EX-10.9 17 c98797exv10w9.htm OPTION AGREEMENT exv10w9
 

Exhibit 10.9
(U.S. ENERGY LOGO)
ENERGY MANAGEMENT AGREEMENT
(Site Development and Operations)
The purpose of this Agreement is to set forth the understanding and agreement between U.S. Energy Services, Inc. (“U.S. Energy”) and E-Energy Adams, LLC (“Client”) related to the provision of energy management services.
PROJECT DESCRIPTION: Client is developing a 50 million gallon per year ethanol plant (“Plant”) to be located near Adams, NE. The Plant will have approximately a 5 MW peak usage in electricity and will consume approximately 4800 MMBtu of natural gas per day.
U.S. ENERGY RESPONSIBILITIES: U.S. Energy will provide consulting and energy management services for supplies of natural gas and electricity for the Plant. These services will be provided during the construction of the Plant (“Construction Period”), and after the Construction Period when the Plant has been placed in service (“Completion Date”). The Completion Date shall be determined when the Plant begins producing ethanol. These services will be provided to Client upon request:
A. Energy Infrastructure Advisory Services During the Construction Period
1.   Provide an economic comparison of receiving natural gas distribution service. U.S. Energy will provide preliminary engineering cost estimates, route drawings, and project timeline related to constructing pipeline facilities.
 
    In the event that a direct connect pipeline option is selected, U.S. Energy will submit a tap request to the pipeline. In addition, U.S. Energy will also attempt to negotiate an option for Client to minimize interconnect costs through the purchase of firm transportation to the Plant. Engineering and construction management services related to constructing a pipeline may be provided by U.S. Energy’s sister company U.S. Energy Engineering, Inc. on a fee basis.
 
2.   Determine whether firm, interruptible, or a blend of transportation entitlement will provide the lowest burnertip cost. Factors that will be considered include pipeline credits for the new interconnect, cost of an alternate fuel system, and availability of specific receipt point capacity.
 
3.   Provide advisory services to Client regarding electric pricing and service agreements.
  a.   Analyze the electric service proposals along with primary, secondary and generation options and recommend an electric sourcing strategy and plan. The plan may include a combination of electric supplier agreement and/or installation of on-site generation.

 

 

  b.   Negotiate final electric service agreements that meet the pricing and reliability requirements of Client, including options for third party access to electric metering.
 
  c.   Prepare and implement a regulatory strategy, if required and if an alternative power supplier is selected. Any attorney fees required for the specific purpose of obtaining regulatory approval for an alternative power supplier, if any, will be over and above U.S. Energy’s monthly fee herein, and must be pre-approved by Client.
4.   Evaluate the proposed electric distribution infrastructure (substation) for reliability, future growth potential and determination of the division of ownership of facilities between the utility and the Plant.
 
5.   Investigate economic development rates, utility grants, equipment rebates and other utility programs that may be available.
B. On-Going Energy Management Services Following the Completion Period
U.S. Energy will provide the following services at Client’s request:
1.   Provide natural gas supply information to minimize the cost of natural gas purchased. This will include acquiring multiple supply quotes and reporting to Client the various supply index and fixed prices. U.S. Energy will not take title to Client gas supplies, but will communicate supply prices and potential buying strategies.
 
2.   Negotiate with pipelines, utilities, other shippers, and suppliers to provide transportation, balancing, and supply agreements that meet Client’s performance criteria at the lowest possible cost.
 
3.   Develop and implement a price risk management plan that is consistent with Client’s pricing objectives and risk profile.
 
4.   Provide daily nominations to the suppliers, pipeline, and other applicable shippers for natural gas deliveries to the Plant. This will include daily electronic confirmations to Client of all nominations and actual daily usage. U.S. Energy will utilize customer or utility supplied telemetering to obtain actual usage data.
 
5.   Provide a consolidated monthly invoice to Client that reflects all applicable natural gas and electric energy costs. U.S. Energy will be responsible for reviewing, reconciling and paying all shipper, supplier and utility invoices.
 
6.   Provide a monthly usage report of electric energy consumption and costs. Also, where applicable and available from the utility, obtain monthly interval electric load data and provide monthly load profile graphs.
 
7.   On-going review and renegotiation of electric service costs, as required. This may include:

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  a.   Completing and evaluating annual proposals to identify the most reliable and economic third party electric energy supply.
 
  b.   Identifying new service tariffs or opportunities to renegotiate the service agreement to provide lower costs.
 
  c.   Identifying on-site generation opportunities as market conditions change.
 
  d.   Provide a monthly projection of energy (natural gas and electricity) and annual summaries.
8.   Provide natural gas and electric energy operating budgets for the Plant.
 
