITED STATES DEPARTMENT OF LABOR, BUREAU OF STATISTICS, WASHINGTON, C.C.. 4. TAXES THE ABOVE CHARGES DO NOT INCLUDE ANY TAXES. [31 B. METERING HTI SHALL PAY ALL COSTS ASSOCIATED WITH THE INSTALLATION OF METERS AND ANY OTHER EQUIPMENT NECESSARY FOR HTI TO RECEIVE SERVICE UNDER THIS AGREEMENT UNLESS OTHERWISE AGREED TO IN WRITING BETWEEN HTI AND HUC. 4. RECONNECTION CHARGE ANY TRANSPORTATION CUSTOMER RECEIVING SERVICE PURSUANT TO THIS AGREEMENT MUST PAY THE "RECONNECTION CHARGE" AS SET FORTH WHEN REQUESTING A RETURN TO HUC'S SYSTEM SUPPLY FOR ALL OR ANY PORTION OF THE TRANSPORTATION CUSTOMER'S DAILY REQUIREMENTS. THE RECONNECTION CHARGE SHALL BE CALCULATED ON A MONTHLY BASIS AND SHALL CONSIST OF A REALIGNMENT SURCHARGE THAT APPLIES TO ALL VOLUMES MEASURED BY HTI'S INDUSTRIAL METER. A. TERM SIX MONTHS - COMMENCING WITH THE FIRST MONTH FOLLOWING THE TERMINATION OF THIS AGREEMENT B. REALIGNMENT SURCHARGE THE REALIGNMENT SURCHARGE SHALL BE IN ADDITION TO THE INDUSTRIAL RATE AS PUBLISHED BY HUC. THE REALIGNMENT SURCHARGE (RS) SHALL BE CALCULATED AS FOLLOWS: RS = MONTHLY INSIDE FERC VENTURA INDEX, AS PUBLISHED BY PLATT'S "GAS DAILY ". PLUS /MINUS THE NNG VENTURA TO NBPL VENTURA MONTHLY PREMIUM MINUS HUC'S "BASE RATE" ($7.85 IN 2010). PROVIDED, HOWEVER, THAT SUCH SURCHARGE SHALL NEVER BE LESS THAN $0.00. 5. BILUNG AND PAYMENT A. BILLING INVOICE WILL BE RENDERED TO HTI, OR ITS AGENT, BY THE FIFTEENTH DAY OF THE MONTH FOLLOWING THE MONTH IN WHICH SERVICE IS RENDERED BY HUC. [41 B. PAYMENT PAYMENT IS DUE FROM HTI ON OR BEFORE THE TENTH DAY FOLLOWING THE DATE THE BILL IS ISSUED BY HUC. A LATE PAYMENT CHARGE OF ONE AND ONE -HALF PERCENT PER MONTH, OR THE LEGALLY AUTHORIZED MAXIMUM INTEREST RATE, WHICHEVER IS LOWER, SHALL BE LEVIED ON ANY UNPAID BALANCE. 6. CONDITIONS OF SERVICE A. HUC HEREBY CERTIFIES THAT IT HAS SUFFICIENT FIRM TRANSPORTATION CAPACITY TO PROVIDE THE AMOUNT OF FIRM TRANSPORTATION SERVICE TO HTI PURSUANT TO THE TERMS OF THIS AGREEMENT FOR THE TERM OF THIS AGREEMENT. C. UNLESS OTHERWISE AGREED BETWEEN HTI AND HUC, HTI WILL REIMBURSE HUC FOR THE COST OF METERING AND ANY OTHER EQUIPMENT AS REQUIRED BY HUC TO PROVIDE SERVICE TO HTI UNDER THIS AGREEMENT. ALL SUCH EQUIPMENT SHALL REMAIN THE PROPERTY OF HUC. HUC SHALL SUBMIT A WRITTEN ESTIMATE TO HTI ITEMIZING ALL COSTS ASSOCIATED WITH THE INSTALLATION OF REQUIRED METERING AND OTHER EQUIPMENT NECESSARY FOR HTI TO RECEIVE SERVICE UNDER THIS AGREEMENT. HTI MUST PROVIDE WRITTEN APPROVAL TO HUC AUTHORIZING PURCHASE OF SAID EQUIPMENT. D. UNLESS OTHERWISE AGREED TO IN WRITING BY HUC AND HTI, AUTOMATIC TELEMETERING EQUIPMENT IS REQUIRED. HTI SHALL PROVIDE TELEPHONE, COMPUTER AND OTHER INTERFACES, AS WELL AS ELECTRIC CONNECTIONS TO THE METER(S), AS AGREED TO BY HTI AND HUC. ALL MONTHLY UTILITY FEES (TELEPHONE, ELECTRICITY, ETC.) SHALL BE BORNE BY HTI. HTI SHALL PROVIDE HUC WITH ACCESS SO THAT HUC MAY OPERATE AND MAINTAIN SAID EQUIPMENT. E. HUC SHALL PROVIDE HTI (OR AGENT) WITH A DAILY USAGE REPORT VIA EMAIL FOR NOMINATION PURPOSES. 7. NOMINATIONS A. FIRST OF THE MONTH NOMINATIONS BY 7:00 A.M. CENTRAL CLOCK TIME ( "C.C.T. "), BY THE 1 5T" DAY OF THE MONTH PRIOR TO GAS FLOW, HTI, OR ITS DESIGNATED AGENT, SHALL PROVIDE HUC A WRITTEN ESTIMATE OF HTI'S DAILY FIRM BASE LOAD [51 LEVEL OF NATURAL GAS REQUIRED FOR THE FOLLOWING MONTH. IN THE EVENT HUC HAS NOT RECEIVED THE BASE LOAD NOMINATION FROM HTI BY THE ABOVE DESIGNATED TIME, HUC SHALL NOMINATE THE CURRENT MONTH'S BASE LOAD LEVEL FOR THE FOLLOWING MONTH. B. DAILY NOMINATIONS HTI, OR ITS DESIGNATED AGENT, SHALL NOTIFY HUC OF ANY REQUESTED CHANGE TO ITS NOMINATION, IN WRITING, BY 7:00 A.M. C.C.T AT LEAST ONE (1) BUSINESS DAY PRIOR TO THE DATE OF THE REQUESTED CHANGE. HUC SHALL GRANT SUCH REQUESTS IN ITS REASONABLE DISCRETION. C. GAS DAY THE GAS DAY SHALL RUN FROM 9:00 A.M. TO 9:00 A.M. CENTRAL STANDARD TIME. 8. DAILY SWING SUPPLY HUC AGREES TO PROVIDE DAILY SWING SUPPLY TO HTI AT THE APPLICABLE PRICE, AS PUBLISHED FOR THE DAY BY PLATT'S "GAS DAILY" IN ITS "DAILY PRICE SURVEY ($ /DTH)" FOR "NORTHERN, VENTURA" "MIDPOINT" ( "DAILY INDEX ") PLUS /MINUS $0.01. SWING SUPPLY IS DEFINED AS SUPPLY INCREASES OR DECREASES, FROM CONTRACTED LEVELS, NOMINATED AT LEAST 24 HOURS PRIOR TO THE START OF THE GAS DAY. 9. REAL-TIME BALANCING HUC SHALL PROVIDE HTI WITH REAL-TIME BALANCING, BASED ON THE FOLLOWING: BEST EFFORTS REAL-TIME SWING NOMINATED LESS THAN 24 HOURS PRIOR TO THE END OF THE GAS DAY ON A BEST EFFORTS BASIS, PRICED AT THE APPLICABLE PRICE, AS PUBLISHED FOR THE DAY BY PLATT'S "GAS DAILY" IN ITS "DAILY PRICE SURVEY ($ /DTH)" FOR "NORTHERN, VENTURA" "MIDPOINT" (`DAILY INDEX"), PLUS /MINUS $0.15. [6] 10. AGENTS A. DESIGNATION OF AGENTS HTI MAY DESIGNATE AN AGENT FOR NOMINATING VOLUMES FOR TRANSPORTATION ON HUC'S SYSTEM. HTI SHALL NOTIFY HUC IN WRITING AT LEAST FIFTEEN (1 5) BUSINESS DAYS PRIOR TO THE FIRST DAY OF THE MONTH IN WHICH SUCH SERVICES WILL BE UTILIZED THAT A THIRD PARTY HAS BEEN DESIGNATED AS HTI'S AGENT AND SHALL ACT AS AGENT FOR HTI FOR PURPOSES OF NOMINATIONS, BILLING, AND /OR OTHER FUNCTIONS AS SPECIFIED BY HTI. IF HTI UTILIZES AN AGENT FOR ANY OR ALL OF THESE PURPOSES, HTI AGREES THAT INFORMATION TO BE SUPPLIED BY HUC TO HTI MAY BE SUPPLIED ONLY TO THE AGENT AND THAT INFORMATION SUPPLIED BY THE AGENT TO HUC SHALL BE RELIED UPON BY HUC AS IF PROVIDED BY HTI. HUC SHALL BE HELD HARMLESS FOR ANY ERRORS BETWEEN HTI AND SAID AGENT. SUCH DESIGNATION SHALL REMAIN IN EFFECT UNTIL HTI NOTIFIES HUC IN WRITING THAT THE PREVIOUSLY DESIGNATED AGENT IS NO LONGER ITS AGENT. B. INFORMATION REQUIRED HTI SHALL PROVIDE THE FOLLOWING INFORMATION TO HUC CONCERNING EACH AGENT USED BY HTI FOR ANY PURPOSE: NAME AND ADDRESS OF THE AGENT OR AGENTS; 2. PRIMARY AND SECONDARY CONTACT PERSONS FOR THE AGENT OR AGENTS; 3. TELEPHONE AND FACSIMILE NUMBER FOR PRIMARY AND SECONDARY CONTACT PERSONS FOR THE AGENT OR AGENTS, AND 4. TWENTY-FOUR HOUR TELEPHONE NUMBER FOR WEEKENDS AND HOLIDAYS FOR THE AGENT OR AGENTS. (71 C. HTI TO REMAIN LIABLE HTI MAY ELECT TO HAVE ITS BILL FOR SERVICES UNDER THIS AGREEMENT SENT DIRECTLY TO ITS AGENT. HOWEVER, IF HTI SELECTS THIS OPTION, HTI REMAINS FULLY LIABLE FOR ANY BILL RENDERED BY HUC. ALL DEADLINES SET FORTH IN THIS AGREEMENT SHALL CONTINUE TO APPLY, REGARDLESS OF WHETHER HUC'S BILL IS SENT DIRECTLY TO HTI OR TO HTI'S DESIGNATED AGENT. 1 1. FORCE MAJEURE. A. DEFINITION EITHER PARTY SHALL BE EXCUSED FROM PERFORMANCE UNDER THIS AGREEMENT BY FORCE MAJEURE ACTS AND EVENTS. "FORCE MAJEURE" SHALL MEAN ACTS AND EVENTS NOT WITHIN THE CONTROL OF THE PARTY CLAIMING FORCE MAJEURE, AND SHALL INCLUDE, BUT NOT BE LIMITED TO, ACTS OF GOD, STRIKES, LOCKOUTS, MATERIAL, EQUIPMENT, OR LABOR SHORTAGES, WARS, RIOTS, INSURRECTIONS, EPIDEMICS, LANDSLIDES, EARTHQUAKES, FLOODS, FIRES, STORMS, GOVERNMENT OR COURT ORDERS, CIVIL DISTURBANCES, EXPLOSIONS, BREAKAGE OR ACCIDENT TO MACHINERY OR PIPELINES, FREEZING OF WELLS OR PIPELINES, OR ANY OTHER CAUSE OF WHATEVER KIND, WHETHER SPECIFICALLY ENUMERATED HEREIN OR NOT, THAT IS NOT WITHIN THE CONTROL OF THE PARTY CLAIMING FORCE MAJEURE. B. EFFECT IF HUC IS UNABLE TO PROVIDE SERVICE UNDER THIS AGREEMENT DUE TO A FORCE MAJEURE ACT OR EVENT, HUC'S OBLIGATION TO PROVIDE SERVICE UNDER THIS AGREEMENT SHALL BE SUSPENDED FOR THE DURATION OF THE ACT OR EVENT. HUC SHALL NOTIFY HTI OF THE FORCE MAJEURE EVENT AS SOON AS REASONABLY POSSIBLE BY ANY MEANS PRACTICABLE, INCLUDING, BUT NOT LIMITED TO, TELEPHONE OR FACSIMILE, AND SHALL CONFIRM THE DETAILS OF THE FORCE MAJEURE ACT OR EVENT IN WRITING WITHIN A REASONABLE AMOUNT OF TIME THEREAFTER. HUC SHALL WORK TO [81 REMEDY THE FORCE MAJEURE ACT OR EVENT AS SOON AS REASONABLY POSSIBLE AND SHALL KEEP HTI APPRISED OF THE TIME, DATE, AND CIRCUMSTANCES WHEN SERVICE UNDER THIS AGREEMENT SHALL BE RESTORED. HTI IS NOT REQUIRED TO PAY ANY CHARGES UNDER THIS AGREEMENT DURING THE TERM OF THE FORCE MAJEURE ACT OR EVENT. 2. IF HTI IS UNABLE TO TAKE SERVICE UNDER THIS AGREEMENT DUE TO A FORCE MAJEURE ACT OR EVENT, HOC'S OBLIGATION TO PROVIDE SERVICE UNDER THIS AGREEMENT SHALL BE SUSPENDED FOR THE DURATION OF THE ACT OR EVENT. HTI SHALL NOTIFY HUC OF THE FORCE MAJEURE EVENT AS SOON AS REASONABLY POSSIBLE BY ANY MEANS PRACTICABLE, INCLUDING, BUT NOT LIMITED TO, TELEPHONE OR FACSIMILE, AND SHALL CONFIRM THE DETAILS OF THE FORCE MAJEURE ACT OR EVENT IN WRITING WITHIN A REASONABLE AMOUNT OF TIME THEREAFTER. HTI SHALL WORK TO REMEDY THE FORCE MAJEURE ACT OR EVENT AS SOON AS REASONABLY POSSIBLE AND SHALL KEEP HUC APPRISED OF THE TIME, DATE, AND CIRCUMSTANCES WHEN HTI WILL RESUME SERVICE UNDER THIS AGREEMENT. HUC IS NOT REQUIRED TO PROVIDE SERVICE UNDER THIS AGREEMENT DURING THE TERM OF THE FORCE MAJEURE ACT OR EVENT. 12. LAWS REGULATIONS AND ORDERS. SERVICE UNDER THIS AGREEMENT IS SUBJECT TO ALL PRESENT AND FUTURE VALID LAWS, ORDERS, RULES, REGULATIONS. ETC, ISSUED BY ANY FEDERAL, STATE, OR LOCAL AUTHORITY HAVING JURISDICTION OVER THE MATTERS SET FORTH HEREIN. 13. MISCELLANEOUS PROVISIONS. A. DECLARATION OF INVALIDITY IF ANY PROVISION OF THIS AGREEMENT IS DETERMINED TO BE INVALID, VOID, OR UNENFORCEABLE BY ANY COURT OR OTHER ENTITY HAVING JURISDICTION, SUCH 191 DETERMINATION SHALL NOT INVALIDATE, VOID, OR MAKE UNENFORCEABLE ANY OTHER PROVISION, AGREEMENT OR COVENANT OF THIS AGREEMENT; AND THE PARTIES AGREE TO NEGOTIATE IN GOOD FAITH A REPLACEMENT TO SUCH INVALID, VOID OR UNENFORCEABLE PROVISION AND /OR ANY OTHER AMENDMENTS AS MAY BE NECESSARY TO ENSURE THAT THE AGREEMENT AS A WHOLE REFLECTS THE ORIGINAL INTENTIONS OF THE PARTIES. B. NO CONTINUING WAIVER NO WAIVER OF ANY BREACH OF THIS AGREEMENT SHALL BE HELD TO BE A WAIVER OF ANY OTHER OR SUBSEQUENT BREACH. C. LIMITATION ON AGREEMENT THE PARTIES EXPRESSLY ACKNOWLEDGE AND AGREE THAT IT IS NEITHER THE PURPOSE OF THIS AGREEMENT NOR THEIR INTENT TO CREATE A PARTNERSHIP, JOINT VENTURE CONTRACT OR COMPANY, ASSOCIATION OR TRUST, FIDUCIARY RELATIONSHIP OR PARTNERSHIP BETWEEN THEM. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY SHALL HAVE ANY AUTHORITY TO ACT FOR OR ASSUME ANY OBLIGATIONS, OR RESPONSIBILITIES ON BEHALF OF, THE OTHER PARTY. D. COMPLETE AGREEMENT THIS AGREEMENT SETS FORTH ALL UNDERSTANDINGS BETWEEN THE PARTIES AS OF THE EFFECTIVE DATE HEREIN. ANY PRIOR CONTRACTS, UNDERSTANDINGS AND REPRESENTATIONS, WHETHER ORAL OR WRITTEN, RELATING TO THE MATTERS ADDRESSED IN THIS AGREEMENT ARE MERGED INTO AND SUPERSEDED BY THIS AGREEMENT. THIS AGREEMENT MAY BE AMENDED ONLY BY A WRITING EXECUTED BY BOTH PARTIES, E. GOVERNING LAW THE INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF MINNESOTA, EXCLUDING, HOWEVER, ANY CONFLICT OF LAW THAT WOULD APPLY THE LAW OF ANOTHER JURISDICTION. [ 1 01 F. CONFIDENTIALITY REQUIRED NEITHER PARTY SHALL DISCLOSE DIRECTLY OR INDIRECTLY WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER PARTY THE TERMS OF THIS AGREEMENT TO A THIRD PARTY, EXCLUDING HTI'S AGENT, EXCEPT (1) IN ORDER TO COMPLY WITH ANY APPLICABLE LAW, LEGAL PROCESS, ORDER, REGULATION, OR EXCHANGE RULE; (11) TO THE EXTENT NECESSARY FOR THE ENFORCEMENT OF THIS AGREEMENT; AND (111) TO THE EXTENT NECESSARY TO IMPLEMENT AND PERFORM THIS AGREEMENT. EACH PARTY SHALL NOTIFY THE OTHER PARTY OF ANY DEMAND OR PROCEEDING OF WHICH IT IS AWARE WHICH MAY RESULT IN DISCLOSURE OF THE TERMS OF THIS AGREEMENT (OTHER THAN AS PERMITTED HEREUNDER) AND USE REASONABLE EFFORTS TO PREVENT OR LIMIT THE DISCLOSURE. THE PARTIES SHALL BE ENTITLED TO ALL REMEDIES AVAILABLE AT LAW OR IN EQUITY TO ENFORCE OR SEEK RELIEF IN CONNECTION WITH THIS CONFIDENTIALITY OBLIGATION. THE TERMS OF THIS AGREEMENT SHALL BE KEPT CONFIDENTIAL BY THE PARTIES HERETO FOR TWO YEARS FROM THE EXPIRATION OR TERMINATION OF THIS AGREEMENT. IN THE EVENT THAT DISCLOSURE IS REQUIRED BY A GOVERNMENTAL BODY OR APPLICABLE LAW, THE PARTY SUBJECT TO SUCH REQUIREMENT MAY DISCLOSE THE MATERIAL TERMS OF THIS AGREEMENT TO THE EXTENT SO REQUIRED, BUT SHALL PROMPTLY NOTIFY THE OTHER PARTY, PRIOR TO DISCLOSURE, AND SHALL COOPERATE (CONSISTENT WITH THE DISCLOSING PARTY'S LEGAL OBLIGATIONS) WITH THE OTHER PARTY'S EFFORTS TO OBTAIN PROTECTIVE ORDERS OR SIMILAR RESTRAINTS WITH RESPECT TO SUCH DISCLOSURE AT THE EXPENSE OF THE OTHER PARTY. G. AUTHORITY TO ENTER AGREEMENT EACH PARTY TO THIS AGREEMENT REPRESENTS AND WARRANTS THAT IT HAS FULL AND COMPLETE AUTHORITY TO ENTER INTO AND PERFORM THIS AGREEMENT. EACH PERSON WHO EXECUTES THIS AGREEMENT ON BEHALF OF EITHER PARTY REPRESENTS AND WARRANTS THAT IT HAS FULL AND COMPLETE AUTHORITY TO DO SO AND THAT SUCH PARTY WILL BE BOUND THEREBY. NO THIRD PARTY BENEFICIARY THERE IS NO THIRD PARTY BENEFICIARY TO THIS AGREEMENT. [ 1 21 THIS AGREEMENT SETS FORTH ALL TERMS AGREED UPON BETWEEN THE PARTIES, AND NO PRIOR ORAL OR WRITTEN AGREEMENTS SHALL BE BINDING. THIS AGREEMENT SHALL NOT BE ALTERED, AMENDED OR MODIFIED EXCEPT AS IN WRITING AND EXECUTED BY BOTH PARTIES. HUTCHINSON UTILITIES COMMISSION BY: /1 jej NAME: TITLE: COMMISSION VICE- PRESIDENT DATE: HUTCHINSON TECHNOLOGIES, INC. BY: NAME: �.) (r► ►a R L arrS?0 vk TITLE: �c�rGSj Su�iCvt/t Scar DATE: j a o ) WITNESS: A ll- rkoskll WITNESS: DATE: Z 701 y DATE: z. [ 131 Base Contract for Sale and Purchase of Natural Gas This Base Contract is entered into as of the following date: The parties to this Base Contract are the following: PARTY A PARTY B MACQUARIE ENERGY LLC Hutchinson Utilities Commission One Allen Center 500 Dallas Street, Suite 3100 ADDRESS 225 Michigan St. SE Houston, TX 77002 Hutchinson, MN 55350 www.macquarie.com /mgl /com /energy BUSINESS WEBSITE www.hutchinsonutilities.com CONTRACT NUMBER 79- 884 -6036 D- U -N -S® NUMBER 154- 439 -301 Z US FEDERAL: 93- 1043421 0 US FEDERAL: 41- 6005251 ❑ OTHER: TAX IDNUMBERS ❑ OTHER: Delaware JURISDICTION OF Minnesota ORGANIZATION ❑ Corporation Q LLC ❑ Corporation ❑ LLC ❑ Limited Partnership ❑ Partnership COMPANY TYPE ❑ Limited Partnership ❑ Partnership ❑ LLP ❑ Other: ❑ LLP 0 Other: Municipal Utility GUARANTOR (IF APPLICABLE) CONTACT INFORMATION Macauarie Energy LLC • COMMERCIAL Hutchinson Utilities Commission ATTN: Wholesale Marketing ATTN: John Webster TEL #: 713- 275 -6100 FAX #: 713 - 275 -8979 TEL #: 320 - 234 -0507 FAX #: 320 - 587 -4721 EMAIL: FICCEMDMCETradM rs Mac uarie.com EMAIL: 'webster ci.hutchinson.mn.us Macquarie Energy LLC Hutchinson Utilities Commission ATTN: Scheduling • SCHEDULING ATTN: John Webster TEL #: 713- 275 -8900 FAX #: 713- 275 -8980 TEL #: 320 - 234 -0507 FAX #: 320 - 587 -4721 EMAIL: GasSchedulin Mac uarie.com EMAIL: "webster ci.hutchinson.mmus Macquarie Energy LLC • CONTRACT AND LEGAL NOTICES Hutchinson Utilities Commission ATTN: Legal Risk Management ATTN: Marc Sebora TEL #: 713 - 275 -6100 FAX #: 713 - 275 -8978 TEL #: 320 - 234 -5662 FAX #: EMAIL: FICCle alhouston Mac uarie.com EMAIL: msebora ci.hutchinson.mn.us Macquarie Energy LLC • CREDIT Hutchinson Utilities Commission ATTN: Credit Risk Management ATTN: Jared Martig TEL #: 713 - 275 -6100 FAX #: 713 - 275 -8979 TEL #: 320 - 234 -0512 FAX #: 320 - 587 -4721 EMAIL: FICCEMDUSGasCredit Mac uarie.com EMAIL: martigad.hutchinson.mmus Macquarie Energy LLC • TRANSACTION CONFIRMATIONS Hutchinson Utilities Commission ATTN: Settlements — Deal Su000rt Unit ATTN: John Webster TEL #: 713 - 255 -5873 FAX #: 713 - 255 -5822 TEL #: 320 - 234 -0507 FAX #: 320 - 587 -4721 EMAIL: modconfirmshouston(cDmacguarie .com EMAIL: 'websterCcDc0utchinson.mn.us ACCOUNTING INFORMATION Macquarie Energy LLC • INVOICES • PAYMENTS Hutchinson Utilities Commission ATTN: Settlements -ME ATTN: Jennifer Tramp TEL #: 713 - 275 -6283 FAX #: 713 - 275 -6369 TEL #: 320 - 234 -0569 FAX #: 320- 587 -4721 • SETTLEMENTS EMAIL: modsettsgasvolumeaccountinohou (o macauariecom EMAIL: 'tramp(a)ci.hutchinson.mn.us' BANK: Bank of New York New York NY 10286 WIRE TRANSFER NUMBERS BANK: Citizens Bank & Trust Co. ABA: 021000018 ACCT: 8900055375 ABA: 091 - 901 -862 ACCT: 000086 OTHER DETAILS: Macquarie Enerav — Acct: ENCONBRKHS (IFAPPLICABLE) OTHER DETAILS: BANK: Bank of New York New York, NY 10286 ACH NUMBERS BANK: ABA: 021000018 ACCT: 8900055375 ABA: ACCT: OTHER DETAILS: Macquarie Energy — Acct: ENCONBRKHS (IFAPPLICABLE) OTHER DETAILS: ATTN: Settlements Department ATTN: ADDRESS: 500 Dallas Street, FL31, Houston TX 77002 CHECKS ADDRESS: (IFAPPLICABLE) Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved September 5, 2006 Base Contract for Sale and Purchase of Natural Gas (Continued) This Base Contract incorporates by reference for all purposes the General Terms and Conditions for Sale and Purchase of Natural Gas published by the North American Energy Standards Board. The parties hereby agree to the following provisions offered in said General Terms and Conditions. In the event the parties fail to check a box, the specified default provision shall apply. Select the appropriate box(es) from each section: Section 1.2 Z Oral (default) Section 10.2 0 No Additional Events of Default (default) Transaction OR PRINTED NAME Additional TITLE Procedure ❑ Written Events of Default ❑ Indebtedness Cross Default El Party A: Section 2.7 0 2 Business Days after receipt (default) Confirm Deadline OR ❑ Party B: ❑ Business Days after receipt ❑ Transactional Cross Default Specified Transactions: Section 2.8 ❑ Seller (default) Confirming Party OR ❑ Buyer O Macquarie Energy Section 3.2 0 Cover Standard (default) Section 10.3.1 0 Early Termination Damages Apply (default) Performance OR Early Obligation ❑ Spot Price Standard Termination OR Damages ❑ Early Termination Damages Do Not Apply Note: The following Spot Price Publication applies to both of the immediately preceding. Section 10.3.2 Other Z Other Agreement Setoffs Apply (default) Section 2.31 0 Gas Daily Midpoint (default) Agreement z Bilateral (default) Spot Price OR Setoffs Publication ❑ Triangular OR ❑ Other Agreement Setoffs Do Not Apply Section 6 Z Buyer Pays At and After Delivery Point (default) Taxes OR ❑ Seller Pays Before and At Delivery Point Section 7.2 0 251h Day of Month following Month of delivery Section 15.5 NEW YORK Payment Date (default) Choice Of Law OR ❑ Day of Month following Month of delivery Section 7.2 Z Wire transfer (default) Section 15.10 0 Confidentiality applies (default) Method of Payment ❑ Automated Clearinghouse Credit (ACH) Confidentiality OR ❑ Check ❑ Confidentiality does not apply Section 7.7 Z Netting applies (default) Netting OR ❑ Netting does not apply OSpecial Provisions Number of sheets attached: One (1) Addendum(s): IN WITNESS WHEREOF, the parties hereto have executed this Base Contract in duplicate. MACQUARIE ENERGY LLC PARTYNAME Hutchinson Utilities Commission B SIGNATURE PRINTED NAME �7 }1pr yq.y� TITLE S I knT Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 2 of 13 September 5, 2006 General Terms and Conditions Base Contract for Sale and Purchase of Natural Gas SECTION 1. PURPOSE AND PROCEDURES 1.1. These General Terms and Conditions are intended to facilitate purchase and sale transactions of Gas on a Firm or Interruptible basis. "Buyer" refers to the party receiving Gas and "Seller" refers to the parry delivering Gas. The entire agreement between the parties shall be the Contract as defined in Section 2.9. The parties have selected either the "Oral Transaction Procedure" or the "Written Transaction Procedure" as indicated on the Base Contract. Oral Transaction Procedure: 1.2. The parties will use the following Transaction Confirmation procedure. Any Gas purchase and sale transaction may be effectuated in an EDI transmission or telephone conversation with the offer and acceptance constituting the agreement of the parties. The parties shall be legally bound from the time they so agree to transaction terms and may each rely thereon. Any such transaction shall be considered a "writing" and to have been "signed ". Notwithstanding the foregoing sentence, the parties agree that Confirming Party shall, and the other party may, confirm a telephonic transaction by sending the other party a Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means within three Business Days of a transaction covered by this Section 1.2 (Oral Transaction Procedure) provided that the failure to send a Transaction Confirmation shall not invalidate the oral agreement of the parties. Confirming Party adopts its confirming letterhead, or the like, as its signature on any Transaction Confirmation as the identification and authentication of Confirming Party. If the Transaction Confirmation contains any provisions other than those relating to the commercial terms of the transaction (i.e., price, quantity, performance obligation, delivery point, period of delivery and /or transportation conditions), which modify or supplement the Base Contract or General Terms and Conditions of this Contract (e.g., arbitration or additional representations and warranties), such provisions shall not be deemed to be accepted pursuant to Section 1.3 but must be expressly agreed to by both parties; provided that the foregoing shall not invalidate any transaction agreed to by the parties. Written Transaction Procedure: 1.2. The parties will use the following Transaction Confirmation procedure. Should the parties come to an agreement regarding a Gas purchase and sale transaction for a particular Delivery Period, the Confirming Party shall, and the other party may, record that agreement on a Transaction Confirmation and communicate such Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means, to the other party by the close of the Business Day following the date of agreement. The parties acknowledge that their agreement will not be binding until the exchange of nonconflicting Transaction Confirmations or the passage of the Confirm Deadline without objection from the receiving party, as provided in Section 1.3. 1.3. If a sending party's Transaction Confirmation is materially different from the receiving parry's understanding of the agreement referred to in Section 1.2, such receiving party shall notify the sending party via facsimile, EDI or mutually agreeable electronic means by the Confirm Deadline, unless such receiving parry has previously sent a Transaction Confirmation to the sending party. The failure of the receiving party to so notify the sending party in writing by the Confirm Deadline constitutes the receiving party's agreement to the terms of the transaction described in the sending party's Transaction Confirmation. If there are any material differences between timely sent Transaction Confirmations governing the same transaction, then neither Transaction Confirmation shall be binding until or unless such differences are resolved including the use of any evidence that clearly resolves the differences in the Transaction Confirmations. In the event of a conflict among the terms of (i) a binding Transaction Confirmation pursuant to Section 1.2, (ii) the oral agreement of the parties which may be evidenced by a recorded conversation, where the parties have selected the Oral Transaction Procedure of the Base Contract, (iii) the Base Contract, and (iv) these General Terms and Conditions, the terms of the documents shall govern in the priority listed in this sentence. 1.4. The parties agree that each party may electronically record all telephone conversations with respect to this Contract between their respective employees, without any special or further notice to the other party. Each party shall obtain any necessary consent of its agents and employees to such recording. Where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, the parties agree not to contest the validity or enforceability of telephonic recordings entered into in accordance with the requirements of this Base Contract. SECTION 2. DEFINITIONS The terms set forth below shall have the meaning ascribed to them below. Other terms are also defined elsewhere in the Contract and shall have the meanings ascribed to them herein. 2.1. "Additional Event of Default" shall mean Transactional Cross Default or Indebtedness Cross Default, each as and if selected by the parties pursuant to the Base Contract. 2.2. "Affiliate" shall mean, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of at least 50 percent of the voting power of the entity or person. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 3 of 13 September 5, 2006 2.3. "Altemative Damages" shall mean such damages, expressed in dollars or dollars per MMBtu, as the parties shall agree upon in the Transaction Confirmation, in the event either Seller or Buyer fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer. 2.4. "Base Contract" shall mean a contract executed by the parties that incorporates these General Terms and Conditions by reference; that specifies the agreed selections of provisions contained herein; and that sets forth other information required herein and any Special Provisions and addendum(s) as identified on page one. 2.5. "British thermal unit" or "Btu" shall mean the International BTU, which is also called the Btu (IT). 2.6. "Business Day(s)" shall mean Monday through Friday, excluding Federal Banking Holidays for transactions in the U.S. 2.7. "Confirm Deadline" shall mean 5:00 p.m. in the receiving party's time zone on the second Business Day following the Day a Transaction Confirmation is received or, if applicable, on the Business Day agreed to by the parties in the Base Contract; provided, if the Transaction Confirmation is time stamped after 5:00 p.m. in the receiving party's time zone, it shall be deemed received at the opening of the next Business Day. 2.8. "Confirming Party" shall mean the party designated in the Base Contract to prepare and forward Transaction Confirmations to the other party. 2.9. "Contract" shall mean the legally- binding relationship established by (i) the Base Contract, (ii) any and all binding Transaction Confirmations and (iii) where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, any and all transactions that the parties have entered into through an EDI transmission or by telephone, but that have not been confirmed in a binding Transaction Confirmation, all of which shall form a single integrated agreement between the parties. 2.10. "Contract Price" shall mean the amount expressed in U.S. Dollars per MMBtu to be paid by Buyer to Seller for the purchase of Gas as agreed to by the parties in a transaction. 2.11. "Contract Quantity" shall mean the quantity of Gas to be delivered and taken as agreed to by the parties in a transaction. 2.12. "Cover Standard ", as referred to in Section 3.2, shall mean that if there is an unexcused failure to take or deliver any quantity of Gas pursuant to this Contract, then the performing party shall use commercially reasonable efforts to (i) if Buyer is the performing party, obtain Gas, (or an alternate fuel if elected by Buyer and replacement Gas is not available), or (ii) if Seller is the performing party, sell Gas, in either case, at a price reasonable for the delivery or production area, as applicable, consistent with: the amount of notice provided by the nonperforming party; the immediacy of the Buyer's Gas consumption needs or Seller's Gas sales requirements, as applicable; the quantities involved; and the anticipated length of failure by the nonperforming party. 2.13. "Credit Support Obligation(s)" shall mean any obligation(s) to provide or establish credit support for, or on behalf of, a party to this Contract such as cash, an irrevocable standby letter of credit, a margin agreement, a prepayment, a security interest in an asset, guaranty, or other good and sufficient security of a continuing nature. 2.14. "Day" shall mean a period of 24 consecutive hours, coextensive with a "day" as defined by the Receiving Transporter in a particular transaction. 2.15. "Delivery Period" shall be the period during which deliveries are to be made as agreed to by the parties in a transaction. 2.16. "Delivery Point(s)" shall mean such point(s) as are agreed to by the parties in a transaction. 2.17. "EDI" shall mean an electronic data interchange pursuant to an agreement entered into by the parties, specifically relating to the communication of Transaction Confirmations under this Contract. 2.18. "EFP" shall mean the purchase, sale or exchange of natural Gas as the "physical" side of an exchange for physical transaction involving gas futures contracts. EFP shall incorporate the meaning and remedies of "Firm ", provided that a party's excuse for nonperformance of its obligations to deliver or receive Gas will be governed by the rules of the relevant futures exchange regulated under the Commodity Exchange Act. 2.19. "Firm" shall mean that either party may interrupt its performance without liability only to the extent that such performance is prevented for reasons of Force Majeure; provided, however, that during Force Majeure interruptions, the party invoking Force Majeure may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and /or receipts is confirmed by the Transporter. 2.20. "Gas" shall mean any mixture of hydrocarbons and noncombustible gases in a gaseous state consisting primarily of methane. 2.21. "Guarantor" shall mean any entity that has provided a guaranty of the obligations of a party hereunder. 2.22. "Imbalance Charges" shall mean any fees, penalties, costs or charges (in cash or in kind) assessed by a Transporter for failure to satisfy the Transporter's balance and /or nomination requirements. 