Loading...
HomeMy WebLinkAboutAgreement for the Sale & Purchase of Natural Gas, September 26, 1988Alaska Energy Authority LIBRARY COPY ica 1S RUED TO 88-99-95 Page l of 2 ec WA a Z ELECTRIC ASSOCIATION. INC. Anchorage. Afaska RESOLUTION WHEREAS, Chugach depends on natural gas as its primary source of fuel for the generation of electric power; WHEREAS, The Board of Directors has directed that new natu- ral gas supply agreements be negotiated with various suppliers, and the Board has continually monitored the progress of such negotiations; WHEREAS, The Board of Directors previously approved a draft agreement with Marathon on May 18, 1988; however, Marathon, with- out having finally approved that contract, executed a new con- tract ("APL-IV") with ENSTAR on May 21, 1988, WHEREAS, Some provisions of Chugach’s agreement with Mara- thon were inconsistent with APL-IV, requiring partial renegotia- tion of Chugach’s agreement; WHEREAS, Such a gas supply agreement has been renegotiated with Marathon Oil Company ("Marathon") for the supply of gas to the Bernice Lake Power Plant, to the Beluga Power Plant, and potentially to the International Power Plant; WHEREAS, The Board of Directors has reviewed and appreves of the agreement for the Sale and Purchase cf Natural Gas between Chugach and Marathon ("Agreement") in the form presented to the Board at its meeting of September 12, 1988, and anticipates that such Agreement can and will be finalized in a manner acceptable to the Board; WHEREAS, Chugach has retained expert consultants to analyze Marathon’s gas reserves and other gas supply commitments, for the purpose of independently evaluating Marathon’s ability to perform its Agreement with Chugach; and WHEREAS, In order for Chugach to maximize the benefits of the Marathon Agreement it is essential that the Agreement be promptly finalized and submitted tc the necessary agencies for interim and final approval; NOW THEREFORE BE IT RESOLVED, That the Board of Directors hereby approves the Marathon Agreement, if finalized in substan- tially the form presented to the Board at its meeting of September 12, 1988, subject only to the requirement that the report of the expert consultants retained by Chugach confirms that Marathon has gas supplies available to it in amounts reason- ably sufficient to permit Marathon to perform its agreement with Chugach; f a ELECTRIC ASSOCIATION. INC. Anchorage. Alaska RESOLUTION BE IT RESOLVED, That the Board of Directors authorizes the President or Vice-President to execute the Agreement with Mara- thon for the Sale and Purchase of Natural Gas after it has been finalized, and subject to subsequent receipt of a satisfactory report from the independent consultants retained by Chugach; and BE IT FURTHER RESOLVED, That the General Manager is directed to seek prompt interim and final approval of the Agreement by the Rural Electrification Administration, the Alaska Public Utilities Commission and the Spokane Bank for Cooperatives. CERTIFICATION L___Joseph P. Green aeveeee, dO hereby certify that I am.........00.5................. Secretary of Chugach Electric Association, Inc., an electric non-profit cooperative membership corporation organized and existing under the laws of the State of Alaska; that the foregoing is a complete and correct copy of a resolution adopted at a meeting of the Board of Directors of this corporation, duly and properly called and held on the. 12th that a quorum was present at the meeting; that the resolution is set forth in the minutes of the meeting and ha: or modified. IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of this corporation this..L2th doy of September 1988, (Seal) AGREEMENT FOR THE SALE AND PURCHASE oF NATURAL GAS between CHUGACH ELECTRIC ASSOCIATION, INC., and MARATHON OIL COMPANY September 26, 1988 198810/501 CHUGACH-MARATHON GAS PURCHASE AGREEMENT 198810/502 September 26, 1988 TABLE OF CONTENTS Section Heading Page aL; PARTIES ep poet ol to pee) ere ro ol yol eto rio te efaifotiie atte) al 2 RECLETALS sarc alcedinelele mirouinennl= aie olliis}idl oil coll lalla alculite aL (a) Chugach's Gas Supply Require- ments & Utility System .... uk (b) Marathon's Gas Supplies And Gas Transmission System... . 2 (c) Other Contemplated Trans- ACETONG sear Slenoinomicnrsiiicldileaienire 3 (a) Effect of Sections 2(a), (b), Se) (G6) ee) eee) ml) le | ee) le le 3 3 PERM cons tteul rol Nollule/ Molle! Uelaomicellie) Noielmeliiielaleniie 4 4 Si 6 ee ee eee ee 4 (a) Sale And Purchase Of Gas ... 4 (DPS ysten Salen cuore cmicies|ieiienie 4 (c) System Purchase ........ 4 (ad) Mutual Covenants On Sale Of Marathon) |Gas) |<) 01) <)) /s) \1) |) /<)) Ie) | 6 5 5 MARATHON'S SHARE OF CHUGACH'S TOTAL GAS REQUIREMENTS; VOLUME AND DELIVERA- BILITY LIMITS; RELATED MATTERS ... 12 (a) Marathon's Share Of Chugach's Total Gas Requirements .... 12 (b) Total Volume Limit; Related Matters . |.) - « (2) 2) «|| . 20 (c) Covenant Of Deliverability; Deliverability Limits ..... 23 (d) Release Of Otherwise Committed mae | | ae) li ok) me) let lee ll Yoo J |) el el le |e of (e) No Warranty Of Reserves .... 35 (£) Reservations Of Marathon ... 36 Table of Contents Page 1 of 6 198810/502 10 CHUGACH-MA September 26, 1988 CHUGACH'S GAS REQUIREMENTS; RELATED COMMITMENTS . . . 2. © «© © © © © © (a) Chugach's Power Generation Requirements; Commitments Re- lated Thereto ......... (b) Chugach's Total Gas Require- ments; Commitments Related Thereto . . . « « « © «© «© « « « (c) Chugach's Operating Commit- ments PRICE OF GAS; ADJUSTMENT OF SAME .... (a) Total Price...) ee) 6 (b) Base Price .......2..-. (c) Adjustment Mechanism ..... (d) Tax And Excess Royalty Reimbursement ........-. (e) Regulated Prices ....... MARATHON'S PIPELINE CONSTRUCTION COVENANTS . . « «© «© © «© © 2 © © oe @ (a) Applicability Of This Section (b) Commencement Of Permitting PFOCGSS). ie eile «1 oe ciclo (c) Commencement Of Construction . (ad) Completion Of Construction .. (e) Potential Completion Of Pipe- lines By Chugach ....... ALTERNATIVE CONSTRUCTION/OWNERSHIP OF PIPELINE(S) . . « « «© « © © © e © « (a) Applicability of This Section (b) Alternative Construction/Owner- bh ag oo OG Oo 0 0 6 6 oo c (c) Chugach's Consent ....... BILLING AND PAYMENT . . ~~... 2. se @ RATHON GAS PURCHASE AGREEMENT Table 38 38 40 40 43 43 43 43 49 51 52 52 52 53 53 54 57 57 57 57 59 of Contents Page 2 of 6 198810/502 (a) (b) (c) (a) September 26, 1988 Monthly Billing .s06) oo Payment . . . . « © © © «© «© « e Billing Disputes; Late Payments Measurement, Quality, And Pressure Of Gas ......se. 11 CONTINUITY OF DELIVERY .....+.4+44.-. (a) (b) (c) Capacity To Be Made Available Restoration Of Service .... Dispatching) <) <1). <))) oe) < 12 MARATHON'S OBLIGATIONS AS OPERATOR. .. . 13 LEGAL MATTERS . . . «© «© «© © © © © «© © @ (a) (b) (c) (da) (e) (f£) (g) (h) (i) (3) (x) (1) (m) (n) (0) CHUGACH-MARATHON GAS PURCHASE AGREEMENT No Duty To Third Parties; No Consequential Or Incidental Damages . ... 2... 2-2. eee Force Majeure ........-. Responsibility For Gas Supply And Delivery; Passage Of Title Indemnification ........ Waiver oc) e) eel crenicl cr el ete Approvals . . . . « « « « « « e Non-Severability .. Successors And Assigns .... INOtCLCes) yee e ele) el cle Default And Dispute Resolution Right Of Access And Removal. . Applicable Law ........ Section Headings ....... Access To Records; Errors. . . Authority to Enter Agreement 59 59 59 60 62 62 62 62 62 63 63 63 64 64 66 66 66 67 69 69 aa 72 72 72 73 Table of Contents Page 3 of 6 198810/502 September 26, 1988 (p) Modification Or Amendment... 73 (q) Arbitration = 2. 2. 25 2. 2 «= © « 73 (xr) Agreement Not To Be Construed Against Either Party As Drafter ag, (s) Warranty Of Title ....... 77 (t) Regulatory Bodies ....... 78 (u) No Prior Agreements ...... 78 (v) Reasonableness And Prudency As Standards . ......-+ ee. 78 14 DEFINITIONS . . . «© «© © © © © © © © «© « 80 (a) Adjusted Price ........ 80 (b) Adjustment Mechanism ..... 80 (c) Agreement. ......24+2e-. 80 (ad) Base Price ......+2.+e46-. 80 (e) Beluga ... . 0 « « « « 0 & « 80 (f) Beluga Pipeline ........ 80 (g) Beluga River Field Producers 80 (h) Bernice Lake ......+e4.6-. 81 (i) Bernice Lake Pipeline ..... 81 (j3) Commission .......2.e06-. 82 (k) Contingent Commitment ..... 82 (1) Day or day (uncapiltalized) .. 82 (m) Deliverability Limits ..... 82 (n) Delivery Points ........ 82 (©) Displacement Sale ....... 82 (p) Displacement Sale Volume ... 82 (q) Effective Date ........ 82 (xr) Force Majeure ......ee-. 82 CHUGACH-MARATHON GAS PURCHASE AGREEMENT Table of Contents Page 4 of 6 198810/502 (s) (t) (v) (w) (x) (y) (2) (aa) (bb) (cc) (dd) (ee) (ff) (gg) (hh) (ii) (33) (kk) (11) (mm) (nn) (00) (pp) CHUGACH-MARATHON GAS PURCHASE AGREEMENT September 26, 1988 Gas or gas (uncapitalized) GVEA Contract ..... +... Incremental Commitment .... Incremental Sale ....... Initial Commitment ...... International or International Station c/EoH oN MONT onolirolc Ne Iris Major Electric Power Purchase Commitment ....-..-..-- Marathon's Available Gas Re- serves . . « « © © © © © © © Marathon's Properties ..... Marathon's Share Of Chugach's Total Gas Requirements .... Necessary Approvals ...... New Beluga Contracts ..... New Gas Sale .......2e-. Non-Gas Resources ....... Old Beluga Contracts ..... Old Beluga Gas ........ Power Generation Requirements or Chugach's Power Generation Requirements ......... PURPA Resources ........ Reimbursable Tax or Taxes... Renewable Resources ...... Term « 2. © « © © «© «© © 6 0 ew Termination Date ....... Total Gas Requirements or Chugach's Total Gas Require- ments . . «© « « © © © © © © «© Totaly Price ce eiiculecln ol rcicnre 84 84 84 84 84 84 85 85 85 86 86 86 86 86 86 87 87 87 87 89 89 90 90 90 Table of Contents Page 5 of 6 198810/502 September 26, 1988 (qq) Total Volume Limit ...... 90 EXHIBITS Determination Of Displacement Sale Volumes Marathon's Previous Commitments Chugach's Major Power Purchase Commitments Chugach's Non-Gas Resources Gas Reserves Definitions jy A Oo A hw PY Gas Measurement, Quality, Pressure, And Delivery Points GVEA Contract Chugach Power Sales Contracts Gas Delivered To International Station GQ H & a Marathon's Share Of Chugach's Total Gas Requirements In The Event Of Chugach's Consolidation With ML&P CHUGACH-MARATHON GAS PURCHASE AGREEMENT Table of Contents Page 6 of 6 Sec. 1 to Sec. 2(a) (4) SECTION 1. PARTIES 1. This Agreement dated as of September 26, 1988, is be- tween CHUGACH ELECTRIC ASSOCIATION, INC. ("Chugach"), an Alaska non-profit electric cooperative corporation, and MARATHON OIL COMPANY ("Marathon"), an Ohio corporation. SECTION 2. RECITALS 2(a). Chugach's Gas Supply Requirements & Utility System. (1) Chugach operates an integrated generation, trans- mission, and distribution system for the sale of electric power at retail to ultimate consumers and at wholesale to other utilities. (2) Chugach uses natural gas ("gas") to generate electric power at its Beluga Generating Station ("Beluga"), its Bernice Lake Generating Station ("Bernice Lake"), and its International Station ("International"), among other locations. (3) Chugach requires new gas supply arrangements at Beluga and, in addition, Chugach has determined that a new gas supply arrangement at Bernice Lake (and, if possible, at International) is prudent and will benefit Chugach's members, its retail consumers, and its wholesale customers, among others. (4) Existing contractual limitations on deliveries of gas at Beluga, and the existing and historic prices of gas available to Chugach at Bernice Lake and other locations, have hitherto prevented Chugach from selling to other CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page l 198810/503 Sec. 2(b) (1) to 2(b) (3) utilities additional amounts of wholesale electric power which, as a result of this Agreement, can be generated and sold. Such additional power sales will benefit Chugach's members, its retail consumers, its wholesale customers, and the retail consumers served by Chugach's wholesale custom- ers, among others. 2(b). Marathon's Gas Supplies And Gas Transmission System. (1) Marathon is willing to sell a portion of gas from Marathon's Properties to Chugach in accordance with the terms of this Agreement. (2) Marathon owns an interest in a gas gathering sys- tem capable of delivering to Granite Point, on the west side of Cook Inlet, the gas that will be sold and delivered to Chugach under this Agreement at Beluga. Marathon will construct or cause to be constructed (as described in Sec- tion 8) a pipeline from Granite Point to Beluga (the "Bel- uga Pipeline") that will permit Marathon to deliver such gas to Chugach at Beluga. In the alternative, the Beluga Pipeline may be constructed and/or owned by an entity other than Marathon pursuant to Section 9, if the arrangements governing transportation of Marathon's gas through the Bel- uga Pipeline to Beluga are satisfactory to Chugach. (3) Marathon will also construct or cause to be con- structed (as described in Section 8) a pipeline from Mara- thon's gas pipeline system to Bernice Lake (the "Bernice Lake Pipeline") that will permit Marathon to deliver to Bernice Lake the gas that Marathon will sell to Chugach CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 2 198810/503 2(a), Sec. 2(b) (4) to Sec. 2(d) under this Agreement for delivery at Bernice Lake. In the alternative, the Bernice Lake Pipeline may be constructed and/or owned by an entity other than Marathon pursuant to Section 9 if the arrangements governing transportation of Marathon's gas through the Bernice Lake Pipeline to Bernice Lake are satisfactory to Chugach. (4) Marathon will use reasonable efforts to arrange for the transportation of gas to International on terms acceptable to Marathon. 2(c). Other Contemplated Transactions. (1) The parties recognize that Chugach has entered into a certain wholesale power sales agreement with the Golden Valley Electric Association, Inc. (the "GVEA Con- tract"), and will produce the electric power needed to per- form the GVEA Contract primarily by using gas supplied by Marathon under this Agreement. (2) The agreement with GVEA referenced in Section 2(c)(1) is attached to this Agreement as Exhibit G. In addition, if Chugach enters into any agreements for Incre- mental Sales (as defined herein), Chugach shall provide Marathon with copies of such agreements. 2(d). Effect of Sections 2(a), (b), and (c). Sections (b), and (c) are included solely for the purpose of de- scribing this Agreement generally. The rights and obligations of the parties are to be determined, construed, and governed only by the other provisions hereof. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 3 198810/503 Sec‘! /3) to |Sec- | /4.(c) SECTION 3. TERM 3. This Agreement shall become effective upon the Effec- tive Date and shall continue in* force until. December 31, 2015, or, if earlier, the date on which Marathon has delivered to Chu- gach under this Agreement a volume of gas in total which equals or exceeds-the total volume of gas that Marathon is obligated to sell and deliver to Chugach under this Agreement, or, if later, the date that volumes committed pursuant to the Contingent Com- mitment (if any) have been delivered. SECTION 4. AGREEMENT 4(a). Sale And Purchase Of Gas. Marathon agrees to sell and deliver to Chugach, and Chugach agrees to purchase and re- ceive from Marathon, gas in the amount of Marathon's Share of Chugach's Total Gas Requirements (as defined in Section 5) dur- ing the Term of this Agreement, subject only to the limitations and the terms and conditions set forth herein. 4(b). System Sale. Marathon shall not be obligated to provide gas to Chugach from any particular source of supply a- vailable to Marathon. Rather, the gas that Marathon is obli- gated to sell and deliver under this Agreement is gas that Mara- thon shall be entitled to provide from any or all of the sources of supply available to Marathon from Marathon's Properties at the time of delivery. 4(c). System Purchase. The gas that Chugach is obligated to purchase and receive under this Agreement may be used at any or all of the gas-fired generating units available to Chugach. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 4 198810/503 Sec. 4(d) to Sec. 4(d) (B) (ii) Thus, this purchase is a "system purchase" and not a purchase available tions, or to Chugach for use only at specific or discrete loca- only for specific or diserete types or increments of power generation or power sales. 4(d). Mutual -Covenants On Sale Of Marathon Gas. (1) Chugach's: covenants. (A). Chugach agrees that the gas to be purchased under this Agreement shall be used solely for the pro- duction of electric power (including station uses) and specifically agrees that it will not resell gas pur- chased from Marathon hereunder without Marathon's written consent. Except as provided in Section 4(d)- (1) (B), however, nothing in this Agreement shall limit Chugach's use or sale of electric power, including electric power produced by gas-fired generating facil- ities. (B) If and to the extent that -- (i) Chugach uses gas to generate electric power for sale to any other utility (hereinafter the "second utility") other than as an Incremen- tal Sale for which Marathon has made an Incremen- tal Commitment; and (ii) such sale described in Section 4(d)- (1) (B) (i) (hereinafter "Displacement Sale") dis- places, in whole or in part, the operation of the second utility's own installed and operable gas- fired generating capacity; and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 5 198810/503 Sec. 4(d) (B) (iii) to Sec. 4(d) (B) (iv) (II) (iii) the second utility is a utility that owned and used gas-fired generating capacity to meet its own retail electric loads as of the Ef- fective Date of this Agreement; and (iv) in so displacing the operation of the second-utility's own gas-fired generation, the Displacement Sale reduces the amount of gas that Marathon sells to the second utility or to the gas supplier of the second utility; then: (I) notwithstanding Section 5(a), at Marathon's option Chugach shall _ purchase from Marathon under the terms of this Agree- ment that volume of gas (the "Displacement Sale Volume") from volumes previously com- mitted under this Agreement which Chugach requires to make the Displacement Sale; pro- vided, that if and to the extent Marathon is unable to deliver all or any portion of the Displacement Sale Volume to Chugach at the time, rate of delivery, or generating facil- ity location required for the generation of the Displacement Sale, then to that extent only, Chugach shall not be obligated to pur- chase the Displacement Sale Volume from Mar- athon; and (II) notwithstanding Section 7(b), the Adjusted Price applicable to the CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 6 198810/503 Sec. 4(d) (1) (C) to Sec. 4(d) (1) (D) Displacement Sale Volume that Chugach pur- chases from Marathon shall be the then- applicable Annual Base Price (or, if lower, the Limited Annual Base Price) under Section 10.2 of the Gas Purchase Agreement between Marathon and Alaska Pipeline Company dated May 1, 1988 ("APL-IV"). (C) Chugach shall notify Marathon in writing as promptly as reasonably possible under the circum- stances of any Displacement Sale that Chugach intends to make (or, if Chugach should for any reason make or discover that it has made such a Sale before having notified Marathon, as promptly as reasonably possible after commencing or discovering that it has commenced such a Sale). Displacement Sale Volume(s) shall be computed in accordance with Exhibit A attached hereto and incorporated by reference herein. (D) Notwithstanding any other provision of this Agreement, Marathon shall be entitled, at its option, to have all or any portion of any Displacement Sale Volume treated as an Incremental Commitment for all purposes under this Agreement. Marathon may exercise such option by written notice delivered to Chugach within ten (10) business days after the date Marathon receives from Chugach the written notification de- scribed in Section 4(d) (1) (C). CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 7 198810/503 Sec. 4(d)(1)(E) to Sec. 4(d) (2) (A) (E) No sale of electric power by Chugach shall be considered a Displacement Sale for purposes of Sec- tion 4(d)(1)({B) unless the- conditions set forth in that Section are met. In addition, no power sales by Chugach to Homer Electric. Association, Inc. ("HEA"), including sales to HEA through the Alaska Electric Generation & Transmission Cooperative, Inc. ("AEG&T"), shall be considered Displacement Sales for purposes of Section 4(d) (1) (B). (2) Marathon's rights to sell gas to others. (A) Marathon has previously reserved gas or con- tracted to sell to other purchasers certain volumes of gas from Marathon's Properties. Such reservations and contracts are set forth in Exhibit B attached hereto and incorporated by reference herein. Marathon re- serves the right to fulfill the commitments listed on Exhibit B with gas from Marathon's Properties. Mara- thon shall also have the further rights (i) to sell or lease/rent gas produced from Marathon's Properties to any other purchaser or lessee/renter of its choosing, and (ii) to amend any transaction listed in Exhibit B to increase gas use, sales or leases/rentals. The transactions described in the preceding sentence are collectively defined as "New Gas Sales." No New Gas Sale shall be made unless, at the time the New Gas Sale contract is signed, Marathon has sufficient gas, deliverability, and projected deliverability to meet CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 8 198810/503 Sec. 4(d) (2) (B) the proposed New Gas Sale provisions and to honor the undelivered portions of its Exhibit B commitments, the Initial Commitment, any-.Incremental Commitments that have theretofore been made, the Contingent Commitment (if one has previously been made) and previously exe- cuted New Gas Sale contracts. Marathon shall termi- nate or reduce deliveries under a New Gas Sale con- tract in the event that Marathon subsequently deter- mines that it lacks sufficient gas or deliverability to satisfy, without reduction, its Exhibit B commit- ments, the Initial Commitment, any Incremental Commit- ments made before the New Gas Sale was entered into, and/or the Contingent Commitment (if made before the New Gas Sale contract was executed). (B) If it is at any time determined that Sel- ler's Available Gas Reserves are insufficient to per- mit it to make deliveries under this contract and meet its obligations to Alaska Pipeline Company under the Gas Purchase Agreement dated May 1, 1988 ("APL-IV"), gas deliveries under this contract may be reduced or terminated by Seller in its sole discretion. Seller's Available Gas Reserves will be determined in accord- ance with the provisions of APL-IV. The preceding two sentences are included in this Agreement in accordance with and as required by Section 4.12(b) of APL-IV; for purposes of the preceding two sentences, "Seller" CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 9 198810/503 Sec. 4(d) (2) (C) to Sec. 4(d) (2) (D) means Marathon and "this contract" means this Agree- ment. (C) For purposes of this Agreement, no addition- al commitment of gas by Marathon to Alaska Pipeline Company under APL-IV in excess of the Initial Commit- ment (as defined in APL-IV) shall constitute a New Gas Sale, and any such additional commitment shall instead be considered as having been made pursuant to Mara- thon's reservation of rights set forth in the third sentence of Section 4(d)(2)(A) of this Agreement. In making any additional commitment pursuant to "Option 2" or "Option 3" as described in Section 4.4(a) of APL-IV, however, Marathon will act in good faith to commit only such additional reserves as Marathon rea- sonably believes, based on sound petroleum reservoir engineering data, can be so committed without causing it to exercise its rights to reduce or terminate gas deliveries to Chugach either (i) pursuant to Section 4(d)(2)(B) of this Agreement, or (ii) if such commit- ment is made pursuant to "Option 3", pursuant to Sec- tion 5(c)(2)(D) of this Agreement. (D) If (i) Marathon makes any additional commit- ment to Alaska Pipeline Company pursuant to APL-IV, and (ii) subsequent to making such commitment Marathon must for any reason exercise its rights to reduce or terminate gas deliveries to Chugach pursuant to Sec- tion 4(d)(2)(B) of this Agreement, then (iii) if and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 10 198810/503 to the extent that Marathon is able to do so (and do- ing so is consistent with Marathon's obligations under APL-IV), Marathon shall provide Chugach with at least eighteen (18) months' prior written notice of any such reduction or termination of gas deliveries to Chugach. .CHUGACH=MARATHON GAS PURCHASE AGREEMENT Page 11 198810/503 Sec. 5) to Sec. 5\(a) (1) (Cc) SECTION 5. MARATHON'S SHARE OF CHUGACH'S TOTAL GAS REQUIREMENTS; VOLUME AND DELIVERABILITY LIMITS; RELATED MATTERS 5(a).