9.   Perform initial sales tax exemption audits for energy consumption costs as required and allowed by Nebraska tax laws.
TERM: The initial term of this Agreement shall commence on August 1, 2005 and continue until twenty-four (24) months after the Plant’s Completion Date. The Completion Date is defined as the time when the plant is producing ethanol. The Agreement shall be month-to-month after the initial term. This Agreement may be terminated by either party effective after the initial term upon sixty (60) days prior written notice. Client shall remain responsible for payment and performance associated with any and all transportation, supply, and storage transactions entered into by U.S. Energy and authorized by Client, prior to termination.
FEES: U.S. Energy’s fee for services described above during the Construction Period shall be $15,000, plus preapproved travel expenses. U.S. Energy’s fee for ongoing energy management services upon plant completion shall be $2900 per month, plus pre-approved expenses. Client may defer payment on the invoiced amounts until financing for the plant has been secured. Deferred invoice amounts shall not bear interest. Plant financing shall be deemed to be secured at the time Client and its project lender(s) actually execute and deliver all required documents for closing the loans necessary to finance the complete construction of the Client. In the event that plant financing is not secured, this Agreement shall become null and void and both parties will be relieved of professional and/or financial obligations due the other party. Payment of pre-approved travel expenses shall not be deferred. If Client experiences significant delays in its project timeline and it is necessary for U.S. Energy to delay work on Client’s energy management activities, U.S. Energy will suspend its activities and suspend invoicing Client until U.S. Energy’s activities resume.
U.S. Energy’s fee will increase 4% per year on the annual anniversary date of the effective date of this Agreement.
BILLING AND PAYMENT: On the first of the month, U.S. Energy shall invoice Client for appropriate energy costs from the previous month and for the U.S. Energy retainer for the current month. Client shall pay U.S. Energy within ten (10) days of receipt of invoice.

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TAX: Client will be responsible for payment of all taxes including, but not limited to, all sales, use, excise, BTU, heating value and other taxes associated with the purchase and/or transport of natural gas or electricity and the provision of services hereunder.
CONFIDENTIALITY: U.S. Energy shall not divulge to any other person or party any information developed by U.S. Energy hereunder or revealed to U.S. Energy pursuant to this Agreement, unless such information is (a) already in U.S. Energy’s possession and such information is not known by U.S. Energy to be subject to another Confidentiality Agreement, or (b) is or becomes generally available to the public other than as a result of an unauthorized disclosure by U.S. Energy, its officers, employees, directors, agents or its advisors, or (c) becomes available to U.S. Energy on a non-confidential basis from a source which is not known to be prohibited from disclosing such information to U.S. Energy by legal, contractual or fiduciary obligation to the supplier, or (d) is required by U.S. Energy to be disclosed by court order, or (e) is permitted by Client. All such information shall be and remain the property of Client unless such information is subject to another Confidentiality Agreement, and upon the termination of this Agreement, U.S. Energy shall return all such information upon Client’s request. Notwithstanding anything to the contrary herein, U.S. Energy shall not disclose any information which is in any way related to this Agreement or U.S. Energy’s services hereunder without first discussing such proposed disclosure with Client.
NOTICES: Any formal notice, request or demand which a party hereto may desire to give to the other respecting this Agreement shall be in writing and shall be considered as duly delivered as of the postmark date when mailed by ordinary, registered or certified mail by said party to the addresses listed below. Either party may, from time to-time, identify alternate addresses at which they may receive notice during the term of this Agreement by providing written notice to the other party of such alternate addresses.
         
Client:
  E Energy Adams, LLC    
 
        
 
  Attn: Jack Alderman    
 
        
 
  510 North Main Street    
 
        
 
  Adams, NE 68301    
 
        
U.S. Energy:
  U.S. Energy Services, Inc.    
          (Payment)
  c/o US Bank SDS 12-1449    
 
  Account #: XXXXXXXXXXXX    
 
  P.O. Box 86    
 
  Minneapolis, MN 55486    
 
        
          (Notices):
  U.S. Energy Services, Inc.    
 
  1000 Superior Blvd, Suite 201    
 
  Wayzata, MN 55391    
 
  Attn: Contract Administration    
ASSIGNMENT OR AMENDMENT: The Agreement may not be assigned or amended without the written consent of U.S. Energy and Client.

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APPLICABLE LAW: The Agreement shall be construed in accordance with the laws of the State of Minnesota.
ENTIRE AGREEMENT: This Agreement constitutes the entire Agreement-among the parties pertaining to the subject matter hereof and supersedes all prior Agreements and understanding pertaining hereto.
         
Agreed to and Accepted by:    
 
        
E-Energy Adams, LLC    
 
        
By:
  /s/Jack L. Alderman
 
    
 
        
Name:
  Jack L. Alderman    
 
        
(Print)
        
 
        
Title:
  President    
 
        
Date:
  August 27, 2005    
 
        
U.S. Energy Services, Inc.    
 
        
By:
  /s/Gail McMinn
 
    
 
        
Name:
  Gail McMinn    
(Print)
        
 
        
Title:
  Vice President    
 
        
Date:
  September 2, 2005    

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