2.23. "Indebtedness Cross Default" shall mean if selected on the Base Contract by the parties with respect to a party, that it or its Guarantor, if any, experiences a default, or similar condition or event however therein defined, under one or more agreements or instruments, individually or collectively, relating to indebtedness (such indebtedness to include any obligation whether present or future, contingent or otherwise, as principal or surety or otherwise) for the payment or repayment of borrowed money in an aggregate amount greater than the threshold specified in the Base Contract with respect to such party or its Guarantor, if any, which results in such indebtedness becoming immediately due and payable. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 4 of 13 September 5, 2006 2.24. "Interruptible" shall mean that either party may interrupt its performance at any time for any reason, whether or not caused by an event of Force Majeure, with no liability, except such interrupting party may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and /or receipts is confirmed by Transporter. 2.25. "MMBtu" shall mean one million British thermal units, which is equivalent to one dekatherm. 2.26. "Month" shall mean the period beginning on the first Day of the calendar month and ending immediately prior to the commencement of the first Day of the next calendar month. 2.27. "Payment Date" shall mean a date, as indicated on the Base Contract, on or before which payment is due Seller for Gas received by Buyer in the previous Month. 2.28. "Receiving Transporter" shall mean the Transporter receiving Gas at a Delivery Point, or absent such receiving Transporter, the Transporter delivering Gas at a Delivery Point. 2.29. "Scheduled Gas" shall mean the quantity of Gas confirmed by Transporter(s) for movement, transportation or management. 2.30. "Specified Transaction(s)" shall mean any other transaction or agreement between the parties for the purchase, sale or exchange of physical Gas, and any other transaction or agreement identified as a Specified Transaction under the Base Contract. 2.31. "Spot Price " as referred to in Section 3.2 shall mean the price listed in the publication indicated on the Base Contract, under the listing applicable to the geographic location closest in proximity to the Delivery Point(s) for the relevant Day; provided, if there is no single price published for such location for such Day, but there is published a range of prices, then the Spot Price shall be the average of such high and low prices. If no price or range of prices is published for such Day, then the Spot Price shall be the average of the following: (i) the price (determined as stated above) for the first Day for which a price or range of prices is published that next precedes the relevant Day; and (ii) the price (determined as stated above) for the first Day for which a price or range of prices is published that next follows the relevant Day. 2.32. "Transaction Confirmation" shall mean a document, similar to the form of Exhibit A, setting forth the terms of a transaction formed pursuant to Section 1 for a particular Delivery Period. 2.33. "Transactional Cross Default" shall mean if selected on the Base Contract by the parties with respect to a party, that it shall be in default, however therein defined, under any Specified Transaction. 2.34. 'Termination Option" shall mean the option of either party to terminate a transaction in the event that the other party fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer for a designated number of days during a period as specified on the applicable Transaction Confirmation. 2.35. " Transporter(s)" shall mean all Gas gathering or pipeline companies, or local distribution companies, acting in the capacity of a transporter, transporting Gas for Seller or Buyer upstream or downstream, respectively, of the Delivery Point pursuant to a particular transaction. SECTION 3. PERFORMANCE OBLIGATION 3.1. Seller agrees to sell and deliver, and Buyer agrees to receive and purchase, the Contract Quantity for a particular transaction in accordance with the terms of the Contract. Sales and purchases will be on a Firm or Interruptible basis, as agreed to by the parties in a transaction. The parties have selected either the "Cover Standard" or the "Spot Price Standard" as indicated on the Base Contract. Cover Standard: 3.2. The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the positive difference, if any, between the purchase price paid by Buyer utilizing the Cover Standard and the Contract Price, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller for such Day(s) excluding any quantity for which no replacement is available; or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in the amount equal to the positive difference, if any, between the Contract Price and the price received by Seller utilizing the Cover Standard for the resale of such Gas, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually taken by Buyer for such Day(s) excluding any quantity for which no sale is available; and (iii) in the event that Buyer has used commercially reasonable efforts to replace the Gas or Seller has used commercially reasonable efforts to sell the Gas to a third party, and no such replacement or sale is available for all or any portion of the Contract Quantity of Gas, then in addition to (i) or (ii) above, as applicable, the sole and exclusive remedy of the performing party with respect to the Gas not replaced or sold shall be an amount equal to any unfavorable difference between the Contract Price and the Spot Price, adjusted for such transportation to the applicable Delivery Point, multiplied by the quantity of such Gas not replaced or sold. Imbalance Charges shall not be recovered under this Section 3.2, but Seller and /or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3. The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party's invoice, which shall set forth the basis upon which such amount was calculated. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 5 of 13 September 5, 2006 Spot Price Standard: 3.2. The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the Contract Price from the Spot Price; or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the applicable Spot Price from the Contract Price. Imbalance Charges shall not be recovered under this Section 3.2, but Seller and /or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3. The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party's invoice, which shall set forth the basis upon which such amount was calculated. 3.3. Notwithstanding Section 3.2, the parties may agree to Alternative Damages in a Transaction Confirmation executed in writing by both parties. 3.4. In addition to Sections 3.2 and 3.3, the parties may provide for a Termination Option in a Transaction Confirmation executed in writing by both parties. The Transaction Confirmation containing the Termination Option will designate the length of nonperformance triggering the Termination Option and the procedures for exercise thereof, how damages for nonperformance will be compensated, and how liquidation costs will be calculated. SECTION 4. TRANSPORTATION, NOMINATIONS, AND IMBALANCES 4.1. Seller shall have the sole responsibility for transporting the Gas to the Delivery Point(s). Buyer shall have the sole responsibility for transporting the Gas from the Delivery Point(s). 4.2. The parties shall coordinate their nomination activities, giving sufficient time to meet the deadlines of the affected Transporter(s). Each party shall give the other party timely prior Notice, sufficient to meet the requirements of all Transporters) involved in the transaction, of the quantities of Gas to be delivered and purchased each Day. Should either party become aware that actual deliveries at the Delivery Point(s) are greater or lesser than the Scheduled Gas, such party shall promptly notify the other party. 4.3. The parties shall use commercially reasonable efforts to avoid imposition of any Imbalance Charges. If Buyer or Seller receives an invoice from a Transporter that includes Imbalance Charges, the parties shall determine the validity as well as the cause of such Imbalance Charges. If the Imbalance Charges were incurred as a result of Buyer's receipt of quantities of Gas greater than or less than the Scheduled Gas, then Buyer shall pay for such Imbalance Charges or reimburse Seller for such Imbalance Charges paid by Seller. If the Imbalance Charges were incurred as a result of Seller's delivery of quantities of Gas greater than or less than the Scheduled Gas, then Seller shall pay for such Imbalance Charges or reimburse Buyer for such Imbalance Charges paid by Buyer. SECTION 5. QUALITY AND MEASUREMENT All Gas delivered by Seller shall meet the pressure, quality and heat content requirements of the Receiving Transporter. The unit of quantity measurement for purposes of this Contract shall be one MMBtu dry. Measurement of Gas quantities hereunder shall be in accordance with the established procedures of the Receiving Transporter. SECTION 6. TAXES The parties have selected either "Buyer Pays At and After Delivery Point" or "Seller Pays Before and At Delivery Point" as indicated on the Base Contract. Buyer Pays At and After Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ( "Taxes ") on or with respect to the Gas prior to the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas at the Delivery Point(s) and all Taxes after the Delivery Point(s). If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall fumish the other party any necessary documentation thereof. Seller Pays Before and At Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ( "Taxes') on or with respect to the Gas prior to the Delivery Point(s) and all Taxes at the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas after the Delivery Point(s). If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof. SECTION 7. BILLING, PAYMENT, AND AUDIT 7.1. Seller shall invoice Buyer for Gas delivered and received in the preceding Month and for any other applicable charges, providing supporting documentation acceptable in industry practice to support the amount charged. If the actual quantity delivered is not known by the billing date, billing will be prepared based on the quantity of Scheduled Gas. The invoiced quantity will then be adjusted to the actual quantity on the following Month's billing or as soon thereafter as actual delivery information is available. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 6 of 13 September 5, 2006 7.2. Buyer shall remit the amount due under Section 7.1 in the manner specified in the Base Contract, in immediately available funds, on or before the later of the Payment Date or 10 Days after receipt of the invoice by Buyer; provided that if the Payment Date is not a Business Day, payment is due on the next Business Day following that date. In the event any payments are due Buyer hereunder, payment to Buyer shall be made in accordance with this Section 7.2. 7.3. In the event payments become due pursuant to Sections 3.2 or 3.3, the performing party may submit an invoice to the nonperforming party for an accelerated payment setting forth the basis upon which the invoiced amount was calculated. Payment from the nonperforming party will be due five Business Days after receipt of invoice. 7.4. If the invoiced party, in good faith, disputes the amount of any such invoice or any part thereof, such invoiced party will pay such amount as it concedes to be correct; provided, however, if the invoiced party disputes the amount due, it must provide supporting documentation acceptable in industry practice to support the amount paid or disputed without undue delay. In the event the parties are unable to resolve such dispute, either party may pursue any remedy available at law or in equity to enforce its rights pursuant to this Section. 7.5. If the invoiced party fails to remit the full amount payable when due, interest on the unpaid portion shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then - effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate. 7.6. A party shall have the right, at its own expense, upon reasonable Notice and at reasonable times, to examine and audit and to obtain copies of the relevant portion of the books, records, and telephone recordings of the other party only to the extent reasonably necessary to verify the accuracy of any statement, charge, payment, or computation made under the Contract. This right to examine, audit, and to obtain copies shall not be available with respect to proprietary information not directly relevant to transactions under this Contract. All invoices and billings shall be conclusively presumed final and accurate and all associated claims for under- or overpayments shall be deemed waived unless such invoices or billings are objected to in writing, with adequate explanation and/or documentation, within two years after the Month of Gas delivery. All retroactive adjustments under Section 7 shall be paid in full by the party owing payment within 30 Days of Notice and substantiation of such inaccuracy. 7.7. Unless the parties have elected on the Base Contract not to make this Section 7.7 applicable to this Contract, the parties shall net all undisputed amounts due and owing, and /or past due, arising under the Contract such that the party owing the greater amount shall make a single payment of the net amount to the other party in accordance with Section 7; provided that no payment required to be made pursuant to the terms of any Credit Support Obligation or pursuant to Section 7.3 shall be subject to netting under this Section. If the parties have executed a separate netting agreement, the terms and conditions therein shall prevail to the extent inconsistent herewith. SECTION 8. TITLE, WARRANTY, AND INDEMNITY 8.1. Unless otherwise specifically agreed, title to the Gas shall pass from Seller to Buyer at the Delivery Point(s). Seller shall have responsibility for and assume any liability with respect to the Gas prior to its delivery to Buyer at the specified Delivery Point(s). Buyer shall have responsibility for and assume any liability with respect to said Gas after its delivery to Buyer at the Delivery Point(s). 8.2. Seller warrants that it will have the right to convey and will transfer good and merchantable title to all Gas sold hereunder and delivered by it to Buyer, free and clear of all liens, encumbrances, and claims. EXCEPT AS PROVIDED IN THIS SECTION 8.2 AND IN SECTION 15.8, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE, ARE DISCLAIMED. 8.3. Seller agrees to indemnify Buyer and save it harmless from all losses, liabilities or claims including reasonable attorneys' fees and costs of court ( "Claims "), from any and all persons, arising from or out of claims of title, personal injury (including death) or property damage from said Gas or other charges thereon which attach before title passes to Buyer. Buyer agrees to indemnify Seller and save it harmless from all Claims, from any and all persons, arising from or out of claims regarding payment, personal injury (including death) or property damage from said Gas or other charges thereon which attach after title passes to Buyer. 8.4. The parties agree that the delivery of and the transfer of title to all Gas under this Contract shall take place within the Customs Territory of the United States (as defined in general note 2 of the Harmonized Tariff Schedule of the United States 19 U.S.C. §1202, General Notes, page 3); provided, however, that in the event Seller took title to the Gas outside the Customs Territory of the United States, Seller represents and warrants that it is the importer of record for all Gas entered and delivered into the United States, and shall be responsible for entry and entry summary filings as well as the payment of duties, taxes and fees, if any, and all applicable record keeping requirements. 8.5. Notwithstanding the other provisions of this Section 8, as between Seller and Buyer, Seller will be liable for all Claims to the extent that such arise from the failure of Gas delivered by Seller to meet the quality requirements of Section 5. SECTION 9. NOTICES 9.1. All Transaction Confirmations, invoices, payment instructions, and other communications made pursuant to the Base Contract ( "Notices ") shall be made to the addresses specified in writing by the respective parties from time to time. 9.2. All Notices required hereunder shall be in writing and may be sent by facsimile or mutually acceptable electronic means, a nationally recognized overnight courier service, first class mail or hand delivered. 9.3. Notice shall be given when received on a Business Day by the addressee. In the absence of proof of the actual receipt date, the following presumptions will apply. Notices sent by facsimile shall be deemed to have been received upon the sending party's receipt of its facsimile machine's confirmation of successful transmission. If the day on which such facsimile is received is Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 7 of 13 September 5, 2006 not a Business Day or is after five p.m. on a Business Day, then such facsimile shall be deemed to have been received on the next following Business Day. Notice by overnight mail or courier shall be deemed to have been received on the next Business Day after it was sent or such earlier time as is confirmed by the receiving party. Notice via first class mail shall be considered delivered five Business Days after mailing. 9.4. The party receiving a commercially acceptable Notice of change in payment instructions or other payment information shall not be obligated to implement such change until ten Business Days after receipt of such Notice. SECTION 10. FINANCIAL RESPONSIBILITY 10.1. If either party ( "X ") has reasonable grounds for insecurity regarding the performance of any obligation under this Contract (whether or not then due) by the other party ( "Y ") (including, without limitation, the occurrence of a material change in the creditworthiness of Y or its Guarantor, if applicable), X may demand Adequate Assurance of Performance. "Adequate Assurance of Performance" shall mean sufficient security in the form, amount, for a term, and from an issuer, all as reasonably acceptable to X, including, but not limited to cash, a standby irrevocable letter of credit, a prepayment, a security interest in an asset or guaranty. Y hereby grants to X a continuing first priority security interest in, lien on, and right of setoff against all Adequate Assurance of Performance in the form of cash transferred by Y to X pursuant to this Section 10.1. Upon the return by X to Y of such Adequate Assurance of Performance, the security interest and lien granted hereunder on that Adequate Assurance of Performance shall be released automatically and, to the extent possible, without any further action by either party. 10.2. In the event (each an "Event of Default") either party (the "Defaulting Party ") or its Guarantor shall: (i) make an assignment or any general arrangement for the benefit of creditors; (ii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a proceeding or case under any bankruptcy or similar law for the protection of creditors or have such petition filed or proceeding commenced against it; (iii) otherwise become bankrupt or insolvent (however evidenced); (iv) be unable to pay its debts as they fall due; (v) have a receiver, provisional liquidator, conservator, custodian, trustee or other similar official appointed with respect to it or substantially all of its assets; (vi) fail to perform any obligation to the other party with respect to any Credit Support Obligations relating to the Contract; (vii) fail to give Adequate Assurance of Performance under Section 10.1 within 48 hours but at least one Business Day of a written request by the other party; (viii) not have paid any amount due the other party hereunder on or before the second Business Day following written Notice that such payment is due; or ix) be the affected party with respect to any Additional Event of Default; then the other party (the "Non- Defaulting Party ") shall have the right, at its sole election, to immediately withhold and /or suspend deliveries or payments upon Notice and /or to terminate and liquidate the transactions under the Contract, in the manner provided in Section 10.3, in addition to any and all other remedies available hereunder. 