Energy Contracting & Negotiation-7

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CHAPTER 7

Transportation Agreements (Pipelines)

In India Demand for transporting petroleum products over long distances isexpected to total 54.6 million tonnes in 2001-2002 and around 87.3 million

tonnes in 2006-07. Pipeline transportation is the most efficient way of movingpetroleum products across long distances. In India, barely 25 percent of longdistance movement of petroleum products is by pipelines. In contrast, in thedeveloped countries almost all such movement is through pipelines. Around Rs.30,000 crore is expected to be invested over the next decade in setting uppipeline networks.

Globally,Pipeline transactions face unique and complex challenges that bring to

bear an unusually broad array of legal specialties. In addition to the usual

commercial and contractual issues that arise in virtually any transaction, pipeline

deals often involve such distinct practice areas as the following:

1.Common carrier regulation in the countries

2.Economic regulation by state agencies in multiple states

3.Antitrust review by the government department

4.Pipeline safety regulation of the government

5.Right-of-way issues governed by state and International laws

6.Tax issues specifically applicable to the various kinds of pipeline entities

7.Negotiating transportation agreements for the transmission of crude oil, naturalgas, refined petroleum products, and various petrochemicals

8.Handling contractual arrangements by pipeline, marine vessels, or rail cars

9.Rate development and rate design issues

10.Fuel requirements

International pipeline transactions raise a host of additional issues, by allowingunrestricted entry under a well-defined policy framework for the setting up andoperation of pipelines , Set up new pipelines for products under the commoncarrier principle and place an even greater premium on experience and in-depthknowledge.


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FORM OF FIRM TRANSPORTATION AGREEMENTTRANSPORTATION AGREEMENT

FOR FIRM TRANSPORTATION OF NATURAL GASALLIANCE PIPELINE L.P.

Firm Transportation Agreement No. _______

This TRANSPORTATION AGREEMENT FOR FIRM TRANSPORTATION OF

NATURAL GAS ("Firm Transportation Agreement or Agreement") ismade and entered into this ___ day of ______________, 20___, between:

ALLIANCE PIPELINE L.P., ("Transporter"),and

__________________________________________, ("Shipper").

Witnesseth: That in consideration of the mutual covenants contained hereinthe parties agree as follows:

Section 1. Service to be RenderedTransporter shall perform and Shipper shall receive Firm TransportationService in accordance with the provisions of Transporter's effective RateSchedule FT-1 and the applicable General Terms and Conditions (GTC) ofTransporter's FERC Gas Tariff on file with the Federal Energy RegulatoryCommission ("Commission") as the same may be amended or superseded inaccordance with the Rules and Regulations of the Commission.

Section 2. TermThis Agreement shall be effective as of the date first written above, for a termof ______ years. Shipper may extend the term of this Agreement for aminimum of _______________ upon ___________ prior written notice of theextension. Pregranted abandonment of service shall apply upon termination

of this agreement.

Section 3. Rates[Shipper shall pay the currently effective Rate Schedule FT-1 Recourse

Rates set forth at Sheet No. 10 of Transporters Tariff, as suchrates may be revised and superseded, subject to Commissionapproval, from time to time, unless Shipper has executed aNegotiated Rate Agreement in accordance with Section 39 ofthe GTC.]

OR[Negotiated Rate]

Section 4. Notices

Notices to Transporter under this Agreement shall be addressed to:Alliance Pipeline L.P.6385 Old Shady Oak RoadEden Prairie, MN 55344Attention: Manager, Tariff AdministrationFax: (612) 944-9166Section 5. Superseded AgreementsThis Firm Transportation Agreement supersedes and cancels as of theeffective date hereof the following agreements:


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__________, ___________.

IN WITNESS WHEREOF, the Parties have duly executed this FirmTransportation Agreement in several counterparts by their duly authorizedofficers with effect as of the day first above written.

ALLIANCE PIPELINE L.P. by its Managing General Partner, ALLIANCE

PIPELINE INC.[Date of Execution] Per: _______________________Per: _______________________

[SHIPPER][Date of Execution] Per: _______________________Per: _______________________

APPENDIX ATO TRANSPORTATION AGREEMENT NO. [TA Contract No]

BETWEEN

ALLIANCE PIPELINE L.P.

and[COMPANY FULL NAME]

CONTRACTED CAPACITY AND PRIMARY DELIVERY POINTS

Contracted Capacity __________ MMcf/day

Primary DeliveryPoint(s)

Primary Delivery PointCapacity (MMcf/day)

Total Primary Delivery Point Capacity

(Not to exceed 150% of Contractedcapacity)

Agreement No. --------

APPENDIX B

RATE PRINCIPLES

1) Subject to the incentive provisions, the reservation rates will becalculated on a per unit-of-capacity basis to provide for the recovery bythe Transporter of all of the fixed costs of providing service. In addition,

Shippers will pay a commodity or usage charge for volumes actuallyshipped, plus fuel.

