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HomeMy WebLinkAboutAPA Unalaska Project Land and Royalty Agreements 1986 2SUMMARY OF AGREEMENT WITH THE ALEUT CORPORATION Rights Granted The Agreement grants the following rights to the Power Authority: 1.It grants access rights to Aleut land on Unalaska Island to conduct the geothermal feasibility study (Article A,Sec.5, page 3).If the Power Authority does not proceed with the project after the feasibility study,it grants access rights to plug and abandon the existing exploration well. 2.Upon completion of the feasibility study and a commitment by the Board to proceed with the geotherma!project,the Agree- ment grants a long-term lease for surface lands needed to con- struct and operate the project and rights to drill for and produce geothermal resources from the subsurface estate of Aleut (Article B,Sec.1,page 4). 3.The Agreement also grants rights needed to operate the project including activities necessary to produce geothermal resources and electricity,to dispose of waste fluids,to maintain operations,and to transmit and sell power to the City ofUnalaska(Article B,Sec.2,page 4).It grants necessaryrights-of-way and easements for transmission Vines and roads(Article B,Sec.3,page 5). The Agreement grants the following rights to the Aleut Corporation: 1.Aleut has the right to participate in the feasibility study by attending meetings between the Power Authority and its con- tractors and receiving data and materials developed during the teasibility study and to bid on aspects of the project,so long as such meetings,information,and bids are not propri-etary or deemed a conflict of interest (Article A,Sec.3, page 3 and Article C,Sec.12,page 13). 2.Upon completion of the feasibility study,Aleut may opt todevelopthegeothermalprojectifit(a)shows by a memorandum of understanding or power sales agreement with the City that it can provide power at a delivered cost equal to or betterthanthatwhichthePowerAuthoritycanprovide,and (b)reim- burses the Power Authority for costs incurred to conduct the feasibility study (Article A,Sec.6,page 4). 4631/387 -l- 3.Should the Power Authority proceed with the project,Aleut has approval rights over the precise location of leased lands andrights-of-way (Article C,Sec.20 page 15). Term of the Agreement (Article C,Sec.1,page 5) The Agreement takes eftect upon signing by both parties with respect to rights granted to conduct the feasibility study.The Power Authority Board may terminate the Agreement upon completion of the feasibility study or plan of finance or if it is unable toexecuteapowersalesagreementorobtainfinancing(Article A, Sec.2,page 2).If the project is developed by the Power Authori- ty,the Agreement will remain in effect for 30 years commencing January 1 of the year commercial operations begin.The 30-year primary term will be extended automatically for two consecutive periods of 10 years each if resources continue to be produced in commercial quantities. Royalties (Article C,Sec.3,page 7) The Power Authority will pay royalties to Aleut for geothermal resources produced and sold from the project.For resources that are converted to electric power before sale,the royalty payment istheproductof:(a)the number of kilowatt-hours produced and sold at the city busbar,multiplied times (b)a specified royalty raterangingfrom3.25%to 6.3%(for sale of under 20 million kWh/yr to over 44 million kWh/yr,respectively),further multiplied times (c) the busbar cost the city could expect to incur without the geothermal project. The royalty rates specified (from 3.25%to 6.3%of gross revenues at the busbar)combined with the rental and easement fees described below,are designed to coincide with rates of 10%to 15%of the value of the fuel component required to produce an equivalent amount of electricity.Consequently,the royalty and fee pro- visions are consistent with amounts provided in standard state, federal and private geothermal leases.Commencing with royalty rates of 3.25%which increase stepwise to a cap of 6.3%as produc- tion climbs,allows for minimum payments during the early years of the project when net production and revenues are relatively low and higher payments in later years when production increases,and the project can better afford the expense,without exceeding a reason- able royalty rate. The royalty provision was modified from ones more commonly found in geothermal leases to accommodate the fact that the projectdeveloper(the Power Authority in this case)is not a private entity seeking the highest market price and profit margin for resources developed and power sold.In standard leases,where this 4631/387 -2- is normally the case and where royalty is a percentage of market value or gross revenues,the resource owner is assured of maximum royalty payments because the developer's goal is to sell its product at the highest price the market will bear.As a public agency,the Power Authority has the opposite objective,to provide power at the lowest reasonable cost to the city,and establishing royalties as simply a percentage of the market value or gross revenues of the project would be unfair to Aleut as an owner of geothermal energy seeking market value for its resource. Consequently,in this Agreement,royalties on resources converted to electric power are calculated as a percentage of an "artificial” gross revenue equal to the cost the city could expect to incur to provide power to the busbar if the geothermal project were not developed.The Agreement requires that the expense factors to be included in this artificial busbar cost be established in the power sales agreement with the city. Royalties on geothermal resources produced and sold as_thermal energy and on mineral byproducts extracted from geothermal fluids are 15%and 5%respectively of their market values,consistent with standard industry practice.Those market values will be negotiated prior to sale of resources for those purposes. The Agreement requires that'the Power Authority pay Aleut an advance minimum royalty of $25,000 per quarter.The advance minimum royalty paid to Aleut is deductible from royalties other- wise due to Aleut in any given quarter (Article C,Sec.4,page 8). Fees (Article C,Sec.2,page 6) In addition to royalty,the Power Authority will pay quarterly to Aleut a rental of $1,250 for up to 10 acres of surface leased lands and $1,250 in easement fees.Royalty rate levels in the Agreement were established such that the sum total of royalty payments, rental,and easement fees would.be comparable to the industry standard of paying landowners 10%to 15%of the market value of the resource without additional fees. The Power Authority will pay Aleut $1.50 per cubic yard for aggre- gate materials extracted from Aleut land as measured emplaced in construction of the Project. Power Authority Obligations The Power Authority is obligated under the Agreement to conduct a technical and economic feasibility study of the proposed project 4631/387 -3- and,if the results of the feasibility study are positive,to prepare a plan of finance and pursue a power sales agreement andfinancingfortheproject(Article A,Sec.1,page 2).The project must be conducted according to a strict schedule allowing nine months to contract for and complete the feasibility study,three months from completion of the feasibility study to complete the plan of finance,six months from completion of the plan of finance to execute a power sales agreement and acquire financing,nineteen months from receipt of financing to complete design and commence construction,and three years from beginning construction tocommenceoperations(Article A,Sec.4,page 3 and Exhibits A and B,page 19).Commencement of construction may be extended one year if the Power Authority pays Aleut the annual rental and easementfeeof$10,000 for that year (Article C,Sec.2(c),page 7). The Power Authority must bear responsibility for any taxes assessed against its leasehold interest or for establishing that its lease-hold interest is exempt from taxation (Article C,Sec.8,page 10). Aleut will bear responsibility for taxes assessed against leased lands as if they were unimproved,against improvements:placed on the lands by Aleut,and against payments received by Aleut pursuant to the Agreement. Within a year after completion of construction,the Power Authority must provide an as-built survey of leased lands and right-of-wayeasements(Article C,Sec.20,page 15). Uther Provisions (Article C) The Agreement contains additional provisions with standard language to address the following: Provision Section Page Indemnification 9(b)10 Insurance 9(c)10 Unitization 1k 12 Title warranty 13 13 Force majeure 14 13 Surrenders 15 13 Breach of agreement 16 14 Restoration 17 14 Assignment 18 15 Equal employment 19 15 Notices 22 16 Entirety clause 23 16 Severability 24 16 Binding effect 250 CO 17 Definitions 26 17 4631/387 -4- Page 1 of 15 Article A Article B Article C 12. 