10.3. If an Event of Default has occurred and is continuing, the Non - Defaulting Party shall have the right, by Notice to the Defaulting Party, to designate a Day, no earlier than the Day such Notice is given and no later than 20 Days after such Notice is given, as an early termination date (the "Early Termination Date ") for the liquidation and termination pursuant to Section 10.3.1 of all transactions under the Contract, each a 'Terminated Transaction ". On the Early Termination Date, all transactions will terminate, other than those transactions, if any, that may not be liquidated and terminated under applicable law ( "Excluded Transactions "), which Excluded Transactions must be liquidated and terminated as soon thereafter as is legally permissible, and upon termination shall be a Terminated Transaction and be valued consistent with Section 10.3.1 below. With respect to each C7,uuuuu i ransacuun, its actual termination sate snail De the tarry i ermination uate Tor purposes oT Section 1 u.3.1. The parties have selected either "Early Termination Damages Apply" or "Early Termination Damages Do Not Apply" as indicated on the Base Contract. Termination 10.3.1. As of the Early Termination Date, the Non - Defaulting Party shall determine, in good faith and in a commercially reasonable manner, (i) the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract and (ii) the Market Value, as defined below, of each Terminated Transaction. The Non - Defaulting Party shall (x) liquidate and accelerate each Terminated Transaction at its Market Value, so that each amount equal to the difference between such Market Value and the Contract Value, as defined below, of such Terminated Transaction(s) shall be due to the Buyer under the Terminated Transaction(s) if such Market Value exceeds the Contract Value and to the Seller if the opposite is the case; and (y) where appropriate, discount each amount then due under clause (x) above to present value in a commercially reasonable manner as of the Early Termination Date (to take account of the period between the date of liquidation and the date on which such amount would have otherwise been due pursuant to the relevant Terminated Transactions). For purposes of this Section 10.3.1, "Contract Value" means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the Contract Price, and "Market Value" means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the market price for a similar transaction at the Delivery Point determined by the Non - Defaulting Party in a commercially reasonable manner. To ascertain the Market Value, the Non - Defaulting Party may consider, among other valuations, any or all of the settlement prices of NYMEX Gas futures contracts, quotations from leading dealers in energy swap contracts or physical gas trading markets, similar sales or purchases and any other bona fide third -party offers, all adjusted for the length of the term and differences in transportation costs. A party shall not be required to enter into a replacement transaction(s) in order to determine the Market Value. Any extension(s) of the term of a transaction to which parties are not bound as of the Early Termination Date (including but not limited to "evergreen provisions') shall not be considered in determining Contract Values and Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 8 of 13 September 5, 2006 Market Values. For the avoidance of doubt, any option pursuant to which one party has the right to extend the term of a transaction shall be considered in determining Contract Values and Market Values. The rate of interest used in calculating net resent value shall be determined by the Non-Defaulting Party in a commercially reasonable manner. Early Termination Damages Do Not Apply: 10.3.1. As of the Early Termination Date, the Non - Defaulting Party shall determine, in good faith and in a commercially reasonable manner, the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract. The parties have selected either "Other Agreement Setoffs Apply" or "Other Agreement Setoffs Do Not Apply" as indicated on the Base Contract. Other Agreement Setoffs Apply: Bilateral Setoff Option: 10.3.2. The Non - Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount "). At its sole option and without prior Notice to the Defaulting Party, the Non - Defaulting Party is hereby authorized to setoff any Net Settlement Amount against (i) any margin or other collateral held by a party in connection with any Credit Support Obligation relating to the Contract; and (ii) any amount(s) (including any excess cash margin or excess cash collateral) owed or held by the party that is entitled to the Net Settlement Amount under any other agreement or arrangement between the parties. Triangular Setoff Option: 10.3.2. The Non - Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount "). At its sole option, and without prior Notice to the Defaulting Party, the Non - Defaulting Party is hereby authorized to setoff (i) any Net Settlement Amount against any margin or other collateral held by a party in connection with any Credit Support Obligation relating to the Contract; (ii) any Net Settlement Amount against any amount(s) (including any excess cash margin or excess cash collateral) owed by or to a party under any other agreement or arrangement between the parties; (iii) any Net Settlement Amount owed to the Non - Defaulting Party against any amount(s) (including any excess cash margin or excess cash collateral) owed by the Non - Defaulting Party or its Affiliates to the Defaulting Party under any other agreement or arrangement; (iv) any Net Settlement Amount owed to the Defaulting Party against any amount(s) (including any excess cash margin or excess cash collateral) owed by the Defaulting Party to the Non - Defaulting Party or its Affiliates under any other agreement or arrangement; and /or (v) any Net Settlement Amount owed to the Defaulting Party against any amount(s) (including any excess cash margin or excess cash collateral) owed by the Defaulting Party or its Affiliates to the Non - Defaulting Party under any other agreement or arrangement. Other Agreement Setoffs Do Not Apply: 10.3.2. The Non - Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount "). At its sole option and without prior Notice to the Defaulting Party, the Non - Defaulting Party may setoff any Net Settlement Amount against any margin or other collateral held by a party in connection with any Credit Support Obligation relating to the Contract. 10.3.3. If any obligation that is to be included in any netting, aggregation or setoff pursuant to Section 10.3.2 is unascertained, the Non - Defaulting Party may in good faith estimate that obligation and net, aggregate or setoff, as applicable, in respect of the estimate, subject to the Non - Defaulting Party accounting to the Defaulting Party when the obligation is ascertained. Any amount not then due which is included in any netting, aggregation or setoff pursuant to Section 10.3.2 shall be discounted to net present value in a commercially reasonable manner determined by the Non - Defaulting Party. 10.4. As soon as practicable after a liquidation, Notice shall be given by the Non - Defaulting Party to the Defaulting Party of the Net Settlement Amount, and whether the Net Settlement Amount is due to or due from the Non - Defaulting Party. The Notice shall include a written statement explaining in reasonable detail the calculation of the Net Settlement Amount, provided that failure to give such Notice shall not affect the validity or enforceability of the liquidation or give rise to any claim by the Defaulting Party against the Non - Defaulting Party. The Net Settlement Amount as well as any setoffs applied against such amount pursuant to Section 10.3.2, shall be paid by the close of business on the second Business Day following such Notice, which date shall not be earlier than the Early Termination Date. Interest on any unpaid portion of the Net Settlement Amount as adjusted by setoffs, shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then -effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate. 10.5. The parties agree that the transactions hereunder constitute a "forward contract" within the meaning of the United States Bankruptcy Code and that Buyer and Seller are each "forward contract merchants" within the meaning of the United States Bankruptcy Code. 10.6. The Non - Defaulting Party's remedies under this Section 10 are the sole and exclusive remedies of the Non - Defaulting Party with respect to the occurrence of any Early Termination Date. Each party reserves to itself all other rights, setoffs, counterclaims and other defenses that it is or may be entitled to arising from the Contract. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 9 of 13 September 5, 2006 10.7. With respect to this Section 10, if the parties have executed a separate netting agreement with close -out netting provisions, the terms and conditions therein shall prevail to the extent inconsistent herewith. SECTION 11. FORCE MAJEURE 11.1. Except with regard to a party's obligation to make payment(s) due under Section 7, Section 10.4, and Imbalance Charges under Section 4, neither party shall be liable to the other for failure to perform a Firm obligation, to the extent such failure was caused by Force Majeure. The term "Force Majeure" as employed herein means any cause not reasonably within the control of the parry claiming suspension, as further defined in Section 11.2. 