2) A deemed capital structure of 70% debt and 30% equity for the primaryterm and any extension of the primary term of the Firm TransportationAgreement.

3) A cost of debt calculated using a rate of interest equal to the weightedaverage of the interest rates borne by Transporters debt. Changes in


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Transporters actual weighted average cost of debt will be reflected inTransporters negotiated rates from time to time.

4) Return on Equity

1. Base rate of return on equity of 12%.

2. Base rate of return on equity to be subject to an incentiveadjustment. The resulting return on equity will apply for the primaryterm and any extension of the primary term of the FirmTransportation Agreement.

3. The base rate of return on equity will be increased or decreasedinversely with increases or decreases in the actual capital costversus the estimated capital cost of the Alliance Pipeline L.P.system. The adjustment formula will be linear so that any variationsbetween actual and estimated capital cost will be reflected in theadjusted rate of return on equity. For example, a 10% increase inthe actual capital cost, versus the estimated capital cost, wouldresult in a decrease of 0.5% (50 basis points) in the base rate ofreturn on equity. Similarly, a 20% decrease in the actual capitalcost versus the estimated capital cost would result in an increase inthe base rate of return on equity of 1.0% (100 basis points). Theincentive rate of return increase or decrease will be limited to amaximum of 2% (200 basis points).

4. If (i) Transporter's facilities are not completed, tested andavailable to provide the service contemplated herein; or (ii)Transporter has not been granted permission to commence serviceby the Commission on or before November 1, 2001, then

Transporter's return on equity shall be reduced by one percent (100basis points) for the primary term set forth in section 2 of this FirmTransportation Agreement; provided, however, that Transporter'sreturn on equity shall not be reduced if the delay beyond November1, 2001 is attributable to (i) a Force Majeure event as defined inTransporter's FERC Gas Tariff; or (ii) a failure by Shipper to satisfyits obligations under this Firm Transportation Agreement.

5) Income taxes will be calculated on a normalized basis, utilizing thefederal and state corporate tax rates on income derived from pipelineoperations for the primary term and any extension of the primary term ofthe Firm Transportation Agreement.

6) The depreciation on transmission plant used for purposed of derivingrates will be calculated annually in accordance with Table 1. If, at anypoint, a Shipper elects not to exercise its rolling right to extend the primaryterm of its Firm Transportation Agreement, then during the final five (5)years of this Firm Transportation Agreement, that Shipper's rates will beadjusted so that the average depreciation rate over the term of the FirmTransportation Agreement is 4%.


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7) The rate base will include, among other things, actual capital costs.

8) The actual reservation rates will be calculated based upon the higher ofthe sum of all of the Contracted Capacities or 1325 MMcfd, for the primaryterm and any extension of the primary term of the Firm TransportationAgreement.

9) There will be a commodity or usage charge which will recover all ofthose costs that vary with volumes actually shipped, for the primary termand any extension of the primary term of the Firm TransportationAgreement.

10) Fuel will be recovered on an actual tracked basis.

11) The estimated capital cost of the Alliance Pipeline L.P. system,excluding AFUDC and at a system design of 1325 MMcfd, isU.S.$1,235,163,000 ($1235.2 million).

12) Changes in Transporter's operating costs will be reflected in its ratesfrom time to time, for the primary term and any extension of the primaryterm of the Firm Transportation Agreement.

13) The rate for Authorized Overrun Service will be the negotiatedcommodity charge, plus fuel, for the primary term and any extension ofthe primary term of the Firm Transportation Agreement.

Table 1Year Depreciation Rate1 0.290%2 0.751%3 1.212%4 1.673%5 2.134%6 2.595%7 3.056%8 3.517%9 3.978%10 4.439%11 4.900%12 5.361%13 5.822%14 6.283%15 6.744%16 4.725%17 4.725%18 4.725%19 4.725%20 4.725%21 4.725%22 4.725%23 4.725%24 4.725%25 4.725%

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Energy Contracting & Negotiation-7