13. 14, 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. } CONDITIONAL LAND AND RESOURCE AGREEMENT FOR THE UNALASKA GEOTHERMAL PROJECT Table of Contents FEASIBILITY PROGRAM .ccccccnccccccccevcccccccccccccccscessseseses Administration of Feasibility Program ..cccsccscccnccscnscvsecces Termination of Feasibility Program wcccsccccccvcecsccesccccssccees Participation by Aleut in the Feasibility Program ...sccccscccees Commitment to the Project .cccacccsecncccccccccenscescvcsscssccces Access to Lands to Conduct Feasibility Program ..ccccsccccccvccce Option for Project Development by Aleut cecccccccsccesccccssccccs GRANT OF LEASE AND RIGHTS FOR THE PROJECT .occccccccnccsccesccesee Production Rights eeeoeceeeeosneesesneseneseeeeseeseesneeeseeoeeseeeeeeee Land,Resource Use,and Disposal Rights ....scccccsccccccscccvecs Right-of-Way Easements Rights COCKE FEO HCL EH EB EEEHHOTEESD EEO EROEEOEE TERMS AND CONDITIONS .ccccccccccccccnccccccecnveceseneessesseeens Terms Of Agreement ccccccccccccccccasccccncccscncvceecesceccesece FEES cocccccccvcccccccccceceereeseesesceeceaseesseseeeeseeseeeees Royalties rccvecccvccscvccvsccenccccsseseccesessescescesessences Payment of Royalty ccccccceccccccccccsecscoccscessescesescsscecce Purchase of Aggregate Materials ccccscccccccccncccccsccecscccescs Depository crsccccccccccccccenccsesccsseccccseccseveseveseccecess Lesser or After-Acquired Interest ccsccccccccccccccsccccccssccecs ith)oer Terr rrr errr rrr errr rrr rrr rrr rr rr rrr errr rer Terr T err ree) Operations pcccccccccccccccnsnevesesccncsscssesecscenscecsecsecsees Uneconomic Operations wcccccccccccccccccccecccvcvcseucccesevesece UNI tation wecccccccccvccvccvcnccessssveseesssenseccssessecncess Aleut's Right to Bid ..ccccccccccccccvnvcvccsecvevcccecsevcseeces Title Warranty cccccccccccccccsccscscccesscccscccecccsccccccssees Force Majeure weccccccccccnccscccccsccsscccccccseceenscsesesesees SUPTENdErS socccccencccresncceccecccearrecesscaneeesseeseesceeses Breach of Agreement coccccccccnccccccscccccccscscsesecceceseccees Removal of Property and Restoration ce cccccccccececcceecesccecens ASSIGNMENT cevvccccccccecrencresereesereeeesereerseeeresssesscene Equal Employment .cccccccccccccccccccccrccascccsssccccscessecseses Location and Survey of Leased Lands .ccccccscccccccvccccccccccces Recording of Agreement .ccccccccccccccsecccccvcenceccsceceecesese Notices ccccccccccccvcccccceserereseensesecseeseseesceeesenesenes Entirety Clause cccccovccccvccccccccecseccesesccvecvsvecssesesens Severability cvcccccccccvvveresescsscnsccenseeeseescseccscecesese Binding Effect .cccccccccccccccvecccececcsscesecesseecescceseeees Definitions SCHOHSSHEHHSSHHHEHSHSHHSHHHHSHESHHEHSEHHEHHSHEHECHHESSEHEHESHHOHHEHHEHEETES Exhibit A -Feasibility Program Scope Of Work cecccccnccsccncnscccccscccscccsseces Exhibit B -Deadlines for Feasibility Program and Project cecscccccccccccvcccces Exhibit C -Schedule of Eligible Power Costs TTT TTTTTTTTTTTTTETTTTT TT TTT Tee 1594/572(1) Page wowoWwW8BFDHDSr-WwWwWwWynnnnnUUnF+Po:>>+:ii:iPi| Land and Resource Agreement Page 2 of 15 THIS AGREEMENT is made and entered into as of the day of »1986,by and between THE ALEUT CORPORATION,an Alaska corpo- ration,hereinafter referred to as "Aleut,"and the ALASKA POWER AUTHORITY,a public corporation of the State of Alaska,hereinafter referred to as the "Power Authority." WHEREAS,the purpose of the Power Authority is to promote,develop,and advance the general prosperity and economic welfare of the people of Alaska by providing a means of con- structing,financing,and operating power projects;and WHEREAS,the Alaska Legislature finds that the establishment of said power projects is necessary to supply power at the lowest reasonable cost to the state's electric utilities,and thereby to the consumers of the state;and WHEREAS,it is the declared policy of the state,in the interests of promoting the general welfare of all the people of the state,and public purposes,to reduce consumer power costs and otherwise to encourage the long-term economic growth of the state,including the development of its natural resources,through the establishment of power projects;and WHEREAS,the Power Authority,in cooperation with Aleut,has completed a four-year geothermal exploration and drilling program near Mount Makushin on Unalaska Island,which re- sulted in the discovery of a commercially productive geothermal reservoir;and WHEREAS,the Power Authority has also completed a reconnaissance study of energy re- quirements and alternatives indicating that a geothermal power system fs likely to be the most economic source of electric power for the community of Unalaska/Dutch Harbor;and WHEREAS,the Power Authority Board of Directors has allocated funds to conduct a Fea- sibility Program for developing a geothermal power system on Unalaska Island,with the stipu- lation that the Feasibility Program be initiated only after agreements have been negotiated with appropriate landowners for the use of lands and resources during the feasibility,design,con- struction,and operation phases;and WHEREAS,Aleut has received interim conveyance,under the Alaska Native Claims Settle- ment Act,to the surface and subsurface land estates on which the exploration and drilling took place; NOW,THEREFORE,witnesseth that: Article A.FEASIBILITY PROGRAM 1.Administration of Feasibility Program.The Power Authority shall,subject to appro- priation,fund and conduct a Feasibility Program for a geothermal power Project on Unalaska Istand.The Power Authority shall designate a project manager whose primary responsibility is administration of the Feasibility Program. 2.Termination of Feasibility Program.The Board may,at its option,and upon written notification to Aleut,terminate the Feasibility Program and this Agreement upon the completion of Phases (1)or (2)or thereafter if the Power Authority is unable to execute power sales agreements or obtain financing for the Project after diligently pursuing acquisition of such agreements and financing. 3.Participation by Aleut in the Feasibility Program.(a)The Power Authority shall notify Aleut in advance of,and Aleut shall have the right to attend,at its expense,all review meetings between the Power Authority and {ts Feasibility Program contractors except meetings regarding bid documents or matters the Power Authority deems proprietary or to constitute a conflict of interest.The Power Authority and Aleut shall meet monthly during the Feasibility Program,at a time and place convenient to both parties,to review the Feasibility Program analyses,Aleut may make recommendations to the Power Authority with respect to continuation of the Feasibility Program;changes in the Feasibility Program,including scopes of work,sched- ules,and final report format;and development or nondevelopment of the Project.The Power Authority shall give full consideration to recommendations of Aleut but such consideration shal] not restrict or diminish the Power Authority's responsibility to make final decisfons on matters concerning the Feasibility Program and the Project. (b})The Power Authority shall,upon request,at no cost or at a cost not to exceed ten cents per page,provide Aleut with data and materials developed during the Feasibility Program except data and materials the Power Authority deems proprietary or to represent a con- flict of interest.Throughout the Feasibility Program,the Power Authority shall document to Aleut on a monthly basis the direct costs actually incurred in conducting the Feasibility Program. (c)If requested by Aleut,the Power Authority shall provide to Aleut a written description of the nature of the meetings between the Power Authority and its Feasibility Pro- gram contractors to which Aleut is prevented from attending and an explanation of the reasons for preventing Aleut's attendance.Likewise,if requested by Aleut,the Power Authority shal! provide to Aleut a written description of the nature of the information being withheld and an explanation of the reasons for withholding such information. 