- Marathon's Share Of Chugach's Total Gas Require- ments. (1) For purposes of this oma and Section 4(a) specifically, Marathon's Share of Chugach's Total Gas Re- quirements shall be the volume of gas necessary to meet (subject to the Total Volume Limit and Deliverability Lim- its) the following: (A) Chugach's total gas requirements for the generation of electric power sold by Chugach under the GVEA Contract (except as limited in the specific cir- cumstance described in Section 5(a)(2)) and under In- cremental Sales contracts if and to the extent that Marathon makes Incremental Commitments for such Incre- mental Sales; plus (B) Chugach's total gas requirements at Bernice Lake, from and after the date on which Marathon begins to make deliveries of gas to Chugach at Bernice Lake; plus (C) Chugach's total gas requirements at Interna- tional if and to the extent that Marathon is able to have gas transported to International on terms accept- able to Marathon (in which case gas delivered to Chu- gach at International will be sold in accordance with the provisions of Exhibit I attached hereto and in- corporated by reference herein); plus CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 12 198810/503 Sec. 5(a)(1)(D) to Sec. 5(a) (1) (D) (ii) (II) (D) At Beluga, from and after the date on which Marathon begins to make deliveries of gas to Chugach at. Beluga: (i) forty percent (40%) of Chugach's total daily and total annual gas requirements at Beluga (other than for the GVEA Contract and any Incre- mental Sale), from and after the date on which Chugach exhausts its supplies of Old Beluga Gas, and (ii) until Chugach exhausts its supplies of Old Beluga Gas, Chugach's total annual gas re- quirements at Beluga in excess of Chugach's mini- mum daily takes of Old Beluga Gas (but not to exceed an average of 10,000 Mcf per day in any year); provided, that -- (I) Chugach shall endeavor in good faith to negotiate with the Beluga River Field Producers a minimum daily take of Old Beluga Gas (to apply when the Beluga Pipe- line is completed) that is lower than the current minimum daily take of 55,000 Mcf; and (EE) if such minimum daily take is significantly so lowered, Chugach shall en- deavor in good faith to operate its system in a reasonable manner that results in Chu- gach purchasing from Marathon at Beluga, on CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 13 198810/503 Sec) (5)(a)) (2) to: Sec. | 5.(a) (8) average during each year until Chugach ex- hausts its supplies of Old Beluga Gas, not less than 10,000 Mcf/day of gas for all pur- poses, including for performance of the GVEA Contract. (2) Prior to completion of the Beluga Pipeline there may be days on which Chugach cannot meet GVEA's total daily energy requirement under the GVEA Contract by generating such energy at Bernice Lake, either because (A) the genera- ting capacity available at Bernice Lake for this purpose is limited, or (B) to generate all such energy so required by GVEA would require Chugach to start up an idle generating unit at Bernice Lake (and under the GVEA Contract, GVEA is not obligated to accept energy produced by the start up of a generating unit). On such days during such period, nei- ther Section 5(a)(1)(A) nor any other provision of this Agreement shall prevent Chugach from using gas purchased from other producers to generate at Beluga that portion of GVEA's requirements that cannot be met at Bernice Lake with gas supplied by Marathon under this Agreement for either of the reasons set forth in the first sentence of this Section 5(a) (2). (3) If and to the extent that Chugach uses gas pur- chased from another supplier to make an Incremental Sale for which Marathon has not made an Incremental Commitment, Chugach may use such gas at any of its generating CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 14 198810/503 Sec. 5(a)(4) to Sec. 5(a) (5) facilities notwithstanding any other provision of this Sec- tion 5(a). (4) Recognizing that Chugach may receive delivery of gas from other producers simultaneously with deliveries of gas from Marathon under this Agreement, Chugach and Mara- thon agree to cooperate in good faith to schedule, monitor, and adjust Chugach's takes and Marathon's deliveries so that, to the extent practicable, (A) the volume of Chu- gach's actual purchases from Marathon during each three- month period does not deviate by more than five percent (5%) from Marathon's Share of Chugach's Total Gas Require- ments for that three-month period, and (B) any excess or deficiency of such actual purchases over or under Mara- thon's Share of Chugach's Total Gas Requirements for that three-month period is corrected through adjustments in Chu- gach's takes and Marathon's deliveries during the next suc- ceeding three-month period. This Section 5(a)(4) shall not relieve Chugach of its obligation under Section 4(a) to receive and purchase Marathon's Share of Chugach's Total Gas Requirements (as defined in this Section 5). (5) At the time this Agreement was executed, Chugach was engaged in negotiations with the Beluga River Field Producers in an effort to reach agreement on New Beluga Contracts. Recognizing that this effort may prove unsuc- cessful, Chugach and Marathon agree that if Chugach has not entered into New Beluga Contracts with all of the Beluga River Field Producers on or before March 1, 1989, or if any CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 15 198810/503 Sec. 5(a) (5) (A) to Sec. 5(a) (5) (B) of such New Beluga Contracts do not receive by September 1, 1990, the approvals necessary in order for them to become effective, then notwithstanding Section 5(a) (1) (D): | (A) Marathon's Share of Chugach's Total Gas Re- quirements shall include one hundred percent (100%) of Chugach's total daily and total annual gas require- ments at Beluga (to the extent. that such requirements are not met by the New Beluga Contracts), from and after the date on which Old Beluga Gas is no longer available to Chugach and until the effective date of a notice, if such notice is given, from Marathon to Chu- gach pursuant to Section 5(c)(2)(D) reducing the De- liverability Limit applicable to Marathon's delivery obligations at Beluga. (B) During the period between the date of ini- tial deliveries through the Beluga Pipeline and until the date when Marathon first begins meeting one hun- dred percent (100%) of Chugach's total daily and total annual gas requirements at Beluga (to the extent that such requirements are not met by the New Beluga Con- tracts), Chugach will take and pay for at Beluga, or pay for if not taken, 10,000 Mcf per day of gas from Marathon; provided, that if Marathon gives notice to Chugach pursuant to Sections 4(d)(2)(B) or 5(c)(2)(D), Chugach's minimum daily purchase obligations under this Section 5(a)(5)(B) shall cease on the date Chu- gach executes other contracts to meet any of its gas CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 16 198810/503 Sec. 5(a) (6) (A) requirements at Beluga. If, pursuant to the preceding sentence, Chugach pays for any gas not taken, Chugach shall be entitled to take such gas ("make-up gas") at no additional cost on any day after first taking 10,000 Mcf on that day, if and to the extent that Chu- gach can do-so: within the Deliverability Limits ap- plicable: at the time the make up gas is so taken. If Chugach has not taken such make-up gas by the date on which Chugach is no longer obligated to take or pay for gas under this Section 5(a)(5)(B), then two per- cent (2%) of the volumes of gas taken by Chugach from Marathon in each month thereafter shall be considered make-up gas, until such time as the volume of make-up gas is exhausted. Reimbursable Taxes and excess roy- alty reimbursements (if any) included in the Total Price pursuant to Section 7(d) shall be paid on make- up gas only when such gas is taken, unless Marathon is required to pay such Taxes or excess royalties at the time Chugach pays for but does not take such gas. (6) Beluga Replacement Gas. (A) As used herein, "Beluga Replacement Gas" shall mean gas that Chugach purchases to replace that portion (if any) of the total volume of New Beluga Gas committed to Chugach by the Beluga River Field Pro- ducers under the New Beluga Contracts (if executed and approved) which (i) the Beluga River Field Producers cannot deliver to Chugach because their available gas CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 17 198810/503 Sec. 5(a) (6) (B) to Sec. 5(a) (6) (B) (iii) reserves prove insufficient, and (ii) Chugach would otherwise have purchased from the Beluga River Field Producers on or before December 31, 2015. (B) The following terms and conditions will determine what, if any, Beluga Replacement Gas (in addition to Marathon's Share of Chugach's Total Gas Requirements as set forth in Sections 5(a)(1) through 5(a)(5)), Chugach will purchase from Marathon, and Marathon will sell to Chugach: (G5) Before purchasing Beluga Replacement Gas from any other source or supplier, Chugach will offer to purchase such gas from Marathon. (ii) If, at the time Chugach makes such an offer, any portion of the Initial Commitment has previously been released through the operation of this Agreement and remains available to Marathon and uncommitted by Marathon to any other purchas- er or use, Marathon will sell and deliver, and Chugach will purchase and receive, such portion as Beluga Replacement Gas. (iii) If, in response to Chugach's offer, Marathon elects to commit to Chugach as Beluga Replacement Gas any volume of gas not previously committed to Chugach under this Agreement, then Marathon shall so notify Chugach in writing with- in thirty (30) days of receipt of Chugach's of- fer, and such volumes shall be sold and purchased CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 18 198810/503 Sec. 5(a) (6) (B) (iv) to Sec. 5(a) (7) pursuant to the provisions of this Agreement as an addition to the Initial Commitment. (iv) Regardless of whether Marathon commits to Chugach any volume of gas under Section 5(a)- (6) (B) (ii) or (iii), Chugach may at its option designate and take as Beluga Replacement Gas any gas then available to Chugach under this Agree- ment, in which event Marathon's Share of Chu- gach's Total Gas Requirements shall be increased accordingly; provided, that Marathon may decline to permit Chugach to exercise the right provided in this Section 5(a) (6) (B) (iv) if and to the ex- tent that Marathon reasonably determines that its ability to meet its deliverability obligations under its other then-existing commitments would be impaired by such exercise. (v) The Adjusted Price of any Beluga Re- placement Gas sold pursuant to this Section 5(a)- (6) (B) shall be one hundred ten percent (110%) of the otherwise applicable Adjusted Price under Section 7. (7) If Chugach should merge with or acquire the elec- tric utility owned and operated by the Municipality of Anchorage, Alaska, then Marathon's Share of Chugach's Total Gas Requirements shall be increased in accordance with the provisions of Exhibit J attached hereto and incorporated by reference herein. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 19 198810/503 Sec. 5(b) to Sec. 5(b) (3) (A) 5(b). Total Volume Limit; Related Matters. (1) Total Volume Limit. Marathon's Share of Chu- gach's Total Gas Requirements shall be subject to a Total Volume Limit computed in accordance with this Section 5(b). Marathon shall not be obligated to supply gas to Chugach in excess of such Total Volume Limit. The Total Volume Limit shall. equal the sum of: (A) the Initial Commitment, as specified in Sec- tion 5(b) (2), plus (B) the Contingent Commitment (if any), as speci- fied in Section 5(b) (3), plus (C) the total of all Incremental Commitments (if any), as specified in Section 5(b) (4). (2) Initial Commitment. The Initial Commitment shall be two hundred fifteen billion standard cubic feet (215 Bcf) of gas. (3) Contingent Commitment. The Contingent Commitment shall be an additional volume of gas that Marathon may elect to commit to Chugach for purchase in accordance with the terms of this Agreement. The Contingent Commitment will be determined as follows: (A) Marathon will inform Chugach by written no- tice of the additional volume of gas (if any) that Marathon chooses to specify as the Contingent Commit- ment. Such written notice shall be delivered to Chu- gach by June 15, 2006, or, if earlier, within six (6) months after the date on which Chugach first provides CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 20 198810/503 Sec. 5(b) (3) (B) to Sec. 5(b) (3) (D) Marathon with a forecast under Section 6(a)(2) on the basis of which Chugach specifies for purposes of that Section that Chugach will have:exhausted the Initial Commitment within ten (10) years after that date. (B) If Marathon _fails within such time to deliv- er such notice specifying such an additional volume, there shall be no Contingent Commitment. (C) Marathon may determine, in its sole judgment based on sound reservoir engineering data, the volume of the Contingent Commitment. If necessary, the Term of this Agreement shall be extended automatically to the date on which Chugach exhausts the Contingent Com- mitment; provided, that this Section 5(b)(3)(C) shall not operate to extend the Term of this Agreement with- out Chugach's written consent if, at any time prior to December-31, 2015, Marathon reduces or terminates de- liveries to Chugach pursuant to Section 4(d)(2)(B) or reduces Deliverability Limits pursuant to Section 5(c) (2) (D). (D) No Contingent Commitment shall be made un- less, at the time, Marathon has sufficient gas to meet the proposed Contingent Commitment and to honor the undelivered portions of its Exhibit B commitments, the Initial Commitment, any Incremental Commitments that have theretofore been made, and previously executed New Gas Sale contracts. Once made, however, the Con- tingent Commitment shall be subject to possible CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 21 198810/503 Sec. 5(b) (4) to Sec. 5(b) (4) (C) (ii) subsequent reduction, pursuant to the terms of this Agreement, for any reason that the Initial Commitment or any Incremental Commitment may be reduced. (4) Incremental Commitment(s). (A) An Incremental Commitment shall be an addi- tional volume of gas that Marathon elects to commit to Chugach under the terms of this Agreement. (B) Chugach shall provide Marathon a written notice if and when Chugach proposes to enter into a contract to make an Incremental Sale. Chugach will provide such notice to Marathon at least sixty (60) days prior to the effective date of any such Incre- mental Sale contract, and at least one hundred and twenty (120) days prior to the effective date of any such Incremental Sale contract the performance of which would require delivery of more than two billion standard cubic feet of gas (2 Bcf) in any year. (C) Not later than ten (10) days prior to the end of said 60-day (or 120-day) period, Marathon by written notice to Chugach shall indicate whether it will make an Incremental Commitment of gas for the Incremental Sale. Marathon, in its sole discretion, may choose to: (i) decline to make the Incremental Commit- ment; or (ii) agree to make an Incremental Commitment which satisfies only a portion of Chugach's gas CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 22 198810/503 Sec. 5(b) (4) (C) (iii) to Sec. 5(c) (1) needs for the Incremental Sale (in which event Chugach's daily and annual takes from Marathon to perform the Incremental Sale will be pro rated with Chugach's daily and annual takes from all other suppliers of gas for the Incremental Sale, based on the relative total volumes of gas com- mitted by Marathon and such other suppliers to Chugach for the sale); or (iii) agree to make an Incremental Commit- ment of sufficient size to satisfy all of Chu- gach's gas needs for the Incremental Sale. (D) If Marathon exercises either the option set forth in Section 5(b) (4) (C) (i) or the option set forth in Section 5(b)(4)(C) (ii), Chugach shall nonetheless be entitled to proceed with such Sale and to produce the electric power to be sold by using any gas avail- able to Chugach, including gas available to Chugach under this Agreement as part of the Initial Commitment and/or the Contingent Commitment (if applicable), but if Marathon chooses the option set forth in Section 5(b) (4) (C) (i), Marathon shall not be deemed to have waived the provisions of Section 4(d)(1)(B) if the latter provisions are otherwise applicable to the In- cremental Sale. 5(c). Covenant Of Deliverability; Deliverability Limits. (1) Covenant of deliverability. Marathon agrees to maintain at all times, except when prevented by Force CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 23 198810/503 Sec. 5(c) (2) (A) to Sec. 5(c) (2) (B) (i) Majeure, the capability of delivering through the Bernice Lake Pipeline and the Beluga Pipeline, respectively, when completed, sufficient gas. to meet Chugach's demand for gas at Bernice Lake and at Beluga, respectively, to the extent that Chugach's combined demand at Bernice Lake and Beluga does not. cause cumulative. daily deliveries from Marathon under this Agreement to exceed either the Deliverability Limits set forth in Section 5(c)(2), or cause rates of de- livery to exceed those reasonably scheduled pursuant to Section 11l(c); provided, that nothing in this Agreement shall be construed to require Marathon to produce and de- liver, or Chugach to purchase and receive, any quantities of gas in excess of those which may be produced or purchased under any applicable statute or the applicable rules, regulations, or orders of regulatory bodies having jurisdiction. (2) Deliverability Limits. (A) Before pipeline completion. Prior to ini- tial deliveries from the Beluga Pipeline, Marathon's maximum daily delivery obligation shall be 25,000 Mcf/day at Bernice Lake. (B) Following pipeline completion. (i) From and after the completion date of the Beluga Pipeline, the overall Deliverability Limits on Marathon's daily delivery obligations shall be computed in accordance with the follow- ing formula, subject to the Deliverability Limits CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 24 198810/503 Sec. 5(c) (2) (B) (ii) (1) at specific locations set forth in Section 5(c)- (2) (B) (ii): D = 1.55 x a Where: D- «6= Marathon's maximum daily delivery . obligation, expressed in Mcf and Vv = The total annual volume of Chu- gach's projected takes from Mara- thon at Bernice Lake and at Be- luga, combined, in the year for which the Deliverability Limit is being computed, such projected takes to be specified by Chugach to Marathon pursuant to Section 6(a) (2) and expressed in Mcf. (ii) Notwithstanding Section 5(c) (2) (B) (i): (I) Marathon's delivery obligations following initial deliveries from the Beluga Pipeline shall not exceed -- -- 60,000 Mcf per day at Beluga (unless Section 5(a)(5) ap- plies, in which event Mara- thon's delivery obligations at Beluga shall be 80,000 Mcf per day), and -- 45,000 Mcf per day at Bernice Lake, or, if Marathon so ad- vises Chugach in writing, such lesser number of Mcf per day (but not less than 25,000 CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 25 198810/503 Sec. 5(c) (2) (B) (ii) (II) to Sec. 5(c) (2) (C) Mcf per day) as Marathon is capable of delivering at Ber- nice Lake, for such period as Marathon may advise Chugach that Marathon is not capable of delivering 45,000 Mcf per day at Bernice Lake. (II) In addition to the deliverability provided to Chugach in accordance with Sec- tion 5(c) (2) (B) (i), but subject to the lim- itations set forth in Section 5(c) (2) (B)- (ii) (I), on any day when Chugach's waste heat recovery unit (i.e., Beluga #8 or any successor unit thereto) is not in continuous operation, but on no more than eight (8) days in any given calendar year, Marathon's daily delivery obligations shall be computed in accordance with the following formula: D = 1.70 x Va 365 Where "D" and Sane shall have the meanings set forth in Section 5(c) (2) (B) (i). (C) Extra deliverability for GVEA's North Pole unit. In addition to Marathon's deliverability obligations under Sections 5(c)(2)(A) and (B), Marathon shall provide the extra deliverability necessary to permit Chugach to gener- ate sufficient Nonfirm Energy as defined in the GVEA Con- tract to displace the operation of GVEA's North Pole gener- ating facilities during the months of January, February, CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 26 198810/503 Seci1.5)(C)k(2:) 4(D) = torSeci.: oie) (2); (D) (a5) November, and December of each year; provided, that Mara- thon may reduce or eliminate such extra deliverability upon five (5) years written notice to Chugach, but wuch=aetice shall not be given prior to January 1, 1992. The notice referred to in the foregoing proviso shall not be deemed a notice of deliverability reduction for purposes of Section 5(c) (2) (D). (D) Potential reductions in deliverability. Chugach and Marathon recognize that circumstances may arise in which Marathon may not be able to continue to meet (physic- ally, contractually, or absent the expenditure of sums which Marathon concludes are not economically reasonable), its deliverability obligations as set forth in this Section 5(c) for a significant period of time or for the remaining Term of this Agreement because of constraints on the amount of deliverability available to Marathon. Marathon shall therefore have the right to reduce the Deliverability Lim- its set forth in this Section 5(c), upon five (5) years! advance written notice to Chugach, subject to the following conditions: (i) Marathon shall not give the first such no- tice prior to January 1, 1992. (ii) Such notice shall not reduce Marathon's deliverability obligations below the levels that Mara- thon, in the exercise of its business judgment, rea- sonably determines that it can meet for the five (5) years following the effective date of the notice. CHUGACH=MARATHON GAS PURCHASE AGREEMENT Page 27 198810/503 Sec. 5(c) (2) (D) (iii) to Sec. 5(c) (2) (D) (iv) (iii) In such notice, Marathon shall set forth the new Deliverability Limits for purposes of Section 5(c) (2) (B) (i), but expressed in Mcf per day, that Mar- athon shall thereafter be obligated to meet and on which Chugach shall be entitled to rely. (iv) Promptly after such notice is given, Mara- thon and Chugach will meet and negotiate in good faith such reductions in Marathon's Total Volume Commitment and in Marathon's Share of Chugach's Total Gas Re- quirements as may be appropriate as a consequence of the reduced deliverability. Such reductions shall not be greater, as percentages of the undelivered portion of such Commitment or such Share, than the percentage reduction in deliverability effected by the notice computed in accordance with the following formula: R = D, - D 1 2 D Where: i R = Percentage reduction in deliver- ability; Dy = Marathon's deliverability obliga- tion that, absent a notice, would have been applicable at the time the notice becomes effective, to be expressed in Mcf per day and computed in accordance with Sec- tion 5(c)(2)(B)(i), but based on "v_" for the year the notice be- cofies effective as derived from the most recent Section 6(a) (2) forecast prepared prior to receipt of the notice; and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 28 198810/503 Sec. 5(c) (2) (D) (v) to Sec. 5(c) (2) (D) (vi) D, = The new Deliverability Limits set forth in the notice in accordance with Section 5(c) (2) (D) (iii). The reductions in Marathon's Total Volume Commitment and Marathon's Share of Chugach's Total Gas Require- ments shall not exceed the reductions necessary to permit Chugach to (I) obtain replacement gas, gas de- liverability, or purchased electric power in commer- cially reasonable and available amounts, and/or (ITI) operate at efficient levels of output any electric power generating facilities that Chugach may reason- ably rely upon to produce power to replace power that Chugach would have generated using gas purchased from Marathon but for Marathon's reduction in deliverabili- ty. (v) Any such reduction in Marathon's Total Vol- ume Commitment shall be treated as a release of gas otherwise committed to Chugach under this Agreement, in addition to any release made pursuant to Section 5 (da). (vi) If Marathon reduces deliverability to Chu- gach by any amount pursuant to this Agreement, then Marathon shall not thereafter during the Term of this Agreement enter into any new commitment to supply to any other purchaser or other entity any deliverability that Marathon is capable of supplying to Chugach on an uninterruptible basis, unless Marathon has first of- fered in writing to restore to Chugach for sale and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 29 198810/503 Sec. 5(c) (2) (D) (vii) to Sec. 5(c) (3) purchase in accordance with the terms of this Agree- ment (I) such deliverability, (II) the associated por- tion of Marathon's Share of Chugach's Total Gas Re- quirements, and (III) the associated portion of any volume of gas previously released under Section 5(c)- (2) (D)(v). °-If Chugach fails to accept such offer within forty-five (45) days of receipt, Chugach shall be deemed to have rejected the offer. The purpose of this provision is to avoid any reduction in deliver- ability to Chugach that might be prompted by Mara- thon's other marketing opportunities rather than by physical, contractual, or economic constraints on Mar- athon's ability to continue providing the deliverabil- ity originally set forth in this Section 5(c). (vii) Chugach shall be entitled to terminate this Agreement if Marathon reduces deliverability pur- suant to this Section 5(c)(2)(D) either (I) twice within any five (5) year period, or (II) three (3) times during the Term of this Agreement. Chugach shall exercise such right of termination by delivering written notice to Marathon not less than two (2) years in advance of the effective date of the most recent deliverability reduction notice given by Marathon. (3) Chugach's right to purchase gas in the event of underdeliveries. If Marathon for any reason, including Force Majeure, does not deliver all of the gas required each day under this Agreement, or if Chugach because of CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 30 198810/503 Sec. 5(c) (4) failure of its facilities and/or Force Majeure, cannot take from Marathon all of the gas it is required to receive and purchase hereunder, Chugach may make purchases of gas, oth- er fuel, or electric power as necessary to cover the short- age (regardless of whether, under the circumstances, Chu- gach is entitled to cover at Marathon's expense). Chugach will in good faith attempt to purchase only the amount of gas, other fuel, or electric power necessary to cover the shortage. Should any provision of this Agreement constrain Chugach in such a way that Chugach cannot cover the short- age on reasonable terms and conditions, that provision (or provisions) shall be relaxed or waived but only to the ex- tent necessary to permit Chugach to cover its electric pow- er requirements on reasonable terms and conditions. (4) Chugach's takes in excess of Deliverability Li- mits. If and to the extent that (A) the gas volume repre- sented by Marathon's Share of Chugach's Total Gas Require- ments exceeds, on any day, the volume Marathon is obligated to deliver to Chugach under then-applicable Deliverability Limits, and (B) Marathon declines to deliver gas in excess of such Deliverability Limits ("excess delivery gas"), then (C) Chugach shall be entitled to obtain such excess deliv- ery gas from any source(s) or supplier(s) it wishes, not- withstanding that as a result Marathon's sales to Chugach may be less than Marathon's Share of Chugach's Total Gas Requirements on such days on which Chugach so obtains such gas from another source or supplier. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 31 198810/503 Sec. 5(c) (5) to Sec. 5(d) (2) (A) (5) Termination of deliveries. If at any time the remaining undelivered portion of Marathon's Total Volume Commitment is reduced to zero in accordance with this Ag- reement, Marathon's deliverability obligations shall also be reduced to zero. 5(d). Release Of Otherwise Committed Gas. (1) Release upon expiration of Agreement. Marathon shall not be obligated to sell or deliver any gas to Chu- gach, and Chugach shall not be obligated to purchase or take any gas from Marathon, after December 31, 2015, with the exception of (A) those volumes of gas the delivery or receipt of which on or prior to December 31, 2015, was pre- vented by Force Majeure on the facilities of one party and which the other elects to take or deliver, as the case may be, after that date pursuant to the terms and conditions of this Agreement, and (B) those volumes, if any, remaining to be delivered and purchased after December 31, 2015, pur- suant to Section 5(b) (3). (2) Reductions due to reserve redeterminations. (A) On or before July 1, 1989, and on or before July 1 of every year thereafter, Marathon shall in good faith, following sound engineering practice, make and provide to Chugach a determination of Marathon's Available Gas Reserves as of January 1 of the year in which the study is performed. To permit Chugach to evaluate any such determination, Marathon shall make available to Chugach (and, if necessary, to any panel CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 32 198810/503 Sec. 5(d) (2) (B) of arbitrators) all information, material and data which Marathon has available concerning Marathon's Available Gas Reserves. To challenge Marathon's de- termination, Chugach shall provide Marathon with a notice pursuant to Section 13(q)(2)(A) within sixty (60) days after Marathon first makes available to Chu- gach all such information, material and data. All information, material and data furnished to Chugach, or to any panel of arbitrators, shall be subject to an appropriate confidentiality agreement acceptable to Marathon. Marathon's Available Gas Reserves as last determined shall remain in effect until redetermined. (B) If a reserve determination indicates that Marathon's Available Gas Reserves are less than the undelivered portions of the Initial Commitment, the Incremental Commitment(s) (if any), and the Contingent Commitment (if one has previously been made), then the volume of gas committed hereunder shall be reduced by the shortfall if necessary, after Marathon has first reduced or terminated all New Gas Sales. If and to the extent that Marathon is able to do so, Marathon shall provide Chugach with at least eighteen (18) months' prior written notice of any such volume reduc- tion. Marathon shall continue to deliver all of the gas required hereunder until all of Marathon's commit- ments to Chugach, less the shortfall, have been ex- hausted. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 33 198810/503 Sec. 5(d) (3) to Sec. 5(d) (4) (3) Reductions due to disapproval or termination of the GVEA Contract. If the GVEA Contract does not receive all necessary approvals required by Section 18 of the GVEA Contract on or before December 31, 1989, or if the GVEA Contract is for any reason terminated prior to the twenti- eth (20th) anniversary of its Effective Date as defined in Section 30(j) of the GVEA Contract, then Marathon may at its option: (A) Reduce the Initial Commitment to Chugach under this Agreement by an amount not to exceed the difference between seventy billion standard cubic feet (70 Bef) and the volume of gas previously delivered to Chugach under this Agreement and used by Chugach to generate electric power for sale to GVEA; and/or (B) Delay completion of the Beluga Pipeline un- til January 1, 1995, without entitling Chugach to avail itself of any of the remedies provided in Sec- tions 8 or 9 for delayed completion of the Beluga Pipeline. (4) Reductions due to Chugach forecasts. In each year after 2005, Marathon shall have the annual option of reducing, by written notice to Chugach, the undelivered portion of Marathon's Total Volume Commitment by a volume not to exceed seventy-five percent (75%) of the volume of previously unreleased gas (if any) which, based on the Sec- tion 6(a)(2) forecast prepared in the immediately preceding calendar year, Chugach has specified it does not anticipate CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 34 198810/503 Sec. 5(e) purchasing prior to December 31, 2015; provided, that Mara- thon shall not in any such year reduce its remaining Total Volume Commitment to less than the one hundred fifteen per- cent (115%) of the remaining volume that Chugach so speci- fies it does anticipate so purchasing. 5(e). No Warranty Of Reserves. Marathon shall deliver gas to Chugach in accordance with the provisions of this Agreement to the extent that Marathon's Available Gas Reserves are ade- quate to permit Marathon to do so without impairing its commit- ments which are referenced in Section 4(d)(2)(A) and which, pri- or to entering into this Agreement, Marathon had already made. For purposes of the preceding sentence, any additional commit- ment of gas to Alaska Pipeline Company under APL-IV in excess of the Initial Commitment (as defined in APL-IV) shall be deemed to be a prior commitment referenced in Section 4(d) (2) (A), but only if Marathon has complied with Section 4(d)(2)(C) in making such additional commitment. Marathon has cooperated with Chugach and Chugach's agents in Chugach's efforts to make an independent assessment of the adequacy of such reserves and supplies, but Marathon does not warrant such adequacy. Marathon shall not be liable to Chugach for its failure or inability to deliver the Total Volume Commitment if and to the extent that such failure or inability is due to any such inadequacy of gas available to Marathon from Marathon's Properties; provided, that nothing in this Section 5(e) shall relieve Marathon of any duty owed Chu- gach under Section 4(d)(2)(C) or Section 5(c) (2). CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 35 198810/503 Sec. O(£)7 tosec-, 5:(£)(2)) Sif) Reservations Of Marathon. Marathon will perform this Agreement, but in doing so Marathon reserves the following rights with respect to leaseholds and/or lands from which Mara- thon will produce or cause to be produced the gas to be sold and delivered under this Agreement, together with sufficient gas produced from such leaseholds and/or lands to satisfy such rights: (1) The right to operate Marathon's Properties and to use gas produced from Marathon's Properties for operation of Marathon's Properties free from any control by Chugach in such manner as Marathon, in Marathon's sole discretion, may deem advisable, including, without limitation, the right, but never the obligation, to drill new wells, to repair and rework old wells, to renew or extend, in whole or in part, any oil and gas lease and to abandon any well or surrender any such lease, in whole or in part. (2) The right, free from all control by Chugach, to continue participation in or to form or to participate in the formation of any unit which may include all or any part of Marathon's Properties, and thereafter to increase or decrease Marathon's Properties contained in such unit so formed and to pool and combine any unit or any part of any unit with properties owned by others; provided, that this Agreement shall continue to apply to Marathon's interest in gas produced or capable of being produced in any unit so formed, or, having been formed, continued, increased or CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 36 198810/503 Seen 5: (£)2(3) torSecs5(£)+ (6) decreased, to the extent Marathon's interest in said unit is derived from Marathon's Properties. (3) The right to use gas produced from Marathon's Properties for delivery to the lessors of Marathon's leases, if and to the extent that such lessors are entitled to-and do demand delivery’ of such gas under the terms of the applicable leases. (4) The right to use gas produced from Marathon's Properties for the operation of the facilities that Mara- thon may install in order to deliver gas. (5) The right to use gas produced from Marathon's Properties for gas lift and/or enhanced oil recovery opera- tions; provided, that Marathon shall commit gas to enhanced oil recovery operations only if and to the extent that Mar- athon has gas reserves in excess of the amounts needed to permit Marathon to meet its gas sales obligations, includ- ing to Chugach, at the time such commitment is made. (6) Marathon specifically reserves the exclusive right to process, or cause to be processed, at all times and from time to time, gas to be delivered hereunder (and to use gas as fuel for such processing), prior to delivery thereof to Chugach, for the recovery of liquefiable hydro- carbons (other than methane, except methane necessarily removed in such processing), sulfur, helium and other gase- ous components. Chugach shall not acquire any right, title, or other interest in any products so removed and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 37 198810/503 Sec. 6 to Sec. 6(a) (2) recovered in the course of such processing from the gas-to be delivered hereunder. SECTION 6. CHUGACH'S GAS REQUIREMENTS; RELATED COMMITMENTS = 6(a). Chugach's Power Generation Requirements; Commitments Related Thereto. (1) In general; the quantity of electric pawer that Chugach must generate ("Chugach's Power Generation Require- ments") is (A) the quantity of electric power required to meet Chugach's retail electric loads, plus (B) the quantity of electric power Chugach sells to other utilities, less (C) the quantity of electric power Chugach purchases. (2) To assist Marathon in making estimates of Chu- gach's future gas purchases, Chugach agrees to provide to Marathon, on or before December 15 of each year, a current ten (10) year forecast of Chugach's power requirements that is reasonable, prepared by Chugach in the ordinary course of business, filed with the Rural Electrification Adminis- tration, and relied upon by Chugach for planning purposes, and a projection of Chugach's Power Generation Requirements prepared from such forecast. Based on such forecast, Chu- gach will specify the amounts of gas (expressed in Mcf) that Chugach anticipates purchasing from Marathon under this Agreement, as well as the gas deliverability require- ments that Chugach anticipates. For purposes of determin- ing eve in Section 5(c), Chugach's anticipated amounts of gas purchases and anticipated deliverability requirements for any given calendar year shall be those that Chugach so CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 38 198810/503 Sec. 6(a) (3) to Sec. 6(a) (4) specifies in the most recent forecast prepared at least twelve (12) months prior to such calendar year. In addi- tion, upon request by Marathon from time to time during the intervals between preparation of the annual forecasts re- ferred to in this paragraph, Chugach will provide Marathon with informal estimates of changes (if any) to Chugach's most recently specified anticipated purchases and delivera- bility requirements. Such informal estimates will not change Marathon's deliverability obligations as determined pursuant to Section 5(c). If Marathon believes that any such annual forecast is unreasonably high and would result in an unreasonably high Deliverability Limit under Section 5(c), Marathon may challenge the reasonableness of such projections by submitting the matter to arbitration pur- suant to Section 13(q). (3) Chugach's Major Electric Power Purchase Commit- ments as of the Effective Date of this Agreement are set forth in Exhibit C attached hereto and incorporated by ref- erence herein. (4) Chugach agrees that it will not enter into any new Major Electric Power Purchase Commitments after the Effective Date of this Agreement if the effect of such com- mitments would be to reduce, displace, or defer Chugach's use of gas supplied by Marathon under this Agreement, un- less (A) such purchases are permitted under the proviso to Section 6(c)(2), or (B) Chugach first obtains Marathon's consent to such purchases. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 39 198810/503 Sec. 6(a) (5) to Sec. 6(c) (1) (5) Chugach will provide Marathon with copies of all filings it and/or the seller submits to the Alaska Public Utilities Commission for approval of any new Major Electric Power Purchase Commitments. 6(b). Chugach's Total Gas Requirements; Commitments Re- lated Thereto. (1) Chugach's Total Gas Requirements are equal to the quantity of gas Chugach uses to produce that portion of Chugach's Power Generation Requirements that Chugach does not or is not able to meet from its non-gas generation re- sources ("Non-Gas Resources") when those Non-Gas Resources are operated in accordance with the provisions of Section 6(c). (2) Chugach's Non-Gas Resources as of the Effective Date of this Agreement are set forth in Exhibit D attached hereto and incorporated by reference herein. (3) Chugach agrees that it will not acquire any new Non-Gas Resources after the Effective Date of this Agree- ment if the effect of operating such Resources would be to reduce, displace, or defer Chugach's use of gas supplied by Marathon under this Agreement, unless (A) the acquisition of such Resources is permitted under the proviso to Section 6(c) (2), or (B) Chugach first obtains Marathon's consent to the acquisition of such Resources. 6(c). Chugach's Operating Commitments. (1) Subject only to the limitations and conditions set forth in Section 5, Chugach agrees that in operating CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 40 198810/503 Secia-10 (c}) (2) eo) Sec. 6 (ci (2) (CG) its system to meet its Power Generation Requirements,-- it will not use gas- purchased from producers other than Mara- thon to reduce, displace, or defer delivery and purchase of gas that is (A). available to Chugach from Marathon in ac- cordance with the terms of this Agreement, and (B) within the amount of Marathon's Share of Chugach's Total Gas Re- quirements. is (2) Subject only to the limitations and conditions set forth in Section 5, Chugach further agrees that in op- erating its system to meet its Power Generation Require- ments, it will not use either purchased electric power or electric power produced by Chugach's Non-Gas Resources to reduce, displace, or defer Chugach's use of gas that is available from Marathon in accordance with the terms of this Agreement and that is within the amount of Marathon's Share of Chugach's Total Gas Requirements; provided, that nothing in this Section 6 shall limit Chugach's use of electric power obtained from: (A) the Major Electric Power Purchase Commitments listed in Exhibit C; (B) the operation of Chugach's Non-Gas Resources listed in Exhibit D; (C) new Major Electric Power Purchase Commitments to which Marathon has consented, and new Non-Gas Re- sources to the acquisition of which Marathon has con- sented; CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 41 198810/503 Sec. 6(c) (2) (D) to Sec. 6(c) (3) (B) (D) PURPA Resources or other sources of electric power which a utility may be required by law or by or- der of a government agency or court of competent jur- isdiction to purchase, or from which a utility may be required to purchase power; (E) Renewable Resources; and/or (F) a utility that relies directly or indirectly “on gas purchased from Marathon to generate electric power. (3) Nothing in this Section 6 shall be construed to limit in any way: (A) Chugach's ability to undertake, encourage, or participate or invest in (i) the conservation of elec- tric power (including load management techniques), or (ii) improvements in the efficiency of producing, transmitting, or distributing electric power; or (B) Chugach's ability and responsibility at all times to operate its then-existing physical system in the manner Chugach deems most prudent, electrically or mechanically efficient, safe, and reliable under the circumstances existing at the time; provided, that Chugach agrees not to operate its system or to change the operation of its then-existing physical system at any time primarily for the economic purpose of dis- placing its use of gas supplied by Marathon under this Agreement with other gas or with other fossil fuels. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 42 198810/503 Sec. 7(a) to Sec. 7(c) SECTION 7. PRICE OF GAS; ADJUSTMENT OF SAME 7(a). Total Price. Chugach will pay Marathon, for each Mcf of gas delivered, the applicable Total Price. The Total Price of gas sold and purchased under this Agreement shall be equal to the Adjusted Price at the time the gas is delivered to Chugach, plus taxes and excess royalty payments determined pur- suant to Section 7(d). The Adjusted Price shall be equal to the Base Price set forth in Section 7(b), as adjusted by the Adjust- ment Mechanism described in Section 7(c). No transportation charges shall be added to the Adjusted Price or the Total Price. 7(b). Base Price. The Base Price of all gas sold and pur- chased under this Agreement shall be $1.3500/Mcf. Should the heating value of the gas, determined in accordance with Exhibit F, be less than 990 Btu per cubic foot or greater than 1010 Btu per cubic foot, expressed at 14.65 pounds per square inch abso- lute, 60 degrees Fahrenheit (dry basis), but fall within the otherwise acceptable range of 950 Btu per cubic foot to 1050 Btu per cubic foot, then the Base Price of the gas will be adjusted by multiplying the Base Price by a fraction, the numerator of which shall be equal to such heating value and the denominator of which shall be equal to one thousand (1000). 7(c). Adjustment Mechanism. The Base Price of gas shall be adjusted quarterly, i.e., at three-month intervals. The ef- fective dates of quarterly price adjustments shall be January 1, April 1, July 1, and October 1 of each year (with the first such price adjustment date to be April 1, 1989) unless otherwise ag- reed in writing by the parties. The Adjustment Mechanism and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 43 198810/503 Sec. 7(c) (1) to Sec. 7(c) (2) (A) its application to the Base Price to determine the Adjusted Price shall be as set forth in this Section 7(c). (1) Price adjustment formula. Beginning on April 1, 1989, and each quarter thereafter (i.e., at three month intervals), the Base Price shall be adjusted in accordance with the following formula, subject only to the limitations on such adjustment set forth in Section 7(c) (4): 2S = Pp, + a b [ * + + b D4 ( aG = ac wh P = The Adjusted Price, expressed in dollars per Mcf (rounded to the nearest four (4) decimal places); P = The Base Price of $1.3500/Mcf; dG = The (Adjustment Reference Period ("ARP") Price for natural gas minus the Base Period Price for natural gas) divided by the Base Period Price for natural gas, and rounded to five (5) decimal places; aF = The (Adjustment Reference Period ("ARP") Price for fuel oil minus the Base Period Price for fuel oil) divided by the Base Period Price for fuel oil, and rounded to five (5) decimal places; and ac = The (Adjustment Reference Period ("ARP") Price for crude oil minus the Base Period Price for crude oil) divided by the Base Period Price for crude oil, and rounded to five (5) decimal places. (2) Commodity prices included _ in the adjustment for- mula. (A) Commodities; price indices for same. For purposes of the formula set forth in Section 7(c) (1), the commodities and the price indices on the basis of CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 44 198810/503 Sec. 7(c) (2) (A) (i) to Sec. 7(c) (2) (B) which the ARP Price and the Base Period Price of the respective commodities shall be computed are: '(i) Natural.gas, the average index value of gas which, for any given month, shall be represented by the Producer Price Index ("PPI") for natural gas as most recently published by the United States Department of Labor, Bureau of Labor Statistics ("BLS") as commodity code 05-31 and expressed as unadjusted. } (ii) Fuel oil, the average index of fuel oil which, for any given month, shall be represented by the Consumer Price Index for All Urban Consum- ers, U.S. City Average ("CPI-U") for fuel oil as most recently published by the BLS as the item "Fuel Oil" under the group designated "Fuel and other utilities". a (iii) Crude oil, the average price of which, for any given month, shall be determined from prices. for "CRUDE OIL, Light Sweet" futures con- tracts traded on the New York Mercantile Exchange or its successor. The daily average price of crude oil for a given month shall be the sum of the "Settle" prices reported in the Wall Street Journal or its successor for each day that con- tracts for that month are reported as the con- tracts for the Current Trading Month divided by the total number of days that such "Settle" prices are so reported. "Current Trading Month" means the final month in which a contract can be traded. (B) Substitute indices and/or commodities. In the event that publication of any of the foregoing price indices is discontinued, or in the event that the method used to compute any of the foregoing price indices is changed in any manner significant to this Agreement, Marathon and Chugach shall promptly negoti- ate in good faith to reach agreement on use of an al- ternative price index for the commodity in question (if a suitable alternative exists), or, if no such alternative price index exists or is suitable, on use CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 45 198810/503 Sec. 7(c) (3) (A) of a mutually agreeable price index for a suitable alternative commodity or on a mutually agreeable me- thod of constructing a price index for the commodity in question or for a suitable alternative commodity. The change in the treatment of taxes, duties, or fees in a commodity index shall not be considered a change in the method used to compute the index, nor shall the impact of new or changed taxes, duties, or fees on the price of any commodity as reflected in such an index be considered such a change. The mere rebasing by the BLS of the indices for natural gas and fuel oil shall not be considered a change significant to this Agree- ment, and the rebased indices for the Base Period and the ARP shall continue to be used for purposes of this Agreement. Any disagreement between Marathon and Chu- gach under this Section 7(c) (2)(B), if not resolved by the parties, shall be subject to arbitration pursuant to Section 13(q). (3) Base period prices and ARP prices. (A) Base Period; Base Period prices. The Base Period shall be January 1, 1986 through December 31, 1987, inclusive. Marathon and Chugach agree that the Base Period Prices of the commodities are as follows: (2) Natural gas = 84.54023 (ii) Fuel oil = 74.93479 (iii) Crude oil = $17.07976 per barrel CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 46 198810/503 Sec. 7(c) (3) (B) to Sec. 7(c) (4) (B) (B) ARP; ARP Prices. The ARP shall be the twelve (12) month period beginning fifteen (15) months prior to the effective date of the applicable price adjustment and ending three (3) months prior to such date. The ARP Price of any commodity shall be the sum of the monthly price indices of that commodity for each month during the ARP (or, for crude oil, the sum of the monthly average prices for each month during the ARP, determined as set forth in Section 7(c) (2)- (A) (iii)), divided by twelve (12). (4) Limitations on price adjustments. (A) Initial price floor. Regardless of the re- sult that might otherwise be produced by the price adjustment formula set forth in Section 7(c)(1), un- less and until the Adjusted Price has first exceeded the Base Price for at least one quarter as the result of the quarterly adjustment described in Section 7(c)- (1), the Adjusted Price shall not be less than the Base Price nor shall any negative sums accrue to the Accrued Price Adjustment described in Section 7(c) (4)- (C). (B) Limit on quarterly adjustments. Except as permitted under Section 7(c) (4) (C) (ii), the Adjusted Price for any given quarter shall not be more than two percent (2%) higher or lower than the Adjusted Price for the immediately preceding quarter. If the formula set forth in Section 7(c)(1) would otherwise have CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 47 198810/503 Sec. 7(c) (4) (C) to Sec. 7(c) (4) (C) (i) resulted in an increase or decrease in the Adjusted Price in excess of such two percent (2%) limit (and Section 7(c) (4) (A) does not apply), then the amount of such excess (in dollars per Mcf) shall be added to or subtracted from (as the case may be) the Accrued Price Adjustment described in Section 7(c) (4) (C). (C) Application of the Accrued Price Adjustment. The Accrued Price Adjustment shall be an amount, ex- pressed in dollars per Mcf, which represents the net total of any and all price increases and decreases which have accrued as excess price adjustments in pri- or quarters under Section 7(c)(4)(B) and which have not yet been applied to produce an actual adjustment of price because of the limitation on quarterly price changes set forth in Section 7(c)(4)(B). The Accrued Price Adjustment shall be applied to produce an actual adjustment of price in the following manner: (i) In each quarter, any portion of the Accrued Price Adjustment that can be used to in- crease or decrease, as the case may be, the Ad- justed Price for that quarter without causing such Adjusted Price to exceed the limitation on quarterly price changes set forth in Section 7(c) (4) (B) shall be so applied, and the Accrued Price Adjustment shall be reduced by such por- tion. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 48 198810/503 Sec. 7(c) (4) (C) (ii) to Sec. 7(d) (1) (B) (ii) Notwithstanding Section 7(c) (4) (B), on April 1, 1991, and thereafter on April 1 of each odd-numbered calendar year of this Agreement, the entire amount. of the Accrued Price Adjustment then remaining (i.e., the amount that has not yet been applied to produce an actual adjustment of price under Paragraph Section 7(c) (4)(C)(i)), if any, shall be added to or subtracted from, as the case may be, the Adjusted Price for the quarter beginning on that April 1 as such Adjusted Price is determined in accordance with Section 7(c) (1), and the Accrued Price Adjustment shall be reduced to zero. 7(d). Tax And Excess Royalty Reimbursement. (1) Tax reimbursement. The actual price under Sec- tion 7(a) shall include a tax reimbursement component, to be added to the Adjusted Price, computed in the following manner: (A) Chugach will reimburse Marathon for the full amount of any Reimbursable Tax or Taxes paid by Mara- thon for or with respect to the quantities of gas de- livered or deliverable to Chugach by Marathon under this Agreement, regardless of the mode or basis of imposition of such Tax or Taxes. (B) Except as provided in this Section 7(d) (1)- (B), Chugach shall not be obligated to pay any inter- est or penalty because Marathon is delinquent in CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 49 198810/503 Sec. 7(d)(1)(C) to Sec. 7(d) (2) paying any Reimbursable Tax or Taxes. In the event that Marathon contests its obligation to pay any Reim- bursable Tax or Taxes assessed and, following the con- clusion of such dispute, Marathon is required to pay interest on. the portion of the contested amount deter- mined ‘to be lawfully owed, Chugach shall reimburse Marathon for the interest Marathon is required to pay. If Marathon is lawfully, retroactively assessed a Re- imbursable Tax or Taxes and required to pay interest on such amounts, Chugach shall reimburse Marathon for such Reimbursable Tax or Taxes as well as for such interest. (C) In the event that any Reimbursable Tax or Taxes are credited or refunded to Marathon, Marathon shall credit Chugach for the amount of such Reimburs- able Tax or Taxes Chugach had previously paid to Mara- thon under the provisions of this Section 7(d)(1), together with any interest thereon received from or credited to Marathon by the taxing entity. (D) Nothing in this Agreement shall be construed as a limitation on Chugach's or Marathon's rights to contest assessment of any Reimbursable Tax. (2) Excess royalty reimbursement. The Total Price under Section 7(a) shall include an excess royalty reim- bursement component, to be added to the Adjusted Price, if and to the extent that any one or more royalty owners of the gas from Marathon's Properties requires Marathon under CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 50 198810/503 Sec. 7(e) applicable laws, regulations, or lease terms to pay royal- ties on gas sold hereunder at a value that exceeds the Ad- justed Price (plus tax reimbursement) paid by Chugach here- under. 7(e). Regulated Prices. Marathon shall never charge or collect a price in excess of the applicable lawful price pre- scribed under the Natural Gas Policy Act of 1978, any other law, or any applicable regulation. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 51 198810/503 Sec. 8(a) to Sec. 8(b) SECTION 8. MARATHON'S PIPELINE CONSTRUCTION COVENANTS 8(a). Applicability Of This Section. Marathon's obliga- tions under this Agreement include constructing or causing to be constructed the Bernice Lake Pipeline and the Beluga Pipeline (or, in the case of the Bernice Lake Pipeline, arranging an alt- ernative to construction that is acceptable to Chugach). This Section 8 applies separately to construction of the Bernice Lake Pipeline and/or to construction of the Beluga Pipeline, respect- ively, if such Pipeline(s) are constructed (or caused to be con- structed) and owned by Marathon or a subsidiary or affiliate of Marathon. If another entity constructs (or causes to be con- structed) and owns either or both Pipeline(s), then the provi- sions of Section 9 shall apply to the Pipeline(s) so constructed and owned by such other entity. 8(b). Commencement Of Permitting Process. Without waiting to receive Necessary Approvals of this Agreement, Marathon shall commence and diligently pursue all activities (other than the actual purchase of materials, easements, and rights of way; the movement of construction workers or equipment; the hiring of consultants, contractors, or additional employees; the commence- ment of construction; and similar expenditures of funds) neces- sary to allow construction of the Bernice Lake and Beluga Pipe- lines to be commenced, and thereafter timely completed, after this Agreement receives all Necessary Approvals. In particular, Marathon will promptly apply for any necessary permits and ap- provals, and begin negotiations for any necessary easements or rights of way. Chugach will cooperate fully with Marathon in CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 52 198810/503 Sec. 8(c) to Sec. 8(d) (1) (A) Marathon's planning and construction of the Pipelines and will, if requested by Marathon, render all reasonable assistance in the acquisition of easements and rights of way. Marathon will keep Chugach fully apprised of its progress in obtaining all necessary permits and approvals. 8(c). - Commencement Of Construction. Marathon agrees that it. will commence construction of the Bernice Lake and Beluga Pipelines as soon as reasonably possible after this Agreement is approved and after the necessary permits, approvals, easements, and rights of way have been obtained. Marathon will keep Chu- gach fully apprised of its Pipeline construction progress. 8(d). Completion Of Construction. (1) Subject to the Force Majeure provisions of Sec- tion 13(c), Marathon agrees that it will: (A) Complete or cause to be completed the Ber- nice Lake Pipeline, if reasonably possible, within one (1) applicable construction season after the Effective Date of this Agreement. In the alternative, if Mara- thon makes gas transportation or other arrangements to which Chugach has consented under Section 9(b)(1), and as a result Marathon is able to commence gas deliver- ies to Bernice Lake on or before December 1, 1988 (pending receipt of all Necessary Approvals), then Marathon shall complete or cause to be completed the Bernice Lake Pipeline, if reasonably possible, at least one (1) year prior to the expiration (if any) of such arrangements. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 53 198810/503 Sec. 8(d) (1) (B) to Sec. 8(e) (1) (B) Complete or cause to be completed the Beluga Pipeline, if reasonably possible, by October 12, 1992, or, if later, by the second anniversary of the Effec- tive Date of this Agreement. (2)- Except to the extent that completion of the Pipe- line(s) is delayed by events of Force Majeure, Marathon's obligation to complete such Pipelines in timely fashion as set forth in Section 8(d)(1) shall be specifically enforce- able. In addition, failure or inability of Marathon to complete either or both Pipelines in a timely fashion as set forth in Section 8(d)(1), whether or not excused by events of Force Majeure, shall entitle Chugach to the reme- dies set forth in Section 8(e). 8(e). Potential Completion Of Pipelines By Chugach. (1) If Marathon fails to complete in timely fashion in accordance with Section 8(d) either the Bernice Lake Pipeline or the Beluga Pipeline, or both, Chugach shall have as an additional remedy the right, to be exercised by written notice to Marathon, to complete the Pipeline(s) the completion of which has been delayed. Upon receipt of such notice, Marathon shall within thirty (30) days either com- mit itself to new completion date(s) satisfactory to Chu- gach, or permit Chugach to complete or to contract for the completion of the Pipeline(s), including by extending to Chugach all reasonable assistance in Chugach's assumption of responsibility for such completion(s). CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 54 198810/503 Sec. 8(e) (2) to Sec. 8(e) (3) (2) If Chugach completes either or both Pipelines pursuant to this Section 8(e), then Marathon will elect either to (A) reimburse Chugach for all reasonable and pru- dent costs incurred by Chugach to complete the Pipeline(s) within ninety (90) days of Chugach's completion thereof, in which event Marathon shall remain the legal owner of the Pipeline(s), or (B) permit Chugach to become the legal own- er of the Pipeline(s), in which event Marathon shall pay Chugach, during a sixty (60) month period following comple- tion of the Pipeline, equal monthly amounts sufficient in total to reimburse Chugach, without interest, for the capi- tal cost prudently incurred by Chugach to complete the Pipeline. (3) In addition, and notwithstanding any provision of Section 7, the Adjusted Price of gas delivered to Chugach through the Pipeline(s) completed by Chugach shall be re- duced temporarily by $0.05/Mcf for each Mcf transported through such Pipeline(s) until such time as this reduction in the Adjusted Price has permitted Chugach to recover the additional fuel costs, if any, that Chugach actually in- curred during the period between the date(s) by which the Pipeline(s) should have been completed under Section 8(d) and the date of actual completion. If Chugach becomes the legal owner of the Pipeline(s) as set forth in Section 8(e)(2), then, in addition, Marathon shall reimburse Chu- gach annually for Chugach's documented reasonable and nec- essary operations and maintenance expenses incurred as CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 55 198810/503 Sec. 8(e) (4) owner of the Pipeline(s) to the extent such expenses are properly allocable to Chugach's transportion of gas sold hereunder and not to transportation of other gas. (4) If Chugach completes the Beluga Pipeline pursuant to this Section 8(e), and Marathon elects to permit Chugach to become the legal owner of the Pipeline under Section 8(e)(2)(B), then notwithstanding any other provision of this Agreement, until such time as Chugach has exhausted the Old Beluga Gas available to it, Chugach shall be obli- gated to purchase from Marathon at Beluga only the greater of (A) Chugach's gas requirements for energy generated at Beluga and sold under the GVEA Contract and under any In- cremental Sale for which Marathon has made an Incremental Commitment, or (B) an average of 4,000 Mcf of gas per day in each year. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 56 198810/503 Sec. 9(a) to Sec. 9(c) SECTION 9. ALTERNATIVE CONSTRUCTION/OWNERSHIP OF PIPELINE(S) 9(a). Applicability Of This Section. This Section 9 ap- plies separately to».construction of the Bernice Lake Pipeline and/or to construction of the Beluga Pipeline, respectively, if such Pipeline(s) are constructed (or caused to be constructed) and/or are owned by-any entity other than Marathon or a subsidi- ary or affiliate of Marathon. 9(b). Alternative Construction/Ownership. For purposes of this Agreement: (1) the Bernice Lake Pipeline shall be considered to have been constructed and/or owned by another entity if, under arrangements to which Chugach consents, Marathon ac- quires an equivalent pipeline facility from another entity or if Marathon obtains capacity in an equivalent pipeline and bears all costs associated with transportation of its gas transported to Bernice Lake through such an equivalent pipeline; and (2) the Beluga Pipeline shall be considered to have been constructed and/or owned by another entity for pur- poses of Section 9(a) if (A) Chugach consents in advance to such construction and/or ownership by another entity, (B) Chugach consents to the arrangements for delivery of gas by Marathon to Chugach through use of such Pipeline, and (C) Marathon bears all costs associated with transportation of its gas transported to Beluga through such Pipeline. 9(c). Chugach's Consent. Chugach agrees that it will not unreasonably withhold the required consents under Section 9(b), CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 57 198810/503 and that any such consent, once given, shall be binding on Chu- gach for the duration of the arrangement(s) to which Chugach..so consents. The parties recognize and agree, however, that Chu- gach may withhold such consents if Marathon's arrangements with another entity that will construct or own either or both Pipe- line(s) are not satisfactory to Chugach because of a reasonable apprehension by Chugach that such arrangements will. (1) reduce the reliability of gas deliveries, or (2) result in any charge or other expense being imposed on Chugach that was not contem- plated by Chugach and Marathon in entering into this Agreement. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 58 198810/503 Sec. 10(a) to Sec. 10(c) SECTION 10. BILLING AND PAYMENT 10(a). Monthly Billing. In each calendar month, Marathon will deliver to Chugach an invoice for the volume of gas deliv- ered to Chugach by Marathon at the Delivery Point(s) in the pre- ceding calendar month. In such invoice, Marathon may designate certain items as being estimated due to unavailability of final underlying data, in which event adjustments to reflect the cor- rect amounts, when such amounts are determined, shall be includ- ed in a bill for subsequent months. 10(b). Payment. At Marathon's option, and in accordance with such instructions to Chugach as Marathon may provide from time to time, payments by Chugach shall be mailed to Marathon's office, or directly deposited to a designated Marathon account in Anchorage, Alaska, or wire transferred to Marathon at such location as Marathon may specify. All payments shall be due by the end of the calendar month in which Chugach receives the in- voice (or a telecopy thereof) if such invoice is received on or before the twelfth (12th) day of such calendar month, or, if re- ceived after the twelfth (12th) day of such calendar month, within eighteen (18) days of such receipt. 10(c). Billing Disputes; Late Payments. Pending resolu- tion of a billing dispute, in accordance with the procedures of this Section, the undisputed amount of each bill shall be paid to Marathon in timely fashion, and the disputed amount must be paid in full in timely fashion either to Marathon under protest or to a licensed and bonded escrow agent. If an escrow agent is used, Chugach shall obtain Marathon's prior approval of the CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 59 198810/503 Sec. 10(d) escrow agent to be used and the instructions to the escrow agent governing the conditions of release of the escrowed funds. If any amount paid to Marathon (whether or not under protest) is later found not to have been owed, Marathon shall refund or credit to Chugach the amount not owed, plus interest computed at the FERC Gas Refund interest rate (currently codified at 18 CFR § 154.67(c)(2)(iii)) from the date of payment by Chugach to the date the refund check is mailed by Marathon or the amount is credited to Chugach's account. If the disputed amount has been paid into escrow, no such interest shall be paid to Chugach by Marathon, but if any or all of the disputed portion is later found to be owed to Marathon, then Chugach or the escrow agent shall pay Marathon that amount, and in addition Chugach shall pay or cause Marathon to be paid interest, computed in the same manner (i.e., using the FERC Gas Refund interest rate) on the amount found to be owed to Marathon, from the date the amount should have been paid to Marathon pursuant to Section 10(b) to the date the payment is made by Chugach. If Chugach is other- wise late in making any payment to Marathon, Chugach shall also pay interest at the FERC Gas Refund interest rate from the date the payment was due to the date payment is made by Chugach. 10(d). Measurement, Quality, And Pressure Of Gas. For billing and all other purposes, the measurement, quality, and pressure of gas to be delivered under this Agreement shall be determined in accordance with the provisions of Exhibit F at- tached hereto and incorporated by reference herein. Chugach shall be entitled to refuse to accept delivery of any gas CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 60 198810/503 failing to meet the standards (including the Btu content stand- ard) set forth in Exhibit F. The parties-may modify Exhibit F from time to time by written agreement without such modification constituting a modification of or an amendment to this Agreement requiring approval under Section 13(p). CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 61 198810/503 Sec\.) 11 (a) to /Sec..12 SECTION 11. CONTINUITY OF DELIVERY ll(a). Capacity To Be Made Available. Marathon shall at all times, except when prevented by Force Majeure, make gas available to Chugach at the delivery points in the amount re- quested by Chugach's dispatchers pursuant to Section 1l(c), but Marathon shall-not be obligated to make deliveries in excess of Marathon's Share of Chugach's Total Gas Requirements, Marathon's Total Volume Commitment, and/or the Deliverability Limits. 11(b). Restoration Of Service. In the event of a partial or total loss of service to Chugach as a result of problems on Marathon's system, Marathon will use its best efforts to (1) restore service as promptly as possible, and (2) notify Chugach promptly of the estimated time required for restoration, and further inform Chugach as to the cause of the loss of service as soon as possible following determination thereof. ll(c). Dispatching. Marathon shall have agents or employ- ees available at all times to receive from Chugach's dispatchers advice and requests for changes in the rates of delivery of gas as required by Chugach from time to time. Because Marathon's Properties are situated in isolated locations, Chugach agrees to allow a reasonable period for Marathon to comply with dispatch- ing requests. SECTION 12. MARATHON'S OBLIGATIONS AS OPERATOR 12. Marathon shall act as a prudent operator to develop, produce and deliver gas from Marathon's Properties so as to meet its obligations to Chugach under this Agreement. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 62 198810/503 Sec. 13(a) to Sec. 13(b) SECTION 13. LEGAL MATTERS 13(a). No Duty To Third Parties; No Consequential Or Inci- dental Damages. This Agreement shall not create on the part of Chugach or Marathon any legal duty owed to the consumers or cus- tomers of either party or of GVEA, including without limitation, any legal duty to maintain continuity of gas delivery or elec- tric power service. Nothing in this Section 13(a) shall limit the rights or remedies afforded Marathon or Chugach against one another under this Agreement, but neither party shall have any liability to the other for incidental or consequential damages resulting from or arising out of this Agreement. Until the To- tal Volume Limit (as it may have been reduced pursuant to the terms of this Agreement) has been delivered and sold, Chugach May resort to the remedy of cover, as provided in Alaska Stat. § 45.02.712 or any successor statute thereto, in the event that Marathon fails to deliver the daily or annual quantities of gas it is obligated to deliver. 13(b). Force Majeure. In the event either party, by rea- son of an event of Force Majeure, is rendered unable, wholly or in part, to perform its obligations under this Agreement (other than its obligations to pay money), then upon said party giving notice and particulars of such event, its obligation to perform shall be suspended or correspondingly reduced during the con- tinuance of any inability so caused, but in no greater amount than required by the event of Force Majeure and for no longer period, and the effects of such cause shall, so far as possible, be remedied with all reasonable and prompt dispatch. To the CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 63 198810/503 Sec. 13(c) to Sec. 13(d) (1) extent that replacement gas is available to Chugach and such replacement gas is capable of being delivered to Chugach using Marathon's facilities, Marathon shall cooperate fully with Chu- gach to permit Chugach to take delivery of such replacement gas if doing so will not result in (1) Marathon or its facilities becoming subject to regulation under the laws and regulations applicable to public utilities, or (2) any impairment of Mara- thon's ability to meet its obligations to other purchasers of its gas. 13(c). Responsibility For Gas Supply And Delivery; Passage Of Title. Except as otherwise provided in this Section 13, Mar- athon shall be in control and possession of gas and bear the risk of loss of gas prior to delivery, and at delivery title to gas shall pass to Chugach which shall thereafter be in control and possession thereof and shall bear the risk of loss of gas. Regardless of the foregoing and of the location of any Delivery Point or metering point, however, Chugach and Marathon shall be responsible for maintaining and operating their own facilities unless a different division of responsibilities is agreed upon in writing by the parties. 13(d). Indemnification. (1) Each party shall, as to all actions taken rele- vant to this Agreement, defend, indemnify and hold harmless the other party, its directors, officers, and employees, against all injury, loss, damage, expense or liability of any kind whatsoever arising from any injury to, or death of, persons or injury to property to the extent caused by CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 64 198810/503 Sec. 13(d) (2) to Sec. 13(d) (3) any negligent, willful or wanton act or omission of the indemnifying party, or its directors, officers, or employ- ees, in connection with such party's construction, owner- ship, operation or maintenance of, or the failure of, any of its works or facilities used in connection with this Agreement. (2) If any legal proceeding shall be instituted, or any claim or demand made, against either party hereto (hereinafter called the "Indemnified party") with respect to which the other party (hereinafter called the "Indem- nifying party") may be liable hereunder, the Indemnified party shall give prompt written notice thereof, and prompt- ly deliver a true copy of any summons or other process, pleading or notice to the Indemnifying party. The Indemn- ifying party shall have the absolute right, at its sole ex- pense and without the consent of the Indemnified party, to defend and settle any such legal proceeding, claim or de- mand. However, the Indemnifying party shall give notice to the Indemnified party of any proposed settlement. The In- demnified party may, at its option, participate in the de- fense of any such legal proceeding, at its own expense. (3) If the Indemnified party, without the prior con- sent of the Indemnifying party (which consent, if request- ed, shall not be unreasonably withheld), makes any settle- ment with respect to any such legal proceeding, claim or demand, the Indemnifying party shall be discharged of any liability hereunder with respect thereto. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 65 198810/503 Sec. 13(d) (4) to Sec. 13(g) (4) The Indemnifying party shall pay all reasonable costs, including attorney's fees and court costs, incurred by the Indemnified party in any successful enforcement of this indemnity. 13(e). Waiver. Any waiver at any time by either party to this Agreement of its rights with respect to any default of the other party hereto, or with respect to any other matter arising in connection with this Agreement, shall not be considered a waiver with respect to any other prior or subsequent default, right or matter, whether of a like or a different character. 13(f). Approvals. This Agreement shall become effective only when it has received all Necessary Approvals in writing. 13(g). Non-Severability. The provisions of this Agreement are not intended to be considered in isolation, and each such provision represents a portion of the consideration agreed upon among the parties for each other provision of this Agreement. The parties believe that it would be impossible, in general, to invalidate or sever any particular provision of this Agreement without working a potentially great hardship on the other party, and without denying the other party of important, bargained-for consideration. Thus, if after this Agreement has become effec- tive any provision of this Agreement shall be finally adjudicat- ed by a court of competent jurisdiction or a regulatory agency with jurisdiction over the parties to be invalid or unenforce- able, or if any administrative agency with authority over the parties shall require changes to this Agreement, or if govern- mental enactment of any statute or ordinance shall make any CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 66 198810/503 Sec 113 \(h)) provision of this Agreement invalid or unenforceable, then the parties shall promptly negotiate in good faith lawful amendments or modifications to this Agreement that will effectuate the or- iginal intent of this Agreement and return the parties as nearly as possible to the position that each would have enjoyed in the absence of such judicial, regulatory, legislative, or admini- strative action. If the parties fail to agree on such amend- ments or modifications within six (6) months of the effective date of such action, then either party shall be entitled to pro- vide a written termination notice to the other, in which event this Agreement shall terminate ninety (90) days after receipt of such notice; provided, that neither party shall be entitled to provide notice of termination unless that party has first met its obligation to negotiate in good faith pursuant to this Sec- tion 13(g). 13(h). Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the respective legal representatives, successors and assigns of the parties hereto, save that no assignment or other transfer of this Agreement or any interest hereunder by either party hereto shall be effective without the prior written consent of the other party (which con- sent shall not be unreasonably withheld), and said assignee must, in the commercially reasonable opinion of the other party, be financially capable of assuming such obligations. Marathon agrees not to sell, transfer, or otherwise dispose of this Ag- reement, any lease which is used to calculate Marathon's Avail- able Gas Reserves or its gas pipeline system, to the extent CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 67 198810/503 of any portion of such rights, lease or system that may be need- ed to permit performance of this Agreement, to any entity that refuses to assume or is unable to perform Marathon's obligations hereunder. Chugach agrees not to sell, transfer, or otherwise dispose of this Agreement or its rights under this Agreement, or its electric power generation and transmission system, to the extent of any portion of such rights or such system that may be needed to permit performance of this Agreement, to any entity that refuses to assume or is unable to perform Chugach's gas purchase obligations under this Agreement. Nothing in this Sec- tion 13(h) shall prevent either party from pledging or mortgag- ing its rights hereunder for security of its indebtedness, nor shall this Section 13(h) prevent a financing entity with record- ed or secured rights (including, if applicable, the Rural Elec- trification Administration of the U.S. Department of Agricul- ture) from exercising all rights and remedies available to it under law or contract, provided that performance of this Agree- ment is not thereby impaired. The parties shall have the right to be reasonably notified by the financing entity prior to the time of exercise that the financing entity is exercising such rights or remedies. Consent shall not be required in the event that all or substantially all of the assets of a party are ac- quired by another person or in the event that a party is merged, consolidated, or reorganized with another person, if the surviv- ing entity expressly assumes and is capable of performing the obligations of this Agreement. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 68 198810/503 Sec. 13(i) to Sec. 13(j) (1) 13(i). Notices. Any notice or demand required by this Agreement to be given to either party shall be effective when it is received by such party, and in computing any period of time from such notice or demand, such period shall commence at 12:01 a.m. prevailing time at the place of receipt on the date of re- ceipt of such notice or demand. Except as otherwise provided, all notices shall be in writing and shall be sent to the respec- tive parties at the addresses set forth below, or such other addresses as the parties shall designate from time to time by written notice: CHUGACH: MARATHON: General Manager Production Manager Chugach Electric Association Marathon Oil Company P.O. Box 196300 P.O. Box 102380 Anchorage, Alaska 99519 Anchorage, Alaska 99510 (for notices under Sec- tion 11 or primarily of an operational nature) Manager, Natural Gas Marketing - Northern Region Marathon Oil Company P.O. Box 3128 Houston, Texas 77253 (all other notices) 13(j). Default And Dispute Resolution. (1) The provisions of this Section 13(j) shall gov- ern default and dispute resolution under this Agreement. Upon failure of either party to perform any obligation hereunder, the party to whom such performance is due shall make demand in writing upon the non-performing party. Such failure shall constitute a default sixty (60) days after the date of receipt of such demand unless, during such CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 69 198810/503 Sec. 13(j) (2) to Sec. 13(j) (3) sixty day period, the non-performing party either (A) rem- edies or removes its non-performance, or (B) commences such actions as are reasonable and prudent to remedy or remove its non-performance and, in addition, agrees in writing to protect, defend, and indemnify fully the other party from any and all consequences of the acts or occurrences con- stituting the non-performance. (2) Pending resolution of any dispute, each party shall continue to perform its obligations under this Agree- ment, including the obligations to deliver and receive gas and the obligation to pay for gas delivered by Marathon to Chugach. Each party shall be entitled to seek immediate judicial enforcement of this continued performance obli- gation notwithstanding the existence of a dispute. (3) After a demand is delivered and before default occurs under Section 13(j)(1), the parties shall in good faith endeavor to meet promptly and to resolve any dispute through good faith negotiation. If a party has met its obligation of good faith under this Section 13(4)(3), and if the dispute has not been resolved before default occurs, then that party shall be entitled at any time thereafter to seek immediate judicial enforcement of this Agreement by bringing any suit, action or proceeding, at law or in equi- ty, including without limitation mandamus, injunction, and action for specific performance, as may be necessary or appropriate to enforce any covenant, agreement or obliga- tion of this Agreement. In the alternative, if the default CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 70 198810/503 Sec. 13(j) (4) to Sec. 13(k) is material and is not cured in timely manner under Section 13(j) (1), the non-defaulting party may terminate this Ag- reement by giving written notice of termination, and this Agreement shall then terminate one hundred eighty (180) days from the receipt of such notice by the party in de- fault. (4) No remedy conferred upon or reserved to the par- ties hereto is intended to be exclusive of any other remedy available hereunder or now or hereafter existing at law, in equity, by statute or otherwise, but each and every such remedy shall be cumulative and shall be in addition to ev- ery other such remedy. The pursuit by either party of any specific remedy shall not be deemed to be an election of that remedy to the exclusion of any other, whether provided hereunder or by law, equity or statute, but where this Ag- reement requires a party to take a particular action (e.g., consultation with the other party) or to pursue a particu- lar remedy (e.g., arbitration) prior to or in lieu of pur- suing any other remedy (e.g., judicial enforcement), such requirement shall be binding and enforceable. 13(k). Right Of Access And Removal. Each party, at no expense to the other, grants and assigns to the other, insofar as each has the right to do so, all necessary easements, rights- of-way, and rights of access for the construction, operation, or inspection of facilities necessary or convenient for the per- formance of this Agreement. Upon termination of this Agreement in accordance with the provisions hereof, each party will remove CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 71 198810/503 Sec. 13(1) to Sec. 13(n) any property or equipment which it may have installed on the premises of the other party for any purposes hereunder. 13(1). Applicable Law. The parties agree that the inter- pretation and construction of this Agreement shall be governed by the laws of the State of Alaska. 13(m). Section Headings. The section headings in this Agreement are for convenience only, and do not purport to and shall not be deemed to define, limit or extend the scope or in- tent of the section to which they pertain. 13(n). Access To Records; Errors. Upon written request from the other party, but only at reasonable times and during normal business hours, each party hereto shall afford the other party with access to data and information which are maintained and compiled in the ordinary course of business (or which have in fact been compiled or prepared) and which are reasonably nec- essary to permit the requesting party to determine whether this Agreement is being performed in accordance with its terms. In the event an error is discovered in the amount paid by Chugach, the error shall be adjusted within thirty (30) days. No error will be adjusted after six (6) years from the date of any state- ment or invoice containing the error. To the extent that either party asserts that any data or information requested hereunder are confidential or proprietary or otherwise not required to be made available to the public generally, access to such data and information shall nonetheless be provided, but only if the party to whom such data or information are provided agrees in writing, pursuant to a confidentiality agreement acceptable to the party CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 72 198810/503 Sci 3) (©))) Co) Seciey 13) (eq) (C1) (SC) supplying such data or information, not to disclose such data or information unless specifically authorized to do so by order of the Alaska Public Utilities Commission or, as the case may be, by a court of competent jurisdiction or other governmental auth- ority having jurisdiction. 13(0). Authority To Enter Agreement. Each party covenants to the other party that it has the legal authority to enter into and perform this Agreement and each obligation assumed by such party under this Agreement. 13 (Pp). Modification Or Amendment. Except as otherwise expressly provided in this Agreement, no amendments to or modi- fications of this Agreement shall be valid unless they are (1) in writing, (2) signed by the parties, and (3) except for modi- fications to Exhibit F, approved by each entity whose approval may be a Necessary Approval at the time. 13(q). Arbitration. (1) Matters subject to arbitration. Disputes re- specting the following matters shall be resolved by arbi- tration: (A) Chugach's projected power requirements and projected annual takes from Marathon which are util- ized to calculate Teal in Section 5(c) (2) (B); (B) Marathon's Available Gas Reserves; (C) Determination of the successor index to any discontinued or changed index listed in Section 7(c)- (2) (A); and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 73 198810/503 Sec. 13(q) (1) (D) to Sec. 13(q) (2) (B) (D) Chugach's obligation pursuant to Section 7 (a) (1) to reimburse Marathon for taxes; provided, that disputes respecting taxes shall not be subject to ar- bitration unless the panel of arbitrators obtains (i) the attendance of all necessary witnesses with knowl- edge of the facts of the disputed issues and (ii) the submission of all relevant information. (2) Initiating arbitration procedures. (A) If a dispute arises which is subject to ar- bitration pursuant to Section 13(q)(1), a party con- templating requesting arbitration shall provide prompt written notice to the other of the dispute and the party's intent to submit the dispute to arbitration. The parties shall attempt by good-faith, diligent ne- gotiations to resolve the dispute described in the notice within forty-five (45) days of the receipt of the notice. (B) If a resolution is not achieved within the forty-five (45) day period provided by Section 13(q) (2) (A), the dispute shall be resolved by a board of three (3) arbitrators selected in the following manner. The party first giving notice pursuant to Section 13(q) (2) (A) shall, within ten (10) days of the expiration of the forty-five (45) day period, choose an arbitrator and give notice to the other party of its choice of arbitrator together with notice of the issues it desires to submit for arbitration. If the CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 74 198810/503 Sec. 13(q) (2) (C) to Sec. 13(q) (2) (D) party receiving the original notice fails to name a second arbitrator within ten (10) days of receipt of the second notice and notify the other party, then the party that served the original notice may, on five (5) days further notice apply to the Chief Judge of the United States District Court for the District of Alaska for the appointment of the second arbitrator on behalf of the other party, and in such case the arbi- trator appointed shall act as if named by the other party. (C) The two (2) arbitrators chosen shall, within twenty (20) days after appointment of the second arbi- trator, choose a third arbitrator. If they fail to do so, either of the parties may, on five (5) days notice to the other party, apply to the Chief Judge for the appointment of a third arbitrator. (D) The arbitrators shall fix a reasonable time and place for the hearing, at which time each of the parties may submit such evidence as the arbitrators may require or permit. The action of a majority of the arbitrators shall govern, and their decisions in writing shall be final and binding on the parties. Unless the arbitrators order otherwise, each party shall pay the expense of the arbitrator selected by or for it, and all other joint costs of the arbitration shall be equally divided between the parties. The CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 75 198810/503 Sec. 13(q) (3) to Sec. 13(q) (4) (A) arbitrations shall be conducted in accordance with the rules of the American Arbitration Association. (3) Qualification of arbitrators. The arbitrators shall be qualified by education, experience, and training to pass upon the particular questions in dispute. In the case of disputes respecting Chugach's projected power re- quirements and projected annual takes from Marathon, all arbitrators shall be professionals with expertise in the field of electric utility load forecasting. In the case of disputes which require determination of Marathon's Avail- able Gas Reserves, all arbitrators shall be petroleum res- ervoir engineers considered to be experts in determining gas reserves. No arbitrator shall be or have been under contract for services within the preceding year to either Chugach or Marathon or their parents, subsidiaries or af- filiates, and no arbitrator shall be or have been employed by either Chugach or Marathon or their respective parents, subsidiaries or affiliates. Each arbitrator shall agree as a condition of appointment not to contract with or be en- ployed by Chugach or Marathon (or their parents, subsidi- aries, or affiliates) for one (1) year following the com- pletion of the arbitration. (4) Special arbitration standards. (A) In deciding an issue subject to Section 13(q)(1)(A), the arbitrators shall utilize methods generally accepted by the United States electric util- ity industry. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 76 198810/503 Sec. 13(q) (4) (B) to Sec. 13(s) (B) In deciding a dispute subject to Section 13(q)(1)(C), the arbitrators shall choose the success- or index which is likely to emulate best the discon- tinued or changed prior index. (5) Postponements due to arbitration. If any matter is submitted to arbitration pursuant to this Section 13(q), then any decision or action directly related to the matter in dispute shall be postponed until sixty (60) days follow- ing issuance of the final decision of the arbitration pa- nel. 13(r). Agreement Not To Be Construed Against Either Party As Drafter. The parties recognize that this Agreement is the product of the joint efforts of the parties and agree that it shall not be construed against one party or the other as a re- sult of the preparation, submittal or other event of negotia- tion, drafting or execution hereof. 13(s). Warranty Of Title. Marathon hereby warrants title to all gas delivered by it to Chugach hereunder and the right to sell the same, and further represents and warrants that such gas will, at the time of delivery, be free from all liens and other adverse claims. Upon written notice by Chugach, Marathon agrees to indemnify and defend Chugach against all suits, actions, debts, accounts, damages, costs, losses, and expenses arising from or out of any adverse claims of title or any liens or other adverse claims by any and all persons to or against such gas. In the event any adverse claim of any character is asserted as to any delivered gas, then as_ security for Marathon's CHUGACH~MARATHON GAS PURCHASE AGREEMENT Page 77 198810/503 Sec. 13(t) to Sec. 13(v) performance of its obligations under this Section 13(s), Chugach may retain the purchase price thereof up to the amount of such claim without interest until the claim has been finally deter- mined, or until Marathon shall have furnished bond to Chugach in an amount and with sureties satisfactory to Chugach, conditioned for the protection of Chugach against any such claim. 13(t). Regulatory Bodies. This Agreement is subject to all present and future valid orders, rules and regulations of any regulatory body having jurisdiction. 13(u). No Prior Agreements. This Agreement constitutes the entire agreement and understanding between the parties re- specting the subject matter of this transaction. There are no prior agreements, understandings and representations, whether oral or written, which have not been merged into and superseded by this written Agreement. The parties intend no ambiguities in this Agreement, but this Section 13(u) is not intended to ex- clude the admission, in any dispute concerning this Agreement, of parol evidence that may assist in clarifying any ambiguity which may be found by adjudication (or, if applicable, by any panel of arbitrators) to exist in this Agreement. 13(v). Reasonableness And Prudency As Standards. Where this Agreement requires that a party act reasonably and/or pru- dently, or that a party's determination of any fact or matter be reasonable or prudent, the parties intend to create an objective standard for potential review, but one that is appropriately deferential to the business experience, needs, and judgment of the party taking the action or making the determination. No CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 78 198810/503 action or determination shall be found unreasonable or imprudent unless, under the circumstances, it is inconsistent with the business practices, methods, or acts customarily engaged in or generally approved of by the natural gas production industry or the electric utility industry, as the case may be, notwithstand- ing that different actions or determinations might also have been consistent with such practices, methods, and acts. The party challenging any action or determination on grounds of un- reasonableness or imprudency shall bear the burden of proving such inconsistency with such practices, methods, or acts. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 79 198810/503 Sec. 14(a) to Sec. 14(g) SECTION 14. DEFINITIONS 14(a). Adjusted Price shall have the meaning set forth in Section 7(a). 14(b). Adjustment Mechanism shall have the meaning set forth in Section 7(c). 14(c). Agreement shall mean this agreement for the sale and purchase of gas. 14(d). Base Price shall have the meaning set forth in Sec- tion 7(b). 14(e). Beluga shall mean Chugach's gas-fired electric pow- er generating facilities at Beluga on the west side of Cook In- let, Alaska, as such facilities exist on the date hereof or as such facilities may be modified, changed, or expanded prior to the Termination Date, or any facilities (regardless of location) relied upon by Chugach as replacements of, successors to, or substitutes for such facilities (provided that Marathon, in its sole discretion, consents to the inclusion of such replacements, successors, or substitutes in the definition of "Beluga"). 14(f). Beluga Pipeline shall mean a gas pipeline that Mar- athon shall construct or cause to be constructed in accordance with Section 8 or Section 9, and which shall be capable of de- livering from Granite Point to Chugach's facilities at Beluga the gas that Marathon is obligated to deliver to Chugach at Beluga. 14(g). Beluga River Field Producers shall mean the owners of working interests in the gas reserves and production of the Beluga River Field on the west side of Cook Inlet, Alaska, CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 80 198810/503 Sec. 14(h) to Sec. 14(i) including any purchaser of any such interests from any such own- er and any successor or assignee of any such owner with respect to such interests. At the time this Agreement was written, the Beluga River Field Producers were ARCO Alaska, Inc., Chevron U.S.A. Inc., and Shell Western Exploration & Production Inc., and/or the corporate parents, subsidiaries, or affiliates of those entities. 14(h). Bernice Lake shall mean Chugach's gas-fired elec- tric power generating facilities at Bernice Lake on the east side of Cook Inlet, Alaska, and specifically near Nikiski on the Kenai Peninsula, as such facilities exist on the date hereof or as such facilities may be modified, changed, or expanded prior to the Termination Date, or any facilities (regardless of loca- tion) relied upon by Chugach as replacements of, successors to, or substitutes for such facilities (provided that Marathon, in its sole discretion, consents to the inclusion of such replace- ments, successors or substitutes in the definition of "Bernice Lake"). 14(i). Bernice Lake Pipeline shall mean a gas pipeline which, in accordance with Section 8 or Section 9, shall be ac- quired or constructed by Marathon, or constructed under Mara- thon's direction and control, or through which Marathon has ob- tained rights to have its gas transported at no expense to Chu- gach, and which shall be capable of delivering from Marathon's other gas pipeline facilities to Chugach's facilities at Bernice Lake the gas that Marathon is obligated to deliver to Chugach at Bernice Lake. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 81 198810/503 Sec. 14(j) to Sec. 14(r) 14(3). Commission shall mean the Alaska Public Utilities Commission or any successor agency of the State of Alaska. 14(k). Contingent Commitment shall have the meaning set forth in Section 5(b) (3). 14(1) Day or day (uncapitalized) shall mean a period of twenty-four (24) consecutive hours, beginning at eight o'clock a.m. Anchorage local time. 14(m). Deliverability Limits shall be the limits on Mara- thon's obligation to make daily deliveries of gas to Chugach, computed in accordance with Section 5(c). 14(n). Delivery Points shall be the points of delivery set forth in Exhibit F. 14(0). Displacement Sale shall mean a sale of electric power with the characteristics described in Section 4(d) (1) (B). 14(p). Displacement Sale Volume shall mean a volume of gas purchased from Marathon by Chugach under the terms set forth in this Agreement as a result of Sections 4(d)(1)(B) through 4(d)- (1) (D). 14(q). Effective Date shall mean the later of October 1, 1988, or the date on which this Agreement receives the last Nec- essary Approval as defined herein. 14(r). Force Majeure shall mean any event beyond the con- trol of a party hereto and which by the exercise of due dili- gence that party is unable to prevent or overcome, including but not limited to an act of God, fire, flood, volcano, earthquake, explosion, sabotage, and act of the public enemy, civil or mili- tary authority, including court orders, injunctions and orders CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 82 198810/503 of governmental agencies of competent jurisdiction, insurrection or riot, an act of the elements, failure of equipment, or the inability to obtain or ship equipment or materials because of the effect of similar causes on carriers or shippers. Strikes, lockouts, and other labor disturbances shall be considered events of Force Majeure, and nothing in this Agreement shall require either party to settle a labor dispute against its best judgment; provided, that during any labor dispute both parties shall be entitled but not obligated to make all reasonable ef- forts under the circumstances, including, to the extent permit- ted by law, the use of replacement personnel (if desirable, in the sole discretion of the party having the difficulty) and/or management personnel and/or other personnel under the provisions of a mutual aid agreement, to ensure, if possible, the continued ability of the parties to produce, deliver, receive, and dis- tribute the gas and the electric power affected by this Agree- ment. "Force Majeure" shall likewise include: (1) in those instances where either party is required to obtain servitudes, rights-of-way grants, permits or licenses to enable such party to fulfill its obligations, the inability of such party to ac- quire, or the delays encountered by such party, despite its best efforts, in acquiring, at commercially reasonable cost, such servitudes, rights-of-way grants, permits or licensees; and (2) in those instances where either party is required to furnish materials and supplies for the purpose of constructing, repair- ing or maintaining facilities or is required to secure permits or permissions from any governmental agency to enable such party CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 83 198810/503 Sec. 14(s) to Sec. 14(x) to fulfill its obligations, the inability of such party to ac- quire, or the delays encountered by such party, despite its best efforts, in acquiring at commercially reasonable cost such ma- terials and supplies, permits, and permissions. 14(s). Gas or gas (uncapitalized) shall mean natural gas, including both gas well gas and oil well gas, and the residue gas therefrom of the quality described in Exhibit F attached hereto and incorporated by reference herein. , 14(t). GVEA Contract shall mean the agreement between Chu- gach and Golden Valley Electric Association, Inc., for the sale and purchase of nonfirm energy, attached hereto as Exhibit G. 14(u). Incremental Commitment shall mean a volume of gas, not included within but in addition to the Initial Commitment and the Contingent Commitment, that Marathon elects to commit to Chugach under Section 5(b)(4), and all or any portion of any Displacement Sale Volume that Marathon elects to treat as an Incremental Commitment pursuant to Section 4(d)(1)(D). 14(v). Incremental Sale shall mean a sale of electric pow- er by Chugach to another utility pursuant to an agreement en- tered into after the Effective Date of this Agreement (other than an agreement set forth in Exhibit H attached hereto and incorporated by reference herein, or a renewal or extension of such agreement). 14(w). Initial Commitment shall have the meaning set forth in Section 5(b) (2). 14(x). International or International Station shall mean Chugach's gas-fired electric power generating facilities in CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 84 198810/503 Sec. 14(y) to Sec. 14 (aa) Anchorage, Alaska, as such facilities exist on the date hereof or as such facilities may be modified, changed, or expanded pri- or to the Termination Date, or any facilities (regardless of location) relied upon by Chugach as replacements of, successors to, or substitutes for such facilities (provided that Marathon, in its sole discretion, consents to the inclusion of such re- placements, successors or substitutes in the definition of "In- ternational or International Station"). 14(y). Major Electric Power Purchase Commitment shall mean any contract or agreement (or all such contracts or agreements in total) under which Chugach obligates itself to purchase elec- tric power in an amount in excess of 87,600,000 kilowatthours per year to serve load(s) that Chugach could otherwise have served with electric power generated from gas. 14(28). Marathon's Available Gas Reserves shall mean the total quantity of Marathon's proved developed gas reserves, proved undeveloped gas reserves, and a percentage of probable gas reserves as described in Exhibit E and as determined in ac- cordance with sound petroleum reservoir engineering practices in the various formations underlying Marathon's Properties, less the undelivered portion of the total volumes of gas which Mara- thon has reserved and/or committed under the contracts listed in Exhibit B. 14(aa). Marathon's Properties shall mean oil and gas leaseholds and other interests in minerals or mineral rights and/or lands located in or near the Cook Inlet region of Alaska (including those on the Kenai Peninsula) which Marathon now or CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 85 198810/503 Sec. 14(bb) to Sec. 14(gg) hereafter controls and/or from which Marathon has the right to dispose of gas production (including gas production which Mara- thon purchases from others). 14(bb). Marathon's Share Of Chugach's Total Gas Require- ments shall have the meaning set forth in Section 5(a). 14(cc). Necessary Approvals shall mean the final approvals of governmental bodies or non-governmental entities, such as lenders, whose approvals are required before this Agreement or any modification thereto can become effective. At the time this Agreement was executed, Necessary Approvals included only the approvals of the Alaska Public Utilities Commission, the Admini- strator of the Rural Electrification Administration (an agency of the United States Department of Agriculture), and the Spokane Bank for Cooperatives. 14(dd). New Beluga Contracts shall mean any contracts en- tered into on or after January 1, 1988, under which Chugach pur- chases from the Beluga River Field Producers any gas from the Beluga River Field on the west shore of Cook Inlet, Alaska. 14(ee). New Gas Sale shall have the meaning set forth in Section 4(d) (2). 14(ff). Non-Gas Resources shall mean electric power gener- ating units, equipment, or facilities owned or leased by Chugach and designed to produce electric power without the use of gas as fuel. 14(gg). Old Beluga Contracts shall mean Chugach's con- tracts with Beluga River Field Producers as they were in effect CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 86 198810/503 Sec. 14(hh) to Sec. 14 (kk) (1) on December 31, 1987, for the purchase of gas from the Beluga River Field on the west shore of Cook Inlet, Alaska. 14(hh). Old Beluga Gas shall mean that volume of gas com- mitted to Chugach under the Old Beluga Contracts, regardless of whether the Old Beluga Contracts remain in force or are super- seded by New Beluga Contracts which incorporate said volume of gas to the extent Chugach has not previously exhausted said vol- ume. 14(ii). Power Generation Requirements or Chugach's Power Generation Requirements shall have the meaning set forth in Sec- tion 6(a). 14(jj) PURPA Resources shall mean electric power purchased by Chugach, directly or through any intermediary, from any Qual- ifying Facility (or, if applicable, from any power producer whose bid is accepted in lieu of a bid on behalf of a Qualifying Facility) under the Public Utilities Regulatory Policies Act of 1978, as amended. 14(kk). Reimbursable Tax or Taxes. (1) The term "Reimbursable Tax or Taxes" shall mean any tax or similar charge on gas measured by the volume, value, removal price, prevailing value, proceeds, gross receipts, net receipts or sales price imposed by any gov- ernment (federal, state, or local) or Alaska Native auth- ority (if such authority may lawfully assess taxes), in- cluding (A) severance taxes and production taxes; (B) wind- fall profits taxes; (C) taxes on the gas itself; (D) taxes on the act, right or privilege or occupation of producing, CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 87 198810/503 Sec. 14 (kk) (2) severing, gathering, transporting, selling, or delivering gas; and (E) the ad valorem taxes provided for in (2) be- low, but shall not include (A) taxes or charges imposed on any value attributable to liquid hydrocarbons removed from gas by processing or arising from or incident to the pro- cessing of or handling of gas through any processing plant; (B) any franchise tax, tax on capital stock, or other tax imposed on corporations on account of their corporate ex- istence or their right to do business; (C) any income taxes; or (D) any royalty. (2) The term "Reimbursable Tax or Taxes" shall also include, if imposed, any "reserve tax" on gas reserves that have not yet been produced, i.e., any ad valorem taxes which may be reasonably and equitably allocated to volumes of gas which Chugach is entitled to have delivered as of the date of assessment. The fair allocation of such taxes shall be accomplished by negotiations between Chugach and Marathon, taking into account (A) the problems of allocat- ing taxes ratably among oil or other liquid hydrocarbons, reservoir substances which are gaseous in place but become or may be processed into liquids, gas, and other minerals subject to a particular assessment; (B) the ratio of the total volumes of gas from Marathon's Properties subject to such taxes to the volumes which Chugach is entitled to have delivered as of the date of assessment; (C) the ratio of Marathon's Properties subject to assessments to the total acreage of Marathon's’ Properties; (D) the relative CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 88 198810/503 Sec. 14(11) to Sec. 14 (mm) proportion of the volumes and values of Marathon's Avail- able Gas Reserves subject to assessment in comparison with the total volumes and values of Marathon's Available Gas Reserves; and (E) such other factors as the circumstances may require. Should the parties fail to agree on a fair allocation within thirty (30) days of receipt by Chugach of written notice from Marathon of an assessment, either party may initiate arbitration procedures by giving notice pursu- ant to Section 13(q)(2) if the dispute is subject to arbi- tration pursuant to Section 13(q)(1). Chugach shall reim- burse Marathon for the share of ad valorem taxes allocated to Chugach within thirty (30) days of a final allocation (whether by agreement or arbitration) of such taxes. Chu- gach shall also pay interest to the date of reimbursement by Chugach on the amount allocated, whether by agreement or arbitration, from the latter of (1) the date Chugach is notified of the assessment or (2) payment of the Tax by Marathon. The interest rate shall be the rate provided in Section 10(c). 14(11). Renewable Resources shall mean Chugach's resources (or resources from which Chugach purchases electric power) that use solar, wind, hydro, geothermal, biomass, or similar sources of energy and that either are used for electric power generation or are designed to reduce the electric power requirements of a consumer, including by direct application. 14(mm). Term shall mean the period described in Section 3. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 89 198810/503 198810/503 14 (nn) Termination Date shall mean the date this Agree- ment terminates pursuant to Section 3. 14(00). Total Gas Requirements or Chugach's Total Gas Re- quirements shall have the meaning set forth in Section 6(b). 14(pp). Total Price shall have the meaning set forth in Section 7(a). 14(qq). Total Volume Limit shall have the meaning set forth in Section 5(b). IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their authorized representatives. CHUGACH ELECTRIC ASSOCIATION, MARATHON OIL COMPANY INC. LG VA og J eds Margatet B. Tileston ing Kevin oo Its_ president Its Vice President Board of Directors Domestic Production Date September 28, 1988 Date_ September 28, 1988 CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page 90 198810/503A EXHIBIT A EXHIBIT A DETERMINATION OF DISPLACEMENT SALE VOLUMES For purposes of Section 4(d)(1)(C) of this Agreement, Dis- placement Sale Volumes shall be determined in the manner set forth in this Exhibit A, depending on the source of the electric power generated by Chugach and sold in the Displacement Sale. A. Source #1: Dedicated Unit (Start Up) If Chugach produces all or any portion of the electric pow- er for the Displacement Sale by starting up a previously idle generating unit and dedicating the output of that unit to the Displacement Sale, the volume of gas used to generate such por- tion of the Sale shall be the volume of gas consumed by such generating unit during the period in which the unit's electric output is dedicated to the Sale. Chugach shall determine and record the volume of gas so consumed by reading the gas con- sumption metering equipment installed and maintained by Chugach at and for that specific generating unit. B. Source #2: Incremental Output Of Units Already Operating If Chugach produces all or any portion of the electric pow- er for the Displacement Sale by increasing the output (hence the gas use) of any generating unit that is already operating at the time such power is produced at such unit for such Sale, the vol- ume of gas used to generate such portion of the Sale shall be determined in accordance with the following formula: Vv = K x H B Where: Vv = The volume of gas so used, expressed in cub- ic feet; x i] The kilowatthours of energy produced at such generating unit and delivered to the pur- chaser in the Displacement Sale (including line losses to the delivery point), computed from electric energy meter registrations in accordance with standard electric utility practice; H = The average incremental heat rate for all : energy so produced, expressed in Btu/kwh and CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page A-1 198810/503A EXHIBIT A determined from Chugach's then-current in- put/out production function data ("heat rate curves") for such generating unit; and wo " The average Btu content of the gas so used, which shall be assumed to equal 1000 Btu per cubic foot unless adjusted in accordance with Section 7(b) of this Agreement. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page A-2 198810/503B EXHIBIT B EXHIBIT B MARATHON'S PREVIOUS COMMITMENTS The following are Marathon's previous commitments: l. Gas produced and delivered from Marathon's Properties for manufacture into liquefied natural gas (LNG), which is then utilized to fulfill the obligations and stated options of Marathon Oil Company, its parent, affiliates, subsidiaries, legal representatives, successors in interest and assigns under that certain Liquefied Natural Gas Sales Agreement of March 6, 1967, as amended, inter alia, by the Amendatory Extension Agreement of April 15, 1982 and by the Liquefied Natural Gas Sales and Purchase Extension Agreement dated June 17, 1988 (the "1988 Agreement"). The 1988 Agreement is among Phillips 66 Natural Gas Company, Marathon, The Tokyo Electric Power Company, Incorporated, and Tokyo Gas Co., Ltd. Gas produced and delivered from Marathon's Properties as rental gas pursuant to the January 1, 1966 Swanson River Rental Gas Agreement, as heretofore and hereafter amended. Gas produced and delivered to the Trading Bay Unit for field uses, including use as fuel and use for gas lift op- erations. Gas produced and delivered from Marathon's Properties pur- suant to the May 1, 1988 Gas Purchase Agreement between Marathon Oil Company and Alaska Pipeline Company ("APL- Tv"); Gas which is (1) produced from any Marathon's Property ac- quired by Marathon after May 1, 1988, and which is (2) sold pursuant to a contract entered into by a predecessor in interest of Marathon with respect to such property; provid- ed, however, that if the gas reserves associated with the acquired Marathon's Property (calculated pursuant to the procedures used to determine Marathon's Available Gas Re- serves) on the date such Marathon's Property is acquired are insufficient to supply all of the gas remaining to be delivered under the contract as of the date of the acquisi- tion, then only the amount of gas which equals the gas re- serves associated with the acquired Marathon's Property shall be considered as Exhibit B gas and the amount of gas to be delivered in excess of such reserves shall be consid- ered to be a "New Gas Sale" as defined in Section 4(d) (2). CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page B-1l 198810/503C EXHIBIT Cc EXHIBIT C CHUGACH'S MAJOR POWER PURCHASE COMMITMENTS Eklutna Hydroelectric Project (a Renewable Resource). Bradley Lake Hydroelectric Project (a Renewable Resource). "Agreement For The Wheeling Of Electric Power And For Re- lated Services (Bradley Lake Hydroelectric Project)," and related Bradley Lake energy "banking" agreements. [This Agreement, known as the "Bradley Lake Services Agree- ment," includes a contingent obligation on Chugach to pur- chase the Bradley Lake energy of other utilities in some circumstances when Chugach is unable to wheel that energy to those utilities. Chugach has also committed itself to negotiate "banking" agreements for Bradley Lake energy, under which Chugach would be obligated to accept delivery of, for use on its own system, the Bradley Lake energy of other utilities in some circumstances when Chugach is un- able to wheel that energy to those utilities, and to return that energy to such utilities at a later time from sources of generation available to Chugach. ] Net-Billing Agreements: (a) With Matanuska Electric Association, Inc. ("MEA"): agreements for the net-billing of MEA's shares of Ek- lutna and Bradley Lake. (b) With the City of Seward, d/b/a Seward Electrical Sys- tem ("SES"): agreement for the net-billing of SES's share of Bradley Lake. PURPA Resources: Chugach's long-term power sales agreement with MEA includes a contingent obligation to re-purchase from MEA, in some circumstances, electric capacity and/or energy that MEA may purchase from specific PURPA facilities. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page C-1 198810/503D EXHIBIT D EXHIBIT D CHUGACH'S NON-GAS RESOURCES at Eklutna Hydroelectric Project (a Renewable Resource). Ze Bradley Lake Hydroelectric Project (a Renewable Resource). 3. Cooper Lake Hydroelectric Project (a Renewable Resource). 4. "Agreement For The Wheeling Of Electric Power And For Re- lated Services (Bradley Lake Hydroelectric Project)," and related Bradley Lake energy "banking" agreements. (This Agreement, known as the "Bradley Lake Services Agree- ment, includes a contingent obligation on Chugach to pur- chase the Bradley Lake energy of other utilities in some circumstances when Chugach is unable to wheel that energy to those utilities. Chugach has also obligated itself to negotiate the Bradley Lake energy "banking" agreements described in Exhibit C to this Agreement. ] 5. Net-Billing Agreements: (a) With Matanuska Electric Association, Inc. ("MEA"): agreements for the net-billing of MEA's shares of Ek- lutna and Bradley Lake. (b) With the City of Seward, d/b/a Seward Electrical Sys- tem ("SES"): agreement for the net-billing of SES's share of Bradley Lake. 6. PURPA Resources: Chugach's long-term power sales agreement with MEA includes a contingent obligation to re-purchase from MEA, in some circumstances, electric capacity and/or energy that MEA may purchase from specific PURPA facilities. vies 0il-Fired Generation: Certain of Chugach's gas-fired generators are capable of generating with oil, and must on occasion be fired with oil for performance testing and in order for Chugach to retain permits for such generation. Except to the extent that the operation of such generators with oil is necessary for the purpose of retaining such permits or for performance test- ing, such generators shall not be considered "Non-Gas Re- sources" for purposes of this Exhibit or this Agreement at any time when gas is available to Chugach under this Agree- ment as fuel for such generators. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page D-1 198810/503E EXHIBIT E EXHIBIT E GAS RESERVES DEFINITIONS 1. PROVED RESERVES. Proved reserves are those quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be economically recoverable in the future from known oil and gas reservoirs un- der existing economic and operating conditions. Reserves are considered proved if economic producibility is supported by actual production or conclusive formation test or, if core analyses and/or log interpretation demonstrate economic producibility with reasonable certainty. The area of a reservoir considered proved includes that portion delineated by drilling and defined by gas-oil, gas-water or oil-water contacts, if any, and the immediately adjoining portions not yet drilled but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid con- tacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir. Reserves which can be produced through application of im- proved recovery techniques (such as fluid injection) should be included in the "proved" classification only after testing by a pilot project or after the operation of an installed program in CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page E-1l 198810/503E EXHIBIT E the reservoir successfully demonstrates that economic production can be achieved. 2. DEVELOPED RESERVES. Proved developed oil and gas reserves are reserves that can be expected to be economically recovered through existing wells with existing equipment and operating methods. Included in this classification are those proved reserves present behind the cas- ing of existing wells, or at minor depths below the present bot- tom of such wells where the cost of making such oil and gas available for production would be relatively small compared to the cost of a new well. 3. UNDEVELOPED RESERVES. Proved undeveloped oil and gas reserves are reserves that are expected to be economically recovered from new wells on un- drilled acreage, or from existing wells where a relatively major expenditure is required to obtain production. 4. PROBABLE AND POSSIBLE RESERVES. Probable and possible reserves are based on geologic and/or engineering data similar to that used in estimates of proved reserves; but technical, contractual, economic or regulatory uncertainties preclude such reserves being classified as proved. They may be estimated assuming future economic conditions dif- ference from those prevailing at the time of the estimate for internal planning or special evaluations. These reserves are not to be added to proved reserves for governmental or regulato- ry reporting purposes. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page E-2 198810/503E EXHIBIT E 5. PROBABLE RESERVES. Probable reserves are less certain than proved reserves and can be estimated with a degree of certainty sufficient to indi- cate they are more likely to be recovered than not. In general, probable reserves may include: (A) reserves anticipated to be proved by normal step- out drilling where subsurface control is inadequate to classify these reserves as proved; (B) reserves in formations that appear to be produc- tive based on log characteristics but that lack core data or definitive tests and which are not analogous to produc- ing or proved reservoirs in the area; (C) incremental reserves attributable to infill drill- ing that otherwise could be classified as proved but closer statutory spacing had not been approved at the time of the estimate; (D) reserves attributable to an improved recovery me- thod which has been established by repeated commercially successful applications when a project or pilot is planned but not in operation and rock, fluid, and reservoir charac- teristics appear favorable for commercial application; (E) reserves in an area of a formation that has been proved productive in other areas of the field but subject area appears to be separated from the proved area by fault- ing and the geologic interpretation indicates subject area is structurally higher than the proved area; CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page E-3 198810/503E EXHIBIT E (F) reserves attributable to a successful workover, treatment, retreatment, change of equipment, or other me- chanical procedure, where such procedure has not been proved successful in wells exhibiting similar behavior in analogous reservoirs; and (G) incremental reserves in a proved producing reser- voir where an alternate interpretation of performance or volumetric data indicates significantly more reserves than can be classified as proved. POSSIBLE RESERVES. Possible reserves are less certain than probable reserves and can be estimated with a low degree of certainty, insuffi- cient to indicate whether they are more likely to be recovered than not. In general, possible reserves may include: (A) reserves suggested by structural and/or strati- graphic extrapolation beyond areas classified as probable, based on geologic and/or geophysical interpretation; (B) reserves in formations that appear to be hydro- carbon bearing based on logs or cores but whose economic producibility has not been tested; (C) incremental reserves attributable to infill dril- ling that are subject to technical uncertainty; (D) reserves attributable to an improved recovery method when a project or pilot is under consideration but not inoperation and rock, fluid and reservoir CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page E-4 198810/503E EXHIBIT E characteristics are such that there is substantially more than a normal amount of risk associated; and (E) reserves in an area of a formation that has been proved productive in other areas of the field but subject area appears to be separated from the proved area by fault- ing and geologic interpretation indicates subject area is structurally lower than the proved area. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page E-5 198810/503F EXHIBIT F EXHIBIT F GAS MEASUREMENT, QUALITY, PRESSURE, AND DELIVERY POINTS 1. MEASURING STATIONS. (a) Measuring And Non-Measuring Parties. For each Deliv- ery Point, Marathon shall have the option to be the Measuring Party or the Non-Measuring Party. If Marathon elects to be the Non-Measuring Party for a particular Delivery Point, Chugach shall be the Measuring Party for that Delivery Point. (b) The Measuring Party's Duties. The Measuring Party shall install, maintain, and operate or cause to be operated, at the Measuring Party's own expense, at or near each point of de- livery, a measuring station, designed and installed in accord- ance with the current edition of the American National Standards Institute ANSI/API 2530 (also known as AGA Report No. 3), prop- erly equipped with orifice meters, and other necessary equip- ment, including gas temperature recorders, by which the volume of gas delivered hereunder shall be measured. The orifice met- ers shall utilize flange taps and shall be installed, main- tained, and operated with volumes computed in accordance with ANSI/API 2530, and as such has been or may be revised from time to time, including applicable appendices thereto. The Non- Measuring Party shall have access to such metering equipment at reasonable hours, but the calibrating and adjusting thereof shall be done by the Measuring Party. The changing and inte- grating of charts shall be done by the Measuring Party. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page F-1 198810/503F EXHIBIT F (c) The Non-Measuring Party's Rights. The Non-Measuring Party may install, maintain, and operate, at its own expense, such pressure regulators and check measuring equipment as it shall desire and the Measuring Party hereby grants to the Non- Measuring Party the right to install, maintain, and operate such equipment in and connected to the Measuring Party's measuring station or stations, provided that such equipment shall be so installed as not to interfere with the operation of the Measur- ing Party's measuring equipment. The Measuring Party shall have access to such check measuring equipment at reasonable hours, but the reading, calibrating, and adjusting thereof and the changing of charts shall be done by the Non-Measuring Party. (da) Tests And Inspections. Each party shall have the right to be present at the time of any installing, reading, cleaning, changing, repairing, inspecting, testing, calibrating, or adjusting done in connection with the other's measuring equipment used in measuring deliveries hereunder. Notice of any such activities shall be given at least forty-eight (48) hours in advance, if possible. the records from such measuring equip- ment shall remain the property of their owner, but upon request each will submit to the other its records or charts, together with calculations therefrom, for inspection and verification, subject to return within thirty (30) days after receipt thereof. (e) Estimated Deliveries. In the event a meter is out of service or registering inaccurately, the volumes of gas deliv- ered hereunder shall be estimated: CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page F~-2 198810/503F EXHIBIT F (1) by using the registration of any check meter or meters if installed and accurately registering, or in the absence of such accurately registering meter(s) ; (2) by correcting the error if the percentage of error is ascertainable by calibration, test, or mathemat- ical calculations, or in the absence of both (1) and (2), then; (3) by estimating the quantity of delivery by deliv- eries during comparable periods under similar conditions when the meter was registering accurately. (f) Verification. At least once each month, both parties shall verify the accuracy of their measuring and/or check- measuring equipment. If either party shall notify the other that it desires to test the accuracy of any measuring equipment and/or check-measuring equipment, the parties shall cooperate to secure a prompt verification of the accuracy of such equipment. (g) Corrections. If, upon test, any measuring equipment is found to be not more than one percent (1.0%) inaccurate, pre- vious records of such equipment shall be considered accurate in computing deliveries hereunder. In the event any measuring equipment shall be found to be inaccurate to the extent that it affects the measurement accuracy by an amount exceeding one per- cent (1.0%), then any previous recordings of such equipment shall be corrected to zero error for any period which is known definitely or agreed upon, but in case the period is not defi- nitely known or agreed upon, such correction shall be made for a period of the lesser of sixteen (16) days or one-half (1/2) of CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page F-3 198810/503F EXHIBIT F the time elapsed since the date of last test. If any measuring equipment is found by test to be measuring inaccurately, such equipment shall be adjusted at once to measure accurately. (h) Preservation Of Data. Each party shall preserve for a period of at least six (6) years all test data, charts and other similar records. 2. MEASUREMENTS. (a) Standard Unit Of Gas. The sales unit of the gas de- liverable hereunder shall be one (1) Mcf of gas, i.e., one thou- sand (1000) cubic feet of gas. (b) Determination Of Volume. The volume of the gas deliv- ered hereunder shall be determined as follows: (1) The unit of volume for the purpose of measure- ment shall be one (1) cubic foot of gas at the base temper- ature of sixty degrees Fahrenheit (60°F) and at a pressure of fourteen and sixty-five hundredths (14.65) pounds per square inch absolute, with correction for deviation from the Ideal Gas Law being made in accordance with ANSI/API 2530 (AGA Report No. 3) or AGA Report No. 8, as applicable. (2) The average absolute atmospheric pressure shall be assumed to be fourteen and seven-tenths (14.7) pounds to the square inch, irrespective of actual elevation or loca- tion of the point of delivery above sea level or variations in such atmospheric pressure from time to time. (3) Unless the parties hereto agree to the use of a spot test method, the specific gravity of the gas delivered hereunder shall be determined by the use of a recording CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page F-4 198810/503F EXHIBIT F gravitometer which is generally accepted in the industry. When a recording gravitometer is used, the arithmetical average of the specific gravity of gas flowing through the meters shall be used in computing gas volumes. If a spot test method is used, the specific gravity of the gas deliv- ered hereunder shall be determined at monthly intervals or more often if found necessary in practice. Any such test shall determine the specific gravity to be used in computa- tion of volumes effective the first day of the following month and shall continue to be used until changed in a like manner by subsequent test. (4) The temperature of the gas shall be determined by a recording thermometer so installed that it will record the temperature of the gas flowing through the meters. the average of the recorded temperatures to the nearest one degree Fahrenheit (1°F), obtained while gas is being deliv- ered, shall be used in computing measurements for that day. (5) The gross heating value of the gas shall be de- termined from a representative sample of the gas taken at the point(s) of measurement by periodic tests to be con- ducted monthly by the Measuring Party or at such other in- tervals as the parties may mutually agree. The determina- tion may be made by means of a calorimeter or by calcula- tion from the sample analysis using equipment and calcula- tion acceptable to both parties acting reasonably and in good faith. The heating value of the gas purchased and sold shall be between 950 Btu per cubic foot and 1050 Btu CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page F-5 198810/503F EXHIBIT F per cubic foot, expressed at 14.65 psi, 60 degrees Fahren- heit (dry basis). 3. GAS QUALITY. (a) Water content. Gas shall be dehydrated by Marathon and in no event shall such gas have a water content in excess of five (5) pounds of water per million cubic feet of gas measured at a pressure base of fourteen and seventy-three hundredths (14.73) pounds per square inch and at a temperature of sixty degrees (60°) Fahrenheit, as determined by dew-point apparatus approved by the United States Bureau of Mines or by other mu- tually agreed upon method. (b) Hydrogen sulfide. Gas shall not contain more than one (1) grain of hydrogen sulfide per one hundred (100) cubic feet of gas as determined by the Tutwiler test or some other mutually agreed upon quantitative test, after the presence of hydrogen sulfide has been indicated by a qualitative test. (c) Sulphur. Gas shall not contain more than twenty (20) grains of total sulphur per one hundred (100) cubic feet of gas. (ad) Other. Gas shall not contain in excess of: (1) three percent (3%) carbon dioxide by volume; or (2) one percent (1%) oxygen by volume. (e) Temperature. Gas shall not have a temperature in ex- cess of one hundred twenty degrees (120°) Fahrenheit. (f) Contaminants. Gas shall be commercially free of dust, gums, gum-forming constituents, glycol, or other liquid or other matter which might become separated from the gas during the course of handling and use as electric generating plant fuel. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page F-6 198810/503F EXHIBIT F 4. GAS PRESSURE. (a) Delivery Pressures. Gas shall be delivered to Chugach at a pressure of not less than four hundred (400) pounds per square inch gauge and not more than one thousand (1000) pounds per square inch gauge. Marathon shall install, maintain, and operate at its own expense such facilities and equipment as may be required to make deliveries within such pressure limits and at the required rates of delivery. (b) Notice Of Expected Pressures. Not later than October 1 of each calendar year, Marathon shall notify Chugach in writ- ing of the pressures at which Marathon expects to deliver gas during the next succeeding calendar year. 5. DELIVERY POINTS. The Delivery Points for gas shall be at the outlet side of Marathon's meters at Beluga, Bernice Lake, and International, and at such other locations as may be agreed upon by the par- ties. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page F-7 198810/503H EXHIBIT H EXHIBIT H CHUGACH POWER SALES CONTRACTS 1. Long-Term Power Sales Contracts (a) Matanuska Electric Association, Inc. (b) Homer Electric Association, Inc. (c) City of Seward, d/b/a as Seward Electric System. 2. Long-Term Nonfirm Energy Contracts (a) Golden Valley Electric Association, Inc. 3. Other Contracts Including Potential Incidental Sales (a) “Agreement For The Wheeling Of Electric Power And For Related Services (Bradley Lake Hydroelectric Project)," including related Bradley Lake energy "banking" agreements. {This Agreement, known as the "Bradley Lake Services Agree- ment," includes provisions for potential incidental sales by Chugach to other utilities in some circumstances when Chugach is unable to wheel Bradley Lake energy to those utilities. The related "banking" agreements are described in Exhibit C.] CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page H-1 198810/503I EXHIBIT I EXHIBIT I GAS DELIVERED TO INTERNATIONAL STATION In the event that Marathon is able to make, to Marathon's satisfaction, arrangments for the transportation of gas to Chu- gach at International, then all the terms and conditions of this Agreement shall apply to the delivery and purchase of such gas, with the following modifications: (1) Inclusion Of International Deliveries In Deliver- ability Covenant And Limits. (a) Section 5(c)(1) shall be amended to read as follows: "(1) Covenant of deliverability. Marathon ag- rees to maintain at all times, except when prevented by Force Majeure, the capability of delivering through the Bernice Lake Pipeline and the Beluga Pipeline, respectively, when completed, sufficient gas to meet Chugach's demand for gas at Bernice Lake and at Bel- uga, respectively, to the extent that Chugach's com- bined demand at Bernice Lake and Beluga (and Interna- tional) does not cause cumulative daily deliveries from Marathon under this Agreement to exceed either the Deliverability Limits set forth in Section 5(c)- (2), or cause rates of delivery to exceed those rea- sonably scheduled pursuant to Section 11(c); provided, that nothing in this Agreement shall be construed to require Marathon to produce and deliver, or Chugach to purchase and receive, any quantities of gas in excess of those which may be produced under any applicable statute or the applicable rules, regulations, or or- ders of regulatory bodies having jurisdiction." (b) The description of the variable "Va" in Sec- tion 5(c)(2)(B)(i) shall be amended to read as fol- lows: iva = The total annual volume of Chugach's projected takes from Marathon at Ber- nice Lake, at Beluga, and at Interna- tional, combined, in the year for which the Deliverability Limit is being com- puted, such projected takes to be spec- ified by Chugach to Marathon pursuant to Section 6(a)(2) and expressed in Mcf." CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page I-1 198810/503I EXHIBIT I (c) References to "Bernice Lake" in Sections 5(c)(2)(A) and 5(c) (2) (B) (ii) (I) shall be amended to read "Bernice Lake and International." (2) Price Of Gas. The price of gas delivered by Mar- athon to Chugach at International Station shall not be gov- erned by the provisions of Sections 7(a) through 7(d), but shall instead by computed in accordance with the following new Section 7(f): "(e) Price Of Gas Delivered At International Station. Notwithstanding the provisions of Sections 7(a) through 7(d), the Adjusted Price applicable to gas that Chugach purchases from Marathon at Interna- tional Station shall be the then-applicable Annual Base Price (or, if lower, the Limited Annual Base Price) under Section 10.2 of the Gas Purchase Agree- ment between Marathon and Alaska Pipeline Company dated May 1, 1988 ("APL-IVv")." CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page I-2 198810/503T EXHIBIT J EXHIBIT J MARATHON'S SHARE OF CHUGACH'S TOTAL GAS REQUIREMENTS IN THE EVENT OF CHUGACH'S CONSOLIDATION WITH ML&P A. Addition To Marathon's Share In The Event Of Consolidation In the event that Chugach is consolidated with Anchorage Municipal Light & Power ("ML&P"), whether through merger or ac- quisition, on or before December 31, 1998, then from the effec- tive date of such consolidation and until December 31, 2000, Marathon's Share of Chugach's Total Gas Requirements for pur- poses of Section 5(a)(1)(D) of this Agreement shall be increased to include one hundred percent (100%) of Chugach's "Beluga Mer- ger Requirements," as defined and computed in accordance with this Exhibit J and subject to the terms and conditions hereof. B. Background And Purpose At the time this Agreement was entered into, Chugach and ML&P were the two Alaska electric utilities most reliant on gas- fired generation. By virtue of this Agreement, the Old Beluga Contracts, and the New Beluga Contracts (if entered into and approved), Chugach will purchase all or virtually all of its gas under long-term contracts with producers of gas. At the time this Agreement was entered into, ML&P purchased all or virtually all of its gas as a tariff customer of ENSTAR/APL, an integrated gas pipeline and local distribution entity. Marathon is a major supplier of gas to ENSTAR/APL under APL-IV. The potential consolidation of Chugach and ML&P has been considered by the staffs and governing bodies of both utilities at intervals since 1970. If such a consolidation ever occurred, it is possible (although not inevitable) that because of price differences between the gas available to it at the former Chu- gach generating locations and the gas available to it at the former ML&P generating locations, the combined utility in meet- ing its total loads might for reasons of efficiency shift some portion of its electric power production from the latter loca- tions to the former. Thus, one result of a consolidation be- tween Chugach and ML&P might be an increase in the daily and annual volumes of gas purchased under this Agreement. The purposes of this Exhibit J are to provide (1) an agreed upon and practical method by which any increase in gas require- ments at Beluga resulting from a consolidation of Chugach and ML&P can be estimated for purposes of this Agreement, and (2) the terms and conditions under which such estimated increase in gas requirements at Beluga will added to Marathon's Share of CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page J-1 198810/503T EXHIBIT J Chugach's Total Gas Requirements in the event such a consolida- tion occurs. Because Marathon's Share of Chugach's Total Gas Requirements as set forth in Section 5(a) includes one hundred percent (100%) of Chugach's requirements at Bernice Lake (and at International, if Marathon makes deliveries there), no similar provisions are needed to deal with potential increases in gas requirements at Bernice Lake and International in the event of such a consolidation. Ce Implementation 1. Timing of consolidation. The provisions of this Ex- hibit shall apply only if Chugach and ML&P are consolidated on or before December 31, 1998. 2 Duration. The provisions of this Exhibit, if applic- able, shall cease to apply to any determination of Marathon's Share of Chugach's Total Gas Requirements on the earlier of the following dates: (a) The effective date of any notice from Marathon to Chugach under this Agreement reducing either the volumes of gas available to Chugach under this Agreement or Marathon's deliverability obligations under this Agreement with re- spect to such gas; or (b) December 31, 2000. 3. Determination of "Beluga Merger Requirements" (a) Except during a transition period described in Paragraph C.3(d), "Beluga Merger Requirements" shall mean a volume of gas added to Marathon's Share of Chugach's Total Gas Requirements under Section 5(a)(1)(D) and equal, in each year, to the lesser of (i) the difference between the average annual volume of gas purchased at Beluga in the three years immediately after, and the average annual vol- ume of gas purchased at Beluga in the three years immedi- ately prior to, a consolidation of Chugach and ML&P, or (ii) the difference between the average annual volume of gas purchased at ML&P's former generating locations in the three years immediately prior to, and the average annual volume of gas purchased at ML&P's former generating loca- tions in the three years immediately after, a consolidation of Chugach and ML&P. (b) The differences in volume referred to in Para- graph C.3(a)(i) and (ii) shall be determined in accordance with Paragraph C.3(c), and, during a transition period, in accordance with Paragraph C.3(d). If, as so determined (except during any year of the transition period set forth in Paragraph C.3(d)), either of the differences described in Paragraph C.3(a)(i) or (ii) is zero or negative, then CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page J-2 198810/503 a EXHIBIT J the Beluga Merger Requirements shall be zero and this Ex- hibit shall be of no further force and effect. such lows: (c) For purposes of Paragraph C.3(a)(i) and (ii): (i) Subject to Paragraphs C.3(c) (iii) and (iv), the volume of gas purchased at Beluga in each year shall be the total purchases of gas from all sources combined at Beluga in that year, exclusive of those volumes used in that year to generate electric power for sale at wholesale to other utilities under the GVEA Contract, as a Displacement Sale, as an Incre- mental Sale, or as economy energy. (ii) Subject to Paragraph C.3(c) (iii), the vol- ume of gas purchased at ML&P's former generating loca- tions in each year shall be the total purchases of gas from all sources at all such locations combined in that year, exclusive of those volumes used to generate electric power for sale at wholesale to other utili- ties as economy energy. (ERRH) If and to the extent that a generation failure or other extraordinary outage occurs or has occurred at Beluga or at ML&P's former generating lo- cations during any year for which annual volumes are computed for purposes of this Paragraph C.3(c), then Marathon and Chugach shall negotiate in good faith such adjustments to such volumes as may be necessary to ensure that the volumes used for purposes of this Paragraph C.3(c) are representative of normal operat- ing conditions at both Beluga and ML&P's former gener- ating locations. (iv) If and to the extent that deliveries of gas to Beluga through the Beluga Pipeline had not com- menced prior to any year for which volumes are com- puted for purposes of this Paragraph C.3(c), then Mar- athon and Chugach shall negotiate in good faith such adjustments to such volumes as may be necessary to ensure that the volumes used for purposes of this Par- agraph C.3(c) are representative of normal operating conditions at Beluga unconstrained by the lack of such Beluga Pipeline deliveries and the existence of maxi- mum daily deliverability limits under the Old Beluga Contracts. (ad) The transition period and rules applicable during period for Beluga Merger Requirements shall be as fol- (i) In the first calendar year immediately after the effective date of the consolidation of Chugach and ML&P, Marathon's Share of hugach's Total Gas CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page J-3 198810/503T EXHIBIT J Requirements shall computed in accordance with Section 5(a)(1)(D) without reference to this Exhibit J. (ii) In the second such calendar year, this Ex- hibit J shall apply and Beluga Merger Requirements shall be computed in accordance with Paragraph C.3(a), but for purposes of Paragraph C.3(a)(i) and (ii) the average annual volume of gas purchased at Beluga and at ML&P's former generating locations, respectively, in each year immediately after the consolidation shall be deemed equal to the volume so purchased at such respective locations in the first year immediately after the consolidation. (iii) In the third such calendar year, this Ex- hibit J shall apply and Beluga Merger Requirements shall be computed in accordance with Paragraph C.3(a), but for purposes of Paragraph C.3(a)(i) and (ii) the average annual volume of gas purchased at Beluga and at ML&P's former generating locations, respectively, in each year immediately after the consolidation shall be deemed equal to the average annual volume so pur- chased at such respective locations in the first two years immediately after the consolidation. (iv) The transition period shall be end on the last day of the third such calendar year. D. Arbitration The reasonableness of Chugach's determination of Beluga Merger Volumes shall be subject to arbitration in accordance with the provisions of Section 13(q) of this Agreement in the same manner as provided in that Section for arbitration of Chu- gach's forecasts under Section 6(a)(2) of this Agreement. CHUGACH-MARATHON GAS PURCHASE AGREEMENT Page J-4