11.2. Force Majeure shall include, but not be limited to, the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings, such as hurricanes, which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines of pipe; (iii) interruption and /or curtailment of Firm transportation and /or storage by Transporters; (iv) acts of others such as strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections or wars, or acts of terror; and (v) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, regulation, or policy having the effect of law promulgated by a governmental authority having jurisdiction. Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance. 11.3. Neither party shall be entitled to the benefit of the provisions of Force Majeure to the extent performance is affected by any or all of the following circumstances: (i) the curtailment of interruptible or secondary Firm transportation unless primary, in -path, Firm transportation is also curtailed; (ii) the party claiming excuse failed to remedy the condition and to resume the performance of such covenants or obligations with reasonable dispatch; or (iii) economic hardship, to include, without limitation, Seller's ability to sell Gas at a higher or more advantageous price than the Contract Price, Buyer's ability to purchase Gas at a lower or more advantageous price than the Contract Price, or a regulatory agency disallowing, in whole or in part, the pass through of costs resulting from this Contract; (iv) the loss of Buyer's market(s) or Buyer's inability to use or resell Gas purchased hereunder, except, in either case, as provided in Section 11.2; or (v) the loss or failure of Seller's gas supply or depletion of reserves, except, in either case, as provided in Section 11.2. The party claiming Force Majeure shall not be excused from its responsibility for Imbalance Charges. 11.4. Notwithstanding anything to the contrary herein, the parties agree that the settlement of strikes, lockouts or other industrial disturbances shall be within the sole discretion of the party experiencing such disturbance. 11.5. The party whose performance is prevented by Force Majeure must provide Notice to the other party. Initial Notice may be given orally; however, written Notice with reasonably full particulars of the event or occurrence is required as soon as reasonably possible. Upon providing written Notice of Force Majeure to the other party, the affected party will be relieved of its obligation, from the onset of the Force Majeure event, to make or accept delivery of Gas, as applicable, to the extent and for the duration of Force Majeure, and neither party shall be deemed to have failed in such obligations to the other during such occurrence or event. 11.6. Notwithstanding Sections 11.2 and 11.3, the parties may agree to alternative Force Majeure provisions in a Transaction Confirmation executed in writing by both parties. SECTION 12. TERM This Contract may be terminated on 30 Day's written Notice, but shall remain in effect until the expiration of the latest Delivery Period of any transaction(s). The rights of either parry pursuant to Section 7.6, Section 10, Section 13, the obligations to make payment hereunder, and the obligation of either party to indemnify the other, pursuant hereto shall survive the termination of the Base Contract or any transaction. SECTION 13. LIMITATIONS FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY. A PARTY'S LIABILITY HEREUNDER SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED HEREIN OR IN A TRANSACTION, A PARTY'S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY. SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 10 of 13 September 5, 2006 SECTION 14. MARKET DISRUPTION If a Market Disruption Event has occurred then the parties shall negotiate in good faith to agree on a replacement price for the Floating Price (or on a method for determining a replacement price for the Floating Price) for the affected Day, and if the parties have not so agreed on or before the second Business Day following the affected Day then the replacement price for the Floating Price shall be determined within the next two following Business Days with each party obtaining, in good faith and from non- affiliated market participants in the relevant market, two quotes for prices of Gas for the affected Day of a similar quality and quantity in the geographical location closest in proximity to the Delivery Point and averaging the four quotes. If either party fails to provide two quotes then the average of the other party's two quotes shall determine the replacement price for the Floating Price. "Floating Price" means the price or a factor of the price agreed to in the transaction as being based upon a specified index. "Market Disruption Event" means, with respect to an index specified for a transaction, any of the following events: (a) the failure of the index to announce or publish information necessary for determining the Floating Price; (b) the failure of trading to commence or the permanent discontinuation or material suspension of trading on the exchange or market acting as the index; (c) the temporary or permanent discontinuance or unavailability of the index; (d) the temporary or permanent closing of any exchange acting as the index; or (e) both parties agree that a material change in the formula for or the method of determining the Floating Price has occurred. For the purposes of the calculation of a replacement price for the Floating Price, all numbers shall be rounded to three decimal places. If the fourth decimal number is five or greater, then the third decimal number shall be increased by one and if the fourth decimal number is less than five, then the third decimal number shall remain unchanged. SECTION 15. MISCELLANEOUS 15.1. This Contract shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, and heirs of the respective parties hereto, and the covenants, conditions, rights and obligations of this Contract shall run for the full term of this Contract. No assignment of this Contract, in whole or in part, will be made without the prior written consent of the non - assigning parry (and shall not relieve the assigning party from liability hereunder), which consent will not be unreasonably withheld or delayed; provided, either party may (i) transfer, sell, pledge, encumber, or assign this Contract or the accounts, revenues, or proceeds hereof in connection with any financing or other financial arrangements, or (ii) transfer its interest to any parent or Affiliate by assignment, merger or otherwise without the prior approval of the other party. Upon any such assignment, transfer and assumption, the transferor shall remain principally liable for and shall not be relieved of or discharged from any obligations hereunder. 15.2. If any provision in this Contract is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Contract. 15.3. No waiver of any breach of this Contract shall be held to be a waiver of any other or subsequent breach. 15.4. This Contract sets forth all understandings between the parties respecting each transaction subject hereto, and any prior contracts, understandings and representations, whether oral or written, relating to such transactions are merged into and superseded by this Contract and any effective transaction(s). This Contract may be amended only by a writing executed by both parties. 15.5. The interpretation and performance of this Contract shall be governed by the laws of the jurisdiction as indicated on the Base Contract, excluding, however, any conflict of laws rule which would apply the law of another jurisdiction. 15.6. This Contract and all provisions herein will be subject to all applicable and valid statutes, rules, orders and regulations of any governmental authority having jurisdiction over the parties, their facilities, or Gas supply, this Contract or transaction or any provisions thereof. 15.7. There is no third party beneficiary to this Contract. 15.8. Each party to this Contract represents and warrants that it has full and complete authority to enter into and perform this Contract. Each person who executes this Contract on behalf of either party represents and warrants that it has full and complete authority to do so and that such party will be bound thereby. 15.9. The headings and subheadings contained in this Contract are used solely for convenience and do not constitute a part of this Contract between the parties and shall not be used to construe or interpret the provisions of this Contract. 