15894/8727171 Land and Resource Agreement Page 3 of 15 4.Commitment to the Project.Upon completion of Phases (1)and (2)of the Feasibility Program,the Board shall commit by June 1,1987 to develop the Project or to terminate this Agreement.The Power Authority shall notify Aleut in writing of the Board's deciston on or before June 1,1987.If the Power Authority decides to develop the Project,the Power Authority shall diligently proceed to complete its obligations as set forth in Exhibits A and B.If the Power Authority fails to commit to a course of action by June 1,1987,this Agreement shall be terminated,unless both parties agree fn writing to continue the Agreement. 5.Access to Lands to Conduct Feasibility Program.(a)Aleut shall allow access by the Power Authority,its employees,agents,representatives,and contractors to land Aleut owns on Unalaska Island sufficient to conduct and complete the Feasibility Program.Such access shall be permitted during the Feasibility Program so long as the Power Authority performs under this Agreement. (b)Access granted to the Power Authority shall not prevent Aleut from allowing access by others to Aleut land and resources on Unalaska Island;however,Aleut agrees that access by others,in the event of any access conflicts,shall be subordinate to the needs of the Power Authority to conduct and complete the Feasibility Program.Aleut shall indemnify,save harmless,and defend the Power Authority from and against any and all lfens,claims,judgments, or suits whatsoever arising out of activities and operations of Aleut,or others permitted access by Aleut,other than those arising in whole or in part from the Power Authority's act or failure to act,and this section shall survive termination of this Agreement. (c)If the Feasibility Program {is terminated prior to obtaining financing for the Project or if the Board decides not to develop the Project,Aleut agrees to allow access for plugging and abandonment of the Power Authority's existing exploration well if the Power Author- ity and Aleut cannot agree otherwise in writing to maintain the well. 6.Option for Project Development by Aleut.The parties hereto acknowledge that their consultations in all phases of the project may be advantageous in providing to the City the most reasonable delivered cost of power;therefore,the parties agree to consult with each other specifically during the financial feasibility analysis and power sales negotiations phases of the Project.The Power Authority shall consider Aleut's proposals to develop the project. Within 60 days after completion by the Power Authority of Phase (4)of the Feasibility Program, Aleut may present proposals and agreements to provide for the funding,development,and/or operation of the Project,any portion thereof,or a reasonably comparable project.If a memorandum of understanding is signed by Aleut and the City providing for the development of the Project by Aleut at a delivered cost of power to the City that fs equal to or less than that which the Power Authority can reasonably expect to deliver pursuant to Phase (4)of the Fea- sibility Program,or if the terms and conditions of a power sales agreement between Aleut and the City are preferred by the City,then Aleut's proposal for development of the Project shall be accepted by the Power Authority.Within 30 days after acceptance of Aleut's proposal,the Power Authority shall provide Aleut,if not previously provided,an itemization of direct costs actually incurred on a monthly basis during the Feasibility Program plus supporting documentation.Upon Aleut's repayment to the Power Authority for documented direct costs,this Agreement shall terminate and Aleut shall have the right to develop the Project. Article B.GRANT OF LEASE AND RIGHTS FOR THE PROJECT 1.Production Rights.Upon the completion by the Power Authority of the Feasibility Program and after a commitment by the Board to proceed with development of the Project,but prior to any drilling or construction,Aleut shall,in consideration of the Royalties,Rental, Easement Fee,and covenants herein provided,lease exclusively to the Power Authority surface Tands which are specifically identified fn the Feasibility Program as necessary to construct and operate the Project and shall grant separately to the Power Authority the non-exclusive right to drill for,produce,extract,take,and remove Energy Resources and Byproducts from the subsurface estate of Aleut.Further,Aleut hereby grants to the Power Authority the right to explore the Leased Lands by geological,geophysical or other methods and,to the extent of Aleut's rights,to take water from Leased Lands for operations hereunder.Aleut agrees that the drilling for,production,extraction,taking and removal of Energy Resources and/or Byproducts from the subsurface estate of Aleut by a party other than the Power Authority shall be subordinate to the needs and requirements of the Power Authority for so long as this Agreement is in effect. 2.Land,Resource Use,and Disposal Rights.To the extent of Aleut's rights,Aleut grants to the Power Authority the right to:(a)locate wells on the surface of the Leased Lands and drill vertically or slant drill]wells into,under,across,and through the Leased Lands and fnto and under other Aleut Lands;(b)repair,redrill,deepen,maintain,inject fn,rework,and operate.or abandon wells for the production of Energy Resources or Byproducts;(¢)store, utilize,process,convert,and otherwise use Energy Resources and Byproducts on or off the Leased Lands;(d)sell the same or any part or derivative thereof on or off the Leased Lands with the right of entry thereon at all times for said purposes;(e)construct,use,maintain, operate,erect,repair,replace,and remove all roads,pipelines,ditches,lanes,telephone and telegraph lines,utility installations,power lines,poles,tanks,evaporation or settling 1594/572 (3) Land and Resource Agreement Page 4 of 15 basins,extraction and processing plants,machinery,equipment,buildings,electric power plants,equipment for generation and transmission of Energy Resources,Byproducts,and electric powers facilities for the handling,treatment,and storage thereof;and all structures, improvements,facilities,and all necessary appurtenances for the conversion of the Energy Resources into heat,power,or another form of energy,and for the extraction of Byproducts from steam,brine,or water produced from the Leased Lands,including all rights necessary or convenient thereto;(f)passage over,upon,and across and ingress and egress to and from the Leased Lands for any or all of the above mentioned purposes;(g)utilize or dispose of waste brine and other waste products from a well or wells on the Leased Lands into a well or wells drilled or converted for that purpose on the Leased Lands,and (h)inject water,brine,steam, and gases from a well or wells on the Leased Lands for the purpose of maintaining or restoring pressure,increasing or maintaining production,or testing in the productive zones.The Power Authority shall obtain all required permits,consents,or licenses for any activities of the Power Authority,and Aleut makes no representations or warranties as to the requirements of any such permission,consent,or license nor as to the availability of such. 3.Right-of-Way Easement Rights.For the consideration set out in section 1 of this Article,Aleut grants the Power Authority rights-of-way and easements for a road,transmission line,dock,and associated Project facilities on and over Aleut's surface and subsurface estates on Unalaska Island.Safd transmission line rights-of-way and easements shall run from the power generation facilities to the Busbar.All easements shall be 100 feet in width,except where a greater width is required to accommodate necessary Project facilities,and are granted with the rights,privileges and authorities to:(a)construct,reconstruct,maintain,repair, operate,improve,and update upon or under lands within said easements an electric transmission line and road system including but not limited to poles,towers,conductor,guys,anchors, bridges,abutments,culverts,supporting apparatus,and such other structures and improvements the Power Authority determines necessary;(b)provide ingress and egress to lands within said easements;(c)cut,trim,remove,and control the growth of vegetation on or adjoining lands within said easements which the Power Authority determines interfere with,threaten,or endanger the operation and maintenance of the Project;(d)clear and keep lands within said easements free from fences,buildings,pavements,or other structures which the Power Authority determines interfere with,threaten,or endanger the operation and maintenance of said line or system or may increase the safety risks to Aleut or its property;and (e)license,permit or otherwise agree to the joint use or occupancy of said line or system by any other person,firm,or corporation for telephone,electrification,utility,or transportation purposes. Article C.TERMS AND CONDITIONS 1.Terms of Agreement.(a)This Agreement is effective on »1986 and,unless terminated under any other provision hereof,shall remain in force until and for so Tong as there exists an active Lease hereunder.The Primary Term of the Lease shall be for a period of 30 years and shall commence effective January 1 of the year in which Commercial Operations first begin. (b)The term shall be extended automatically for a period of 10 years if any of the Energy Resources are being produced from Commercial Operations on the Leased Lands at the end of the Primary Term,provided that the Power Authority is in complfance with all the terms and conditions of this Agreement.The term of the Lease shall be extended automatically for an additional 10 years if any of the Energy Resources are being produced from Commercial Operations on the Leased Lands at the end of the initial ten-year extension.If,at the end of the second ten-year extension,Energy Resources are being produced or utilized from Commercial Operations, and the Leased Lands are not needed for other purposes,the Power Authority shall have a preferential right to negotiate a renewal of the Lease. (c)If at the expiration of the Primary Term or at the expiration of the initial ten- year extension,no Energy Resource is being produced,but the Power Authority has commenced Reworking or Drilling Operations on the Leased Lands,the Lease wil!continue in force for 12 months,provided that the Power Authority continuously prosecutes such operations and fulfills all other terms and conditions of this Agreement,including the payment of the Minimum Royalty,Rental,and Easement Fee.The operations of the Power Authority shall be considered to be continuously prosecuted if not more than nine months shall elapse between abandonment of a prior production well and beginning of Drilling Operations for or Reworking of a replacement well.if Energy Resources are not once again being produced continuously from Commercial Operations within 12 months from the date when Commercial Operations first closed,the Lease may be terminated at the sole discretion of Aleut.If,as a result of such operations,Energy Resources are produced from Commercial Operations,the Lease will remain in force for the extended term of 10 years,commencing on the date of expiration of the previous term period. (d)If Energy Resources are being produced from Commercial Operations on the Leased Lands at the expiration of the Primary Term or the initial ten-year extension,and (#)production shall cease as a result of a depletion of Energy Resources from the Leased Lands or as a result of an Act of God or naturally occurring phenomenon,or (44)production shall be terminated due to well plugging,caving,or other well problems,the Power Authority may,within 1594/572(4) Land and Resource Agreement Page 5 of 15 12 months from cessation of such production,resume Drilling Operations or Reworking in an effort to obtain or restore production of Energy Resources.If the Power Authority obtains or restores production as provided herein,the Lease shall remain in force for the remainder of the term,inclustve of said twelve-month period,provided that (i)Reworking or Drflling Operations are continuously prosecuted and result in production from Commercial Operations and (fi)the Power Authority fulfills all other terms and conditions of this Agreement including the payment of the Minimum Royalty,Rental,and Easement Fee. 2.Fees.(a)After completion of the Project design and before commencement of construction,but in any case not later than August 1,1988,the Power Authority shall pay quarterly to Aleut (i)Rental of $1,250.00 for up to 10 contiguous acres of surface Leased Lands;and (if)an Easement Fee of $1,250.00 for all easements and rights-of-way granted in this Agreement.The first payment of the Rental and Easement Fee shall be due prior to commencement of construction,and the amounts shall be prorated based on the days remaining in said quarter only.Alt other payments of Rental and Easement Fee shall be due on January 15,April 15, July 15,and October 15 of each year during the term of the Lease,, (b)At the end of the Primary Term and again at the end of the first ten-year extension,the quarterly Rental and Easement Fee payments of $1,250.00 each,as provided fn 2(a) of this Article,shall be adjusted by multiplying $1,250.00 by a fraction,the numerator of which fs the Consumer Price Index,All Items,All Urban Consumers (CPI-U)most recently published by the U.S.Department of Labor,Bureau of Labor Statistics,and the denominator of which is »the published CPI-U on the effective date of this Agreement.If publication of the CPI-U is discontinued,the parties shall thereafter utilize comparable . statistics on the cost of living for the United States as they shall be computed and published by the U.S.Department of Labor,or if such an index does not exist,by another Federal agency, a financial periodical,or a recognized authority mutually selected by Aleut and the Power Authority. (c)Should production Drilling Operations not be commenced on Leased Lands on or before August 1,1988,this Agreement shall terminate unless the Power Authority,on or before said date,shall pay to Aleut $10,000.00 as annual Rental and Easement Fee,which payment shall extend for 12 months from said date,the time within which drilling operations may be commenced. 3.Royalties.(a)The Power Authority shall pay Aleut a Royalty for Energy Resources and Byproducts produced and sold during each calendar quarter from a single well, which shall be the Project's initially installed production well or the equivalent output thereof from a replacement well or backup well.The Royalty on Energy Resources converted to electric power shall be the Power Share as determined fn 3(b)of this Article.The Royalty on Energy Resources that are not converted to electric power at any time shall be the Energy Share as determined in 3(c)of this Article.The Royalty on Byproducts shall be the Byproduct Share as determined in 3(d)of this Article.Royalty as determined hereunder shall be applicable up to the maximum output of the initial production well or the equivalent output thereof,Royalty on Energy Resources and Byproducts produced in excess of the maximum output of the initial well, or equivalent output thereof,are not subject to this sectfon and shall be separately negotiated prior to increasing such output capacity beyond the limitations set forth herein. (b)The Power Share shall be the product of the total kilowatt-hours (kWh)produced and sold during the calendar quarter,multiplied by the appropriate royalty rate as set forth below,further multiplied by the City's Busbar cost.Except for line loss and use of electric power by the Power Authority to operate Project facilities,all other electric power generated from energy resources shal?be considered sold by the Power Authority and subject to a Royalty payment under this section, (1)The appropriate royalty rate to be used in calculating the Power Share shall be determined as follows: Total kWh Produced and Sold During Quarter Royalty Rate Less than or equal to 5,000,000 0.0325 Greater than 5,000,000 and less than or equal to 6,000,000 0.0350 Greater than 6,000,000 and less than or equal to 7,000,000 0.0375 Greater than 7,000,000 and less than or equal to 8,000,000 0.0425 Greater than 8,000,000 and tess than or equal to 9,000,000 0.0475 Greater than 9,000,000 and less than or equal to 10,000,000 0.0550 Greater than 10,000,000 and less than or equal to 11,000,000 0.0600 Greater than 11,000,000 0.0630 (if)The City's Busbar cost for any given quarter shall be the quotient of the sum of all costs exclusive of the Project dfrectly attributable to generating electric power and sup- plying said power to the Busbar divided by the total number of kilowatt-hours exclusive of the Project that are or would be produced and supplied to the Busbar,Costs attributable to electric power generation shall include all relevant costs under the expense categories set forth in Exhibit C of this Agreement.The Power Authority,Aleut and the City shall consult for the purpose of establishing procedures and accounting controls to appropriately determine the 1594/572(S) Land and Resource Agreement Page 6 of 15 City's Busbar cost.Any power sales agreement between the Power Authority and the City shall include procedures and reasonable accounting controls neccessary to determine the Busbar cost for purposes of calculating the Power Share under this Agreement. (411)Calculation of the quarterly Power Share shall be as follows: Power -Total kWh produced and Appropriate x City BusbarSharesoldduringquarterroyaltyratecost As an example:If 8,000,000 total kWh are produced in any calendar quarter,the appropriate Royalty Rate would be 0.0425.Assuming the City's Busbar cost is $0.20 per kWh,the Power Share due Aleut would be: Power Share =(8,000,000)x (0.0425)x ($0.20)=$68,000.00 (c)The Energy Share shall be 15 percent of the market value at the Wellhead,or at the point of removal of effluent from the geothermal power system,of Energy Resources derived from the Leased Lands and extracted and saved,sold,or used.The market value of such Energy Resources shall be negotiated and determined prior to delivery by the Power Authority to any third party, (d)The Byproduct Share shall be 5 percent of the market value at the Wellhead for all Byproducts derived from Energy Resources and saved,sold,or used,The market value of such Byproducts shall be negotiated and determined prior to delivery by the Power Authority to any third party. 4,=Payment of Royalty.(a)Upon beginning Commercial Operations and thereafter during the Primary Term or any extended term of the Lease,the Power Authority shall pay to Aleut on January 15,April 15,July 15,and October 15 of each year an advance Minimum Royalty of $25,000.00.The first payment of the Minimum Royalty shall be due within 30 days after beginning Commercial Operations,and the amount of said Minimum Royalty shall be prorated based on the days remaining in the quarter.Minimum Royalty shall be deductible by the Power Authori- ty in the calendar quarter to which said payment applies and out of said quarter's production of the Energy Resources or Byproducts,and the Power Authority is hereby authorized and directed to deduct the same from Royalty due and payable during said quarter.Following deduction of the Minimum Royalty the Power Authority shall pay Aleut,on or before January 15,April 15,July 15, and October 15,the Royalty accrued and payable for the preceding calendar quarter. (b)Concurrently with making each Royalty payment,the Power Authority shall deliver to Aleut a detailed statement with substantiating documents describing the bas{s for the deter- mination of the Royalty then pafd by the Power Authority,including,but not limited to,an accounting for all Energy Resources and Byproducts extracted,produced,consumed and/or sold from the Leased Lands.The Power Authority shall {install and maintain any and all equipment necessary to accurately measure and quantify the Energy Resources and Byproducts extracted from the Leased Lands.Periodically,in accordance with industry practices and in no event less frequently than yearly,the Power Authority shall have the accuracy of its measuring equipment certified by an fndependent State or Federal inspector.Aleut may,at its option and expense and at a time convenient to the Power Authority cause such measuring equipment to be inspected and tested for accuracy by independent inspection. (c)At the end of the Primary Term and again at the end of the first ten-year extension,the Minimum Royalty shall be adjusted by multiplying $25,000.00 by a fraction,the numerator of which fis the Consumer Price Index,All Items,All Urban Consumers (CPI-U)most recently published by the U.S.Department of Labor,Bureau of Labor Statistics,and the denominator of which is »the published CPI-U on the effective date of this Agreement.If publication of the CPIi-U is discontinued,the parties shall thereafter utilize comparable statistics on the cost of living for the United States as they shall be computed and published by the U.S.Department of Labor,or if such an index does not exist,by another Federal agency,a financial periodical,or a recognized authority mutually selected by Aleut and the Power Authority. S.Purchase of Aggregate Materials.The Power Authority shall pay Aleut $1.50 per cubic yard for aggregate materials extracted from Aleut land,as measured emplaced in construction of the Project.Payment shall be due and payable within 30 days after the last day of the month in which said aggregate materials are actually extracted.The purchase price herein stated ts effective only until commencement of operation of the Project. 6.Depository.Aleut shall designate,by written notice to the Power Authority,one depository to which all payments required to be made by the Power Authority to Aleut hereunder shall be paid. 7.Lesser or After-Acquired Interest.If,at the commencement of Project development, Aleut owns a lesser interest in the Leased Lands than the fee simple estate,or less than the entire interest in the Energy Resources or Byproducts contained in and under the Leased Lands, 1594/S72(6) Land and Resource Agreement Page 7 of 15 then the Rental,Easement Fee,Minimum Royalty,and Royalty accruing to Aleut hereunder shall be paid to Aleut in the proportion which Aleut's interest bears to the entire fee simple estate in the Leased Lands or to the entire interest in said Energy Resources or Byproducts.Should Aleut hereafter acquire any additional right,title,or interest in or to the Leased Lands or said Energy Resources or Byproducts,then any increase in payments of money hereunder necessitated thereby shal?commence with the payment next following receipt by the Power Authority of satis- factory evidence of Aleut's acquisition of such additional interest.Notwithstanding the foregoing,Aleut agrees that if,during the term of this Agreement,it conveys grants,or 'otherwise diminishes its interest in the Leased Lands or in the Energy Resources or Byproducts contained in and under the Leased Lands,then the terms of this Agreement shall be binding on Aleut's successor-in-interest. 8.Taxes.(a)The Power Authority shall bear sole responsibility for any taxes levied and assessed against the Power Authority's leasehold interest in the Leased Lands or structures,improvements,or personal property placed upon the Leased Lands by the Power Author- ity or for establishing that the leasehold interest is exempt from taxation. (b)Aleut shall bear sole responsibility for any taxes levied and assessed against the Leased Lands as if such Leased Lands were unimproved and shall pay all taxes levied and assessed against all structures and improvements placed on the Leased Lands by Aleut.Aleut agrees to pay all taxes assessed upon any payment received by Aleut pursuant to this Agreement. 9.Operations.(a)The Power Authority shall comply with all laws and regulations applicable to its operations hereunder as required by the laws of the State of Alaska and the laws of the United States. (b)The Power Authority,its agents,representatives,and contractors shall indemnify, save harmless and defend Aleut from and against any and all lfens,claims,judgments,or suits whatsoever arising out of the Power Authority's activities or operations hereunder other than those arising in whole or in part from Aleut's act or failure to act,and this section shall survive termination of this Agreement.The Power Authority shall not be liable to Aleut for damages to any geothermal resources reservoir underlying said Leased Lands or for the loss of Energy Resources or Byproducts therein or therefrom or for any subsidence or surface damages resulting from its operations hereunder unless such damage or loss is caused by the Power Authority's gross negligence or willful misconduct. (c)Prior to exercising any access rights under this Agreement,the Power Authority, its agents,representatives and contractors shall provide Aleut with certificates for general liability and property damage insurances in reasonable amounts and form,and a Power Authority contractor shall name Aleut as an additional insured.All such insurance policies and certifi- cates shall include the following cancellation or change clause or a similar clause approved by Aleut:"This insurance will not be cancelled by this insurance company nor any changes made in the policy which will change the name of the insured,without first giving thirty (30)days notice in writing to The Aleut Corporation,One Aleut Plaza,Suite 300,4000 Old Seward Highway, Anchorage,Alaska 99503,as evidenced by return receipt of registered or certified mail."The insurance required under this paragraph shall be maintained in full force and effect throughout the term of this Agreement and any extension hereof. (d)All of the labor to be performed and all of the materials to be furnished in the operations of the Power Authority hereunder shall be at the Power Authority's sole cost and expense unless otherwise specified herein,and Aleut shall not be chargeable with or lfable for any part thereof. (e)The Power Authority shall be entitled to flow and/or blow wells without restriction for testing purposes. 10.Uneconomic Operations.(a)Nothing in this Agreement shall require the Power Authority to produce,recover,save,or market any of the Energy Resources or Byproducts con- tatned in the produced brines or effluent from operations on the Leased Lands,which,in the Power Authority's judgment,is not economic to produce,recover,save,or market.The Power Authority shall have the right to waste or dispose of any such uneconomic Energy Resources or Byproducts by such lawful manner or means as the Power Authority shall deem appropriate in the circumstances. (b)It is recognized that the market demand for the Energy Resources or Byproducts may vary from time to time and during such periods as there is no market for any of the Energy Resources or Byproducts,the Power Authority may suspend production,processing,and extraction of Energy Resources or Byproducts.The Power Authority shall have no obligation to save or process Byproducts. (c)Subject to the foregoing and except as otherwise provided in this Agreement,the Power Authority agrees to drill wells and operate each completed well with reasonable diligence and in accordance with good operating practice and all applicable laws so long as Energy 1594/572(7) Land and Resource Agreement 'Page 8 of 15 Resources and/or Byproducts shall be produced from Commercial Operations while this Agreement is in force.' 11.Unitization.(a)The Power Authority shall have the right,at its sole option, either before or after production,to pool,unitize or combine all or any part of the Leased Lands with other lands or leases adjacent or adjoining the Leased Lands to comprise one or more operating or development units of not more than 1920 acres each,and drilling operations or production on any such unit shall constitute compliance herewith to the same extent as though such operations or production were on the Leased Lands.Under this Agreement,such unit shall be established upon the Power Authority's written notice to Aleut and execution in writing and recordation,in the conveyance records of the State of Alaska Recording District in which the Leased Lands are situated,of an instrument identifying and describing the unit lands.Aleut, at its option,shall participate in the Minimum Royalty and Royalty from any such unit either in the proportion to which the number of acres owned by Aleut within the unit bears to the total number of acres in such unit or in the proportion to which the volume of Energy Resources that are produced on the Leased Lands owned by Aleut within such unit bears to the total volume of Energy Resources produced on such unit,whichever Aleut chooses.In any event,Aleut shall be entitled to receive,during the Primary Term or any extension term of the Lease,the Rental, Easement Fee,Royalty and Minimum Royalty as provided for in 2(a),3,and 4 of Article C. (b)The Power Authority shall have the right to commingle for the purpose of utilizing,selling or processing,or causing to be processed,the steam or steam power and/or extractable minerals produced from each operating or development unit with the steam or steam power and/or extractable minerals produced from other lands or units,so long as the production from the unit which includes all or portions of the Leased Lands is measured,metered or gauged as to such unit production;unit production so measured,metered or gauged shall then be allocated to the Leased Lands in accordance with the provisions of (a)of this section. (c)Allocation pursuant to (a)and (b)of this section shall cease upon any termination in whole or in part (by surrender,forfeiture or otherwise),of this or any other agreement covering lands in the operating or development unit as to the lands covered by such terminated agreement or part thereof.If title is defective as to any portion of the land included fn any operating or development unit,such portion of land shall be excluded in allocating production from such unit;provided,however,the Power Authority shall not be held to account for any production allocated to any lands to be excluded from such unit unless and until the Power Authority has actual knowledge of the circumstances requiring such exclusion. (d)The Power Authority may,at its sole option,at any time when there are no Commercial Operations on a unit of Energy Resources or Byproducts dissolve such unit by a written declaration thereof,in the manner in which it was established. 12,Ateut's Right to Bid.Aleut shall be notified as a potential bidder on any phases or tasks contemplated under this Agreement which the Power Authority or its agents or contractors may let for competitive bidding.Any bid that Aleut may submit for which the Power Authority determines there would be no conflict of interest in awarding the bid to Aleut,shall receive equal consideration to other bids submitted. 13,Title Warranty.Aleut agrees to defend title to the Leased Lands except for rights-of-way and easements of record,and further agrees that the Power Authority at fits option may pay and discharge any delinquent taxes,mortgages,trust deeds or other delinquent liens or encumbrances existing,levied or assessed on or against the said Leased Lands;and,in the event the Power Authority shall]exercise such option,the Power Authority shall be subrogated to the rights of any holder or holders hereof and shall have the right,in addition to other remedies provided by law or equity,to reimburse itself by applying to the discharge of any such mortgage,tax,or other lfen or encumbrances any and all payments accruing to Aleut hereunder. 14,Force Majeure.The Power Authority's obligations hereunder shall be suspended; and the term of this Agreement,the schedule contained in Exhibit 8 of this Agreement,and the period for removal of the Power Authority's property in the event of termination shall be extended when the Power Authority {s prevented from complying therewith by strikes,lockouts, riots,action of the elements,delays in transportation,inability to secure labor or materials in the open market,laws,rules or regulations of any Federal,State,Municipal or other governmental agency,authority or representative having jurisdiction,litigation or administrative proceedings affecting title to lands covered hereby or operations thereon,or by other matters or conditions beyond the reasonable control of the Power Authority,whether or not similar to the conditions or matters specifically enumerated in this section. 15.Surrenders,The Power Authority may,et any time,surrender this Agreement to Aleut in its entirety or surrender only so much of the Leased Lands as the Power Authority may elect in the instrument of surrender.Such surrender shall be accomplished by executing and delivering to Aleut and placing on record in the State of Alaska Recording District {n which the Leased Lands are located a quitclaim deed covering the Leased Lands selected by the Power Authority for surrender and the Power Authority shall thereby be relieved of al?obligations as to the acreage surrendered,except for obligations already incurred by the terms of this 1594/572(8) Land and Resource Agreement Page 9 of 15 Agreement.Notwithstanding such surrender,the Power Authority shall nevertheless retain such rights-of-way,easements and privileges over,upon,through and across the lands so surrendered as shall be necessary or convenient for the Power Authority's operations on the Leased Lands retained by the Power Authority under this Agreement and on the Power Authority's other lands referred to in section 11 of this Article.Prior to the execution of the power sales agreement with the City,the Power Authority may surrender this Agreement to Aleut upon 30 days written notice,After execution of the power sales agreement,the Power Authority may surrender this Agreement only upon 180 days written notice to Aleut. 16.Breach of Agreement.(a)If,in Aleut's opinion,the Power Authority defaults in any material respect in fits obligations hereunder,Aleut shall so notify the Power Authority in writing,setting out fn what respects Aleut deems the Power Authority to be in default.If, within 60 days after receipt of such notice,the Power Authority has begun to cure the alleged default and cures.the alleged default with due diligence,the Power Authority shall not be deemed in default of this Agreement.The service of said notice and the lapse of 60 days without the Power Authority's commencing to cure the alleged default is a condition precedent to any action by Aleut for or on account of such default.Neither the service of said notice nor any acts by the Power Authority aimed to cure any alleged default shall be deemed an admission that the Power Authority has failed in any respect to perform its obligations under this Agreement. (b)Termination or cancellation of this Agreement shall be the sole remedy of Aleut for failure of the Power Authority to perform any obligation set forth herein.The Power Authority shall be obligated to and shall pay to Aleut ail Royalty,Minimum Royalty,Rental,and Easement Fee due up to the date of termination and surrender.Prior to termination or cancellation for the Power Authority's alleged failure to perform an obligation under this Agreement,Aleut shall give the Power Authority notice of its intent to terminate the Agreement. If the Power Authority belfeves that it has duly performed under this Agreement,the Power Authority may submit the matter to the the Superfor Court of the Third Judicial District at Anchorage.During the prosecution of the matter,the Agreement shal]remain in full force and effect as to both parties.in the event of termination or surrender,the Power Authority shal] execute and deliver to Aleut a recordable instrument whereby the Power Authority relinquishes all of its rights and interests in Aleut lands and this Agreement. 17,Removal of Property and Restoration.(a)The Power Authority may at any time during the term of this Agreement remove the property and fixtures placed by it in or upon the Leased Lands,as well as draw and remove all casing. (b)Following termination of this Agreement or any part thereof for any cause,and following abandonment of any well drilled pursuant to the provisions hereof,the Power Authority shall,within 12 months thereafter or in accordance with a schedule agreed upon by both parties, remove all personal property which the Power Authority shall have brought upon the lands affected by such termination or upon the drillsite of such abandoned wells shall fill all sumps, remove all foundations and so nearly as practicable restore the areas affected by such termination or abandonment to the condition in which they were prior to the commencement of its operations hereunder.Any property not removed by the Power Authority during the perfod herein provided shall,in the absence of force majeure,be deemed abandoned by the Power Authority and ownership of the property shall pass to Aleut without further act of the parties. 18,Assignment.(a)The Power Authority shall have the right to assign all or any part of its rights or interest {in and to this Agreement,including but not limited to the Power Authority's right to occupy such portions of the surface of the Leased Lands as may be necessary for the construction of plants and other facilities,only to another state agency.No assignment by either party hereunder shal?be effective for any purpose whatsoever until a certified copy of the recorded instrument of assignment;or,if such assignment shall have been recorded only in short form,a true and complete copy of the instrument described in such short form under the true signatures of each of the parties thereto,together with a certified copy of such recorded short form,shall be given to the other party,in the same manner as {ts provided for a notice hereunder. (b)If the Power Authority assigns this Agreement as to a portion of the Leased Lands, payments due Aleut hereunder shall be apportioned among the several leasehold owners according to the surface area of each of their respective leaseholds;however,the Power Authority or its successor-in-interest shall remain responsible under the terms of this Agreement for performance by the assignee. 19.Equal Employment Opportunity.In selecting employees to carry out {ts obligations hereunder,the Power Authority shal]make good faith effort to employ minorities as defined by AS 18.80.220 in skilled,technical,and administrative positions,When reasonable and practical, the Power Authority shall provide training for such employees. 20.Location and Survey of Leased Lands.The exact location of the Leased Lands and right-of-way easements within the Project Area as well as the location on said Leased Lands of the facilities and other fmprovements to be constructed as contemplated in the Project,shall 1594/572(9) Land and Resource Agreement Page 10 of 15 be subject to approval by Aleut.Aleut shall exercise its approval rights so as best to facilitate the purpose for which the Leased Lands are to be leased and in accordance with the determinations set forth in the Feasibility Program.It is agreed by both parties to this Agreement that an as-built survey shall be conducted to establish by legal description the precise location of the Leased Lands and right-of-way easements,and the costs of such survey shall be borne by the Power Authority.The as-built survey shall be completed within 12 months after completion of construction. 21,Recordingof Agreement.This Agreement may be recorded by either party upon written notice to the other. 22.Notices.Any notice or other communication hereunder from Aleut to the Power Authority shall be given in writing by sending the same by prepaid registered or certified mail with return receipt requested addressed to the Alaska Power Authority at P.O.Box 190869,701 East Tudor Road,Anchorage,Alaska 99519-0869,and any notice or other communication hereunder from the Power Authority to Aleut shall be given fn like manner to Aleut addressed to The Aleut Corporation,One Aleut Plaza,Suite 300,4000 01d Seward Highway,Anchorage,Alaska 99503.Any notice mailed as aforesaid shall be deemed given and received within 72 hours after the deposit thereof in the United States mail if matled within the State of Alaska and if deposited in the United States mail outside of the State of Alaska,such notice shall be deemed to have been given and received within 120 hours after deposit in the United States mail.The parties may, by like notice at any time,and from time to time,change their respective addresses for the purposes hereof.Postmark dates on registry recefpts for such notices shall be conclusive as to the date of mailing. 23.Entirety Clause.If the Leased Lands shall hereafter be owned in severalty or in separate tracts,the Leased Lands nevertheless shall be developed and operated as one Lease,and all Royalties accruing hereunder shall be treated as an entirety,and shall be divided among and paid to such separate owners in the proportion that the acreage owned by each such separate owner bears to the entire leased acreage.There shall be no obligation on the part of the Power Authority to off-set wells on separate tracts unto which the Leased Lands may be hereafter divided by sale,devise,unitization,or otherwise,or to furnish separate measuring or receiving facilities. 24.Severability.If any part,portion or provision of this Agreement shall be found or declared null,void,or unenforceable for any reason whatsoever by any court of competent jurisdiction or by any governmental agency having authority thereover,then only such part, portion,or provision shall be affected thereby and the remainder of this instrument shall con- tinue in full force and effect. 25.Binding Effect.This Agreement and all of the terms,covenants and conditions hereof shall extend to and be binding upon the respective heirs,executors,administrators, grantees,successors and assigns of the parties hereto. 26.Definitions.For the purposes of this Agreement,the following definitions shall apply: (a)"Aleut"means The Aleut Corporation. (b)"Board means the Alaska Power Authority Board of Directors. (c)""Busbar"™means the point or points at which electric power is supplied to the City's electric distribution system. (d)"Byproducts"means any minerals (exclusive of of!or hydrocarbon gas that can be separately produced)which are found in solution or association with or derived from Energy Resources. (e)"Byproduct Share"means the Royalty on Byproducts. (f)"City"means the City of Unalaska. (g)"Commercial Operations"means the extraction of Energy Resources and/or Byproducts,and/or delivery of the products derived therefrom,for the benefit of the Power Authority and/or third party for purposes other than start-up and testing. (h)"Drilling Operations"means any work physically occurring on Leased Lands or actual operations undertaken or commenced for the purpose of drilling a well on Leased Lands, including the preparation of the ground,the building of roads and other facilities,the construction of a derrick and other necessary structures for the drilling of a well,followed by the actual operation of drilling in the ground. ({)"Easement Fee"means the payment to Aleut for easements and rights-of-way granted in this Agreement {n amounts described in 2(a)and (b)of Article C. (J)"Energy Resources't means al?products of geothermal processes embracing indigenous steam,hot water,and hot brines;steam and other gases,hot water,and hot brines resulting from water,gas,or other fluids artificially introduced {nto subsurface formations; heat or other associated energy found beneath the surface of the earth;and water from geopressured zones. (k)"Energy Share"means the Royalty on Energy Resources that are not converted to electric power at any time. 1594/572(10) Land and Resource Agreement _Page 11 of 15 (1)"Feasibility Program"means a feasibility analysis of the Project consisting of the Phases described in Exhibit A and conducted in accordance with the schedule described in Exhibit 8 of this Agreement. (m)"Lease"means the rights granted to the Power Authority under Article B of this Agreement. (n)"Leased Lands"means the surface lands leased by Aleut to the Power Authority and the subsurface estate of Aleut. (o)"Minfmum Royalty"means a Royalty payment paid in advance in amounts described in section 3 of Article C of this Agreement. (p)"Phase"means a stage of the Feasibility Program as described in Exhibit A. (q)"Primary Term"means the initial Lease period of 30 years commencing January 1 of the year in which Commercial Operations first begin. (r)"Power Authority"means the Alaska Power Authority,fts employees and agents. (s)"Power Share"means the Royalty on Energy Resources converted to electric power before sale. (t)"Project"means the geothermal power systems to be located within the Project Area,on and over Aleut lands on Unalaska Island,consisting of geothermal wellsites,wells, piping,power generation facilities,transmission lines,roads,and other appurtenances required to produce and transmit power to the Busbar. (u)"Project Area"means Township 72 South,Range 117 West,Sections 31,32,33,and 34;Township 72 South,Range 118 West,Sections 20,21,22,23,24,25,26,27,28,29,30,31, 32,33,34,35,and 36;Township 72 South,Range 119 West,Sections 2,3,4,9,10,11,14,15, 16,22,23,24,25,26,27,33,34,35,and 363;Township 73 South,Range 118 West,Sections 3, 4,5S,6,7,8,and 93 and Township 73 South,Range 120 West,Sections 1,2,and 3;Seward Meridian. (v)"Rental"means the payment to Aleut for up to 10 contiguous acres of surface Leased Lands in amounts described in 2(a)and (b)of Article C of this Agreement. (w)"Reworking™means,among other things,cleaning,testing,repair,and replacement of wells,related facilities,and equipment necessary to produce from such wells. (x)"Royalty"means the payment to Aleut for Energy Resources and Byproducts producedandsoldfromtheProjectinamountsdescribedinsection3ofArticleCofthisAgreement. (y)"Wellhead"means the point of removal of Energy Resources or Byproducts from the earth. IN WITNESS WHEREOF,the parties hereto have executed this instrument as of the date hereinabove first written. The Aleut Corporation The Alaska Power Authority By By 1594/572(11) Land and Resource Agreement Page 12 1594/572(12) EXHIBIT A FEASIBILITY PROGRAM SCOPE OF WORK PHASE (1) (2) (3) (4) (5) ON OR BEFORE March 1,1987 June 1,1987 January 1,1988 August 1,1988 August 1,1991 TECHNICAL AND ECONOMIC FEASIBILITY ANALYSES, PLAN OF FINANCE, ACQUISITION OF POWER SALES AGREEMENTS. FINANCIAL FEASIBILITY ANALYSIS. ACQUISITION OF FINANCING FOR THE PROJECT. EXHIBIT B DEADLINES FOR FEASIBILITY PROGRAM AND DEVELOPMENT OF PROJECT Complete Technical and Economic Feasibility Analyses,accept final report. Complete Plan of Finance.Commit to course of of action for proceeding with the Project or terminating this Agreement. Acquire power sales agreements,complete financial feasibility analysis. Complete project design,commence construction phase. Complete construction,commence operation. Land and Resource AgreePage13of15 ACCOUNT NUNSER PEFEFENCE OT:SR Corop (INDICATE) FPC/FExC CLASS A/B it REA 300 $03 $04 EXHIBIT C ISSULE OF ELICICLE ro6eR COSTS nO.REPORTING PERICO (Test Year) EMPENSE CATccoRy' 1..POKER PROCUCTION EXPENSES A.STEAM POWER CENTRATION Operstion supervision &engineering Steam expenses Steam from other sources Steam transferred -Credit Electric expenses Mise.steam power expenses Rents Maiatensnace supervision &engineering "° Maintenance of structures Maintensace of boiler plaat Mainteasnce of electric plant Maincenance of mise.steam pleat '3.RYDRAULIC POSER GENERATION 0 Operation supervision éengineeringWaterforpower Hydraulic expenses Electric éxpenses Mise.hydraulic power gen.expenses Rents Maintenance of supervision &engineering Maintenance of structures Maintenance of reservoirs,dans &vaterways Maiacenance of electric plant Maintenance of aise.hydraulic plaat C.OTHER POLER CEVERATION Operation supervision &engineesing Generation Expenses Hise.other pover generation expensesRentsMaintensnacesuperviston&engiaeesing Maintensace of structures Maintenance of generating &electric plant Msiatenance of aise.other power generation plaact D.OTIER POWER SUPPLY EXPENSES ° Systes control and load dispatching Other expenses 2.TRANSMISSTON EXPENSES Operation supervision &engineering Load dispatching S&aLi0%expenses Overhead line expenses Unders round line expenses Transsission af eleetriesty by others Mise.transaission expenses Rents Maintenance supervision &engineering"vintenance of structures Land and Resource Agreehuene Page 14 of 15 SCHESULE OF ELICIELE FO*ER COSTS LV eSdTY ANE ©COATIF CATS 30. ACCOUNT NUNSES SEFERENCE FPC/FEaC REA OTMER CLASS aA/B Caorep (INDICATE $70 $70 $71 $71 $72 $72 $73 $73 $80 $80 $81 S81 $82 $82 $83 533 $86 $84 583 $83 586 586 587 587 $88 588 $89 $89 $90 590 S91 $91 $92 $92 $93 «893 $96 594 595 $95 596 596 $97 $97 $98 598 901 901 902 902 903 903 904 904 903 905 907 907 90S 908 559 905 910 910 911 Ot 912 912 13 913 916 916 EXPENSE CATICORY 2.TRAVSSUISSION ExFENSzZS CONT'D Mainteasnee of station equipment Msintensnee of overnead lines Maiacensnce of undesground lines Mainteasnee of mise.transmission equipment 3.DISTRIBUTION ESENSES Operation supervision &engineesing Load dispatching Station expenses Overhead line expesses Undergscund line exsenses Strees lighting and signal systea expenses Meter expenses *Custoner installation expenses Mise.distribucion expenses Reats Maintesanece supervision &engineering Maintessaceof structures Maintenance of stacion equipaest Maintesance of overhead lines Maintenance of undesground lines Maiatesance of line transformers Maintenance of street lightiag aod sigssl systes Maintensnce of meters Maintenance of misc.distribution plant &.«CUSTOMER ACCOIITS EXPENSES Supervision Meter reading expesses Customee records and collection expenses Vacollectible accounts: Misc.customer accounts expenses $.CUSTOMER SERVICE & UNFORMATIONAL EXPENSES Supervision Customer assistance expenses Informational &insetructional ° advertising expenses Mise.customer service & inforastioaal exsenses 6.SALES EXPENSES Supervision Demcenssesting &selling expenses Advvetssiag expenses Mise.sales expenses Land and Resource Agreement Page 15 of 15 SCHEDULE OF ELISIZLE PO-TR COSTS Twobd ees ©CERC Ties 60. ACCENT NUMZER REFERENCE EXPENSE CATCCOR'ANSFEC/fane REA Oni CLASS A/S Corop (INDICATE). 7.ADMINISTRATIVE &GENERAL EXPENSES 920 920 ;Administrative &general salscies 921 923 Office supplies &expenses $22 922 ,Administrative expenses transferred -Cr. 923 923 Outside services esployed 925 924 Property Tasurance 928 92S Tajuries &dasages 926 926 Esployee pensions &benefits 927 927 .Franchise requisenents $28 928 Regulatory comsission expenses $29 929 Duplicate charges -Cr.- 930.1 930.1 General advercising expenses *930.2 930.2 Mise.genersl expenses 931 .-=.932 ,oe Rents ,. 932 *932 Maintenance of general plant rt Co 8.ALLOWABLE FINED COSTS (to the extent expensed) Depreciation Taxes Taterest on debt q Total Expenses,Excluding Fuel Costs NOTa:An adjustzeat for current fuel costs will be made by Commission Staff.The folloving inforsation is therefore required: '3.Rerulsted uetigedes vith surchserrees in effect 1.Cusrent peace per gailon of fuel soovn in most recest suressrge calculation approved by the Cocmission. 2.Yesrly gallons consused and Ked sales shown in most recent surcharge calculation approved by the Commission. °b.Uciliedes with no succharee is effees or-unrerulated l.Fuel stossge cagsesty 2.Actual price per gsllon of fuel on hand,assusing thse latest purchases are sold last (i.e.FIFO) Attach schedule shoving components of total.Sch.Ref. 3.Latest invoiced peice of fucl per gallon Actsen cosy of iavoice.Sch.Ref.