15.10. Unless the parties have elected on the Base Contract not to make this Section 15.10 applicable to this Contract, neither party shall disclose directly or indirectly without the prior written consent of the other party the terms of any transaction to a third party (other than the employees, lenders, royalty owners, counsel, accountants and other agents of the party, or prospective purchasers of all or substantially all of a party's assets or of any rights under this Contract, provided such persons shall have agreed to keep such terms confidential) except (i) in order to comply with any applicable law, order, regulation, or exchange rule, (ii) to the extent necessary for the enforcement of this Contract , (iii) to the extent necessary to implement any transaction, (iv) to the extent necessary to comply with a regulatory agency's reporting requirements including but not limited to gas cost recovery proceedings; or (v) to the extent such information is delivered to such third party for the sole purpose of calculating a published index. Each party shall notify the other party of any proceeding of which it is aware which may result in disclosure of the terms of any transaction (other than as permitted hereunder) and use reasonable efforts to prevent or limit the disclosure. The existence of this Contract is not subject to this confidentiality obligation. Subject to Section 13, the parties shall be entitled to all remedies available at law or in equity to enforce, or seek relief in connection with this confidentiality obligation. The terms of any transaction hereunder shall be kept confidential by the parties hereto for one year from the expiration of the transaction. In the event that disclosure is required by a governmental body or applicable law, the party subject to such requirement may disclose the material terms of this Contract to the extent so required, but shall promptly notify the other party, prior to disclosure, Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 11 of 13 September 5, 2006 and shall cooperate (consistent with the disclosing party's legal obligations) with the other party's efforts to obtain protective orders or similar restraints with respect to such disclosure at the expense of the other party. 15.11. The parties may agree to dispute resolution procedures in Special Provisions attached to the Base Contract or in a Transaction Confirmation executed in writing by both parties 15.12. Any original executed Base Contract, Transaction Confirmation or other related document may be digitally copied, photocopied, or stored on computer tapes and disks (the "Imaged Agreement "). The Imaged Agreement, if introduced as evidence on paper, the Transaction Confirmation, if introduced as evidence in automated facsimile form, the recording, if introduced as evidence in its original form, and all computer records of the foregoing, if introduced as evidence in printed format, in any judicial, arbitration, mediation or administrative proceedings will be admissible as between the parties to the same extent and under the same conditions as other business records originated and maintained in documentary form. Neither Party shall object to the admissibility of the recording, the Transaction Confirmation, or the Imaged Agreement on the basis that such were not originated or maintained in documentary form. However, nothing herein shall be construed as a waiver of any other objection to the admissibility of such evidence. DISCLAIMER: The purposes of this Contract are to facilitate trade, avoid misunderstandings and make more definite the terms of contracts of purchase and sale of natural gas. Further, NAESB does not mandate the use of this Contract by any party. NAESB DISCLAIMS AND EXCLUDES, AND ANY USER OF THIS CONTRACT ACKNOWLEDGES AND AGREES TO NAESB'S DISCLAIMER OF, ANY AND ALL WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THIS CONTRACT OR ANY PART THEREOF, INCLUDING ANY AND ALL IMPLIED WARRANTIES OR CONDITIONS OF TITLE, NON - INFRINGEMENT, MERCHANTABILITY, OR FITNESS OR SUITABILITY FOR ANY PARTICULAR PURPOSE (WHETHER OR NOT NAESB KNOWS, HAS REASON TO KNOW, HAS BEEN ADVISED, OR IS OTHERWISE IN FACT AWARE OF ANY SUCH PURPOSE), WHETHER ALLEGED TO ARISE BY LAW, BY REASON OF CUSTOM OR USAGE IN THE TRADE, OR BY COURSE OF DEALING. EACH USER OF THIS CONTRACT ALSO AGREES THAT UNDER NO CIRCUMSTANCES WILL NAESB BE LIABLE FOR ANY DIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF ANY USE OF THIS CONTRACT. Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 12 of 13 September 5, 2006 TRANSACTION CONFIRMATION FOR IMMEDIATE DELIVERY EXHIBIT A Letterhead /Logo Date: Transaction Confirmation #: This Transaction Confirmation is subject to the Base Contract between Seller and Buyer dated The terms of this Transaction Confirmation are binding unless disputed in writing within 2 Business Days of receipt unless otherwise specified in the Base Contract. SELLER: BUYER: Attn: Attn: Phone: Phone: Fax: Fax: Base Contract No. Transporter: Transporter Contract Number: Base Contract No. Transporter: Transporter Contract Number: Contract Price: $ /MMBtu or Delivery Period: Begin: End: Performance Obligation and Contract Quantity: (Select One) Firm (Fixed Quantity): Firm (Variable Quantity): Interruptible: MMBtus /day MMBtus /day Minimum Up to MMBtus /day EFP MMBtus /day Maximum subject to Section 4.2. at election of Buyer or I Seller Delivery Point(s): (If a pooling point is used, list a specific geographic and pipeline location): Special Conditions: Seller: Buyer: By: By: Title: Title: Date: Date: Copyright © 2006 North American Energy Standards Board, Inc. NAESB Standard 6.3.1 All Rights Reserved Page 13 of 13 September 5, 2006 SPECIAL PROVISIONS to the Base Contract for Sale and Purchase of Natural Gas between Macquarie Energy LLC and Hutchinson Utilities Commission dated as of The following provisions (the "Special Provisions') to the Base Contract shall supplement and form part of the Base Contract between the parties. The parties do hereby represent and warrant that the General Terms and Conditions of the Base Contract for Sale and Purchase of Natural Gas have not been modified, altered or amended in any respect except as outlined in these Special Provisions. In the event of any conflict or inconsistency between the Special Provisions and the Base Contract, the Special Provisions shall govern. All capitalized terms and section references used in these Special Provisions but not defined herein shall have the respective meanings ascribed to them in the Base Contract. 1. Section 2 is modified by adding the following: 2.36. "Costs" means all costs, expenses and losses which the Non - Defaulting Party may reasonably incur in terminating and liquidating under Section 10 any Terminated Transactions, including, without limitation, attorneys' and brokers fees and the costs, expenses and losses associated with transportation and incurred in maintaining, terminating and /or re- establishing any related hedges, except for such amounts already included in the Net Settlement Amount. 2. Section 10 is amended by adding the following: 10.8 In calculating early termination damages pursuant to Section 10.3.1, the Non - Defaulting Party may take into account its Costs incurred as a result of terminating the transactions. 3. Section 15 is amended by adding the following after the last sentence of 15.8: 15.8. On the effective date and the date of entering into each transaction hereunder, each party represents and warrants to the other party that: (i) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has all regulatory authorizations necessary for it to legally perform its obligations under this Base Contract and each transaction hereunder; (ii) the execution, delivery and performance of this Base Contract and each transaction hereunder are within its powers, and do not violate any contracts to which it is a party or any law, rule, regulation, order; (iii) this Base Contract, each transaction hereunder, and each other document executed and delivered in accordance with this Base Contract constitutes a legally valid and binding obligation enforceable against it in accordance with the terms of said document, subject to any equitable defenses; (iv) it, or its credit support provider, if applicable, is not bankrupt and there are no proceedings pending or being contemplated by it, its credit support provider, if any, or, to its knowledge, threatened against it which would result in it being or becoming bankrupt and there is not pending or, to its knowledge, threatened against it, or its credit support provider, if any, any legal proceedings that could materially adversely affect its ability to perform its obligations under this Base Contract and each transaction hereunder; (v) no Event of Default with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Base Contract and each transaction hereunder; (vi) it is acting for its own account, has made its own independent decision to enter into this Base Contract and each transaction hereunder and as to whether this Base Contract and each such transaction is appropriate or proper for it based upon its own judgment, is not relying upon the advice or recommendations of the other party in so doing, and is capable of assessing the merits of and understanding, and understands and accepts, the terms, conditions and risks of this Base Contract and each transaction hereunder; and (vii) it is an "eligible contract participant" as that term is defined in Section 1 a(12) of the Commodity Exchange Act. 4. Section 15 is further amended by adding the following: 15.13. This Contract, and the rights and duties of the parties arising therefrom, shall be governed by, and interpreted and construed in accordance with, the law of the State of New York (without reference to choice of law doctrine). With respect to any suit, action or proceeding relating to the foregoing ( "Proceeding ") each party irrevocably submits to the non - exclusive jurisdiction of the State and Federal Courts located in New York City, Borough of Manhattan, New York and any appellate court therefrom, and waives any objection to the laying of venue of any Proceeding brought in any such court, waives any claim that any Proceeding has been brought in an inconvenient forum and waives claim of sovereign immunity. ANY PROCEEDINGS ARISING OUT OF OR RELATING TO THIS BASE CONTRACT OR ANY TRANSACTION HEREUNDER SHALL BE RESOLVED BY A JUDGE TRIAL WITHOUT A JURY AND THE RIGHT TO A JURY TRIAL IS WAIVED, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW. IN WITNESS WHEREOF, the parties hereto have executed these Special Provisions in duplicate MACQUARIE ENERGY LLC Hutchinson Utilities Commission By: Name: Title: By: 4wA, v . Name: V '1 - Title: 4v-r4-,---1 tt►��• MACQUARIE ENERGY LLC By: