-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R+0sgMbmXzXJBjTm17uqCdga8fr24gmWFVlfy216Zppzk2EwQkGtKllVMXtFMs1w ZsXBPo33CcntzsIg/VLWtQ== 0000950144-97-008663.txt : 19970811 0000950144-97-008663.hdr.sgml : 19970811 ACCESSION NUMBER: 0000950144-97-008663 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALUMAX INC CENTRAL INDEX KEY: 0000912600 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY PRODUCTION OF ALUMINUM [3334] IRS NUMBER: 132762395 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12374 FILM NUMBER: 97654526 BUSINESS ADDRESS: STREET 1: 3424 PEACHTREE RD NE STREET 2: STE 2100 CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4048464600 MAIL ADDRESS: STREET 1: ALUMAX INC STREET 2: 3424 PEACHTREE RD NE STE 2100 CITY: ATLANTA STATE: GA ZIP: 30326 10-Q 1 ALUMAX, INC FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 -------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-12374 --------- [ALUMAX INC. LOGO] (Exact name of registrant as specified in its charter) Delaware 13-2762395 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3424 Peachtree Road, N.E., Suite 2100, Atlanta, Georgia 30326 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (404) 846-4600 - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of common stock of registrant ----------------------------------------------------- outstanding at July 31, 1997: 55,061,257 ------------------------------------------------------ -1- 2 Part I. Financial Information Item 1. Financial Statements ALUMAX INC. CONDENSED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------------- 1997 1996 1997 1996 ------- ------- --------- --------- (In Millions, Except Per Share Amounts) NET SALES .......................................... $ 730.9 $ 851.4 $ 1,432.7 $ 1,654.0 ------- ------- --------- --------- Cost and expenses: Cost of goods sold ............................ 559.9 681.3 1,105.5 1,312.0 Selling and general ........................... 62.4 69.8 123.3 133.6 Depreciation and amortization ................. 37.6 35.9 74.7 68.9 ------- ------- --------- --------- 659.9 787.0 1,303.5 1,514.5 ------- ------- --------- --------- EARNINGS FROM OPERATIONS ........................... 71.0 64.4 129.2 139.5 Gain on sales of assets ............................ -- 92.8 -- 171.2 Other income (expense), net ........................ 2.7 .8 2.4 14.9 Interest expense, net .............................. (13.9) (16.9) (27.3) (34.1) ------- ------- --------- --------- EARNINGS BEFORE INCOME TAXES ....................... 59.8 141.1 104.3 291.5 Income tax provision ............................... (24.0) (58.0) (41.8) (113.0) ------- ------- --------- --------- NET EARNINGS ....................................... 35.8 83.1 62.5 178.5 Preferred dividends ................................ -- (2.4) -- (4.7) ------- ------- --------- --------- EARNINGS APPLICABLE TO COMMON SHARES ............... $ 35.8 $ 80.7 $ 62.5 $ 173.8 ======= ======= ========= ========= Primary earnings per common share .................. $ 0.64 $ 1.77 $ 1.12 $ 3.81 ======= ======= ========= ========= Fully diluted earnings per common share ............ $ 0.64 $ 1.50 $ 1.12 $ 3.23 ======= ======= ========= ========= Weighted average primary shares outstanding ........ 55.9 45.7 55.9 45.6 ======= ======= ========= ========= Weighted average fully diluted shares outstanding .. 56.0 55.3 55.9 55.2 ======= ======= ========= =========
The accompanying notes are an integral part of these financial statements. -2- 3 ALUMAX INC. CONDENSED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
June 30, December 31, 1997 1996 -------- ------------ (Millions of Dollars, Except per Share Amounts) ASSETS Current Assets: Cash and equivalents .................................................... $ 27.0 $ 34.6 Accounts receivable, less allowance for doubtful accounts (1997-$17.5; 1996-$16.6) ............................................. 444.8 439.1 Inventories ............................................................. 543.3 519.9 Other current assets .................................................... 93.6 92.2 -------- -------- Total current assets ................................................. 1,108.7 1,085.8 -------- -------- Noncurrent Assets: Property, plant and equipment at cost, less accumulated depreciation and amortization (1997-$1,079.8; 1996-$1,036.8) ......... 2,023.1 2,027.4 Other assets ............................................................ 188.3 185.5 -------- -------- Total noncurrent assets .............................................. 2,211.4 2,212.9 -------- -------- TOTAL ASSETS ................................................................. $3,320.1 $3,298.7 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ........................................................ $ 122.0 $ 162.6 Accrued liabilities ..................................................... 234.0 224.2 Current maturities of long-term debt .................................... 42.6 38.4 -------- -------- Total current liabilities ............................................ 398.6 425.2 -------- -------- Noncurrent Liabilities: Long-term debt .......................................................... 649.1 672.0 Other noncurrent liabilities ............................................ 565.8 560.7 -------- -------- Total noncurrent liabilities ......................................... 1,214.9 1,232.7 -------- -------- Commitments and Contingencies Stockholders' Equity: Common stock of $.01 par value .......................................... .6 .5 Paid-in capital ......................................................... 929.6 920.2 Retained earnings ....................................................... 786.8 724.3 Cumulative foreign currency translation adjustment ...................... (10.4) (4.2) -------- -------- Total stockholders' equity ........................................... 1,706.6 1,640.8 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................... $3,320.1 $3,298.7 ======== ========
The accompanying notes are an integral part of these financial statements. -3- 4 ALUMAX INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Six Months Ended June 30, ------------------------ 1997 1996 ------ ------ (Millions of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings ................................................. $ 62.5 $178.5 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization ............................. 74.7 68.9 Provision for doubtful accounts ........................... 1.3 3.5 Gain on sales of assets ................................... (2.3) (171.2) Deferred income taxes ..................................... 14.5 (0.3) Other noncash items ....................................... 9.5 4.6 Changes in working capital, net of effects of acquisition/disposition ............................. (62.6) 37.6 Net change in other noncurrent assets and liabilities ..... (19.4) 3.4 ------ ------ Net cash provided by operating activities .............. 78.2 125.0 ------ ------ INVESTING ACTIVITIES: Dispositions, net of cash sold ............................... 3.2 110.4 Acquisition, net of cash acquired ............................ -- (436.5) Capital expenditures ......................................... (70.3) (109.1) ------ ------ Net cash used in investing activities ..................... (67.1) (435.2) ------ ------ FINANCING ACTIVITIES: Repayments of long-term and short-term debt .................. (18.7) (241.8) Proceeds from long-term and short-term debt .................. -- 375.0 Dividends paid on preferred stock ............................ -- (4.7) ------ ------ Net cash provided by (used in) financing activities .... (18.7) 128.5 ------ ------ Net decrease in cash and equivalents .............................. (7.6) (181.7) Cash and equivalents at beginning of year ......................... 34.6 205.9 ------ ------ Cash and equivalents at end of period ............................. $ 27.0 $ 24.2 ====== ====== Supplemental Cash Flow Information: Income tax payments .......................................... $ 26.9 $ 23.0 Interest paid, net of amounts capitalized .................... $ 31.2 $ 37.6
The accompanying notes are an integral part of these financial statements. -4- 5 ALUMAX INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) NOTE 1. PRESENTATION These unaudited interim condensed financial statements of Alumax Inc. ("Alumax" or the "Company") should be read in conjunction with the audited financial statements for the year ended December 31, 1996. In Management's opinion, all adjustments necessary for a fair presentation are reflected in the interim periods presented. Certain reclassifications have been made to the prior year's financial statements to conform with the 1997 presentation. NOTE 2. FINANCIAL INSTRUMENTS ACCOUNTING POLICY The Company may, from time to time, utilize certain financial instruments in connection with risk management. The fair value of financial instruments is determined by reference to market value quotes, where available, and other valuation techniques, as appropriate. Amounts to be paid or received on interest rate swaps and caps are included in interest expense on an accrual basis, as they effectively limit the interest rate exposure of the Company's debt commitments. Certain of the Company's foreign operating expenditures are denominated in currencies other than the operations' functional currencies, which expose the Company to exchange rate risks. In order to mitigate its exposure to exchange rate risk where conditions exist, the Company may utilize forward foreign currency contracts. Amounts paid or received on settlement of forward foreign currency contracts are deferred and included in the measurement of the related foreign denominated transactions. The Company's results of operations and financial condition depend to a large degree on primary aluminum prices. In order to reduce this exposure, the Company may enter into future, forward and option contracts. Amounts paid or received on settlement of future, forward and option contracts, including any cost to purchase the contracts, are deferred and recognized as a component of the related transaction and included in costs and expenses, except for amounts paid or received on settlement of aluminum contracts by the primary reduction facilities, which are included in net sales. All of the Company's financial instruments have been designated as hedges and are closely monitored to ensure that correlation between changes in the fair value of financial instruments and changes in the fair value associated with the underlying hedged items exists to such a degree that they substantially offset. In the event a high degree of correlation is not maintained, or anticipated transactions do not occur, deferred gains or losses on the affected financial instruments are recognized in earnings immediately. At June 30, 1997 all of the Company's financial instruments qualified for deferral accounting treatment. NOTE 3. STRATEGIC TRANSACTIONS On January 26, 1996, the Company sold a 23 percent undivided interest in its Mt. Holly primary aluminum reduction facility for $89.3. The Company recorded a gain of $78.4 ($48.6 after tax) in connection with this transaction. This transaction reduced the Company's ownership in the Mt. Holly facility to 50.33 percent. On January 31, 1996, the Company purchased all of the common shares of privately held Cressona Aluminum Company ("Cressona") for a cash cost, including expenses, of $436.5, net of $3.1 of cash acquired. In conjunction with the acquisition, liabilities of $87.4 were acquired. Cressona is a leading manufacturer of extruded aluminum products. -5- 6 ALUMAX INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) The acquisition was accounted for as a purchase and the results of operations of Cressona have been included in the consolidated financial statements since January 31, 1996. The acquisition was financed with cash on hand and $375 of borrowings obtained under available credit facilities. All of these borrowings were repaid in 1996. In June 1996, the Company sold its investment in mining interests for $160 in cash. Of this amount, proceeds of $20 were received in June 1996. The remaining proceeds were received on July 1, 1996. The Company recorded an after-tax gain of $55.1, net of a $37.7 tax provision, in the second quarter of 1996. On September 25, 1996, the Company sold certain Fabricated Products businesses in Western Europe and in the United States for $246.6 in cash, net of cash sold of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax provision, in the third quarter of 1996 in connection with the sale. Pro Forma Information The following summary presents Alumax's unaudited pro forma consolidated net sales, net earnings and primary earnings per common share for the three and six months ended June 30, 1996, as if the acquisition of Cressona and the sale of the Fabricated Products businesses each occurred on January 1, 1996. The pro forma adjustments for the three and six months ended June 30, 1996, include the addition of Cressona's operating results for the month of January 1996. Since the acquisition occurred on January 31, 1996, the Company's actual results include Cressona from February 1, 1996 through June 30, 1996.
Three Months Ended Six Months Ended June 30, 1996 June 30, 1996 ------------------ ---------------- Net sales................................... $724.1 $1,447.9 Net earnings................................ $ 79.3 $ 174.4 Primary earnings per common share........... $ 1.68 $ 3.72
The pro forma results are based upon certain assumptions and estimates, which the Company believes are reasonable. The pro forma results do not purport to be indicative of results that actually would have been obtained had these transactions occurred on January 1, 1996 nor are they intended to be a projection of future results. NOTE 4. INVENTORIES Components of inventories at June 30, 1997 and December 31, 1996 are:
1997 1996 ------ ------ Raw materials .............. $279.2 $323.7 Work in process............. 152.1 87.3 Finished products........... 112.0 108.9 ------ ------ Total.................... $543.3 $519.9 ====== ======
Approximately 79 percent and 78 percent of inventory at June 30, 1997 and December 31, 1996 has been determined on the LIFO cost basis. The excess of replacement cost over the LIFO basis of such inventory is approximately $88.9 and $74.0 at June 30, 1997 and December 31, 1996, respectively. -6- 7 ALUMAX INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED) NOTE 5. DEBT On May 30, 1997, the Company amended its existing $400 revolving credit facility, increasing the total amount available under the facility to $500 and extending the term of the facility to May 2002. The terms and convenants that govern the facility were not substantially changed with the amendment. At June 30, 1997, the entire amount of the facility was available to the Company. NOTE 6. INCOME TAX PROVISION
Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 1997 1996 1997 1996 ----- ----- ----- ------ Federal ............ $20.0 $28.7 $34.5 $ 75.4 Foreign ............ 1.5 24.6 3.0 27.6 State .............. 2.5 4.7 4.3 10.0 ----- ----- ----- ------ Total ............ $24.0 $58.0 $41.8 $113.0 ===== ===== ===== ======
The effective tax rates for these periods differ from statutory rates due to provisions for state and foreign taxes. In addition, the three and six months ended June 30, 1996 include a provision for prior years and the six months ended June 30, 1996 includes $6.2 of foreign tax credits which substantially offset the federal tax related to the first quarter 1996 dividend from investments in mining operations. NOTE 7. OTHER INCOME The six months ended June 30, 1996, includes $18.6 of dividend income received from investments in mining operations. These investments were sold during the second quarter of 1996. NOTE 8. EARNINGS PER COMMON SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128" or the "Statement"). This Statement simplifies the standards for computing earnings per share currently required by APB Opinion No. 15 ("Opinion 15") and replaces the presentation of primary earnings per share with a presentation of basic earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. This statement also requires presentation of diluted earnings per share. Diluted earnings per share reflects the potential dilution that could occur if options or warrants were exercised or convertible securities were converted into common stock. Diluted earnings per share is computed similarly to fully-diluted earnings per share under Opinion 15. The following pro forma schedule illustrates the earnings per share the Company would have reported under the provisions of FAS 128 for the three and six months ended June 30, 1997 and 1996:
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1997 1996 1997 1996 ----- ----- ----- ----- Pro forma basic earnings per share...................... $0.65 $1.80 $1.14 $3.88 Pro forma diluted earnings per share.................... 0.64 1.50 1.12 3.23 Weighted average shares outstanding..................... 55.0 44.9 55.0 44.9 Weighted average diluted shares outstanding............. 55.9 55.3 55.9 55.2
As required by the Statement, the Company will adopt FAS 128 in the fourth quarter of 1997. -7- 8 ALUMAX INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (CONCLUDED) NOTE 9. COMMITMENTS AND CONTINGENCIES The Internal Revenue Service (the "IRS") has asserted that Alumax and certain of its subsidiaries were improperly included in the 1984, 1985 and 1986 consolidated income tax returns of AMAX Inc. and on that basis has asserted a federal income tax deficiency against Alumax of approximately $129. Interest on the deficiency through June 30, 1997, would be approximately $299. In response to the IRS' notice of deficiency, the Company filed a petition in the United States Tax Court (the "Court") seeking a redetermination in respect of the purported deficiency. The parties have waived their rights to a trial and the matter has been submitted to the Court for decision based upon the pleadings, stipulations, memoranda and other documents submitted, or to be submitted, to the Court by the parties. A decision by the Court is expected in late 1997. Payment by the Company of the deficiency with interest thereon would provide certain tax benefits to the Company that would offset in part, in the year of payment and within the carry-forward period, the cost of paying the deficiency and interest. The Company believes that it has adequate reserves so that any unprovided for net deficiency would not have a material adverse effect on the Company's financial condition. The Company and its affiliates have been named as defendants in lawsuits in various matters relating to both current and former operations. In addition, the Company and certain of its subsidiaries have been named as defendants in lawsuits or as potentially responsible parties in state and federal administrative and judicial proceedings seeking contribution for costs associated with the investigation, analysis, correction and remediation of environmental conditions at various hazardous waste disposal sites. The Company continues to monitor these actions and proceedings and to vigorously defend both its own interests as well as the interests of its affiliates. The Company's ultimate liability in connection with present and future environmental claims will depend on many factors, including its volumetric share of the waste at a given site, the remedial action required, the total cost of remediation, and the financial viability and participation of the other entities which also sent waste to the site. Once it becomes probable that the Company will incur costs in connection with remediation of a site and such costs can be reasonably estimated, the Company establishes or adjusts its reserve for its projected share of these costs. Based upon current law and information known to the Company concerning the size of the sites known to it, anticipated costs of remediation, their years of operation and the number of other potentially responsible parties, Management believes that it has adequate reserves for the Company's probable share of the estimated aggregate liability for the costs of remedial actions and related costs and expenses. In addition, the Company establishes reserves for remedial measures required from time to time at its own facilities. The Company's environmental reserves totalled $29.3 and $29.6 at June 30, 1997 and December 31, 1996, respectively. Management believes that the reasonably probable outcomes of these matters will not materially exceed established reserves. Although the Company believes it has coverage for some environmental claims under certain insurance policies, insurance recoveries are not considered in estimating the Company's share of remediation costs at a site unless an insurance carrier has agreed to pay a portion of such costs. Insurance recoveries were not considered in establishing reserves for any of these sites absent an agreement between the carriers and the Company. For information regarding additional commitments and contingencies, see Note 9 to the Financial Statements in the Company's 1996 Annual Report on Form 10-K. -8- 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited; millions of dollars, except per share and per tonne and per pound amounts) INTRODUCTION Net earnings totalled $35.8, and $62.5, or $0.64 and $1.12 per common shares for the three and six months ended June 30, 1997, respectively, compared with net earnings of $83.1 and $178.5, or $1.77, and $3.81 per common share, in the three and six months ended June 30, 1996. The 1996 results included a second quarter after-tax gain of $55.1 on the sale of mining interests and a first quarter after-tax gain of $48.6 on the sale of a 23 percent interest in the Mt. Holly primary aluminum reduction facility. After-tax dividend income of $18.3 received from investments in mining operations was also included in the first quarter 1996 results. RESULTS OF OPERATIONS Earnings from operations for the three and six months ended June 30, 1997 totalled $71.0 and $129.2, respectively, compared with operating earnings of $64.4 and $139.5 for the comparable 1996 periods.
Three Months Ended Six Months Ended June 30, June 30, -------------------- ---------------------- 1997 1996 1997 1996 ------- --------- --------- --------- NET SALES Primary aluminum products ............... $ 133.7 $ 164.4 $ 260.5 $ 361.6 Semi-fabricated products(1) ............. 463.6 438.8 913.3 818.9 Fabricated products(1) .................. 133.6 248.2 258.9 473.5 ------- --------- --------- --------- $ 730.9 $ 851.4 $ 1,432.7 $ 1,654.0 ======= ========= ========= ========= EARNINGS FROM OPERATIONS Aluminum processing ..................... $ 83.4 $ 75.3 $ 153.4 $ 160.0 Corporate ............................... (12.4) (10.9) (24.2) (20.5) ------- --------- --------- --------- $ 71.0 $ 64.4 $ 129.2 $ 139.5 ======= ========= ========= ========= PRODUCTION AND SHIPMENTS (THOUSANDS OF TONNES) Sources of metal Primary aluminum production ............. 178.9 169.8 352.7 343.2 Aluminum purchases ...................... 95.5 121.3 190.9 229.6 ------- --------- --------- --------- 274.4 291.1 543.6 572.8 ======= ========= ========= ========= Metal shipments Aluminum processing (including tolling) Primary aluminum products ............... 74.6 95.2 142.6 207.3 Semi-fabricated products(1) ............. 158.6 151.8 316.3 281.5 Fabricated products(1)(2) ............... 27.4 36.3 53.2 68.8 ------- --------- --------- --------- 260.6 283.3 512.1 557.6 ======= ========= ========= ========= DERIVED PRICES (DOLLARS/LB.)(3) Primary aluminum products ............... $ 0.81 $ 0.78 $ 0.83 $ 0.79 Semi-fabricated products(1) ............. $ 1.33 $ 1.31 $ 1.31 $ 1.32 Fabricated products(1)(2) ............... $ 2.22 $ 3.10 $ 2.21 $ 3.12
(1) Net sales and shipments for the Company's Magnolia operation have been reclassified from fabricated products to semi-fabricated products. Magnolia manufactures shower and tub enclosures, stadium seating, and other extruded products. (2) Included in Fabricated products' metal shipments for the three and six months ended June 30, 1997, are billet shipments of 10.4 and 20.6 thousand tonnes, respectively, compared with 8.2 and 14.8 thousand tonnes in the same 1996 periods. (3) Derived prices are calculated as net sales divided by pounds shipped (one tonne equals 2,204.6 pounds). -9- 10 NET SALES AND SHIPMENTS The Company generated quarterly sales of $730.9 on aluminum shipments of 260,600 tonnes in the second quarter of 1997 compared with sales of $851.4 on aluminum shipments of 283,300 tonnes in the second quarter of 1996. For the first six months of 1997, the Company generated sales of $1,432.7 on aluminum shipments of 512,100 tonnes, compared with sales of $1,654.0 on aluminum shipments of 557,600 tonnes in the first six months of 1996. Decreases in net sales were principally a result of decreased shipments. The London Metals Exchange (the "LME") cash price averaged $1,590 per tonne in the first six months of 1997 compared with $1,575 per tonne in the first six months of 1996. The Company's net sales are sensitive to changes in the world pricing of primary aluminum. This price sensitivity impacts substantially all of the Company's products to varying degrees, with less impact on the more specialized and value-added products. Primary products' net sales for the three and six months ended June 30, 1997, decreased 19 percent and 28 percent, respectively. Substantially all of the decreases were due to declines in external shipments, resulting from higher internal consumption. Internal consumption of primary products grew by 34 percent in the first half of 1997 compared with the first half of 1996. The increase in internal consumption was driven by the integration of the Company's expanded extrusion operations. The January 31, 1996 acquisition of Cressona more than doubled the capacity of the Company's extrusion operations. Primary's total production in the first half of 1997 was consistent with production in 1996. Semi-fabricated products' net sales for the three and six months ended June 30, 1997, increased 6 percent and 12 percent, respectively, on increased shipments. The increase in shipments was related primarily to the January 1996 acquisition of Cressona and continued growth in the Company's extrusions operations in the transportation and service center businesses. Fabricated Products' net sales for the three and six months ended June 30, 1997, decreased 46 percent and 45 percent, respectively, principally due to the sale of certain fabricated products operations in Western Europe and in the United States ("Fab Products"). Increased sales in the Company's European secondary aluminum operation were more than offset by the effects of the September 1996 sale of Fab Products, which had sales of $127.8 and $239.2 in the three and six months ended June 30, 1996. COSTS AND EXPENSES The Company's costs and expenses were $659.9 and $1,303.5 for the three and six months ended June 30, 1997, respectively, compared with costs and expenses of $787.0 and $1,514.5 for the three and six months ended June 30, 1996, respectively. The decreases were largely attributable to lower volumes resulting from the sale of Fab Products and decreases in external purchases of aluminum. Cost of goods sold decreased 18 percent and 16 percent in the three and six months ended June 30, 1997, respectively. The decreases were the result of the sale of Fab Products and lower external aluminum purchases from the integration of the downstream operations partially offset by higher shipments from the extrusion, mill, and European secondary aluminum businesses. In July 1997, the Company announced a consolidation and action plan related to its semi-solid forging manufacturing operations. The anticipated cost of this consolidation is not expected to materially affect the Company's results of operations or financial position. Selling and general expenses decreased 11 percent and eight percent in the three and six months ended June 30, 1997, respectively, due primarily to the sale of Fab Products offset partially by the growth in the Company's extrusion business and increased international development activity. Depreciation and amortization increased five percent and eight percent in the three and six month periods ended June 30, 1997, respectively. These increases were commensurate with the Company's level of capital spending. -10- 11 OTHER ITEMS AFFECTING NET EARNINGS Other Income (Expense), Net Other income (expense), net for the three and six months ended June 30, 1997, was $2.7 and $2.4, respectively, compared with $0.8 and $14.9 for the same periods in 1996. The six months ended June 30, 1996 included $18.6 of dividend income received from investments in mining operations. This investment was sold during the second quarter of 1996. Interest Expense, Net Gross interest expense was $14.8 and $29.7 for the three and six months ended June 30, 1997, respectively, a decrease of $19.7 and $40.4 from the comparable periods in 1996. These decreases were a result of lower average borrowings. Interest income was $1.2 for the six months ended June 30, 1997, compared with $2.4 for the same period in 1996. Capitalized interest was $1.2 for the six months ended June 30, 1997, compared with $3.9 for the same period in 1996. Income Taxes The income tax provision for the three and six months ended June 30, 1997, was $24.0 and $41.8 respectively, compared with $58.0 and $113.0 for the same 1996 periods. The effective tax rates for these periods differ from statutory rates because of provisions for state and foreign taxes. In addition, the six months ended June 30, 1996 include a provision for prior years and $6.2 of foreign tax credits which substantially offset the federal tax related to the first quarter 1996 dividend from investments in mining operations. STRATEGIC TRANSACTIONS On January 26, 1996, the Company sold a 23 percent undivided interest in its Mt. Holly primary aluminum reduction facility for $89.3. The Company recorded a gain of $78.4 ($48.6 after tax) in connection with this transaction. This transaction reduced the Company's ownership in the Mt. Holly facility to 50.33 percent. On January 31, 1996, the Company purchased all of the common shares of privately held Cressona for a cash cost, including expenses, of $436.5, net of $3.1 of cash acquired. In conjunction with the acquisition, liabilities of $87.4 were acquired. Cressona is a leading manufacturer of extruded aluminum products. The acquisition was accounted for as a purchase and the results of operations of Cressona have been included in the consolidated financial statements since January 31, 1996. The acquisition was financed with cash on hand and $375 of borrowings obtained under available credit facilities. All of these borrowings were repaid in 1996. In June 1996, the Company sold its investment in mining interests for $160 in cash. Of this amount, proceeds of $20 were received in June 1996. The remaining proceeds were received on July 1, 1996. The Company recorded an after-tax gain of $55.1, net of a $37.7 tax provision, in the second quarter of 1996. On September 25, 1996, the Company sold Fab Products for $246.6 in cash, net of cash sold of $5.4. The Company recorded an after-tax gain of $36.7, net of a $35.0 tax provision, in the third quarter of 1996 in connection with the sale. -11- 12 Pro Forma Information The following summary presents Alumax's unaudited pro forma consolidated net sales, net earnings, and primary earnings per common share for the three and six months ended June 30, 1996, as if the acquisition of Cressona and the sale of the Fabricated Products businesses each occurred on January 1, 1996. The pro forma adjustments for the three and six months ended June 30, 1996 include the addition of Cressona's operating results for the month of January 1996. Since the acquisition occurred on January 31, 1996, the Company's actual results include Cressona from February 1, 1996 through June 30, 1996.
Three Months Ended Six Months Ended June 30, 1996 June 30, 1996 ------------------ ---------------- Net sales................................... $724.1 $1,447.9 Net earnings................................ $ 79.3 $ 174.4 Primary earnings per common share........... $ 1.68 $ 3.72
The pro forma results are based upon certain assumptions and estimates, which the Company believes are reasonable. The pro forma results do not purport to be indicative of results that actually would have been obtained had these transactions occurred on January 1, 1996 nor are they intended to be a projection of future results. LIQUIDITY AND CAPITAL RESOURCES Operating Activities Operations provided $78.2 and $125.0 of cash during the first six months of 1997 and 1996, respectively. Decreased cash flows were directly related to increases in working capital during the 1997 period. The increase in working capital was primarily a result of increased inventory levels for planned maintenance and upgrades of equipment at the company's mill operations. Additionally, cash provided by operations included the 1996 receipt of dividends from mining interests of $18.6. Investing Activities Cash used by investing activities was $67.1 for the six months ended June 30, 1997, compared with $435.2 of cash used in the first six months of 1996, which included the acquisition of Cressona for $436.5 (net of cash acquired) and proceeds of $110.4 from the sale of non-strategic assets. Capital expenditures were $70.3 during the first six months of 1997 compared with $109.1 in the first six months of 1996. In September 1996, the Company, through its subsidiary, Alumax Mill Products, Inc., exercised its option to purchase its leased Texarkana rolling mill facility in November 1997 for approximately $97 in cash. Additionally, during 1996, the Company entered into a joint venture with Yunnan Aluminum Processing Factory in Kunming, China, for the annual production of 8,000 to 10,000 tonnes of light gauge aluminum foil for China's packaging market. Alumax will invest $38 of cash in the joint venture to develop a continuous cast foil operation. As of June 30, 1997, the Company had invested $21 of cash in the joint venture. The Company intends to invest the remainder of the total obligation during the third quarter of 1997. Management expects to finance these commitments from working capital provided from operations and financing from the Company's revolving credit facilities. Total capital spending in 1997, including the above mentioned projects, is expected to be approximately $300. -12- 13 Financing Activities Cash used in financing activities was $18.7 in the first six months of 1997 compared with cash provided of $128.5 in the first six months of 1996. At June 30, 1997, the Company's total debt to capital ratio was 28.8 percent, down from 30.2 percent at December 31, 1996 and 39.4 percent at June 30, 1996. This improvement was attributable to debt repayments of $18.7 and a year-to-date increase in stockholders' equity of $65.8 from December 31, 1996. In the first half of 1996, the Company borrowed $375 under available credit facilities to finance the acquisition of Cressona. All of these borrowings were subsequently repaid during 1996. Debt repayments of $241.8 in the first six months of 1996 included the early retirements of $39.3 of Cressona debt acquired and a $90.7 promissory note due in May 1996. (See Note 6 to the Financial Statements in the Company's 1996 Annual Report on Form 10-K). On May 30, 1997, the Company amended its existing $400 revolving credit facility, increasing the total amount available under the facility to $500 and extending the term of the facility to May 2002. The terms and convenants that govern the facility were not substantially changed with the amendment. At June 30, 1997, the entire amount of the facility was available to the Company. Additionally, $4.7 in dividends were paid to holders of Alumax $4.00 Series A Convertible Preferred Stock in the first six months of 1996. In December 1996, the outstanding shares of Preferred Stock were converted into approximately 9.6 million shares of Alumax Common Stock. Income Taxes The Internal Revenue Service (the "IRS") has asserted that Alumax and certain of its subsidiaries were improperly included in the 1984, 1985 and 1986 consolidated income tax returns of AMAX Inc. and on that basis has asserted a federal income tax deficiency against Alumax of approximately $129. Interest on the deficiency through June 30, 1997, would be approximately $299. In response to the IRS' notice of deficiency, the Company filed a petition in the United States Tax Court (the "Court") seeking a redetermination in respect of the purported deficiency. The parties have waived their rights to a trial and the matter has been submitted to the Court for decision based upon the pleadings, stipulations, memoranda and other documents submitted, or to be submitted, to the Court by the parties. A decision by the Court is expected in late 1997. Payment by the Company of the deficiency with interest thereon would provide certain tax benefits to the Company that would offset in part, in the year of payment and within the carry-forward period, the cost of paying the deficiency and interest. The Company believes that it has adequate reserves so that any unprovided for net deficiency would not have a material adverse effect on the Company's financial condition. Risk Management The Company utilizes certain financial instruments in connection with its risk management. The risk of loss related to counterparty nonperformance under financial instrument agreements at June 30, 1997 is not significant. The Company enters into forward fixed price arrangements that are required by certain customers and suppliers. The Company may utilize futures contracts which effectively convert forward fixed price arrangements to market prices in order to meet overall strategic objectives. Such contracts covered approximately 151,400 tonnes at June 30, 1997, and include varying maturity dates through 1999. Gains or losses with respect to these positions are reflected in earnings concurrent with consummation of the underlying fixed price transaction. Periodic value fluctuations of the futures contracts approximately offset the value fluctuations of the underlying fixed price transactions. -13- 14 The Company also may, from time to time, establish a floor selling price for varying quantities of future production, while preserving the opportunity to participate in upward price movements. This may be accomplished by entering into forward sales of primary aluminum and purchases of call options, which together provide the same price protection as purchasing put options, or by purchasing put options alone, in a manner which correlates with the Company's production and sales of primary aluminum. This strategy may be modified from time to time. At June 30, 1997, the Company's commitments with respect to these financial instruments covered 210,550 tonnes of future production. The book value and market value of these financial instruments were $11.9 and $6.2, respectively, at June 30, 1997. Certain of the Company's foreign operating expenditures are denominated in currencies other than the operations' functional currencies, which expose the Company to exchange rate risks. In order to mitigate its exposure to exchange rate risk where these conditions exist, the Company may utilize forward foreign currency contracts. At June 30, 1997, the Company had outstanding $72.2 in forward foreign currency contracts which mature at various dates through July 1998. The gains or losses related to these contracts are deferred and included in the measurement of the related foreign currency denominated transactions. If these contracts had been terminated at June 30, 1997, the Company would have paid approximately $1.8. The Company's debt instruments and related interest rate hedges are susceptible to market fluctuations based on changes in the cost of borrowing. At June 30, 1997, the fair value of total debt approximated book value. The Lauralco credit facility, which has a variable interest rate, required the Company to establish facilities to effectively limit the interest rate exposure of the commitment. To meet this requirement, the Company has obtained interest rate swaps with a notional amount of $400 through October 26, 2000 and interest rate caps having a notional amount of $150 through October 26, 1998. The Company would have paid approximately $31.0 to terminate these agreements at June 30, 1997. The Company also purchases natural gas for its operations and enters into forward contracts to eliminate the volatility in prices. At June 30, 1997, none of these contracts was material. For further information regarding the Company's risk management, see Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 15 to the Financial Statements in the Company's 1996 Annual Report on Form 10-K. Environmental Matters The Company has been named as a defendant or identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws by governmental agencies and private parties at 39 pending waste disposal sites which, in most instances, were owned and operated by third parties. Management periodically evaluates such matters and records or adjusts liability reserves for remediation and other costs and potential damages when expenditures are considered probable and can be reasonably estimated. The Company's ultimate liability in connection with present and future environmental claims will depend on many factors, including its volumetric share of the waste at a given site, the remedial action required, the total cost of remediation and the financial viability and participation of the other entities which also sent waste to the site. Based upon current law and information known to the Company concerning the size of the sites known to it, anticipated costs of remediation, their years of operation, and the number of other potentially responsible parties, Management believes that it has adequate reserves for the Company's probable share of the estimated aggregate liability for the costs of remedial actions and related costs and expenses and that such liability and related costs and expenses should not have a material adverse effect on the financial condition or results of operations of the Company. In addition, the Company establishes reserves for remedial measures required from time to time at its own facilities. Any expenditures for remediation programs it may be required to undertake, either individually or in the aggregate, are not expected to have a material adverse effect on the financial condition or results of -14- 15 operations of the Company. The Company's environmental reserves totaled $29.3 at June 30, 1997 and $29.6 at December 31, 1996. Management does not anticipate that commitments, operating expenses or capital expenditures for environmental compliance through and including the next fiscal year will have a material adverse effect on the Company's financial condition or results of operations. Based on historical trends toward stricter environmental standards, however, it appears likely that the Company will incur additional expenditures to remain in compliance with federal and state environmental laws. -15- 16 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders The Company held its Annual Meeting of Stockholders on May 29, 1997, at which security holders: (a) re-elected three directors, each for a term of three years; (b) ratified the selection of Coopers & Lybrand L.L.P. as auditors for the 1997 fiscal year; (c) approved an amendment to the Alumax Inc. Non-Employee Directors' Stock Compensation Plan (as Amended on October 3, 1996) to increase the number of shares of the Company's Common Stock awarded annually to each participant from 850 shares to 1,250 shares; and (d) approved an amendment to the Alumax Inc. 1993 Long Term Incentive Plan (as Amended and Restated and as Further Amended on October 3, 1996) to increase the number of shares of the Company's Common Stock authorized for issuance thereunder by 1,250,000 shares. Results of the voting in connection with each of the above matters were as follows: Voting on Directors
For Withheld Total --- -------- ----- J. Dennis Bonney 46,485,830 759,853 47,245,683 Harold Brown 46,476,870 768,813 47,245,683 Pierre DesMarais II 46,488,984 756,699 47,245,683
Ratification of independent Auditors In Favor - 47,050,608 Against - 81,758 Abstain - 113,317 ---------- Total - 47,245,683
Approval of Amendment to the Non-Employee Directors' Stock Compensation Plan In Favor - 45,311,789 Against - 1,743,561 Abstain - 190,333 ---------- Total - 47,245,683
Approval of Amendment to the Long Term Incentive Plan In Favor - 41,248,454 Against - 5,842,614 Abstain - 154,615 ---------- Total - 47,245,683
-16- 17 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description 4.01 First Amendment to Credit Agreement, dated as of May 30, 1997, among Alumax Inc. and the Banks signatory thereto. 10.01 Agreement, dated as of July 1, 1997, by and between Alumax of South Carolina, Inc. and South Carolina Public Service Authority. 10.02 Electric Service Agreement, dated November 11, 1994, between Eastalco Aluminum Company and The Potomac Edison Company. 11.01 Calculation of Earnings per Common Share. 27.01 Financial Data Schedule. (b) Reports on Form 8-K No reports on From 8-K were filed by Alumax Inc. during the quarter ended June 30, 1997. -17- 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALUMAX INC. By /s/ Helen M. Feeney ------------------------------- Helen M. Feeney Vice President and Corporate Secretary By /s/ Kevin J. Krakora ------------------------------- Kevin J. Krakora Vice President and Controller Date: August 8, 1997 -18- 19 EXHIBIT INDEX Exhibit Number Description 4.01 First Amendment to Credit Agreement, dated as of May 30, 1997, among Alumax Inc. and the Banks signatory thereto. 10.01 Agreement, dated as of July 1, 1997, by and between Alumax of South Carolina, Inc. and South Carolina Public Service Authority. 10.02 Electric Service Agreement, dated November 11, 1994, between Eastalco Aluminum Company and The Potomac Edison Company. 11.01 Calculation of Earnings per Common Share. 27.01 Financial Data Schedule. -19- EX-4.01 2 FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 4.01 ALUMAX INC. FIRST AMENDMENT TO CREDIT AGREEMENT To each of the Financial Institutions Signatory Hereto Gentlemen: We refer to the Credit Agreement dated as of May 19, 1995 among Alumax Inc., the Banks party thereto, Royal Bank of Canada, as Agent and Canadian Imperial Bank of Commerce, as Administrative Agent (the "Credit Agreement"). Capitalized terms used herein without definition have the meanings ascribed to them in the Credit Agreement. The Company executes and delivers this First Amendment to Credit Agreement to you for the purpose of amending the Credit Agreement as hereinafter set forth. Section 1. Adjustments of the Commitments of the Continuing Banks. On the Effective Date (as hereinafter defined), the Commitment of each Bank which is remaining a party to the Credit Agreement (individually "Continuing Bank" and collectively the "Continuing Banks") shall be adjusted so as to be in the amount set forth opposite the signature of such Continuing Bank hereto. Section 2. Adjustments in Pricing. (a) Facility Fee. Commencing on the Effective Date, the facility fee provided for in Section 3.1 of the Credit Agreement shall be computed at the rate of 0.10% per annum and the percentage "0.125%" appearing therein shall be replaced with "0.10%". (b) Applicable Eurodollar Margins. Commencing on the Effective Date, the definition of "Applicable Eurodollar Margin" in Section 2.2 of the Credit Agreement shall be amended to read in its entirety as follows: "Applicable Eurodollar Margin" means for each (a) Committed Eurodollar Loan: (i) 0.150% per annum for any day Level I Status exists, (ii) 0.175% per annum for any day Level II Status exists, (iii) 0.225% per annum for any day Level III Status exists, (iv) 0.325% per annum for any day Level IV Status exists, and (v) 0.525% per annum for any day Levy V Status exists and (b) for each Eurodollar Bid Loan the rate per annum agreed to pursuant to Section 1.7 hereof. 2 (c) Letter of Credit Usage Fees. Commencing on the Effective Date, the table of Letter of Credit usage fees in Section 3.4(b) of the Credit Agreement shall be amended to read as follows:
FINANCIAL PERFORMANCE LETTERS LETTERS LEVEL OF CREDIT OF CREDIT For each day Level I Status exists 0.150% 0.100% For each day Level II Status exists 0.175% 0.125% For each day Level III Status exists 0.225% 0.175% For each day Level IV Status exists 0.325% 0.275% For each day Level V Status exists 0.525% 0.475%
Section 3. Change in Bank parties to the Credit Agreement. Upon satisfaction of the conditions precedent to the effectiveness of this First Amendment to Credit Agreement as set forth in Section 5.1 hereof, the principal of and interest on all Loans made to the Company under the Credit Agreement by PNC Bank, National Association, ("PNC") shall be paid in full, PNC shall be paid any accrued facility or letter of credit fees due it under the Credit Agreement and PNC shall no longer be a "Bank" party to the Credit Agreement and, accordingly, shall no longer have any commitment or obligation to extend credit to the Company pursuant to the Credit Agreement. Section 4. Extension of the Termination Date. On the Effective Date the definition of the term "Termination Date" appearing in Section 8.1 of the Credit Agreement shall be amended by striking the date "May 19, 2000" currently appearing therein and substituting the date "May 30, 2002" therefor. Section 5. Conditions Precedent. 5.1. Conditions to Effectiveness of Amendments. This First Amendment to Credit Agreement shall become effective on May 30, 1997 (the "Elective Date"), provided that the following conditions have then been satisfied (subject to the last paragraph of this Section 5.1): (a) Counterparts. The Agent shall have received counterparts hereof which, taken together, bear the signatures of the Company, and the Banks; (b) Notes. The Agent shall have received, properly executed and completed, a Committed Note for each Continuing Bank whose Commitment is adjusted hereby in the amount of its Commitment as modified hereby, each and all of such notes to constitute "Notes" for all purposes of the Credit Agreement and the new Committed Notes issued in favor of the Continuing Banks to be issued in substitution -2- 3 and replacement for the Committed Notes heretofore issued to them pursuant to the Credit Agreement; (c) Legal Opinions. The Agent shall have received, with a copy for each Bank, opinions from Sullivan & Cromwell and from the Senior Vice President and General Counsel of the Company dated the Effective Date, substantially in the forms of Exhibits A and B hereto; (d) Resolutions. The Agent shall have received, with a copy for each Bank, a copy of Resolutions of the Board of Directors of the Company (or the Executive Committee thereof) authorizing the execution and delivery of this First Amendment to Credit Agreement and the performance of the Credit Agreement as amended hereby and the consummation of the transactions contemplated hereby, certified by the Secretary or an Assistant Secretary of the Company as of the Effective Date; and such certificate shall state that the Resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate; (e) Incumbency Certificate. The Agent shall have received, with a copy for each Bank, a certificate of the Secretary or an Assistant Secretary of the Company, dated the Effective Date, as to the incumbency and signatures of the officers thereof executing this First Amendment to Credit Agreement and the Notes contemplated hereby and any certificate or other documents to be delivered by it pursuant hereto, together with evidence of the incumbency and signature of such Secretary or Assistant Secretary; (f) Closing Certificate. The Agent shall have received, with a copy for each Bank, a signed closing certificate dated as of the Effective Date in the form annexed hereto as Exhibit C (it being acknowledged that such certificate shall constitute a certificate furnished by the Company pursuant to the Credit Agreement for purposes of Section 7.1(c) thereof). The foregoing to the contrary notwithstanding, if all of the foregoing conditions other than that specified in paragraph (c) have been satisfied as of the Effective Date and the condition specified in paragraph (c) is satisfied within three Business Days after the Effective Date, this First Amendment to Credit Agreement shall nonetheless become effective and such effectiveness shall relate back to the Effective Date all as though the condition specified in paragraph (c) had been satisfied on that date. 5.2. Return of Committed Notes. Promptly upon this First Amendment to Credit Agreement becoming effective, the Continuing Banks whose Commitments are adjusted hereby shall return to the Agent the Committed Notes now held by them marked "cancelled" or "superseded" and PNC shall return its Notes to the Agent marked "cancelled", and the Agent shall thereupon return such Notes to the Company, provided that if any of such Notes are lost the Bank to which such Notes were issued shall instead indemnify the Company from any liability, loss or cost arising as a result of such loss. -3- 4 5.3. Adjustments. If there are Committed Loans outstanding upon this First Amendment to Credit Agreement becoming effective then on the first day on which such Committed Loans can be repaid without requiring the Company to make a payment to the Banks under Section 2.5 of the Credit Agreement, there shall be such non-ratable borrowings and repayments of the Committed Loans as shall be necessary so that after giving effect thereto the percentage of the Commitment of each Bank in use through Committed Loans is identical. Section 6. Miscellaneous. Except as specifically amended hereby all of the terms, conditions and provisions of the Credit Agreement shall remain unchanged and in full force and effect. No reference to this First Amendment to Credit Agreement need be made in any Loan Document or in any other instrument or document at any time referring to the Credit Agreement, a reference to the Credit Agreement in any of such to be deemed to be a reference to the Credit Agreement as amended hereby. This First Amendment to Credit Agreement shall be construed in accordance with and governed by the law of the State of New York and may be executed in counterparts and by separate parties hereto on separate counterparts, each to constitute an original but all one in the same instrument. The Company hereby notifies the Banks pursuant to Section 10.7 of the Credit Agreement that effective June 9, 1997 its address for notices shall be as follows: 3424 Peachtree Road, N.E. Suite 2100 Atlanta, Georgia 30326 Attention: Thomas L. Gleason, Treasurer Telecopy: 404-846-4654 Telephone: 404-846-4541 Dated as of the 30th day of May, 1997 ALUMAX INC. By /s/ Lawrence R. Frost -------------------------------------- Its Executive Vice President and Chief Financial Officer Accepted and agreed as of the date last above written. -4- 5 Commitment: ROYAL BANK OF CANADA $60,000,000 By /s/ J. (John) M. Crawford ------------------------- Its Senior Manager ------------------------ -5- 6 Commitment: CIBC Inc. $55,000,000 By /s/ E. Lindsay Gordon ------------------------- Its Director ------------------------ -6- 7 Commitment: BANK OF AMERICA ILLINOIS $42,500,000 By /s/ Michelle W. Kacergis ------------------------- Its Managing Director ------------------------ -7- 8 Commitment: THE CHASE MANHATTAN BANK $42,500,000 By /s/ James H. Ramage ------------------------- Its Vice President ------------------------ -8- 9 Commitment: THE FIRST NATIONAL BANK OF CHICAGO $42,500,000 By /s/ Brett Neubert ------------------------- Its Authorized Agent ------------------------ -9- 10 Commitment: UNION BANK OF SWITZERLAND $42,500,000 By /s/ Dieter Hoeppli ------------------------- Its Vice President ------------------------ By /s/ Samuel Azzizo ------------------------- Its Vice President ----------------------- -10- 11 Commitment: BANK OF MONTREAL $32,500,000 By /s/ Joanna S. Bellocq ------------------------- Its Director ------------------------ -11- 12 Commitment: CREDIT LYONNAISE NEW YORK BRANCH $32,500,000 By /s/ Robert Ivosevich ------------------------- Its Senior Vice President ------------------------ CREDIT LYONNAISE CAYMAN ISLAND BRANCH By /s/ Robert Ivoservich ------------------------ Its Senior Vice President ------------------------ -12- 13 Commitment: BANQUE NATIONALE DE PARIS $25,000,000 By /s/ Eva Millas Russo ------------------------- Its Vice President ------------------------ By /s/ Sally Haswell -------------------------- Its Vice President ------------------------ -13- 14 Commitment: COMMERZBANK, AG, ATLANTA AGENCY $25,000,000 By /s/ Andreas K. Bremer ------------------------- Its SVP & Manager ------------------------ By /s/ Mary B. Smith ------------------------- Its AVP ----------------------- -14- 15 Commitment: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES $25,000,000 By /s/ Thomas J. Nadramia ------------------------- Its Vice President ------------------------ By /s/ Christopher Sarisky ------------------------- Its Asst. Treas. ----------------------- -15- 16 Commitment: THE FUJI BANK, LIMITED $25,000,000 By /s/ Toshihiro Mitsui ----------------------------- Its Vice President & Manager ---------------------------- -16- 17 Commitment: MELLON BANK, N.A. $25,000,000 By /s/ Dwayne R. Finney --------------------------- Its Assistant Vice President -------------------------- -17- 18 Commitment: THE SAKURA BANK, LIMITED $25,000,000 By /s/ Hiroyasu Imanishi ------------------------- Its V.P. & Senior Manager ------------------------ -18- 19 Commitment: PNC BANK, NATIONAL ASSOCIATION $0 By /s/ Dale Stein ------------------------- Its Vice President ------------------------ -19- 20 CONFORMED COPY EXHIBIT A OPINION OF SULLIVAN & CROMWELL - , 1997 ------ To the Financial Institutions party to the First Amendment to Credit Agreement referred to below, Dear Sirs: In connection with the First Amendment to Credit Agreement, dated as of May 30, 1997 (the "First Amendment"), among Alumax Inc., a Delaware corporation (the "Company"), and the financial institutions signatory thereto (the "Banks"), we, as counsel for the Company, have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. Upon the basis of such examination, it is our opinion that: (1) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware. (2) The First Amendment and the Notes delivered by the Company to the Banks on the date hereof each has been duly authorized, executed and delivered by the Company, and the Credit Agreement (as defined in the First Amendment) as amended by the First Amendment (the "Amended Credit Agreement") and such Notes each constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 21 (3) There are no regulatory consents, authorizations, approvals or filings required to be obtained or made by the Company under the Federal laws of the United States, the laws of the State of New York or the General Corporation Law of the State of Delaware for the execution and delivery of the First Amendment or the Notes delivered by the Company to the Banks on the date hereof or for the performance by the Company of its obligations under the Amended Credit Agreement and such Notes. The foregoing opinion is limited to the Federal laws of the United States, the laws of the State of New York and the General Corporation Law of the State of Delaware, and we are expressing no opinion as to the effect of the laws of any other jurisdiction. With your approval, we have relied as to certain matters on information obtained from public officials, officers of the Company and other sources believed by us to be responsible, and we have assumed that the First Amendment and the Credit Agreement have been duly authorized, executed and delivered by all parties thereto other than the Company and that the signatures on all documents examined by us are genuine, assumptions which we have not independently verified. The foregoing opinion is rendered as of the date hereof, and we make no undertaking and expressly disclaim any duty to supplement such opinion if, after the date hereof, facts and circumstances come to our attention or changes in the law occur which could affect such opinion. This opinion is furnished by us as counsel for the Company in connection with the execution and delivery by the Company of the First Amendment and is solely for the benefit of the addressees named above and any Bank that may from time to time become a party to the Amended Credit Agreement. Very truly yours, SULLIVAN & CROMWELL -2- 22 CONFORMED COPY EXHIBIT B OPINION OF R.P. WOLF, ESQ. (Alumax Letterhead) ,1997 ----- To the Financial Institutions party to the First Amendment to Credit Agreement referred to below Ladies and Gentlemen: I am Senior Vice President and General Counsel of Alumax Inc., a Delaware corporation (the "Company"), and in such capacity have overseen and participated in the provision of legal advice and assistance to the Company in connection with the negotiation of, and the closing of the transactions contemplated by, the First Amendment to Credit Agreement (the "First Amendment"), dated as of May 30, 1997, among the Company and the Banks signatory thereto. Terms used herein and not defined shall have their respective defined meanings as set forth in the First Amendment or the Credit Agreement (as defined in the First Amendment). In rendering the opinions expressed below, I have examined originals, conformed copies, or copies otherwise identified to my satisfaction of such corporate records, agreements, and instruments of the Company, such certificates of public officials and of officers, employees, and agents of the Company and such other agreements and documents as I have deemed necessary for the purpose of expressing the opinions herein. Though I have examined such matters of law as I deemed necessary for the purpose of expressing the opinions herein, please note that with respect to the opinion expressed in Paragraph 2 below and the incorporation of the term "applicable" therein, my opinion is limited to a review of only those laws and regulations that, based upon my review of the Credit Agreement as amended by the First Amendment (the "Amended Credit Agreement"), I have considered to be applicable to the transactions contemplated thereby. Also, for purposes of the opinion expressed in Paragraph 1 below as to the due qualification to transact business as a foreign corporation in certain jurisdictions, I have relied solely upon a review of a certificate of the Secretary of State (or other similar official) of each such jurisdiction. For purposes of my opinion expressed in Paragraph 2 hereof, I have not made any independent review or investigation of any agreements or instruments to which the Company 23 is bound, except I have reviewed or caused to be reviewed those agreements and instruments listed on Schedule I hereto (hereinafter referred to as "Material Agreements"), and such opinion is based upon the audited consolidated financial statements of the Company as at and for the year ended December 31, 1996, without giving effect to any borrowing under the Credit Agreement subsequent to such date. Schedule I sets forth all agreements and instruments entered into by the Company or any Restricted Subsidiary and deemed by the Company to be "material contracts" of the Company under item 601(b)(10)(i) and (ii) of Regulation S-K ("Regulation S-K") promulgated by the Securities and Exchange Commission (the "Commission") or otherwise entered into by the Company or any Restricted Subsidiary and filed by the Company with the Commission as an exhibit under Item 601(b)(4) of Regulation S-K. Furthermore, for purposes of my opinion expressed in Paragraph 3 hereof, I have not examined plaintiff or defendant indexes in any federal, state or other court or any other tribunal. During the course of all such examinations, I have assumed (i) the genuineness of all signatures other than those of the Company on the First Amendment and the Notes delivered by the Company on the date hereof, (ii) the authenticity of all documents submitted to me as originals, (iii) the conformity to the original documents of all documents submitted to me as certified, conformed, facsimile, or photographic copies, and (iv) that certificates and telephonic and telecopy confirmations given by public officials have been properly given and are accurate. I have further assumed, except where this opinion expressly addresses such matters as to the Company, (i) the power and authority of all parties to enter into the transactions contemplated by the Amended Credit Agreement and (ii) the due authorization and valid execution and delivery by such parties of the agreements and instruments necessary in connection with such transactions. Based upon and subject to the foregoing and subject to the qualifications set forth herein, I am of the opinion that: 1. The Company has the necessary corporate power to execute and deliver the First Amendment and the Notes issued pursuant thereto, to perform the Amended Credit Agreement and such Notes, and to borrow and request the issuance of Letters of Credit under the Amended Credit Agreement. Each of the Restricted Subsidiaries of the Company having a net worth in excess of $2,000,000 as at March 31, 1997 except for Alumax Recycling B.V., but including Alumax Engineered Metal Processes, Inc., Alumax Warehouse Corporation and Eastalco Aluminum Company (such Restricted Subsidiaries are listed on Schedule II hereto and are hereinafter referred to as the "Material Subsidiaries") is an entity duly incorporated or organized, as applicable, validly existing and in good standing under the laws of the respective jurisdiction indicated opposite its name in Schedule II hereto, to the extent such concepts are applicable and recognized in such jurisdictions. The Company is duly qualified to transact business in the States of California and Georgia and, to my knowledge, the Company is duly qualified to transact business in such other jurisdictions, and the Material Subsidiaries of the Company are duly qualified to transact business in all such jurisdictions, where the failure to qualify would have a Material Adverse Effect. -2- 24 2. The execution and delivery by the Company of the First Amendment and the Notes issued pursuant thereto, the performance by the Company of the Amended Credit Agreement and such Notes, and the borrowing and the requests for the issuance of Letters of Credit by the Company under the Amended Credit Agreement (i) do not and will not, to my knowledge, violate (a) any provision of applicable law or regulation or (b) any order or decree known to me by which the Company, any of its Restricted Subsidiaries or any of their respective Properties may be bound, which in either case (a) or (b) would result in a Material Adverse Effect; (ii) do not and will not violate any provision of the charter or by-laws of the Company or any of its Restricted Subsidiaries; and (iii) do not and will not result in the breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon any of the Properties, revenues, or assets of the Company or any of its Restricted Subsidiaries under any Material Agreement. 3. Except as to the matters disclosed in Section 4.10 of the Credit Agreement as modified in the manner set forth in the Closing Certificate delivered by the Company in connection with the First Amendment or reflected in the Company's filings with the Commission on Form 10-K for the year ended December 31, 1996 or its Form 10-Q for the quarter ended March 31, 1997, there are no legal or arbitral proceedings, and no proceedings by or before any governmental or regulatory authority or agency, pending or threatened against or affecting the Company, any of its Restricted Subsidiaries, or any of their respective Properties known to me the outcome of which I have reasonable cause to believe could be expected to have a Material Adverse Effect. This opinion is limited to the matters stated herein and no opinion is implied or may be inferred beyond the matters expressly stated. Opinions rendered herein are as of the date hereof, and I make no undertaking and expressly disclaim any duty to supplement such opinions if, after the date hereof, facts and circumstances come to my attention or changes in the law occur which could affect such opinions. In rendering the foregoing opinions, I am expressing no opinion as to matters of law other than the General Corporation Law of the State of Delaware and the federal laws of the United States of America. I am admitted to practice law only in the Commonwealth of Virginia and before certain federal courts. I am not licensed to practice law in the State of Georgia, the State of Delaware, or the State of New York. This opinion is rendered solely for the benefit of the Banks, the Administrative Agent, the Agent, their prospective or actual successors and assigns, and their legal advisors and accountants and only with respect to the transactions described herein. No further distribution or use of this opinion is authorized and this opinion may not be quoted in full or in part or otherwise referred to in any financial statements, nor may it be filed with or furnished to any governmental agency (other than those examining the Banks, the Agents, or -3 - 25 their successors and assigns) or other party without the prior written consent of the undersigned. Very truly yours, R.P. Wolf Enclosures: Schedule I Schedule II -4- 26 CONFORMED COPY EXHIBIT C CLOSING CERTIFICATE To the Financial Institutions Party to the First Amendment to Credit Agreement Referred to Below, Gentlemen: We refer to the First Amendment to Credit Agreement dated as of May 30, 1997 among the undersigned, and the financial institutions signatory thereto (the "First Amendment"). Capitalized terms used below without definition have the meanings ascribed to them in the First Amendment or the Credit Agreement as appropriate. The Company executes and delivers this certificate to you in connection with and as one of the inducements for the First Amendment becoming effective. The Company hereby certifies that each of the representations and warranties of the Company set forth in Section 4 of the Credit Agreement is true and correct as of the date hereof all as though made as of such date except that (i) the representations made in the second and third sentences of Sections 4.1 shall be deemed to refer to the form of Schedule II attached hereto and made a part hereof, (ii) the representations made in Section 4.2 shall be deemed to refer to the form of Schedule I attached hereto and made a part hereof, (iii) the representations contained in Sections 4.3 and 4.10 are amended to insert the date "December 31, 1996" for the date "December 31, 1994" wherever such latter date appears in such Sections, (iv) there is excluded from the representations contained in Section 4.5 any proceedings reflected in the Company's filings with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1996 or its Form 10-Q for the quarter ended March 31, 1997, (v) all references in Section 4 to the "Loan Documents" shall, in the case of the Credit Agreement as a Loan Document, be deemed to refer to the Credit Agreement as amended by the First Amendment and, in the case of the Notes as Loan Documents, be deemed to refer to the Notes to be held by the Banks on and after the Effective Date of the First Amendment, (vi) all references to the "date hereof" in Section 4 shall be deemed to be references to the date of this Certificate and (vii) all references therein to the sections referred to in the foregoing clauses (i) through (vi) shall be deemed to refer to such sections after giving effect to the modifications set forth in such clauses above 27 Dated as of the 30th day of May, 1997 ALUMAX INC. By ---------------------------- Its Treasurer -2- EX-10.01 3 AGREEMENT WITH SOUTH CAROLINA PSA 1 EXHIBIT 10.01 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE This Agreement made and entered in this 1st day of July 1997, by and between the South Carolina Public Service Authority, hereinafter referred to as "the Authority," and Alumax of South Carolina Inc., hereinafter referred to as the "Customer." WITNESSETH: That in consideration of the mutual covenants and agreements herein contained, the Authority and the Customer covenant and agree with each other as follows: 1. The Authority shall sell and deliver to the Customer, and the Customer shall purchase and receive from the Authority, the Customer's full requirements for electric service at the Delivery Point(s) specified in the respective Delivery Point Specification Sheets attached to this Service Agreement. Each such Delivery Point Specification Sheet shall, upon its execution, be a part of this Service Agreement, and shall include the service specifications for the provision of service at the corresponding Delivery Point. 2. A change in the service specifications at a Delivery Point shall require a new Delivery Point Specification Sheet to be executed to replace the previous Delivery Point Specification Sheet for that Delivery Point. 3. This Service Agreement adopts and incorporates by reference all of the provisions of the Authority's Large Light and Power Rate Schedule L-96 and all riders thereto (collectively, "Schedule L"), and its associated General Terms and Conditions, as such Schedule L and General Terms and Conditions may be changed from time to time. 4. The Customer shall pay the Authority monthly for electric service rendered hereunder pursuant to the applicable Rate Schedule and in accordance with the billing and payment provisions of Schedule L and the General Terms and Conditions. 5. This Service Agreement may not be assigned by either party without the prior written consent of the other party, provided, however, such consent shall not be unreasonably withheld. 6. If any provision of the Delivery Point Specification Sheet of this Service Agreement is inconsistent with any provision of any applicable rate schedule or associated riders, the provisions of the Delivery Point Specification Sheet shall prevail. 7. Subject to the provisions hereinbefore contained, this contract shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto. IN WITNESS WHEREOF, the Authority and the Customer have caused this Service Agreement for the Large Power Electric Service to be executed in duplicate in their names by their respective duly authorized officials, as of the day and year first above written. ATTEST: SOUTH CAROLINA PUBLIC SERVICE AUTHORITY BY: /s/ Deborah M. Shipley BY: /s/ P.G. Edwards --------------------------------- ------------------------------------ ATTEST: Alumax of South Carolina. Inc. (CUSTOMER) ---------------------------------------- BY: /s/ Virgie L. Horne BY: /s/ Paul G. Campbell, Jr. --------------------------------- ------------------------------------- 2 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE DELIVERY POINT SPECIFICATION SHEET 1. Electric Service Supplied to: ALUMAX OF SOUTH CAROLINA, INC. (the "Customer") 2. Delivery Point Information: (a) Name: Alumax of South Carolina, Inc., Mt. Holly Plant (b) Description: Point on Customer's property at which Customer's conductors connect with the secondary bushings of the Authority's 230 kV transformers. (c) Location: Goose Creek, South Carolina 3. Original Effective Date of Delivery Point: September 23, 1977 4. Effective Date of this Specification Sheet: July 1, 1997 5. Initial Contract Demand(s): (a) Firm Power Contract Demand: 158,000 kW (b) Supplemental Power Contract Demand: 142,000 kW (c) Interruptible Power Contract Demand: 40,000 kW (d) Off-Peak Power Contract Demand: 0 kW (e) Economy Power Contract Demand: 0 kW (f) Standby Power Contract Demand: 0 kW 6. Electric Service Supplied: 34.500 volts (nominal) 3 Phase 7. Metering Data: (a) Metered Voltage: 34.5 kV (b) Location: Low Voltage side of Authority's 230 kV Transformers (c) Compensation: None 8. Provisions for Special Facilities or Conditions: (a) Agreed Term Notwithstanding any provision of the Service Agreement or Schedule L to the contrary, neither party shall terminate the Service Agreement during the Agreed Term, which shall be the period extending from the Effective Date of this Delivery Point Specification Sheet through December 31, 2005. (b) Applicable Rate Schedules (1) Notwithstanding any provision of the Service Agreement or Schedule L to the contrary, the rates, terms and conditions applicable to the Customer during the Agreed Term shall be those set forth in the Authority's Large Light and Power Rate Schedule L-96 and its associated General Terms and Conditions, as adopted by the Authority on January 22, 1996, supplemented by Rider L-96-I thereto, the Authority's Fuel Adjustment Clause, FAG-96, and the Authority's Demand Sales Adjustment Clause, DSC-96, all as adopted by the Authority on January 22, 1996, and Rider L-97-SP, as adopted by the Authority on June 30, 1997, such that no changes to such Rate Schedule L-96, its associated General Terms and Conditions, Rider L-96-I, Rider L-97-SP, FAG-96, or DSC-96 shall be effective as to service to the Customer hereunder during the Agreed Term. 3 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE DELIVERY POINT SPECIFICATION SHEET 8. Provisions for Special Facilities or Conditions: (cont'd) (2) If this Agreement is not terminated at the end of the Agreed Term in the manner specified in Section 12 of Attachment A of Schedule L, such that the Authority continues to serve the Customer hereunder beyond the Agreed Term, the rates, terms and conditions applicable to the Customer hereunder after the Agreed Term shall be the Authority's then-applicable Schedule L and its associated General Terms and Conditions and applicable riders thereto. (3) Subject to Section 4(A)(2) of Schedule L and Section 9 of Attachment A to Schedule L, the Customer's Firm Billing Demand for each Billing Month of the Agreed Term shall be 100% of the Customer's then current Firm Contract Demand, notwithstanding the provisions of Section 4(A)(1) of Schedule L to the contrary. (c) Changes in Contract Demands (1) The Customer's Firm Power Contract Demand and Interruptible Power Contract Demand shall be subject to change by either party as specified in Schedule L and Rider L-96-I; provided, however, that, except as specifically set forth below, no such change shall be effective prior to the end of the Agreed Term: (a) Notwithstanding any provision of Rider L-96-I to the contrary, upon six (6) months' prior written notice to the Authority, the Customer shall have the right to increase its Interruptible Power Contract Demand to not more than 60,000 kW. (b) Notwithstanding any provision of Rider L-96-I and Rider L-97-SP to the contrary, on and after January 1, 2000, the Customer shall have the right to convert any portion of its then-current Interruptible Power Contract Demand to Supplemental Power Contract Demand upon twelve (12) months' prior written notice to the Authority. (2) The Customer's Supplemental Power Contract Demand shall be subject to change by either party as specified in Rider L-97-SP; provided, however, that no such change shall be effective prior to January 1, 2000. (d) Curtailments and Reductions of Supplemental Power Notwithstanding any provision of Rider L-97-SP to the contrary, the parties hereto agree that: (1) Each curtailment or reduction in the Customer's Supplemental Power Contract Demand by the Authority or the Customer pursuant to Section 4 of Rider L-97-SP shall be in an amount of either 100% or 50% of the Customer's then current Supplemental Power Contract (prior to giving effect to any prior such curtailment or reduction). (2) During the Agreed Term and prior to the date on which Retail Access (as hereinafter defined) becomes available to the Customer, the Authority shall not give any notice of curtailment pursuant to Section 4 of Schedule L-97-SP unless the Authority determines, in its sole judgement reasonably exercised, that the curtailment will reduce or eliminate a need for new generating capacity that would, but for the curtailment, be needed by the Authority in order for the Authority to have available generating capacity (including reserves) sufficient to provide adequate service to the Authority's firm retail and wholesale loads (including firm off-system sales existing as of the Effective Date), including such a need for new generating capacity caused by a lack of transmission capacity on an adjacent electric transmission system or at an interface with such a system. -2- 4 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE DELIVERY POINT SPECIFICATION SHEET 8. Provisions for Special Facilities or Conditions: (cont'd) (3) In the event that the Authority provides notice of a curtailment pursuant to Section 4 of Schedule L-97-SP, the price or prices to be quoted by the Authority pursuant to Section 4(B)(1) of Rider L-97-SP for the first twelve (12) months of the curtailment shall be the Authority's best reasonable estimate of the highest price that the Authority could reasonably expect to obtain by selling the entire quantity of curtailed power to another customer or customers, excluding the costs of transmission beyond the Authority's own transmission system and also excluding distribution costs. Such price or prices shall be based on sales that in the aggregate represent a block of power with the reasonably expected load factor of the curtailed power. (4) Notwithstanding any provision of Schedule L or Rider L-96-EP thereto to the contrary, in the event that the Authority provides notice of a curtailment pursuant to Section 4 of Schedule L-97-SP the Customer shall, by having given sixty (60) days' prior written notice to the Authority, be permitted to purchase Economy Power from the Authority under Rider L-96-EP, or any successor thereto which shall be effective at the time, to replace some or all of the power and energy that the Customer would have purchased as Supplemental Power under Rider L-97SP but for such curtailment by the Authority. Each such notice by the Customer shall set forth (i) the maximum amount of such Economy Power, in kW, the Customer desires to purchase from the Authority during the period of curtailment, which such maximum amount shall be deemed to be the Customer's Economy Power Contract Demand under Rider L-96-EP, or applicable successor thereto, during the period of the curtailment. In such event, the Customer's purchase and use of Economy Power, and the availability thereof, shall be fully subject to the provisions of such Rider L-96-EP, or applicable successor thereto. Any increase in Economy Power Contract Demands hereunder shall be only for the months in the Customer's request and notwithstanding any provision of Schedule L or the Rider L-96-EP, or the applicable successor thereto, to the contrary, the Customer's Economy Power Contract Demand for all other months shall not be increased as a result of such notice and such notice shall not cause the Customer to pay any increased reservation charge or any other increased billing charge for any months other than the months in the Customer's notice that would not have been payable absent such notice. (5) Notwithstanding any provision of Schedule L to the contrary, during the Agreed Term and prior to the date on which Retail Access (as hereinafter defined) becomes available to the Customer, in the event that the Authority provides notice of a curtailment pursuant to Section 4 of Schedule L-97-SP, the Customer may, by giving sixty (60) days' prior written notice to the Authority, reduce its Firm Power Contract Demand for the period of such curtailment by an amount equal to 15,000 kW for each 50% increment of curtailment called for by the Authority. In such event, the options available to the Customer for replacement of Supplemental Power hereunder and under Rider L-97-SP shall also be available to the Customer for replacement of the amount of Firm Power that the Customer otherwise would have purchased from the Authority as Firm Power under Schedule L but for such reduction. (6) If and to the extent that Retail Access (as defined herein) is available to the Customer, the Customer shall be permitted to obtain electric power and energy from one or more alternative sources to replace some or all of the power that the Customer otherwise would have purchased from the Authority as Supplemental Power under Rider L-97-SP but for curtailment by the Authority or reduction by the Customer pursuant to Section 4 of Rider L-97-SP; provided, however, that nothing herein shall relieve the Customer of any obligation(s) it may have to purchase and pay the Authority for transmission services (including related ancillary services) and any applicable stand-by services pursuant to then-effective rate schedules of the Authority for such services. In such event, it shall be the responsibility of the Customer to apply for and obtain all necessary transmission services (including related ancillary services) and any applicable stand-by services from the Authority in accordance with the rates, terms and conditions of then-effective rate schedules of the Authority for such services. Nothing herein shall be deemed to convey to the Customer any right to obtain such services that the Customer would not otherwise have in the absence of the Customer's Service Agreement. -3- 5 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE DELIVERY POINT SPECIFICATION SHEET 8. Provisions for Special Facilities or Conditions: (cont'd) (e) Credit for Prior Service Upon the Effective Date hereof, the costs of the Customer's purchases of Curtailable Supplemental Power from the Authority under Rider L-94-SP during the period beginning January 1, 1997, up to but not including such Effective Date shall be recalculated using the rates set forth in the Rider L-97-SP, and the Customer shall be provided a credit for the difference resulting from such recalculation, in equal monthly installments over the nine (9) months following such Effective Date. (f) Other Terms (1) Electrically Isolated Loads: Nothing herein is intended to prevent the Customer from serving any load or loads at its premises from other sources or suppliers, to the extent permitted by law, provided that (i) such load or loads are electrically separate from the load or loads served by the Authority, and (ii) any switching of loads from the Delivery Point to any other source or supplier shall not relieve the Customer of any of the billing provisions of Schedule L (including all applicable riders thereto) unless and until the Customer's contract demands are reduced as permitted hereunder and by the provisions of Schedule L (including all applicable riders thereto). (2) Transmission Planning: Notwithstanding any provision hereof or Schedule L to the contrary, the Authority shall use its reasonable best efforts, consistent with good utility practice, to plan and construct such transmission facilities as may be reasonably necessary to serve the Customer's electric power and energy requirements at the Delivery Point, up to the then-current levels of the Customer's contract demands under Schedule L and various riders thereto from the Authority's own generation facilities and points of interconnection with other electric transmission systems where the Authority plans to take deliveries of purchased power. (3) Retail Access: As used herein, "Retail Access" shall mean the right of the Customer to purchase power from a supplier other than the Authority and have the Authority deliver such power to the Delivery Point using the Authority's transmission and/or distribution facilities, such right being established after the adoption of Rider L-97-SP by (i) legislation by the State of South Carolina or the United States, or by (ii) a policy voluntarily adopted by the Authority to allow such Retail Access to all of its Large Light and Power customers. Notwithstanding the foregoing, for purposes hereof, Retail Access shall be deemed to be unavailable prior to January 1, 2000. The adoption of Rider L-97-SP by the Authority shall not be deemed to be a voluntary grant of Retail Access by the Authority. (4) Stranded Costs: The parties hereto recognize and agree that the issue of electric industry deregulation and particularly "stranded costs" (as that term is defined and recognized generally in the industry) may eventually be addressed and resolved by the Congress of the United States, the South Carolina General Assembly or other legislative or regulatory body, and that such resolution may take any number of forms and include varying rights and obligations which the parties, as of the Effective Date, cannot reasonably determine. Therefore, the parties expressly state that nothing herein is intended by the parties as a waiver of any right, remedy or argument that a party may have with respect to any electric industry deregulation issue, including stranded costs. (5) Guaranty: Alumax, Inc., the Customer's parent corporation, shall execute a written guaranty which absolutely and unconditionally guarantees the full and timely discharge of all obligations of the Customer under this Service Agreement. The execution of such guaranty is a condition precedent to the Authority supplying service to the Customer hereunder. (6) Prior Agreements: As of its Effective Date, this Service Agreement shall replace and supersede all pre-existing agreements between the Authority and the Customer. -4- 6 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY SERVICE AGREEMENT FOR LARGE POWER ELECTRIC SERVICE DELIVERY POINT SPECIFICATION SHEET 8. Provisions for Special Facilities or Conditions: (cont'd) IN WITNESS WHEREOF, the Authority and the Customer have each caused this Delivery Point Specification Sheet, which is to be incorporated into the Service Agreement for Large Power Electric Service, dated July 1, 1997, to be executed in their names by their respective duly authorized officials on this 1st day of July, 1997 ATTEST: SOUTH CAROLINA PUBLIC SERVICE AUTHORITY BY: Deborah M. Shipley BY: P.G. Edwards ------------------------------- ------------------------------------- ATTEST: Alumax of South Carolina. Inc. (CUSTOMER) ---------------------------------------- BY: Virgie L. Horne BY: Paul G. Campbell Jr. ------------------------------- ------------------------------------- -5- 7 L-96 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY (SANTEE COOPER) LARGE LIGHT AND POWER SCHEDULE L-96 Section 1. Availability: (A) Service hereunder is available at Delivery Points on or near the transmission facilities of the Authority at which the Customer has a potential demand for electric service of at least 1,000 kW; provided, however, that service hereunder shall not be available for service to large, highly fluctuating or otherwise unusual loads without the agreement of the Authority. (B) Subject to the terms of this Rate Schedule and the General Terms and Conditions of Large Power Electric Service (hereinafter, "General Terms and Conditions") attached hereto as Attachment A and made a part hereof, service hereunder is available, at individual Delivery Points each satisfying the requirements of the foregoing paragraph, to (i) industrial, commercial, and governmental Customers of the Authority, and (ii) municipal and cooperative wholesale Customers of the Authority for service, at each such Delivery Point, to an industrial, commercial, or governmental customer of such wholesale customer. (C) Except as may be otherwise provided in the Standby Service Rider L-96-SB, this Rate Schedule is not available for breakdown, standby, supplementary, or auxiliary service, and service hereunder shall not be used in parallel with other sources of electric power. Except with respect to service to municipal and cooperative Customers of the Authority, as provided in the foregoing paragraph, service hereunder shall not be sold for resale or exchange or shared with others. (D) Prior to the provision of service hereunder at one or more Delivery Points, the Customer shall be required to enter into an Agreement for Large Power Electric Service (hereinafter, "Service Agreement") of the form prescribed in the General Terms and Conditions which may be modified by the Authority from time to time. Section 2. Character of Service: (A) Electric power and energy delivered hereunder shall be unregulated, three-phase alternating current, at a frequency of approximately 60 Hertz, at one of the Authority's standard nominal voltages of 480 volts or higher. Separate supplies for the same Customer at different locations and/or at different voltages shall be considered separate Delivery Points. Multiple Delivery Points shall be separately metered and billed. Only one transformation will be provided hereunder from the available transmission voltage. (B) "Firm Power," as used herein, shall refer to electric power and energy purchased by the Customer hereunder, other than electric power and energy purchased by the Customer pursuant to an applicable rider or riders hereto. Section 3. Monthly Rates and Charges: (A) Monthly Customer Charge: A monthly charge for each Delivery Point of..............$1,200.00. (B) Charges for Standard Firm Power Service: The monthly charges for Firm Power hereunder shall include the following charges: -1- 8 L-96 (1) Monthly Demand Charge: (a) Base Demand Charge: For the first 300 kW or less of Finn Billing Demand........................ $3,228.00. All Additional kW of Firm Billing Demand @................................. $ 10.76. (b) Transformation Discount: Whenever the Customer takes delivery at available transmission voltage (69 kV or greater) and provides the necessary transformation from the available transmission voltage, the foregoing Base Monthly Demand Charge shall be reduced by $0.50/kW. (c) Excess Demand Charge: For each kW of the Customer's Measured Demand that is classified as Excess Demand, a charge, in addition to the Base Demand Charge, of $6.00/kW. (d) Excess Reactive Demand Charge: Each kVAr of Excess Reactive Demand @....................................... $ 0.44/kVar. (e) Demand Sales Adjustment: For each kW of Firm Billing Demand, a credit or charge, if any, determined from time to time pursuant to the Authority's Demand Sales Adjustment Clause DSC-96, or its currency applicable successor clause, if any. (2) Energy Charge: (a) Base Energy Charge: All kWh @.................................................................. $ 0.0219/kWh. (b) Fuel Adjustment Charge: For each kWh, the charge per kWh determined for the month pursuant to the Authority's Fuel Adjustment Clause FAC-96, or its currently applicable successor clause, if any, with "F(b)/S(b)" and "K" of the formula in said clause being equal to $0.0169/kWh and .085, respectively.
-2- 9 L-96 (C) Charges Under Applicable Riders: The monthly charges hereunder shall include the charges for services provided the Customer under any and all applicable riders hereto. (D) Monthly Facilities Charges: In the event service to the Customer requires the Authority to provide facilities in addition to, or different from, facilities normally provided by the Authority, and the Authority provides such facilities, the Customer also shall pay the Authority a Monthly Facilities Charge, in addition to all other charges hereunder. Such Monthly Facilities Charge shall be equal to 1.4% of the original installed cost of such facilities. (E) Minimum Monthly Bill: The minimum monthly bill shall consist of the sum of (i) the Monthly Customer Charge, (ii) the Monthly Facilities Charge, if any, (iii) the Monthly Demand Charge for Firm Power Service, and (iv) the minimum monthly charges, if any, determined pursuant to any applicable rider or riders under which the Customer also receives service from the Authority. (F) Taxes and Other Assessments: Amounts for "payments in lieu of taxes", as prescribed by the Code of Laws of South Carolina ss.58-31-80, ss.58-31-90, and ss.58-31-100, as amended, have been included in the establishment of the foregoing monthly rates and charges. The total monthly billing amount hereunder also shall be subject to all other taxes, payments in lieu of taxes, franchise fees, assessments, and surcharges imposed by any governmental authority. In addition, South Carolina Sales Tax, if any, will be added to each bill unless the Customer has furnished the Authority evidence of specific exemption secured by the Customer from the South Carolina Tax Commission or its successor. Section 4. Determination of Demands: (A) Firm Billing Demand: (1) The Firm Billing Demand for each Billing Month shall be the greater of (i) that portion of the Customer's Measured Demand for such Billing Month not served under any applicable rider or riders hereto pursuant to which the Customer also receives service, (ii) eighty percent (80%) of the Firm Contract Demand for such Billing Month, or (iii) if the Customer receives Firm Power only, then the Customer's Firm Billing Demand shall not be less than 1,000 kW. (2) In the event that, during any Billing Month, the provision of service by the Authority hereunder is interrupted for a period of four (4) or more consecutive hours as a result of an occurrence of one of the circumstances set forth in Section 9(A) of the General Terms and Conditions, the Finn Billing Demand for such Billing Month will be reduced by the proportion which the number of hours of such interruption bears to the total number of hours in the Billing Month. (B) Measured Demand: Subject to the applicable provisions, if any, of any rider or riders hereto pursuant to which the Customer also receives service, the Measured Demand for each Billing Month shall be the maximum 30-minute integrated kW demand of the customer during such Billing Month; provided, however, that if the Customer's load is unbalanced between phases by more than ten percent (10%), the Authority, at its sole option, may (i) require the Customer, at the Customer's expense, to make the changes necessary to correct such condition, and/or (ii) assume that the load on each phase is equal to the greatest load on any phase. -3- 10 L-96 (C) Firm Contract Demand: (1) Except as otherwise provided herein, the Firm Contract Demand applicable to each Delivery Point during each Billing Month shall be the maximum amount of Firm Power, in kilowatts, that the Customer shall have requested and the Authority shall have agreed to supply during such Billing Month, as evidenced in the Delivery Point Specification Sheet for the Delivery Point that is attached to, and made a part of, the Service Agreement between the Customer and the Authority. During the first twelve (12) months of service to a new Delivery Point, the Authority, at its sole option, may agree to adjust the Customer's Firm Contract Demand on a month-to-month basis and/or to forego the application of the Section 4 (D) hereinbelow, in order to allow the Customer and the Authority an adequate build-up or phase-in of operations; provided, however, that the Authority reserves the right to condition such agreement on such additional terms and conditions as the Authority deems appropriate for the circumstances. (2) Except as otherwise provided herein or in the General Terms and Conditions, the Customer may reduce its Firm Contract Demand for a Delivery Point, for any twelve month period and subsequent twelve month period(s), to not less than 300 kW by providing prior written notice of such reduction to the Authority at least one year prior to the beginning of the first period to which the notice applies; provided, however, that (i) no such reduction shall become effective before the fifth anniversary of service to the Delivery Point, and provided further that (ii) the greatest amounts of such reductions shall be as follows: (a) For the first twelve month period to which such notice applies, the maximum reduction shall be the greater of 5,000 kW or 25% of the Firm Contract Demand for such year. (b) For the second succeeding twelve month period, the maximum reduction shall be the greater of 10,000 KW or 50% of the Firm Contract Demand for such year. (c) For the third succeeding twelve month period, the maximum reduction shall be the greater of 15,000 kW or 75% of the Firm Contract Demand for such year. (d) For the fourth and subsequent twelve month period(s), the maximum reduction shall be 100% of the respective Firm Contract Demand(s) for such years. Notices of such reductions in the Customer's Firm Contract Demand shall be irrevocable once given. (3) The Customer's Firm Contract Demand, once established or reduced, may be increased only (i) pursuant to the terms of this Rate Schedule or applicable rider(s) hereto under which the Customer also receives service, or (ii) by mutual agreement between the Authority and the Customer evidenced by the execution of a new, revised Delivery Point Specification Sheet for the Delivery Point to which the increase is to apply. The Authority shall be under no obligation to agree to any such increase but shall give good faith consideration to each such request. In such an event, the Authority may require additional, special terms and conditions applicable to service to the Customer to be included in the aforementioned new Delivery Point Specification Sheet. (4) Notwithstanding any other provisions hereof, in no event shall the Customer's Firm Contract Demand be less than the amount, if any, by which the sum of the Customer's then current contract demands under all applicable riders hereto is less than 1,000 kW. -4- 11 L-96 (D) Excess Demand: (1) The Customer's Excess Demand for each Billing Month shall be that portion of the Customer's Measured Demand for such Billing Month, if any, that exceeds the sum of (i) the Customer's then current Firm Contract Demand hereunder and, where applicable, (ii) the Customers' Billing Demand(s), if any, under any applicable rider or riders to which the Customer also receives service from the Authority. (2) Notwithstanding the foregoing or any other provision of this Rate Schedule or the General Terms and Conditions to the contrary, in the event that (i) the Customer's rate of use of electricity at a Delivery Point exceeds the sum of (a) the Customer's then current Firm Contract Demand hereunder and, where applicable, (b) the Customer's then current Contract Demand(s), if any, under applicable riders hereto, and (ii) the Customer fails to comply promptly with a request by the Authority to reduce such rate of use so as not to exceed such aggregate Contract Demand, the Customer's Firm Contract Demand(s) for such Delivery Point for the current and subsequent Billing Months, shall at the Authority's sole option, be increased, from what it otherwise would have been, by the amount of such excess. In addition, in such event, the Customer shall be liable for any damage to the Authority's facilities caused by such excess. (3) Notwithstanding the foregoing or any other provision of this Rate Schedule or the General Terms and Conditions, the Authority shall be under no obligation whatsoever to supply demands in excess of the Customer's aggregate Contract Demand(s), and nothing herein shall be construed as restricting the right of the Authority to take such steps as the Authority may deem necessary, including without limitation complete interruption of service to the Customer, to limit the Customer's demand so as not to exceed the Customer's aggregate Contract Demands. (E) Excess Reactive Demand: The Customer's Excess Reactive Demand for each Billing Month shall be the amount, if any, by which the Customer's maximum 30 minute integrated reactive demand, in kilovars (kVAR), during such Billing Month exceeds 48.5% of the Customer's Measured Demand, in kilowatts (kW), for such Billing Month. Section 5. Additional Terms and Conditions: Service under this Rate Schedule, including service under all applicable riders hereto, is subject to the then currently efective General Terms and Conditions and the Service Agreement between the Customer and the Authority. Adopted January 22, 1996 --------------------------------------------------- Effective for service rendered on and after April 1, 1996. Supersedes: Schedule L-95, Effective April 1, 1995 -5- 12 Rate Schedule L-96 Attachment A SOUTH CAROLINA PUBLIC SERVICE AUTHORITY (SANTEE COOPER) General Terms and Conditions of Large Power Electric Service SECTION 1. CONTRACT FOR SERVICE (A) As a condition precedent to the Authority supplying electric service under the Authority's Large Light and Power Rate Schedule L-96 and/or any and all riders thereto (collectively, "Schedule L"), to which these General Terms and Conditions are attached and made a part of, the Customer shall execute a Service Agreement in the form hereinafter provided as Exhibit I hereto. When executed by the Customer and the Authority, such Service Agreement, together with Schedule L, these General Terms and Conditions, and applicable notices of Contract Demands accepted by the Authority, shall constitute the entire contract for service between the Authority and the Customer. (B) In the event of any conflict between these General Terms and Conditions and the provisions of the Service Agreement or Schedule L, the provisions of the Service Agreement or Schedule L shall govern. (C) Nothing contained in any and all parts of Schedule L, the Service Agreement, and these General Terms and Conditions, shall be construed as affecting in any way the right of the Authority to make changes to any and all parts of such documents as provided by law. (D) A separate Delivery Point Specification Sheet, in the form hereinafter provided as Exhibit II hereto, shall be prepared and executed by the Authority and the Customer for each Delivery Point at which the Customer is to receive service. Each such Delivery Point Specification Sheet, shall be deemed to be attached to, and made a part of, the Service Agreement between the Customer and the Authority. (E) As used herein, "Delivery Point" refers to the point or points at which the electrical conductors (including bus bars) of the Authority are connected to the electrical conductors of the Customer or, in the case of service hereunder to a municipal or cooperative wholesale Customer of the Authority, to the conductors of that Customer or a retail customer of wholesale Customer. The Authority shall normally provide one three-phase service at a single voltage at each Delivery Point. Separate supplies for the same Customer at different locations and/or at different voltages shall be considered separate Delivery Points. Multiple Delivery Points shall be separately metered and billed. SECTION 2. CONDITIONS OF SERVICE (A) The Authority's agreement to provide electric service on the date specified for electric service to each Delivery Point, subject to proper written notice as set forth in the applicable Rate Schedule, is contingent upon the Authority's ability to acquire, at a sufficient time prior to the date for commencement of such service, the necessary State and Federal approvals and the necessary rights of way and equipment for providing such electric service. -1- 13 Rate Schedule L-96 Attachment A (B) With respect to facilities installed by the Authority to provide electric service to the Customer, the Authority reserves the right to use any available capacity of such facilities not needed for such service to supply other customers of the Authority. SECTION 3. ELECTRIC SERVICE PROVIDED (A) The Authority will provide electric service to Customer in the form of unregulated, three-phase alternating current at a frequency of approximately 60 Hertz. (B) The Authority will provide electric service pursuant to the provisions of Schedule L at the nominal voltage desired by Customer provided such voltage is generally available in the area in which the electric service is desired. For Delivery Points existing on the date these General Terms and Conditions become effective, the nominal voltage supplied shall be the Authority's present nominal delivery voltage at such Delivery Points. (C) The Authority will provide electric service for each Delivery Point at the nominal voltage specified in the Exhibit II to the Service Agreement for the Delivery Point, unless the Authority notifies the Customer in writing that the voltage will be changed to a specified higher or lower voltage in accordance with usual utility practices. In such cases, the Customer at the Customer's own expense will design, engineer, install, construct or modify, operate, and maintain facilities to such higher or lower voltage. SECTION 4. MONTHLY BILLING AND PAYMENT (A) The Authority shall render to the Customer, after the end of each Billing Month, a bill setting forth the charges, as specified in Schedule L, for such Billing Month. "Billing Month" refers to a period between successive meter readings, which shall normally be once per month. (B) All bills shall be on a net basis, and each such bill shall be due and payable in good funds at the office of the Authority in Moncks Corner, South Carolina, or at such other place as the Authority may designate, within ten (10) days after the date on which the bill is mailed or otherwise rendered. If payment is not received within twenty-five (25) days after the date the bill is mailed or otherwise rendered, the amount of the bill shall be increased on the next bill rendered and on subsequent bills rendered each month thereafter until paid by the larger of one hundred dollars ($100.00), or two percent (2%) of the amount then outstanding including late payment charges. If payment is not made within thirty (30) days are the bill is mailed or otherwise rendered, the Authority may discontinue service until all past due bills are paid in full. Discontinuance of the service shall not relieve the Customer of any liability for the agreed Minimum Monthly Bill(s) for the period(s) of time service is so discontinued. SECTION 5. METERING AND MEASUREMENT (A) Power and energy shall be metered by the Authority at, or as if at, each Delivery Point. (B) Not less frequently than once each year, the Authority shall make periodic tests and inspections of meters installed by it. At the request of the Customer, the Authority shall make additional tests or inspections. Readings of metering instruments found to be in error by more than two percent (2%) either fast or slow will be corrected and credits or debits made to the Customer's account accordingly. Such correction shall apply for a period of not more than thirty (30) days prior to the date of test unless a longer period of inaccuracy can be definitely determined. The Customer shall pay all costs resulting from additional tests requested by the Customer if tests show meters to be accurate within two percent (2%). -2- 14 Rate Schedule L-96 Attachment A SECTION 6. USE OF SERVICE (A) Power shall be used in such manner as will not cause objectionable voltage fluctuations or other electrical disturbances on the Authority's system. If such fluctuations and disturbances become objectionable, the Authority may require the Customer, at the Customer's own expense, to install appropriate corrective equipment. (B) The Service Agreement shall not be assigned by the Customer without approval in writing by the Authority. Service hereunder is exclusively for use by the Customer, and is not to be resold or shared with others. In consideration of the terms of the Service Agreement and these General Terms and Conditions, and in recognition of the fact that the supplying of power and energy from more than one source to the Customer's Facilities may adversely affect safety and the Authority's operations, the Customer agrees not to accept electrical service for said plant operations from any source other than the Authority during the terms of the Service Agreement. SECTION 7. NEW DELIVERY POINTS (A) To establish a new Delivery Point, the Customer must execute with the Authority a new Delivery Point Specification Sheet for the new Delivery Point prior to the date upon which the new Delivery Point is to be placed in service. Such new Delivery Point Specification Sheet shall be attached to, and made a part of, the Service Agreement and shall include any special provisions required for the establishment of the new Delivery Point. The execution of such Delivery Point Specification Sheet shall be a condition precedent to the Authority's supplying electric service to the Delivery Point. (B) The Authority shall not be obligated to establish any new Delivery Point if it is reasonably determined by the Authority that, consistent with Prudent Utility Practice, the new Delivery Point is not necessary or appropriate for the delivery of power to serve load on the Customer's system. (C) The Authority shall not be obligated to establish any new Delivery Point if after exercising due diligence the Authority cannot obtain all necessary State and Federal approvals, rights-of-way, and equipment. The Customer shall support all State and Federal filings that the Authority deems necessary (i) for supplying capacity and energy to the new Delivery Point, (ii) for the construction and permitting of the new Delivery Point, and (iii) such other facilities as the Authority deems necessary for the new Delivery Point. (D) The Customer or potential Customer requesting the establishment of a new Delivery Point shall submit a detailed written request to the Authority specifying the requirements of such Delivery Point. (E) Except as otherwise provided herein, the Customer is responsible for the installation, operation and maintenance of all necessary poles, lines, substations, transformers, switches, protective equipment, and other equipment (except the Authority's metering equipment) necessary for the establishment of a new Delivery Point, and for all facility rearrangements on the Customer's side of such Delivery Point that are required for the establishment thereof. (F) Substantial and/or material modifications to an existing Delivery Point shall be deemed to constitute the termination of such Delivery Point and the establishment of a new Delivery Point. -3- 15 Rate Schedule L-96 Attachment A SECTION 8. DELIVERY POINTS AND OTHER FACILITIES (A) The service specifications for each Delivery Point shall be as prescribed in the corresponding Delivery Point Specification Sheet. (B) For each Delivery Point, the Customer shall provide, free of cost to the Authority, a suitable site on the premises for the installation by the Authority of equipment for rendering service hereunder. The Customer shall also provide for the safekeeping of this equipment and shall not permit anyone other than authorized employees and agents of the Customer and employees and agents of the Authority to have access thereto. (C) The Customer hereby grants to the Authority for the entire term of this contract, free of cost, the right to construct, operate and maintain on property owned, leased or controlled by the Customer, a poles, conductors, appurtenances and equipment whatsoever reasonably necessary or desirable for supplying service hereunder to each Delivery Point. The Authority shall also have a rights of access to said property reasonably necessary or desirable for the aforesaid purposes and the right to remove all or any portion of the Authority's property at any time during the term of this contract or within a reasonable time thereafter. All property, structures and facilities erected by the Authority on property of the Customer are recognized and agreed by the parties to be removable trade fixtures, which shall be and remain personal property of the Authority whether affixed to the realty or not. (D) Employees of the Authority shall be allowed access to the service installation site at all reasonable hours for the purpose of reading the metering instruments, inspecting the property of the Authority, removing such property, and for other purposes incident to the supplying of service to the Customer. (E) All electrical facilities used or constructed by the Customer must conform to accepted modern practice and to applicable state and local requirements and must conform to the requirements of the National Electrical Safety Code and National Electrical Code. (F) All facilities on the Customer's side of each Delivery Point shall be considered the system of the Customer, shall be paid for by the Customer, and shall be installed, operated, and maintained by the Customer at the Customer's expense; provided, that (i) the Authority's metering equipment, if any, located on the Customer's side of a Delivery Point will be owned, installed, operated, and maintained by the Authority; and (ii) the Authority shall have the right, at the Authority's option, to install and/or maintain such other facilities on Customer's side of a Delivery Point as the Authority may elect in the interests of system reliability. (G) The Customer shall not utilize, or allow to be utilized, any equipment, appliance, or device that tends to unreasonably adversely affect the system of the Authority. The Customer shall maintain a reasonable electrical balance between the phases at each Delivery Point. (H) The Customer shall install and maintain suitable protective devices on the Customer's system in order to afford reasonably adequate protection to the facilities of the Authority against adverse conditions or disturbances originating on Customer's system. Such protective devices shall be in accordance with the applicable industry standards relating to such equipment and with such other requirements as the Authority may reasonably deem necessary. -4 - 16 Rate Schedule L-96 Attachment A (I) The Authority shall install, own, operate, and maintain all lines and equipment located on the Authority's side of each Delivery Point, as well as the meter and metering equipment and, if applicable, any backup meter and metering equipment that may, at the Authority's option, be located on Customer's side of each Delivery Point. In such cases, Customer shall provide a location, acceptable to the Authority, for the installation of such metering equipment. (J) In the event that the Customer requests the Authority to supply electricity in a manner requiring facilities in addition to or different from those normally provided by the Authority, the Authority will provide such facilities on the Authority's side of the Delivery Point, if practical to do so, provided the following conditions are met and a new Delivery Point Specification Sheet for such Delivery Point is executed to reflect these conditions: 1) The Customer requesting the facilities shall submit a detailed written request to the Authority specifying the type and kind of facilities; 2) The facilities are of a kind and type used by, or acceptable to, the Authority and are, installed in a place and in a manner acceptable to the Authority; and 3) The Customer agrees, in the Delivery Point Specification Sheet for the subject Delivery Point, to pay to the Authority the cost of the facilities prior to their installation or, at the Authority's sole option, appropriate Monthly Facilities Charges in lieu thereof, in addition to the other charges recoverable under Schedule L. (K) In the event that the Customer's contract demand(s) under Schedule L (including any applicable riders thereto) is (are) reduced, nothing herein shall be construed as restricting the right of the Authority to change or reduce accordingly the capacity of the Authority's facilities serving the Customer. (L) The Delivery Point Specification Sheet for each Delivery Point shall set forth appropriate provisions concerning the installation and maintenance of the Delivery Point and shall provide for adequate compensation to the Authority on termination of the Delivery Point by the Customer. SECTION 9. INTERRUPTION OF SERVICE (A) The Authority win make reasonable provisions to ensure satisfactory and continuous service but does not guarantee a continuous supply of electrical energy and shall not be liable for damage occasioned by interruptions of service or failure to commence delivery caused by an act of God, or the public enemy, or for any cause reasonably beyond the Authority's control, including, but not limited to, the failure or breakdown of generating or transmitting facilities, floods, fire, strikes or action or order of any agency having jurisdiction over the premises, or for interruptions that the Authority deems necessary for the inspection of, repair to, or changes to the Authority's facilities. (B) Nothing herein shall be construed as restricting in any way the Authority's right to interrupt service to the Customer as the Authority may deem necessary or appropriate to facilitate inspection of, repair to, or changes to the Authority's facilities consistent with Prudent Utility Practice; provided, however, that the Authority shall use its reasonable best efforts, when practicable, to provide the Customer with advance notice of such interruptions and to coordinate with the Customer the times of such interruptions. In any event, failure of the Authority and the Customer to agree upon the time of such an interruption shall not restrict the Authority from proceeding therewith as the Authority deems necessary. -5- 17 Rate Schedule L-96 Attachment A (C) The Customer shall provide written notification the Authority immediately of any defects, trouble or accident which may in any way affect the delivery of power by the Authority to the Customer. (D) Notwithstanding any provisions of Schedule L to the contrary, the Customer shall not be liable for any charges under this Schedule for any period during which he is unable to accept electric service due to strikes, fire, floods, or act of God or the public enemy. (E) Both the Customer and the Authority shall use all due diligence in removing any causes which prevent the delivery or use of electrical power and energy hereunder. (F) Any claims against the Authority resulting from an interruption of service shall be governed by the terms, conditions and limitations of the South Carolina Tort Claims Act, and any recovery in such claim shall not include indirect or consequential damages. SECTION 10. INDEMNITY All electrical power and energy provided for hereunder shall be the property of the Customer upon passing the Delivery Point(s) and the Customer shall have sole responsibility for the use, misuse or presence of said power and energy on the Customer's side of the Delivery Point(s). The Customer will indemnify and hold the Authority harmless from all claims, loss or expense arising from, or in any way connected with, the presence, use or misuse of electrical power and energy on the Customer's side of the Delivery Point(s). SECTION 11. DETERMINATION OF CONTRACT DEMANDS The maximum amount, or amounts, of electric power and energy that the Authority agrees to sell, and that the Customer agrees to purchase at each Delivery Point (the Customer's "Contract Demand(s)") initially shall be set forth in the Delivery Point Specification Sheet for such Delivery Point. The initial establishment of, and subsequent changes to, such Contract Demand(s) shall be made only pursuant to the applicable provisions of Schedule L; provided, however, that the Authority reserves the right to require, for any Customer or potential Customer having a load of greater than 100,000 kW, notice requirements for changes in that Customer's Contract Demands(s) longer than those set forth in Schedule L. SECTION 12. TERM OF CONTRACT (A) The Service Agreement, terminating on its effective date all prior agreements between the parties, shall become effective on the date specified therein, and shall remain in effect for an initial term of five (5) years, and thereafter for additional terms of two (2) years such, unless terminated by written notice of such intention from either party to the other at least one (1) year prior to the expiration date of the initial term or subsequent term; provided, however, that in no event shall the Service Agreement expire prior to (i) the expiration of the initial term as outlined above, or (ii) the reduction of the Customer's Contract Demand(s) to zero in the manner or manners specified in Schedule L. Nothing herein contained shall in any way bar the right of the Authority to collect any sums due it at the termination of the prior agreements. -6- 18 Rate Schedule L-96 Attachment A If the Customer discontinues operations prior to the expiration of the initial term of the Service Agreement, or any subsequent term, or defaults under this Service Agreement in any respect and the Authority terminates the Service Agreement as a result of such default, the Customer agrees to pay to the Authority, on demand, a sum equal to the cumulative total of the Minimum Monthly Bills, as determined under Schedule L, for the remainder of the term of the Service Agreement, or any subsequent term. (B) "Contract Year shall" be a twelve-month period beginning on the earlier of (i) the anniversary of the date service is initiated or (ii) the anniversary of the effective date of the Service Agreement. (C) Schedule L and these General Terms and Conditions may be amended or revised by the Authority from time to time, in whole or in part, to reflect changed conditions, and when so amended or revised shall become effective as to all customers receiving service hereunder. SECTION 13. WAIVER Any failure at any time by the Authority or the Customer to enforce a provision of Schedule L, these General Terms and Conditions, or the Service Agreement, shall not constitute a waiver by such party of said provision. SECTION 14. OTHER CONTRACTS (A) Notwithstanding any other provision of Schedule L or these General Terms and Conditions to the contrary, an existing contract between the Authority and a Customer for the provision of service to such Customer pursuant to the Authority's Large Light and Power Rate Schedule that is in effect on the effective date of these General Terms and Conditions shall continue in full force and effect until its expiration. Such existing contract shall be deemed to constitute the Service Agreement between the Customer and the Authority hereunder until its expiration. ln the event any provision of these General Terms and Conditions or Schedule L conflicts with a provision of such existing contract, the provision of the contract shall prevail. (B) Upon the expiration of an existing contract between a Customer and the Authority, as described in the foregoing paragraph, continued service to such Customer shall be wholly subject to Schedule L and these Terms and Conditions. (C) The establishment of a new Delivery Point, or the substantial modification of an existing Delivery Point, for a Customer having an existing contract, as described in the foregoing two paragraphs, shall require the termination of such existing contract and the execution of a new Service Agreement of the form specified in Exhibit I hereto. (D) The terms and conditions of service to a Customer at a Delivery Point or Delivery Points under any rate schedule(s) or contract(s) other than Schedule L shall be unaffected by the terms of Schedule L and these General Terms and Conditions and shall be governed solely by the terms of such other rate schedule(s) or contract(s). The terms and conditions and service to each Delivery Point pursuant to Schedule L shall be governed solely by the provisions of Schedule L and these General Terms and Conditions and shall be unaffected by service, if any, to a Delivery Point or Delivery Points under any other rate schedule(s) or contract(s) between the Customer and the Authority. -7- 19 Rate Schedule L-96 Attachment A (E) Acceptance of service under Schedule L without the benefit of an executed Service Agreement or another formal, written contract between the Customer and the Authority will bind the Customer to all terms and conditions of Schedule L and these General Terms and Conditions the same as if a formal written contract had been executed. In such event, all obligations hereunder shall begin on the date of such acceptance of service and shall continue for an initial term of five (5) years and thereafter for additional terms of two (2) years each, unless and until terminated at the end of such initial term or any additional term by no less than one (1) year's advance written notice of termination from either party to the other. Adopted January 22, 1996 ----------------------------------------- Effective for service rendered on and after April 1, 1996. Supersedes: Schedule L-95, Attachment A, Effective April 1, 1995 -8- 20 L-97-SP SOUTH CAROLINA PUBLIC SERVICE AUTHORITY (SANTEE COOPER) LARGE LIGHT AND POWER CURTAILABLE SUPPLEMENTAL POWER RIDER L-97-SP ------------------------------ SECTION 1. AVAILABILITY: Service hereunder, "Supplemental Power Service," shall be available to those customers meeting the availability requirements of the Authority's Large Light and Power Rate Schedule ("Schedule L"), to which this Rider is attached and made a part of; provided, however, that in order to receive service hereunder, each such customer (hereinafter, the "Customer") shall have (i) requirements for service hereunder of at least 10,000 kW, and (ii) a Firm Power Contract Demand that is at least 30,000 kW and at least twenty-five percent (25%) of the sum of all of that Customer's contract demands under Schedule L. In addition, service hereunder shall be available only upon prior written agreement between the Authority and the Customer. The total amount of additional Supplemental Power available to all customers of the Authority changes from time to time; the Authority will, prior to January 1 of each year, determine such total additional amount to be available during that year and allocate such amount to individual customers on a first-come, first-served basis. SECTION 2. CHARACTER OF SERVICE: (A) Supplemental Power Service hereunder shall be electric power and energy of the same general characteristics as described in the Authority's Large Power and Light Rate Schedule which (i) are in excess of the Customer's Firm Contract Demand and (ii) are curtailable by the Authority and the Customer in accordance with the provisions of this Rider L-97-SP. (B) Subject to the provisions of Section 4 hereof, the Authority shall undertake to serve the Customers Supplemental Power requirements, up to the then-current level of the Customer's Supplemental Power Contract Demand, with the same level of reliability it provides to its other non-interruptible customers. In no event, however, shall the Authority have any obligation whatsoever to supply power and energy in an amount exceeding the sum of the Customer's then-current Firm Contract Demand pursuant to the Authority's Large Light and Power Rate Schedule, the Customer's contract demands under other applicable riders thereto, if any, and the Customers' Supplemental Power Contract Demand. If, at any time, the Customer allows its total load to exceed the sum of such contract demands, the Authority shall have the right, at the Authority's sole discretion, to either (a) serve such excess and, pursuant to Section 5 hereof, charge the Customer for such service under the Authority's then-applicable Large Light and Power Rate Schedule, or (b) take whatever steps as may be reasonably necessary, including discontinuing all service to the Customer, to effect a reduction in service to the Customer to a level not exceeding such sum of the Customer's contract demands. SECTION 3. MONTHLY BILLING RATES: The charges for service hereunder shall consist of the following: (A) Demand Charge: The monthly Demand Charge for Supplemental Power Service shall be calculated by multiplying the Customer's then-current Supplemental Power Billing Demand by the then-applicable Monthly Supplemental Power Demand Rate, to wit: (1) Prior to January 1, 2000: $5.60 per kilowatt of the Customer's Supplemental Power Billing Demand -1- 21 L-97-SP (2) For the period beginning January 1, 2000 and extending until the Authority modifies such rate: $3.00 per kilowatt of the Customer's Supplemental Power Billing Demand (B) Energy Charge: The monthly Energy Charge for Supplemental Power Service shall be calculated by multiplying the total amount of kilowatt-hours of Supplemental Power delivered to the Customer during the current Billing Month by the Monthly Supplemental Power Energy Rate for such mouth. The Monthly Supplemental Power Energy Rate for a month shall be the sum of (i) the Authority's Average Monthly Fossil Fuel Cost Rate, as hereinafter defined, and (ii) a Non-Fuel Energy Rate of 0.228 cents/kWh. The Authority's Average Monthly Fossil Fuel Cost Rate for each month shall be determined by the following formula: F = 100 * (Fm/Gm) * (l(l-K)) * (l/(l-L)) where: F = Average Monthly Fossil Fuel Cost Rate in cents per kilowatt-hour, rounded to the nearest one-thousandth of a cent. Fm = the Authority's total dollar fossil fuel cost for the current month, which shall be equal to the sum of: (a) the cost of fossil fuel burned or used in the Authority's own plants and the Authority's share of fossil fuel burned or used in jointly owned or leased plants as such costs are recorded in Accounts 501, 509, and 547; plus (b) the net energy cost of energy purchases, exclusive of capacity or demand charges (irrespective of the designation assigned to such transaction), when such energy is purchased on an economic dispatch basis. Included therein may be such costs as the charges or economy energy purchases and the charges as a result of scheduled outages, all such kinds of energy being purchased by the Authority to substitute for its own higher cost energy; plus (c) the actual identifiable fossil fuel costs associated with energy purchased for reasons other than identified in (b) above; less (d) the cost of fossil fuel recovered through inter-system sales including, without limitation, the fuel cost related to economy energy sales and other energy sold on an economic dispatch basis. Gm = the Authority's fossil net generation, in kilowatt-hours, for the current month, which shall be equated to the sum of: (a) the net generation of the Authority's own fossil-fueled plants and the Authority's shares of jointly owned or leased fossil-fueled plants; plus (b) interchange in; plus (c) the fossil-generated energy purchased by the Authority other than interchange; less -2- 22 L-97-SP (d) the net fossil-fueled generation associated with enter-system sales refereed to Fm(d) above. K = the Authority's allowance for capital improvements, which, for purposes of this Rider, shall be eight and one-half percent (8.5%), expressed as a decimal fraction. L = the Authority's allowance for transmission and distribution system losses applicable to service to the Customer, expressed as a decimal fraction. (C) Other Costs: The Customer shall also pay the Authority monthly for such other costs as the Customer is responsible in accordance with the provisions of Section 4 hereof. SECTION 4. SUPPLEMENTAL POWER CONTRACT DEMAND: (A) General The Customer's Supplemental Power Contact Demand shall be the maximum amount of Supplemental Power, in kilowatts, which the Customer has requested and the Authority has agreed to supply. The Customer's Supplemental Power Contract Demand initially shall be specified in the Customer's Service Agreement and, thereafter, may be changed from time to time in accordance with the provisions of this Section 4. (B) Curtailment by Authority (1) The Authority shall, upon not less than six months' prior written notice to the Customer, have the right to interrupt or call for curtailment of either all or a portion of the Customer's use of Supplemental Power Service, either permanently or for a period of not less than twelve (12) months in duration. Any such notice of curtailment by the Authority hereunder shall set forth the amount and time period of the curtailment and shall also set forth a price or prices at which the Authority would be willing to continue serving the Customer hereunder in lieu of the noticed curtailment. (2) In the event that the Authority shall have given such a notice of curtailment to the Customer: (a) The Customer's Supplemental Power Contract Demand shall, during the period of the noticed curtailment, be deemed to be reduced to the level set forth in Authority's notice, which may be zero. (b) The Authority may extend the period of a curtailment in increments of at least one month, in each case by giving the Customer at least six months' prior written notice; provided, however, that such extensions in the aggregate shall not extend the originally noticed period of curtailment by more than six months. (c) Notwithstanding any provision of Schedule L to the contrary, the Customer shall have the right, within the time periods specified in this subparagraph, to request that the Customer's Firm Power Contract Demand under Schedule L be increased, during the period of curtailment, by an amount up to the amount of curtailment called for by the Authority hereunder, in order that some or all of the power and energy that the Customer would have purchased hereunder as Supplemental Power but for the curtailment instead be purchased from the Authority as Firm Power under Schedule L. The time by which such a request must be given shall be sixty (60) days from receipt by the Customer of the Authority's notice; provided, however, that in no event shall such request be required to be given more than twenty-two (22) calendar months' prior to the beginning of the noticed curtailment period. -3 - 23 Any increase in Firm Power Contract Demands hereunder shall be only for the months in the Customer's request and notwithstanding any provision of Schedule L to the contrary, the Customer's Firm Power Contract Demand for all other months shall not be increased as a result of such notice and such notice shall not cause the Customer to pay any increased demand charge or any other increased billing charge for any months other than the months in the Customer's notice that would not have been payable absent such notice. (d) By providing prior written notice to the Authority within sixty (60) days of receiving the Authority's notice of curtailment, the Customer may elect to purchase replacement power from the Authority to replace some or all of the Supplemental Power that the Customer otherwise would have purchased from the Authority hereunder but for the noticed curtailment elect to continue purchasing Supplemental Power and pay for such replacement power at the aforementioned alternative price or prices set forth in the Authority's notice during the period of the curtailment. Each such notice by the Customer shall set forth (i) the maximum amount of such replacement power, in kW the Customer desires to purchase from the Authority during the period of curtailment,and (ii) the Customer's agreement to pay for such replacement power at the aforementioned alternative price or prices set forth in the Authority's notice of the curtailment. (e) By providing prior written notice to the Authority within sixty (60) days of receiving the Authority's notice of curtailment, the Customer my elect to have the Authority purchase for the Customer's account replacement power from another source selected by the Customer and deliver such replacement power to the Customer over the Authority's transmission system, provided that (i) sufficient transmission capacity is available and (ii) the terms and conditions of such purchase are not unreasonable to the Authority. Each such notice by the Customer shall set forth (i) the maximum amount of such replacement power, in kW, the Customer to purchase during the period of curtailment, and (ii) the Customer's agreement to pay the Authority for (a) all costs of purchasing such replacement power, and (b) any applicable charges for associated transmission services (including ancillary services) and any applicable stand-by services pursuant to then-effective rate schedules of the Authority for such services. (f) The Customer may replace some or all of the Supplemental Power that the Customer otherwise would have purchased from the Authority hereunder but for the noticed curtailment with generation located on the Customer's side of the Delivery Point; provided, however, that such generation shall not be operated electrically in parallel with the Authority's system except in accordance with the applicable provisions of Schedule L. (g) Notwithstanding the foregoing, in no event shall the Authority be required to deliver to the Customer at any time an amount of replacement power hereunder that exceeds amount of the reduction in the Customer's Supplemental Power Contract Demand. (C) Curtailment and Increase by Customer (1) Upon not less than six months' prior written notice to the Authority, the Customer shall be able to reduce or increase its Supplemental Power Contract Demand by any amount, either permanently or for a period of not less than twelve (12) months in duration; provided, however, that no such increase in the Customer's Supplemental Power Contract Demand shall become effective without the Authority's approval, which approval shall not be unreasonably withheld. -4- 24 (2) In the event that the Customer shall have given a notice for such a reduction: (a) The Customer's Supplemental Power Contract Demand shall, during the period of the noticed reduction, be deemed to be reduced to the level set forth in Customer's notice, which may be zero. (b) The Customer may extend the noticed period of reduction in Supplemental Contract Demand in increments of at least one month, in each case by giving the Authority at least six months' prior written notice; provided, however, that such extensions in the aggregate shall not extend the originally noticed period of reduction by more than six months. (c) The Customer may replace the power that the Customer otherwise would have purchased from the Authority hereunder but for the noticed reduction by the Customer in the Customer's Supplemental Power Contract Demand through generation located on the Customer's side of the Delivery Point; provided, however, that such generation shall not be operated electrically in parallel with the Authority's system except in accordance with the applicable provisions of Schedule L. SECTION 5. SUPPLEMENTAL POWER BILLING DEMAND: (A) The Customer's Supplemental Power Billing Demand hereunder shall be equal to the Customer's Supplemental Power Contract Demand. (B) In the event the Customer's Measured Demand exceeds the sum of the Customer's Firm Contract Demand pursuant to the Large Light and Power Rate Schedule, the Customer's contract demands under other applicable riders thereto, if any, and the Customer's Supplemental Power Billing Demand hereunder, such excess shall be treated as "Excess Demand" in accordance with Section 14 (Additional Loads) of the Large Light and Power Rate Schedule. SECTION 6. OTHER TERMS AND CONDITIONS: (A) This Rider L-97-SP may be amended or revised by the Authority from time to time, in whole or in part, to reflect changed conditions, and when so amended or revised shall become effective as to all customers receiving service hereunder. (B) Except as otherwise provided in this Rider, service hereunder shall be subject to all terms and conditions of the then-applicable Large Light and Power Rate Schedule. Adopted June 30, 1997 ----------------------------------- Effective for bills rendered on and after July 1, 1997. -5- 25 EXHIBIT 10.01 L-96-1 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY (SANTEE COOPER) LARGE LIGHT AND POWER INTERRUPTIBLE SERVICE RIDER L-96-l Section 1. Availability: (A) Service hereunder, "Interruptible Power", is available to Customers meeting the availability requirements of the Authority's Large Light and Power Rate Schedule L-96 or its successor (hereinafter, "Schedule L"), to which this Rider L-96-l is attached and made a part of. In addition, service hereunder shall be available only to specified Delivery Points upon a prior written agreement between the Authority and the Customer with respect to each such Delivery Point, in the form of an appropriate Delivery Point Specification Sheet attached to the Service Agreement between the Customer and the Authority. (B) In order to receive service under this Rider L-96-l, the sum of the Customer's Contract Demands under this Rider L-96-l plus the Customer's Firm Contract Demand must equal or exceed 1,000 kW. (C) The total amount of Interruptible Power available to all customers changes from time to time and the availability of such power hereunder is strictly subject to the provisions of this Rider L-96-l, including, without limitation, Section 4(B)(4) hereinbelow. Section 2. Character of Service: (A) Interruptible Power hereunder shall be electrical power and energy of the same general characteristics as described in Schedule L that (i) is in excess of Firm Power purchased by the Customer under Schedule L and Supplemental Power, if any, purchased by the Customer under Rider L-94-SP, and (ii) is interruptible or curtailable by the Authority in accordance with the following terms of this Rider. (B) The Authority shall have the right, at any time or times and for any reason or reasons, to interrupt or call for curtailment of all or part of the Interruptible Power, provided that the total aggregate duration of such interruptions or curtailments shall not exceed 400 hours, nor occur in more than 60 days, in any calendar year and, provided further, that the number of such interruptions or curtailments shall not exceed two (2) in any calendar day nor aggregate more than twelve (12) hours in any calendar day or forty-eight (48) hours in any calendar week (Monday through Sunday). The Authority shall from time to time establish operational guidelines which state the conditions/circumstances under which calls for curtailment may be made. Such operational guidelines shall be published, and available for review, at the Authority's offices. (C) When the Authority wishes to interrupt or curtail the Customer's Interruptible Power as provided herein, the Authority shall give notice thereof to the Customer by telephone or by such other means as the Authority may from time to time designate. Each such notice shall specify a demand level, which may be zero, to which the Customer's use of Interruptible Power is to be limited and the time period (hereinafter, a "Curtailment Period") to which such limitation is to apply. After receiving such a notice, the Customer shall, except as otherwise provided herein, limit the Customer's use of Interruptible Power during the Curtailment Period to which the notice applies, to the level specified by the Authority. Each such notice shall be deemed received by the Customer if the Authority shall have issued or attempted to issue that notice. -1- 26 L-96-1 (D) The Authority will give as much advance notice as practicable of probable curtailments and, whenever possible, a notice of at least two and one-half (2 1/2) hours. The final scheduling of curtailments by the Authority will be postponed as long as practicable in order to minimize their occurrence and duration. Each notice issued by the Authority may be withdrawn or modified prior to the beginning of the potential Curtailment Period to which it applies. Such withdrawal or modifications shall be issued to the Customer by the same means as the original notices. Notices, if and to the extent so modified, shall be deemed to establish final Curtailment Periods and demand limitations. Notices withdrawn prior to the beginning of their respective Curtailment Period shall be without any further force or effect. The Authority shall confirm final notices of curtailment by subsequent letter to the Customer as soon as reasonably practicable after the end of the respective Curtailment Periods. (E) After a notice of curtailment shall have been issued by the Authority, the Customer shall have the right to exceed the demand limitation set forth in the notice if, and only if, (i) the Customer makes a request to do so prior to the beginning of the Curtailment Period to which the notice applies and the Authority, in its sole judgement, determines that it can supply the requested excess, and (ii) the Customer agrees to pay for such excess at the price(s) quoted by the Authority in response to such request. The Authority shall designate in writing from time to time a representative to whom such requests should be directed, and the Customer shall designate in writing from time to time a representative of the Customer who is authorized to make such requests and issue such agreements. Requests that are granted and the corresponding agreements to pay the quoted prices shall be confirmed in writing by the Authority as soon as is reasonably practicable after the corresponding Curtailment Periods have ended. Electrical power and energy purchased by the Customer pursuant to this paragraph shall be classified as "Secondary Power." (F) All power and energy used by the Customer during a Curtailment Period in excess of the demand limitation set forth in the Authority's notice for such Curtailment Period that is not classified as Secondary Power shall be classified as Excess Power; provided, however, that the Authority shall be under no obligation whatsoever to furnish such Excess Power. Section 3. Monthly Rates and Charges: For all Interruptible Power provided hereunder, the monthly charge shall consist of the following charges: (A) Interruptible Power: For all services provided hereunder other than Secondary Power and Excess Power: (1) Monthly Demand Charge: (a) All kW of Interruptible Billing Demand @....$6.89/kW. (b) For each kW of Interruptible Billing Demand, a charge or credit, if any, determined from time to time pursuant to the Authority's Demand Sales Adjustment Clause DSC-96, or its currently applicable successor clause, if any. -2 - 27 L-96-1 (2) Monthly Energy Charge: (a) Base Energy Charge: All kWh @................................$0.0219/kWh. (b) Fuel Adjustment Charge: For each kWh the charge or credit per kWh determined for the month pursuant to the Authority's Fuel Adjustment Clause FAC-96, or its successor clause, with "F(b)/S(b)" and "K" of the formula in said clause being equal to $0.0169/kWh and .085, respectively. (B) Secondary Power: The price for Secondary Power used by the Customer in each Curtailment Period shall be the price quoted by the Authority for such power and energy as hereinabove described. Each such quotation shall be based on the Authority's reasonable best estimate of its incremental costs of supplying such Secondary Power, plus a margin of 15%. Such costs may include both demand-related costs and energy-related costs. (C) Excess Power: The price for Excess Power used by the Customer in each Curtailment Period shall be 200% of the Authority's reasonable best estimate of its incremental cost (including opportunity costs) of supplying such Excess Power. Such incremental costs may include both demand-related and energy-related costs. In addition, whenever the Customer shall have used Excess Power during a Curtailment Period, the provisions of Section 4(C) below shall apply. Section 4. Determination of Demands: (A) Interruptible Billing Demand The Customer's Interruptible Billing Demand for each Billing Month shall be the amount, if any, by which the Customer's Measured Demand for such month, determined pursuant to Section 4(B) of Schedule L, exceeds the sum of (i) the Customer's then-current Firm Contract Demand, under Schedule L, (ii) the Customer's then-current Supplemental Power Contract Demand, if any, under Rider L-94-SP, and (iii) the Customer's Off-Peak Power Billing Demand, if any, under Rider L-96-OP; provided, however, that in no event shall such Interruptible Billing Demand be (i) less than 80% of the Customer's then current Interruptible Contract Demand, nor (ii) greater than the Customer's Interruptible Contract Demand. (B) Interruptible Contract Demand (1) Except as otherwise provided herein, the Customer's Interruptible Contract Demand shall be the maximum amount of Interruptible Power, in kilowatts, that the Customer has requested and the Authority has agreed to supply, as evidenced in the Delivery Point Specification Sheet for which the Delivery Point that is attached to, and a part of, the Service Agreement between the Customer and the Authority. -3- 28 L-96-l (2) The Customer may reduce its Interruptible Contract Demand for a Delivery Point, for any twelve month period and subsequent twelve month periods, by providing prior written notice of such reduction to the Authority at least one year prior to the beginning of the first period to which the notice applies; provided, however, that (i) no such reduction shall become effective before the fifth anniversary of the Service Agreement between the Customer and the Authority, and provided further that (ii) the greatest amounts of such reductions shall be as follows: (a) For the first twelve month period to which such notice applies, the maximum reduction shall be the greater of 5,000 kW or 25% of the Interruptible Contract Demand for such year. (b) For the second succeeding twelve month period, the maximum reduction shall be the greater of 10,000 kW or 50% of the Interruptible Contract Demand for such year. (c) For the third succeeding twelve month period, the maximum reduction shall be the greater of 15,000 kW or 75% of the Interruptible Contract Demand for such year. (d) For the fourth and subsequent twelve month periods,the maximum reduction shall be 100% of the respective Interruptible Contract Demand(s) for such years. Notices of such reductions in the Customer's Interruptible Contract Demand shall be irrevocable once given. (3) The Customer's Interruptible Contract Demand, once established or reduced, may be increased only by mutual agreement between the Authority and the Customer evidenced by the execution of a new, revised Delivery Point Specification Sheet for the Delivery Point to which the increase is to apply. The Authority shall be under no obligation to agree to any such increase but shall give good faith consideration to each such request. In such an event, the Authority may require additional special terms and conditions applicable to service to the Customer be included in the aforementioned new Delivery Point Specification Sheet. (4) The total amount of Interruptible Power available for sale to all customers changes from time to time. In initially determining the amount of Interruptible Power, if any, to provide a Customer and/or in determining the amount, if any, by which a Customer's Interruptible Contract Demand may be increased, the Authority shall take into account the total amount of such Interruptible Power it reasonably expects to be available and its prior commitments for sales of such power. If, and to the extent that, the Authority thus determines it can make additional Interruptible Power available to new Customers and to existing Customers, the Authority shall do so on a first-come, first-served basis. (C) Excess Demands (1) In the event the Customer's use of service during any Curtailment Period exceeds the demand level established by the Authority for such Curtailment Period, the Customer's Interruptible Contract Demand shall be reduced, and the Customer's Firm Contract Demand shall be increased, by the greatest 30-minute integrated demand of such excess. In such event, such reduction and such increase each shall apply for the current Billing Month and the subsequent eleven (11) Billing Months. -4- 29 L-96-I (2) Notwithstanding the foregoing or any other provision of this Rider L-96-I, Schedule L, or the General Terms and Conditions attached thereto, the Authority shall be under no obligation whatsoever to supply demands in excess of the demand level established by the Authority during a Curtailment Period, and nothing herein shall be construed as restricting the right of the Authority to take such steps as the Authority may deem necessary, including without limitation complete interruption of service to the Customer, to limit the Customer's demand so as not to exceed such demand level. Section 5. Other Terms and Conditions: Service under this Rider L-96-I, is subject to the terms of the currently effective Schedule L, the currently effective General Terms and Conditions attached thereto, and the Service Agreement between the Customer and the Authority. Adopted January 22, 1996 -------------------------------------------------- Effective for service rendered on and after April 1, 1996. Supersedes: Schedule L-95-I, Effective April 1, 1995 -5- 30 FAC-96 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY (SANTEE COOPER) FUEL ADJUSTMENT CLAUSE FAC-96 Applicability: This Fuel Adjustment Clause is applicable to and becomes a part of each of the Authority's published rate schedules that so specify. Adjustment of Bills: Each monthly bill, computed under the appropriate rate schedule, will be increased or decreased by an amount equal to the result of multiplying the measured or used kWh by the factor F, determined as follows: F = ( F(m)/S(m) - F(b)/S(b) ) x ( 1 / 1-K ) Where: 1. F = Adjustment factor in dollars per kWh rounded to the nearest one-thousandth of a cent. 2. F(m) = Total fuel cost for the three preceding months, consisting of the costs of: a. fossil and nuclear fuel consumed in the Authority's own plants and the Authority's share of fossil and nuclear fuel consumed in jointly owned or leased plants, plus b. the actual identifiable fossil and nuclear fuel costs associated with energy purchased for reasons other than identified in (c) below, plus c. the net energy cost of energy purchases, exclusive of capacity or demand charges (irrespective of the designation assigned to such transaction), when such energy is purchased on an economic dispatch basis. Included therein may be such costs as the charges for economy energy purchases and the charges as a result of scheduled outage, all such kinds of energy being purchased by the Authority to substitute for its own higher cost energy; and less d. the cost of fossil and nuclear fuel recovered through inter-system sales and non-firm intra-system sales (Economy Power, Secondary Power, Curtailable Supplemental Power), including the fuel costs recovered through economy energy sales and other energy sold on an economic dispatch basis. 3. S(m)= kWh sales which shall be equated for the three preceding months to the sum of (i) generation, (ii) purchases, (iii) interchange in, less (iv) energy associated with pumped storage operations, less (v) sales referred to in F(m) (d) above, less (vi) average annual power supply transmission losses in decimal form times the net sum of (i), (ii), (iii), (iv), and (v) in this definition of S(m). -1- 31 FAC-96 4. F(b)/S(b) = $0.0169 Where: a. F(b) = Total estimated fuel cost in the base period. b. S(b) = Total estimated kWh sales for the base period. 5. K = Allowance for capital improvements and distribution losses, as set forth in each rate schedule to which this Clause applies. Adopted January 22, 1996 --------------------------------------------------- Effective for service rendered on and after April 1, 1996. Supersedes: Schedule FAC-94, Effective April 1, 1994 -2- 32 DSC-96 SOUTH CAROLINA PUBLIC SERVICE AUTHORITY (SANTEE COOPER) DEMAND SALES ADJUSTMENT CLAUSE (DSC-96) Section 1. Purpose: The purpose of this Clause is to credit the Authority's firm- requirements customers with appropriate shares of the demand-related or capacity-related revenues, if any, obtained by the Authority through Non-Class Sales, to the extent that such sales may not be reflected in the currently effective rates for such firm-requirements customers. As used herein, "Non-Class Sales" consist of (i) off-system, inter-utility sales, and (ii) non-firm, non-requirements, on-system sales (such as sales of Interruptible Power, Off-Peak Power, Standby Power, and Supplemental Curtailable Power pursuant to the Authority's Large Light & Power Rate Schedule and the currently effective riders thereto). Section 2. Applicability: The Demand Sales Adjustment Clause is applicable, to and becomes a part of, all of the Authority's published rate schedules that so specify. Section 3. Adjustment of Bills: Each customer's current monthly bill, as computed under the appropriate rate schedule, will be decreased (or, when applicable, increased) by an amount equal to the result of multiplying (i) the appropriate rate "D" (as defined below), times (ii) either (a) in the case of each Large Light & Power ("Industrial") customer, that customer's current Firm Billing Demand, or (b) in the case of each Municipal Light & Power ("Municipal") customer, that customer's current Billing Demand, or (c) in the case of each other type of customer ("Distribution Service" customers), the total billed kWh of energy for the period to which the bill applies. The rate D shall, for each respective customer class, be determined as follows: D = (R(m) - R(b)) / B(m) Where: D = The adjustment rate factor, in dollars per kW for Industrial and Municipal customers and in dollars per kWh for Distribution Service customers, in each case, rounded to the nearest one-thousandth of a cent. R(m) = The total revenues from Non-Class Sales for the preceding month allocated to the customer class (Industrial, Municipal, or Distribution Service), based on the projected average twelve-month class coincident peak demand contributions for the current calendar year, as set forth in the Authority's then most recently adopted load forecast. R(b) = The allocated revenues from Non-Class Sales, reflected in the currently effective rate(s) for the customer, which shall, for purposes of this Clause, be the following amounts: (1) For Industrial customers: $306,200 per month beginning April 1, 1996. -1- 33 DSC-96 (2) For Municipal customers: $26,000 per month beginning April 1, 1996. (3) For Distribution Service customers: $470,100 per month beginning April 1, 1996. B(m) = The projected total billing units for the customer class to which the adjustment rate factor, D, is to apply, for the current month, in kW for Industrial and Municipal customer classes and in kWh for Distribution Service customer classes. Adopted January 22, 1996 --------------------------------------------------- Effective for service rendered on and after April 1, 1996. Supersedes: Schedule DSC-94, Effective April 1, 1994 -2- EX-10.02 4 ELECTRIC SERVICE AGREEMENT 1 EXHIBIT 10.02 ELECTRIC SERVICE AGREEMENT BETWEEN EASTALCO ALUMINUM COMPANY AND THE POTOMAC EDISON COMPANY --------------------------------- DATED NOVEMBER 11, 1994 2 ELECTRIC SERVICE AGREEMENT TABLE OF CONTENTS 1. DEFINITIONS ......................................................... 1 2. TERM OF AGREEMENT..................................................... 1 3. SALE AND PRICE OF SYSTEM CAPACITY..................................... 2 3.1. SALE OF SYSTEM CAPACITY ......................................... 2 3.2. PRICE OF SYSTEM CAPACITY ........................................ 2 3.2.1. CAPACITY CHARGE .......................................... 2 3.2.2. BILLING CAPACITY ......................................... 2 3.3. REACTIVE KILOVOLT-AMPERE CHARGE ................................. 3 3.4. UNDERMODULATION CHARGE .......................................... 4 3.4.1. DETERMINATION OF UNDERMODULATION CHARGE .................. 4 3.4.2. DETERMINATION OF LOAD MODULATION ......................... 4 3.4.3. BILLING OF UNDERMODULATION CHARGE ........................ 4 4. SALE AND PRICE OF ENERGY ............................................. 4 4.1. SALE OF CONTRACT ENERGY ......................................... 4 4.2. SYSTEM ENERGY ................................................... 4 4.2.1. DEFINITION OF SYSTEM ENERGY .............................. 4 4.2.2. PRICE OF SYSTEM ENERGY ................................... 5 4.2.3. OTHER ENERGY RATE COMPONENTS ............................. 5 4.3. PRICE OF OFF-SYSTEM ENERGY ...................................... 6 4.4. PROFIT SHARING SURCHARGE ........................................ 6 4.4.1. PROFIT SHARING RATE ...................................... 6 4.4.2. MAXIMUM PROFIT SHARING RATE .............................. 6 4.4.3. LOWER TRIGGER PRICE ...................................... 6 4.4.4. UPPER TRIGGER PRICE ...................................... 7 5. MINIMUM LOAD CHARGE .................................................. 7 6. SALE OF IDLE CAPACITY ................................................ 8 7. LOAD REDUCTION PERIOD ................................................ 8 7.1. DEFINITION OF LOAD REDUCTION PERIOD ............................. 8 7.2. NOTICE OF REDUCE LOAD ........................................... 9 7.3 OBLIGATION TO MINIMIZE AND CANCEL LOAD REDUCTION PERIOD ......... 9 8. POTENTIAL PEAK HOURS ................................................. 9 8.1. DEFINITION OF POTENTIAL PEAK HOURS .............................. 9 8.2. NOTICE OF POTENTIAL PEAK HOURS .................................. 10 8.3. LOAD MODULATION ................................................. 10 9. EMERGENCIES .......................................................... 10 9.1. GENERAL EMERGENCIES .................................................. 10 9.1.1. EMERGENCY OPERATIONS .......................................... 10 9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY ................ 11 9.1.3. OBLIGATIONS OF POTOMAC UNDER GENERAL EMERGENCIES .............. 11 9.1.4. RESTORATION TO NORMAL OPERATIONS .............................. 11
3 9.2. FIRM LOAD EMERGENCY ........................................... 11 9.2.1. DEFINITION OF FIRM LOAD EMERGENCY ...................... 11 9.2.2. DESIGNATION OF FIRM LOAD EMERGENCY ..................... 12 9.2.3. OBLIGATION TO LIMIT OR CANCEL FIRM LOAD EMERGENCIES .... 12 9.2.4. NOTICE TO REDUCE PURCHASES OF SYSTEM CAPACITY AND SYSTEM ENERGY ................................................. 12 10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD EMERGENCIES .. 12 10.1. OBLIGATION OF POTOMAC ......................................... 12 10.2. PRICING ....................................................... 13 10.3. INSUFFICIENT POWER ............................................ 13 11. BILLING ............................................................. 13 11.1. INVOICES AND PAYMENT .......................................... 13 11.2. LETTER OF CREDIT .............................................. 14 11.2.1. TERMS OF LETTER OF CREDIT ............................. 14 11.2.2. PAYMENT OF BILLS ...................................... 14 11.3. LATE PAYMENT CHARGES .......................................... 14 11.3.1. LATE PAYMENTS ......................................... 14 12. FORCE MAJEURE ....................................................... 15 12.1. DEFINITION OF FORCE MAJEURE EVENT ............................. 15 12.2. EXCUSE FROM PERFORMANCE ....................................... 15 12.3. NOTICE OF FORCE MAJEURE ....................................... 15 12.4. ELIMINATION OF FORCE MAJEURE .................................. 15 12.5. EXEMPTION DURING FORCE MAJEURE ................................ 15 12.5.1. GENERAL EXEMPTION ..................................... 15 12.5.2. EXEMPTION FOR COAL STRIKE ............................. 16 12.6. ALTERNATIVE POWER DURING FORCE MAJEURE ........................ 16 13. PROVISIONS RELATING TO SERVICE ...................................... 17 13.1. METERING ...................................................... 17 13.1.1. METERING EQUIPMENT .................................... 17 13.1.2. TESTING OF METERS ..................................... 17 13.1.3. INACCURATE METERING ................................... 17 13.2. FACILITIES AND EQUIPMENT ...................................... 18 13.3. OWNERSHIP OF FACILITIES AND RIGHT OF REMOVAL .................. 18 13.3.1. OWNERSHIP OF FACILITIES ............................... 18 13.3.2. RIGHT OF REMOVAL ...................................... 18 13.4. RIGHTS OF WAY ................................................. 18 13.5. ENTRY OF PREMISES ............................................. 18 13.6. ELECTRICAL REQUIREMENTS ....................................... 19 13.6.1. ELECTRICAL DISTURBANCES ............................... 19 13.6.2. POWER FACTOR .......................................... 19 13.7. RESALE OF POWER ............................................... 19 14. MISCELLANEOUS ....................................................... 19 14.1. JURISDICTION OF REGULATORY AUTHORITIES ........................ 19 14.2. INDEMNIFICATION ............................................... 19 14.2.1. LIABILITY OF THE PARTIES .............................. 19 14.2.2. INDEMNIFICATION BY EASTALCO ........................... 19
4 14.2.3. INDEMNIFICATION BY POTOMAC ........................... 20 14.2.4. ATTORNEY'S FEES ...................................... 20 14.2.5. CONSEQUENTIAL DAMAGES ................................ 20 14.3. TERMINATION .................................................. 20 14.3.1. TERMINATION BY EASTALCO .............................. 20 14.3.2. TERMINATION BY POTOMAC ............................... 21 14.4. ASSIGNMENT ................................................... 21 14.5. AMENDMENT .................................................... 21 14.6. ENTIRE AGREEMENT ............................................. 21 14.7. INTERPRETATION ............................................... 22 14.8. GOVERNING LAW ................................................ 22 14.9. NOTICES ...................................................... 22 14.10. SEVERABILITY ................................................. 22 14.11. CONSTRUCTION ................................................. 23 14.12. WAIVER ....................................................... 23 14.13. THIRD PARTY BENEFICIARIES .................................... 23 14.14. COOPERATION OF THE PARTIES ................................... 23 14.15. APPLICATION FOR CHANGE IN RATES .............................. 23 15. DEFINITIONS ......................................................... 23 15.1. "Actual Cost" ................................................ 24 15.2. "Additional Capacity" ........................................ 24 15.3. "Additional Capacity Charge" ................................. 24 15.4. "Allegheny" .................................................. 24 15.5. "Allegheny System" ........................................... 24 15.6. "Alumax" ..................................................... 24 15.7. "Aluminum Price" ............................................. 24 15.8. "Annual Aluminum Price" ...................................... 24 15.9. "Bank" ....................................................... 24 15.10. "Base Energy" ................................................ 24 15.11. "Base Energy Charge" ......................................... 24 15.12. "Bath County Surcharge" ...................................... 24 15.13. "Billing Capacity ............................................ 25 15.14. "Billing Period" ............................................. 25 15.15. "CAA" and "CAAA" ............................................. 25 15.16. "Capacity Charge" ............................................ 25 15.17. "Capacity Revenues" .......................................... 25 15.18. "Contract Energy" ............................................ 25 15.19. "Effective Cost of Power" .................................... 25 15.20. "Effective Date" ............................................. 25 15.21. "Escalated" .................................................. 25 15.22. "Failure of Service" ......................................... 26 15.23. "Firm Load Emergency" ........................................ 26 15.24. "Force Majeure Event" ........................................ 26 15.25. "General Emergency" .......................................... 26 15.26. "Incremental Energy" ......................................... 26 15.27. "Incremental Energy Charge" .................................. 26 15.28. "Load Modulation" ............................................ 26 15.29. "Load Reduction Period" ...................................... 26 15.30. "Lower Trigger Price" ........................................ 26 15.31. "Material Modification" ...................................... 26 15.32. "Maximum Demand" ............................................. 27 15.33. "Maximum Instantaneous Demand" ............................... 27 15.34. "Maximum Profit Sharing Rate" ................................ 27
5 15.35. "Meters" ..................................................... 27 15.36. "Minimum Load" ............................................... 27 15.37. "Minimum Load Charge" ........................................ 27 15.38. "Monthly Peak" ............................................... 27 15.39. "Off-System Capacity" ........................................ 27 15.40. "Off-System Energy" .......................................... 27 15.41. "Off-System Power" ........................................... 27 15.42. "Operating Flexibility" ...................................... 27 15.43. "Payment Month" .............................................. 28 15.44. "Point of Delivery" .......................................... 28 15.45. "Potential Peak Hours" ....................................... 28 15.46. "Price Deflator Index" ....................................... 28 15.47. "Profit Sharing Rate" ........................................ 29 15.48. "Profit Sharing Surcharge" ................................... 29 15.49. "Reactive Kilovolt-Ampere Capacity" .......................... 29 15.50. "Reactive Kilovolt-Ampere Charge" ............................ 29 15.51. "Recovery Period" ............................................ 29 15.52. "Sabotage" ................................................... 29 15.53. "Schedule PP Customers" ...................................... 29 15.54. "Spring/Fall Months" ......................................... 29 15.55. "Strikes" .................................................... 29 15.56. "Summer Months" .............................................. 29 15.57. "System Capacity" ............................................ 29 15.58. "System Demand" .............................................. 30 15.59. "System Energy" .............................................. 30 15.60. "Undermodulation Charge" ..................................... 30 15.61. "Upper Trigger Price" ........................................ 30 15.62. "Winter Months" .............................................. 30 SIGNATURE PAGE ........................................................... 30
SCHEDULE A EFFECTIVE COST OF POWER CALCULATION SCHEDULE B BASE RATE REVENUE CALCULATION SCHEDULE C SURVEY OF CURRENT BUSINESS SCHEDULE D (with Exhibit A) STIPULATION REGARDING THE ESTABLISHMENT OF RATES UNDER THE POWER CONTRACT BETWEEN POTOMAC EDISON AND EASTALCO 6 ELECTRIC SERVICE AGREEMENT This AGREEMENT made this 11th day of November, 1994, between EASTALCO ALUMINUM COMPANY, a Delaware corporation and a wholly-owned subsidiary of Alumax Inc. ("Eastalco") and THE POTOMAC EDISON COMPANY, a Maryland and Virginia corporation and a wholly-owned subsidiary of Allegheny Power System, Inc. ("Potomac"). RECITALS 1. Potomac is a public utility engaged in the production, transmission, distribution and sale of electric power and energy in Maryland. 2. Eastalco operates an aluminum reduction facility near Buckeystown Station, Frederick County, Maryland. 3. Eastalco has purchased electric power and energy for such facility from Potomac since March 1, 1970 under the terms of electric service agreements, the most recent of which is dated February 25, 1993, (the "Existing Agreement"). The Existing Agreement is subject to termination on March 1, 1995 upon 24 months prior written notice. 4. Potomac desires to continue selling power and energy to Eastalco, and Eastalco desires to continue purchasing power and energy from Potomac under the terms of this Agreement after March 1, 1995. 1. DEFINITIONS. In addition to the terms defined above, the terms capitalized below, which are not defined below, shall have the meaning set forth in Paragraph 15. 2. TERM OF AGREEMENT. This Agreement shall become effective upon approval by the Maryland Public Service Commission. The initial term of this Agreement shall be for a period of seven years commencing on the Effective Date of April 1, 1993. This Agreement shall be renewed automatically for a first subsequent term of eighteen months which would expire September 30, 2001, unless either party gives written notice of cancellation prior to April 1, 1998. Thereafter, this Agreement shall be renewed automatically for additional subsequent terms of one year each, unless either party gives written notice of cancellation at least thirty months prior to the expiration of any subsequent term. 1 7 3. SALE AND PRICE OF SYSTEM CAPACITY. 3.1. SALE OF SYSTEM CAPACITY. Potomac shall make available to Eastalco the following number of kilowatts of System Capacity: 3.1.1. 210,000 kilowatts during Load Reduction Periods of the Summer Months and Winter Months, 3.1.2. 310,000 kilowatts during Monthly Peak hours of the Spring/Fall Months, 3.1.3. 350,000 kilowatts during all other hours. 3.2. PRICE OF SYSTEM CAPACITY. 3.2.1. CAPACITY CHARGE. 3.2.1.1. The Capacity Charge effective July 1, 1993 shall be $10.24 per kilowatt per month. The Capacity Charge consists of a base rate. Any change in the base rate or any additional charges or surcharges determined by the Maryland Public Service Commission to be applicable to Eastalco after December 31, 1987 and not included in Sub-Paragraph 4.2.3. hereof shall be reflected by Potomac in this Capacity Charge, and shall be subject to the provisions of Sub-Paragraph 14.3.1. The Capacity Charge shall be applied to all kilowatts of System Demand. 3.2.l.2. An Additional Capacity Charge of $2.00 per kilowatt shall be added to the Capacity Charge and this sum shall be applied to Additional Capacity in excess of System Demand. Additional Capacity shall mean all Billing Capacity kilowatts determined to be in excess of System Demand as the result of the application of Sub-Paragraphs 3.2.2.1.2 through 3.2.2.1.5. or Sub-Paragraphs 3.2.2.2.2. through 3.2.2.2.6. below, except that no Additional Capacity Charge shall be payable for kilowatts in excess of System Demand if that Additional Capacity results from the application of Sub-Paragraphs 3.2.2.1.5. or 3.2.2.2.6. when triggered by Sub-Paragraphs 3.2.2.1.1. or 3.2.2.2.1. Also the Additional Capacity Charge shall not apply in any Billing Period during which no electrolysis occurs and no molten metal is produced in Eastalco's potlines. 3.2.2. BILLING CAPACITY. Billing Capacity shall be equal to the result of the following: 2 8 3.2.2.1. For the Summer Months and Winter Months, Billing Capacity shall be the greatest of: 3.2.2.1.1. The System Demand; or, 3.2.2.1.2. .45 times (the sum of System Energy and Off-System Energy divided by the number of hours in the Billing Period); or, 3.2.2.1.3. .30 times the Maximum Instantaneous Demand; or, 3.2.2.1.4. 130,000 kilowatts; or, 3.2.2.1.5. The highest result established by the application of Sub-Paragraphs 3.2.2.1.1. through 3.2.2.1.4. above during (i) the three preceding Summer Months if the computation of Billing Capacity is being made for a Summer-Month; or, (ii) the three preceding Winter Months if the computation of Billing Capacity is being made for a Winter Month. 3.2.2.2. For the Spring/Fall Months, Billing Capacity shall be the greatest of: 3.2.2.2.1. The System Demand; or, 3.2.2.2.2. .80 times (the sum of System Energy and Off-System Energy divided by the number of hours in the Billing Period); or, 3.2.2.2.3. .40 times the Maximum Instantaneous Demand; or, 3.2.2.2.4. (System Energy plus Off-System Energy divided by the number of hours in the Billing Period) less 40,000 kilowatts; or, 3.2.2.2.5. 200,000 kilowatts; or, 3.2.2.2.6. The highest result established by the application of Sub-Paragraphs 3.2.2.2.1. through 3.2.2.2.5. above during the three preceding Spring/Fall Months. 3.3. REACTIVE KILOVOLT-AMPERE CHARGE. The Reactive Kilovolt-Ampere Charge shall be the price payable for reactive kilovolt-amperes and shall be equal to the result of the following formula: $0.15 x (Reactive Kilovolt-Ampere Capacity - 25% of Billing Capacity) 3 9 3.4. UNDERMODULATION CHARGE. 3.4.1. DETERMINATION OF UNDERMODULATION CHARGE. If Eastalco fails to modulate its load under Sub-Paragraph 8.3 by at least an average of 65,000 kilowatts at the time of Potomac's Monthly Peak during the Spring/Fall Months, it shall pay an Undermodulation Charge of $5.00 per kilowatt for each kilowatt by which the total number of kilowatts of such modulation by Eastalco in the Spring/Fall Months of each calendar year is less than the product of 65,000 times the number of Spring/Fall Months in the calendar year for which the calculation is made. The Undermodulation Charge shall not apply to the Summer Months and Winter Months. 3.4.2. DETERMINATION OF LOAD MODULATION. The amount of Load Modulation for a Spring/Fall Month shall be equal to the difference between: (i) the sum of Eastalco's System Demand and any Off-System Capacity purchased during the hour of the System Demand for such month; and (ii) the sum of System Energy and Off-System Energy for such month divided by the number of hours in the Billing Period; provided, however, that for purposes of this Sub-Paragraph 3.4, (a) if System Demand during a Spring/Fall Month is 200,000 kilowatts or less, the amount of Load Modulation shall not be less than 65,000 kilowatts; and, (b) the amount of Load Modulation in any Spring/Fall Month shall not be less than 40,000 kilowatts. 3.4.3. BILLING OF UNDERMODULATION CHARGE. The billing of the Undermodulation Charge shall be determined annually and shall be billed on the December Billing Period invoice for each calendar year during the term hereof, or on the final invoice upon termination of this Agreement. 4. SALE AND PRICE OF ENERGY. 4.1. SALE OF CONTRACT ENERGY. The Eastalco facility requires an average of 310,000 kilowatt-hours per hour in order to operate at full production. Potomac shall make available System Energy and, in accordance with Sub-Paragraph 10.1, shall use its best efforts to make available sufficient Off-System Energy so that the combined availability of System Energy plus Off-System Energy averages 310,000 kilowatt-hours per hour, which shall be the Contract Energy. 4.2. SYSTEM ENERGY. 4.2.1. DEFINITION OF SYSTEM ENERGY. For purposes of this Agreement, System Energy shall mean the kilowatt-hours recorded during the Billing Period 4 10 on the Meters as delivered to Eastalco, less any Off-System Energy purchased during the Billing Period. System Energy shall be comprised of Base Energy and Incremental Energy defined as follows: 4.2.1.1. Base Energy shall be the lesser of: 4.2.1.1.1. The System Energy; or, 4.2.1.1.2. The product of the Billing Capacity and the number of hours in the Billing Period. 4.2.1.2. Incremental Energy shall be the amount of System Energy in excess of the Base Energy, if any. 4.2.2. PRICE OF SYSTEM ENERGY. The price payable for System Energy shall be the sum of: 4.2.2.1. The Base Energy multiplied by the Base Energy Charge which shall mean the rate payable pursuant to Potomac's fuel rate (or any cost recovery method which may take its place) then in effect as approved by the Maryland Public Service Commission, and adjusted for applicable siting charges; plus, 4.2.2.2. The Incremental Energy multiplied by the Incremental Energy Charge which shall mean the greater of: (i) the hourly incremental Actual Cost of energy to Potomac, before sales to non-affiliated utilities, incurred during the hours of Incremental Energy use during the Billing Period, plus l mill per kilowatt-hour, adjusted for Maryland gross receipts tax and applicable siting charges, or, (ii) the Base Energy Charge; plus, 4.2.3. OTHER ENERGY RATE COMPONENTS. If the Maryland Public Service Commission adopts a rate charge or adjustment which did not exist on December 31, 1987 that is to be collected on a per kilowatt-hour basis from Potomac's customers, such charge may be applied to the Base Energy and the Incremental Energy subject to such limits on its applicability as are adopted by such Commission, except that such charges which are directly related to the cost of fuel for Potomac may be applied to the Base Energy only. Examples for purposes of illustration only are the Maryland Energy Facility Siting Tax, which could be applied to both the Base and Incremental Energy, and the Deferred Fuel Accounting Surcharge, which could be applied only to the Base Energy. 5 11 4.3. PRICE OF OFF-SYSTEM ENERGY. The price payable for Off-System Energy shall be as set forth in Sub-Paragraph 10.2. 4.4. PROFIT SHARING SURCHARGE. The Profit Sharing Surcharge shall be the product of the Profit Sharing Rate and the System Energy. 4.4.1. PROFIT SHARING RATE. The Profit Sharing Rate shall be equal to the following: 4.4.1.1. If the Aluminum Price is less than or equal to the Lower Trigger Price, the Profit Sharing Rate shall be zero. 4.4.1.2. If the Aluminum Price is greater than the Lower Trigger Price and less than the Upper Trigger Price, the Profit Sharing Rate shall be the product of the Maximum Profit Sharing Rate, calculated to five decimal places, and the ratio R, where R equals (Aluminum Price - Lower Tricker Price --------------------------------------- (Upper Trigger Price - Lower Trigger Price) 4.4.1.3. If the Aluminum Price is equal to or greater than the Upper Trigger Price, the Profit Sharing Rate shall be the Maximum Profit Sharing Rate. 4.4.2. The Maximum Profit Sharing Rate initially shall be $0.004 per kilowatt-hour until March 1, 2000. After February 29, 2000 the Maximum Profit Sharing Rate shall be reviewed in a good faith negotiation. The adjustment in the Maximum Profit Sharing Rate would reflect the change in price levels for the types of production plant related to compliance with Phase II of the CAAA and the relative amount of investment in production plant for compliance with Phase II as compared to Phase I of the CAAA. The relative amount of investment would be computed as the ratio of the investment in production plant for compliance with Phase II of the CAAA to the investment in production plant for compliance with Phase I of the CAAA, with both investments adjusted to dollars of the same year using appropriate inflation indices. As an example, if the change in price levels was twenty percent (20%) and the investment for compliance with Phase II was one half the investment for compliance with Phase I, after adjustment for inflation, then the Maximum Profit Sharing Rate would increase by approximately ten percent (10%). 4.4.3. The Lower Trigger Price initially shall be seventy cents (70.0 (cent)) per pound of aluminum. On March 1, 1995 and each March 1 thereafter, the Lower Trigger Price shall be re- 6 12 established to the nearest tenth of a cent as the result of the following formula: Lower Trigger Price = 70.0(cent) x 1/2 x (Price Ratio + Escalation Ratio) where 4.4.3.1. The Price Ratio is the ratio: Annual Aluminum Price for the most recent calendar year) -------------------------------------------------------- (Annual Aluminum Price for calendar year 1993) 4.4.3.2. The Escalation Ratio is the ratio: (Price Deflator Index for the fourth quarter of the most recent calendar Year) -------------------------------------------------------- (Price Deflator Index for the fourth quarter of 1993) 4.4.4. The Upper Trigger Price initially shall be one hundred twenty cents (120.0(cent)) per pound of aluminum. On March 1, 1995 and each March 1 thereafter, the Upper Trigger Price shall be re-established to the nearest tenth of a cent as the result of the following formula: Upper Trigger Price = 120.0(cent) x 1/2 x (Price Ratio + Escalation Ratio) 5. MINIMUM LOAD CHARGE. In addition to the amounts payable under Paragraphs 3 and 4, if the sum of the System Energy and Off-System Energy used in a Billing Period is less than the Minimum Load, Eastalco shall pay a Minimum Load Charge for System Power, which shall be equal to 5.1. the lesser of: 5.1.1. 21,900,000 kilowatt-hours, or, 5.1.2. the difference between: 5.1.2.1. the Minimum Load, less, 5.1.2.2. the sum of the System Energy and Off-System Energy purchased by Eastalco, 5.2. multiplied by the quotient of (i) the sum of the amount payable for Base Energy in accordance with Sub-Paragraph 4.2.2.1. and the amount payable for Incremental Energy in accordance with Sub-Paragraph 4.2.2.2. divided by (ii) the number of kilowatt-hours of System Energy. 7 13 5.3. Paragraph 5 shall not apply in any Billing Period during which no electrolysis occurs and no molten metal is produced in Eastalco's potlines. 6. SALE OF IDLE CAPACITY. When Eastalco's Maximum Demand is expected to be below 240,000 kilowatts, Eastalco may give notice to Potomac that for a specified period, Eastalco will not use all or a portion of the System Capacity below 240,000 kilowatts. The period specified shall be at least one week and the amount of System Capacity specified shall be at least 10,000 kilowatts. Potomac will use its best efforts to sell such System Capacity for the period specified in the notice; provided, that such sale would not interfere with potential sales of capacity by Potomac or Allegheny that could have been made if Eastalco was using suchSystem Capacity. Eastalco will receive a credit not to exceed $500,000 per calendar month for the proceeds of any sale by Potomac equal to the lesser of: 6.1. 90% of the Capacity Revenues from such sale; or, 6.2. In the Winter Months and Summer Months, an amount equal to the sum of: (i) 130,000 kilowatts less the Maximum Demand (if that difference is greater than zero) times the Capacity Charge, and (ii) the Minimum Load Charge; or, 6.3. In the Spring/Fall Months, an amount equal to the sum of: (i) 200,000 kilowatts less the Maximum Demand (if that difference is greater than zero) times the Capacity Charge, and (ii) the Minimum Load Charge. 7. LOAD REDUCTION PERIOD. 7.1. DEFINITION OF LOAD REDUCTION PERIOD. Potomac may designate as a Load Reduction Period between one and eighteen hours during any day of the Summer Months or Winter Months that Potomac reasonably believes will be the day that Potomac's monthly maximum demand will occur; provided that the total number of Load Reduction Period hours shall not exceed (i) 850 hours during the twelve month period commencing October 1, 1990 and ending September 30, 1991 or any 12 month period thereafter, during the term of this Agreement, which commences on October 1 of a calendar year and ends on September 30 of the succeeding calendar year, or (ii) upon notice of the termination of this Agreement, the sum of 170 hours times the number of Winter Months and 85 hours times the number of Summer Months from the September 30 immediately preceding termination to the date of termination. 8 14 7.2. NOTICE TO REDUCE LOAD. Preliminary notice of a Load Reduction Period shall be given by Potomac to Eastalco no later than 4:00 P.M. of the day preceding the Load Reduction Period. A confirmation of the occurrence of a Load Reduction Period will be given no later than 6:00 A.M. of the day of a Load Reduction Period occurring during the Winter Months and 8:00 A.M. of the day of a Load Reduction Period occurring in the Summer Months. Notwithstanding the foregoing, and subject to the limitations set forth in SubParagraph 7.1., Potomac may extend an existing Load Reduction Period or designate a new Load Reduction Period after 6:00 A.M. in the Winter Months or after 8:00 A.M. in the Summer Months upon as much notice to Eastalco as is reasonably practicable. The parties may agree mutually in writing to a change in the time by which a confirmation of the occurrence of a Load Reduction Period must be given. 7.3. OBLIGATION TO MINIMIZE AND CANCEL LOAD REDUCTION PERIOD. Potomac will use its best efforts to limit the duration and frequency of any Load Reduction Period hours while not unreasonably increasing the risk that Potomac's monthly maximum demand will occur outside a Load Reduction Period. If subsequent to the designation of a Load Reduction Period: (i) Potomac's load does not materialize for the Load Reduction Period day so that Potomac no longer reasonably believes that one or more hours of the Load Reduction Period will be the hour(s) in which Potomac's monthly maximum demand will occur; and, (ii) there are no abnormal operating conditions on Potomac's system which require retention of such hours in the Load Reduction Period, Potomac shall remove as many hours as possible from the Load Reduction Period and give Eastalco prompt notice thereof; provided, however, that Eastalco may elect to retain such hours in the Load Reduction Period if it already has incurred any costs for such hours in connection with Off-System Power that would not be avoided or refunded if such hours are not retained in the Load Reduction Period. 8. POTENTIAL PEAK HOURS. 8.1. DEFINITION OF POTENTIAL PEAK HOURS. Potomac may designate as Potential Peak Hours either one or two periods of between one and eight consecutive hours during any day of the term hereof that Potomac reasonably believes will be the day that Potomac's monthly maximum demand 9 15 will occur; provided that (i) the total number of Potential Peak Hours shall not exceed 8 in any calendar day, (ii) no Potential Peak Hours may be designated on Sunday, and (iii) during the Summer Months and Winter Months, Potential Peak Hours shall be designated only within Load Reduction Periods. 8.2. NOTICE OF POTENTIAL PEAK HOURS. Preliminary notice of Potential Peak Hours shall be given by Potomac no later than 4:00 P.M. of the day preceding the Potential Peak Hours. Notice of Potential Peak Hours and a confirmation of the occurrence of the Potential Peak Hours shall be given no later than 6:00 A.M. of the day the Potential Peak Hours are to occur in the Winter Months and no later than 8:00 A.M. of the day the Potential Peak Hours are to occur during all other months. Notwithstanding the foregoing, and subject to the limitations set forth in Sub-Paragraph 8.1., Potomac may extend existing Potential Peak Hours or designate new Potential Peak Hours after 6:00 A.M. in the Winter Months or after 8:00 A.M. in the Summer Months upon as much notice to Eastalco as is reasonably practicable. The parties may agree mutually in writing to a change in the time by which a confirmation of the occurrence of Potential Peak Hours must be given. 8.3. LOAD MODULATION. Eastalco will use its best efforts to modulate its load during all Potential Peak Hours. Load Modulation shall mean a temporary reduction in Eastalco's plant load in order to assist Potomac in reducing the magnitude of Potomac's monthly maximum demand. Eastalco agrees to modulate through changes not exceeding 50 megawatts every ten minutes, unless requested by Potomac to modulate in larger blocks. Such best efforts obligation shall not obligate Eastalco, in its opinion, to jeopardize the stability of its plant operations. Eastalco shall be permitted to make up the energy consumption foregone during such reduction as soon as practical, subject to the terms of this Agreement and the ability of Eastalco's facility to make up such energy consumption. 9. EMERGENCIES 9.1. GENERAL EMERGENCIES. 9.1.1. EMERGENCY OPERATIONS Electric service provided under this Agreement is subject to interruption at any time in compliance with the provisions of the Potomac Edison EHV Emergency Voltage Control Program or The Potomac Edison Company/Allegheny Power System Emergency Operation Plan as in effect and as amended from time to time, copies of which have been supplied to Eastalco. 10 16 9.1.2. EMERGENCY FOR PRESERVATION OF SYSTEM INTEGRITY. With Eastalco's prior consent, Potomac may interrupt up to 400,000 kilowatt-hours of Off-System Power, System Demand and System Energy if any emergency occurs which Potomac believes is a threat to the overall integrity of its operating system. 9.1.3. OBLIGATIONS OF POTOMAC UNDER GENERAL EMERGENCIES. Potomac will use its best efforts to limit the duration and frequency of any emergency described in this Sub-Paragraph 9.1. and to give Eastalco as much advance notice as possible of the occurrence of any such emergency. In the event of an emergency under this Sub-Paragraph 9.1., Potomac will use its best efforts to interrupt service only to Eastalco's potlines and continue uninterrupted service to Eastalco's auxiliary equipment. If possible, Potomac shall give Eastalco the opportunity to reduce its load prior to any such interruption. 9.1.4. RESTORATION TO NORMAL OPERATIONS. In the event of any emergency under this Sub-Paragraph 9.1., a Recovery Period shall be established for the lesser of (i) 48 hours, or (ii) 48 hours multiplied by the ratio of (a) the number of kilowatt-hours by which Eastalco's load since the 7:00 AM immediately preceding the beginning of the emergency is less than the product of its average load for the preceding week multiplied by the number of hours from the 7:00 AM immediately preceding the beginning of the emergency to the cessation of the emergency, to (b) 800,000 kilowatt-hours. In order to provide Eastalco an opportunity to attempt to restore the stability of its operations after an emergency, Potomac shall not declare any hour in a Recovery Period to be a Potential Peak Hour nor shall it declare another emergency under Sub-Paragraph 9.1.2. or 9.2; however, Potomac may declare Load Reduction Periods that include hours in a Recovery Period. Potomac and Eastalco shall cooperate to the extent possible to restore normal operations, and as part of such cooperation, Eastalco shall inform Potomac of the amounts and timing of its proposed increases in load during the Recovery Period, and Potomac shall use its best efforts to supply Eastalco with the service requested. Potomac may also request that Eastalco reduce load during a Recovery Period and Eastalco will comply with such request if, in Eastalco's opinion, the stability of its plant operations will not be jeopardized. 9.2. FIRM LOAD EMERGENCY. 9.2.1. DEFINITION OF FIRM LOAD EMERGENCY. Potomac shall have the right to require Eastalco to reduce purchases of System Capacity and System Energy hereunder for a Firm Load Emergency which shall mean a mechanical 11 17 breakdown, failure or operating condition in the Allegheny System generation or transmission system that makes it necessary for Eastalco to reduce purchases of System Capacity and System Energy in order for Potomac to meet its obligations to its firm power Customers. 9.2.2. DESIGNATION OF FIRM LOAD EMERGENCY. Potomac may designate a Firm Load Emergency at any time during the term of this Agreement that Eastalco is not purchasing Off-System Power. 9.2.3. OBLIGATION TO LIMIT OR CANCEL FIRM LOAD EMERGENCIES. Potomac will use its best efforts to limit the duration and frequency of any Firm Load Emergencies. If subsequent to the designation of a Firm Load Emergency, Potomac's operating conditions change so that continuance of the Firm Load Emergency no longer is reasonably required, Potomac shall give Eastalco prompt notice of ability to resume purchasing System Capacity and System Energy; provided, however, that Eastalco may elect to continue purchasing Off-System Capacity and Off-System Energy if, for this occurrence, it already has incurred any costs in connection with such purchases not yet delivered, which would not be avoided or refunded if Eastalco elects to resume purchasing System Capacity and System Energy. 9.2.4. NOTICE TO REDUCE PURCHASES OF SYSTEM CAPACITY AND SYSTEM ENERGY. Notice of a Firm Load Emergency shall be given by Potomac no later than 30 minutes prior to the commencement of the Firm Load Emergency. 10. OPERATIONS DURING LOAD REDUCTION PERIODS AND FIRM LOAD EMERGENCIES. Eastalco shall use its best efforts to reduce its load to a level of not more than 200,000 kilowatt-hours per hour and maintain its load at such level for the duration of any Load Reduction Period or Firm Load Emergency. Such best efforts obligation shall not obligate Eastalco, in its opinion, to jeopardize the stability of its plant operations. 10.1. OBLIGATION OF POTOMAC. During a Load Reduction Period or a Firm Load Emergency, Potomac shall purchase and deliver to Eastalco Off-System Power in accordance with the following provisions, if requested to do so by Eastalco and if Off-System Power is available, and can be delivered, from other sources not then committed to serve Potomac's load or pass-through obligations. Potomac agrees to use its best efforts to furnish Eastalco the amount of Off-System Power requested by Eastalco to replace up to 100,000 kilowatt-hours per hour of the difference between 12 18 Eastalco's average load of the previous week and 200,000 kilowatt-hours per hour. 10.2. PRICING. Potomac agrees to furnish Eastalco with the least cost Off-System Power available. The price payable by Eastalco for Off-System Power during Load Reduction Periods shall be the Actual Cost to Potomac plus 2 mills per kilowatt-hour. The price payable by Eastalco for Off-System Power during a Firm Load Emergency shall be Potomac's Actual Cost. The price in either event shall include gross receipts tax, if applicable. Potomac shall furnish Eastalco with an estimate of such price at the same time it gives notice of a Load Reduction Period under Sub-Paragraph 7.2 or a Firm Load Emergency under Sub-Paragraph 9.2.4. 10.3. INSUFFICIENT POWER. If the amount of Off-System Power delivered to Eastalco during a Firm Load Emergency in accordance with SubParagraph 9.2. is less than the amount requested by Eastalco under Sub-Paragraph 10.1., and Eastalco reduced its load at least to the level requested by Potomac, then a Recovery Period shall be established for the lesser of (i) 20 hours, or (ii) 20 hours times the quotient of the difference between the kilowatt-hours of Off-System Power requested by Eastalco and the kilowatt-hours of Off-System Power delivered to Eastalco, divided by 200,000 kilowatt-hours. In order to provide Eastalco an opportunity to attempt to restore the stability of its operations after an emergency, Potomac shall not declare any hour in a Recovery Period to be a Potential Peak Hour nor shall it declare another emergency under Sub-Paragraph 9.1.2. or 9.2; however, Potomac may declare Load Reduction Periods that include hours in a Recovery Period. Potomac and Eastalco shall cooperate to the extent possible to restore normal operations, and as part of such cooperation, Eastalco shall inform Potomac of the amounts and timing of its proposed increases in load during the Recovery Period, and Potomac shall use its best efforts to supply Eastalco with the service requested. Potomac may also request that Eastalco reduce load during a Recovery Period and Eastalco will comply with such request if, in Eastalco's opinion, the stability of its plant operations will not be jeopardized. 11. BILLING. 11.1. INVOICES AND PAYMENT. During the first week of the calendar month succeeding a Billing Period, Potomac shall provide Eastalco with a bill supported by calculations for all amounts payable during such Billing Period. Such bill will be due and payable in accordance with the provisions of this Paragraph 11, on or before the last business day of the month immediately succeeding the Billing 13 19 Period which shall be the Payment Month. In order not to delay Eastalco's normal billing, the Incremental Energy Charge will be billed based on estimated incremental costs. Such estimate will be corrected to reflect actual incremental costs in the following month's bill. Eastalco will establish and maintain for the benefit of Potomac during the term of this Agreement at its expense an irrevocable, stand-by letter of credit as more particularly described below. During the term hereof, the parties may agree mutually upon an alternative to the letter of credit described below that would guarantee payment of Eastalco's bills to Potomac. 11.2. LETTER OF CREDIT. Eastalco shall maintain at its expense an irrevocable stand-by letter of credit in favor of Potomac in the amount of $10,000,000 in order to guarantee payment of amounts due hereunder ("Letter of Credit") at the Bank, which shall mean a bank that (i) is selected by Eastalco and approved by Potomac, which approval shall not be withheld unreasonably; and, (ii) is rated by rating agencies Moodys and Standard & Poors not less than Single A, if a domestic bank, and not less than Double A if a foreign bank. 11.2.1. TERMS OF LETTER OF CREDIT. The Letter of Credit shall be payable on presentation and remain in effect for the term of this Agreement. Eastalco agrees that the Letter of Credit shall not be encumbered further or made subject to any other lien, security interest or like instrument. 11.2.2. PAYMENT OF BILLS. On or before the payment due date described in Sub-Paragraph 11.1, Eastalco shall pay Potomac the amount due and payable. If Eastalco fails to pay such amount, Potomac shall be entitled to draw on the Letter of Credit. 11.3. LATE PAYMENT CHARGES. 11.3.1. LATE PAYMENTS. Payments required to be made under Sub-Paragraph 11.1, which are not received by Potomac on or before the last business day of the month immediately succeeding the Billing Period shall be subject to the penalty set forth in the Rules and Regulations of the Potomac Edison Company applicable to industrial customers filed with and approved by the Maryland Public Service Commission, currently in effect and as amended from time to time. 14 20 12. FORCE MAJEURE. 12.1. DEFINITION OF FORCE MAJEURE EVENT. For purposes of this Agreement a Force Majeure Event shall mean any or all of the following events or occurrences and the effects thereof which are beyond the reasonable control of the party claiming the occurrence: Acts of God or the public enemy, flood, earthquake, storm, hurricane, tornado, lightning, fire, epidemic, war, embargoes, riot, civil disturbances, Strikes, Sabotage, orders or temporary or permanent injunctions of any duly constituted court of general jurisdiction or any administrative agency or officer provided by law; acts of government or any subdivision thereof; Failure of Service, or any other cause beyond the reasonable control of the party claiming the occurrence, whether or not similar to the causes or occurrences enumerated above. 12.2. EXCUSE FROM PEFORMANCE. If a Force Majeure Event prevents or interrupts either party from performing any obligation under this Agreement, both parties shall be excused from performing hereunder to the extent that the Force Majeure Event prevents such performance and for the period required to restore the affected party's operations to their condition prior to the occurrence of the Force Majeure Event. 12.3. NOTICE OF FORCE MAJEURE. The party affected by a Force Majeure Event shall give prompt written notice thereof to the other party of the probable extent to which the affected party will be unable to perform or will be delayed in performing its obligations hereunder. 12.4. ELIMINATION OF FORCE MAJEURE. The affected party shall exercise due diligence to eliminate or remedy the cause and the effects of the Force Majeure Event and to return to normal operations as quickly as is reasonably possible and shall give the other party prompt notice when that has been accomplished. 12.5. EXEMPTION DURING FORCE MAJEURE. 12.5.1. GENERAL EXEMPTION. Each month during the period of the Force Majeure Event including the period required to restore the affected party's operations to their condition prior to the occurrence of the Force Majeure Event, Eastalco shall pay only for power and energy actually furnished and used by it at the rates set forth herein, and the provisions of this Agreement or of any power schedule made a part of this Agreement relating to any minimum payment for power or energy, including without limitation the minimum Billing Capacity and the minimum load Charge, shall not apply. During the Billing Period that the 15 21 Force Majeure Event occurs and the Billing Period in which Eastalco returns to normal operations, the minimum Billing Capacity and the Minimum Load Charge shall not apply for those days of the Billing Period in which the Force Majeure Event was in effect and the Capacity Charge shall be reduced by the ratio of the number of days of the Billing Period in which the Force Majeure Event was in effect to the total number of days of the Billing Period. 12.5.2. EXEMPTION FOR COAL STRIKE. Notwithstanding the provisions of Sub-Paragraph 12.5.1., the payment exemption during a Force Majeure Event shall not be applicable to any curtailment or interruption in service to Eastalco caused by a coal strike that prevents Potomac from serving Eastalco's load, when such curtailment or interruption in service by Potomac occurs pursuant to orders issued by the Maryland Public Service Commission or other governmental authority that result in a request for curtailment or interruption of other large industrial customers or Schedule PP customers of Potomac as well in accordance with the Fuel Shortage Section of The Potomac Edison Company/Allegheny Power System Emergency Operation Plan. For purposes of this Agreement, other large industrial customers or Schedule PP customers of Potomac shall not be considered curtailed or interrupted if (i) service to such customers is not requested to be curtailed or interrupted pursuant to such order; or, (ii) any of such other customers receives a payment exemption from any of its minimum payment obligations for power or energy during such curtailment or interruption. If service to such other large industrial customers or Schedule PP customers is restored, but service to Eastalco either is not restored or, Eastalco is then unable to operate or receive service as a result of such curtailment or interruption, such occurrence shall be considered to be a Force Majeure Event to which the billing exemption set forth in Sub-Paragraph 12.5.1. shall apply during the period required for Eastalco to restore its facility to full operation, such period not to exceed eight (8) weeks. During such period Eastalco shall pay the lesser of: (i) the amount payable under Sub-Paragraph 12.5.1. for power and energy actually furnished and used by Eastalco plus a Capacity Charge for 30,000 kilowatts of System Demand, or (ii) the amount payable pursuant to Sub- Paragraphs 3.2., 3.3., 4.2., and 4.3. 12.6. ALTERNATIVE POWER DURING FORCE MAJEURE. If a Force Majeure Event prevents Potomac from delivering power and energy hereunder or significantly increases the price of Potomac's power and Eastalco is capable of receiving power and energy hereunder, Potomac shall use its best efforts to obtain from third parties and deliver any power required by Eastalco up to the System Capacity and System Energy then in effect. The price of such power and energy to Eastalco shall be 16 22 determined in accordance with the provisions of this Agreement or Potomac's Actual Cost, whichever is greater. 13. PROVISIONS RELATING To SERVICE. 13.1. METERING. 13.1.1. METERING EQUIPMENT. Deliveries of System Capacity, System Energy and Off-System Power to Eastalco's substation shall be metered by Potomac at the Point of Delivery. Meters shall mean metering equipment suitable for billing with a system accuracy of plus or minus eight tenths of one percent (+ or - 0.8%) which shall be installed and owned by Potomac and shall be used in determining the quantities for billing. Eastalco has installed its own metering equipment, at its own cost. 13.1.2. TESTING OF METERS. Potomac at its own expense shall test its Meters at least once every year and if requested to do so by Eastalco shall make additional tests or inspections of such Meters, the expense of which shall be paid by Eastalco, unless such additional tests or inspections show the Meters to be inaccurate by more than one half of one percent (0.5%), in which case Potomac shall pay for such test. Eastalco shall have the right to witness each testing of Potomac's Meters. Meters found to be defective or inaccurate shall be adjusted, repaired or replaced by Potomac. 13.1.3. INACCURATE METERING. If the Meters of Potomac fail to register or if the measurement made by such Meters during the test varies by more than one half of one percent (0.5%) from the measurement made by the standard meter used in such testing, calculated adjustments shall be made correcting the measurements made by the inaccurate Meters for the actual period during which such inaccurate measurements were made if such period can be determined, or if not, for the period immediately preceding the test of the Meters which is equal to one-half (1/2) the time from date of the immediately preceding test and validation of accuracy of the Meters or for a period of thirty (30) days, whichever is less. Should Potomac's Meters fail to register for any period, demand and energy usage during such period shall be determined by Potomac and Eastalco utilizing Eastalco's meter readings, adjusted by the normal difference in meter readings between Eastalco's meters and Potomac's Meters. Should the meters of both Potomac and Eastalco fail during any period, power and energy usage during such period shall be determined by computing the number of kilowatts and kilowatt-hours which are necessary to produce the tons of aluminum actually produced during such period 17 23 or by any more accurate measure of demand and energy usage acceptable to both parties. 13.2. FACILITIES AND EQUIPMENT. The following equipment has been supplied and installed by Potomac, is owned by Potomac and will be operated and maintained by Potomac: 13.2.1. Two two hundred thirty kilovolt transmission circuits and related switch gear connecting Potomac's Doubs Substation with Eastalco's Substation; 13.2.2. Metering, relaying, control and communication equipment necessary for the operation and protection of Potomac's equipment and billing under this Agreement. 13.3. OWNERSHIP OF FACILITIES AND RIGHT OF REMOVAL. 13.3.1. OWNERSHIP OF FACILITIES. Any and all equipment installed by either party on the premises of the other party shall be and remain the property of the party owning and installing such equipment regardless of the manner of attachment to the real property of the other party. 13.3.2. RIGHT OF REMOVAL. Upon termination of this Agreement, the owner of the equipment shall have the right to enter the premises of the other party and, within a reasonable time and in a reasonable manner, shall remove such equipment and all concrete and appurtenances relating thereto, and with all due diligence at the owner's sole cost and expense, repair any damage to the other party's property and fill all holes caused by such removal. 13.4. RIGHTS OF WAY. Eastalco agrees to convey to Potomac for the term of this Agreement and without charge, all easements and other rights of way reasonably necessary for the operation, maintenance, replacement and removal of facilities upon, across or within Eastalco's property for the purpose of providing service under this Agreement, provided, however, that upon the termination of this Agreement any such easements and rights of way shall revert automatically to Eastalco. 13.5. ENTRY OF PREMISES. Potomac shall have the right to enter Eastalco's premises to read, maintain and test Potomac's Meters, poles, conductors, appurtenances, and other equipment located thereon provided that the business of Eastalco shall not be interfered with unreasonably and provided further that such right of entry shall be restricted to (i) normal office hours, except in the case of an emergency; (ii) those areas of Eastalco's facility 18 24 where Potomac's equipment is located; and (iii) those employees, agents, borrowed crews or contractors of Potomac who are necessary and authorized to perform such work or inspection; provided, however, that no contractor of Potomac may enter Eastalco's premises without the prior written consent of Eastalco, which consent shall not be unreasonably withheld. 13.6. ELECTRICAL REQUIREMENTS. 13.6.1. ELECTRICAL DISTURBANCES. Eastalco shall not deliberately operate any apparatus or deliberately use System Capacity, System Energy or Off-System Power in any manner that would be detrimental to Potomac's service to Eastalco or other customers. 13.6.2. POWER FACTOR. Eastalco shall not operate its facility with a leading power factor without Potomac's prior written consent. 13.7. RESALE OF POWER. System Capacity, System Energy and Off-System Power shall not be resold hereunder, except as otherwise provided by Paragraph 6. 14. MISCELLANEOUS. 14.1. JURISDICTION OF REGULATORY AUTHORITIES.. This Agreement shall be subject to the approval of the Maryland Public Service Commission. Service hereunder is subject to the Rules and Regulations Covering the Supply of Electric Service, and the Rules and Regulations for Meter and Service Installations that have been filed by Potomac with the Maryland Public Service Commission, or any other regulatory authority having jurisdiction over the subject matter hereof. 14.2. INDEMNIFICATION. 14.2.1. LIABILITY OF THE PARTIES. The electric energy supplied under this Agreement is supplied on the following express conditions: (i) after it passes the Point of Delivery, it becomes the property of Eastalco, (ii) prior to the time it passes the Point of Delivery, it is the property of Potomac, (iii) neither party, its servants or employees, shall be liable, except in the case of negligence, for loss, injury, or damage to any person or property whatsoever, resulting directly or indirectly from the use, misuse, or presence of such electric energy, on the other party's side of the Point of Delivery. 14.2.2. INDEMNIFICATION BY EASTALCO. Eastalco shall indemnify and save harmless Potomac 19 25 from all claims, liability and expense arising out of any bodily injury, death, or damage to property other than any caused by the negligence of Potomac, its servants or employees, occurring in or about property or facilities owned or controlled by Eastalco and situated on Eastalco's side of the Point of Delivery, except that Potomac shall be responsible for all claims of its own employees, agents and servants under any Worker's Compensation statute or similar law. 14.2.3. INDEMNIFICATION BY POTOMAC. Potomac shall indemnify and save harmless Eastalco from all claims, liability and expense arising out of any bodily injury, death, or damage to property other than any caused by the negligence of Eastalco, its servants or employees, occurring in or about property or facilities owned or controlled by Potomac and situated on Potomac's side of the Point of Delivery, except that Eastalco shall be responsible for all claims of its own employees, agents and servants under any Worker's Compensation statute or similar law. 14.2.4. ATTORNEY'S FEES. Without limiting the generality of the foregoing, the indemnifying party agrees, at the other party's request, to defend any such claim, demand or the like brought against the other party based on any such failure, injury, death, loss, destruction or damage, and to pay all costs and expenses including attorney's fees, in connection with such defense provided that the other party gives the indemnifying party prompt notice of the nature of such claim or demand and provides such assistance, at the indemnifying party's costs, in connection therewith as the indemnifying party reasonably may request. The obligations hereunder shall survive the termination of this Agreement. 14.2.5. CONSEQUENTIAL DAMAGES. Nothing in this Sub-Paragraph 14.2. or elsewhere in this Agreement shall make any party liable for consequential damages or loss of profits. 14.3. TERMINATION. 14.3.1. TERMINATION BY EASTALCO. This Agreement may be terminated in whole or in part by Eastalco upon nine months prior written notice, given in accordance with Sub-Paragraph 14.9 hereof if, in the reasonable judgment of both Potomac and Eastalco, the Maryland Public Service Commission or any other governmental or regulatory agency having jurisdiction makes a Material Modification to this Agreement. If Eastalco expects to terminate this Agreement, it shall give notice thereof within 28 days of the date of issuance of any decision that would result in a Material Modification of this Agreement. Eastalco then shall give either a final notice 20 26 of termination or notice that it does not intend to terminate this Agreement within 60 days of the date of issuance of any such decision. Upon any such termination, Eastalco shall have no further liability or obligation whatsoever to Potomac by reason of or resulting from such termination, except to pay Potomac for amounts then due hereunder for System Capacity, System Energy and Off-System Power previously furnished by Potomac hereunder. 14.3.2. TERMINATION BY POTOMAC. This Agreement may be terminated in whole or in part by Potomac upon nine months prior written notice, given in accordance with Sub-Paragraph 14.9 hereof if, in the reasonable judgment of both Potomac and Eastalco, the Maryland Public Service Commission, Environmental Protection Agency, duly constituted court, legislature, or any other governmental or regulatory agency having jurisdiction issues an order or takes any other action which requires Potomac to incur any material, additional capital or operating costs or otherwise materially affects Potomac's ability to provide service under the terms and conditions set forth herein. If Potomac expects to terminate this Agreement, it shall give notice thereof within 30 days of the date of issuance of any such order. Potomac then shall give either a final notice of termination or notice that it does not intend to terminate this Agreement within 60 days of the date of issuance of any such order. This Agreement may not be terminated by Potomac under this Sub-Paragraph due to an increase in Potomac's costs associated with the growth of the Allegheny System loads or other normal operating circumstances. 14.4. ASSIGNMENT. Neither party may assign this Agreement or any right or obligation hereunder without the prior written consent of the other party, provided, however, that without such consent, Eastalco may assign this Agreement to Alumax or a joint venture organized for the purpose of operating the Eastalco facility in which Alumax or Eastalco has an interest of 50% or more. In the event of any assignment, the assigning party first shall provide to the other party a written agreement whereby the assignee accepts such assignment and undertakes to be bound by the terms of this Agreement. 14.5. AMENDMENT. This Agreement shall not be amended except by a writing duly executed by Eastalco and Potomac, subject to the approval of any regulatory agencies having jurisdiction. 14.6. ENTIRE AGREEMENT. For the purposes herein, the term, "Agreement" shall include this Agreement and the schedules and other documents to be attached hereto, each of which shall be incorporated herein for all purposes by this reference. This Agreement contains all of the terms and conditions agreed upon by the parties relating to the subject matter of this Agreement and supersedes all prior 21 27 and contemporaneous agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting the subject matter hereof. 14.7. INTERPRETATION. In the event of a conflict or inconsistency between the terms of this Agreement and the Schedules attached hereto, the terms of this Agreement shall govern. 14.8. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with the laws of the State of Maryland. 14.9. NOTICES. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given on the date of delivery, if delivered to the person identified below, or three days after mailing if mailed by certified or registered mail, postage prepaid, return receipt requested, or if sent by receipted private mail carrier, addressed as follows: IF TO EASTALCO: Eastalco Aluminum Company 5601 Manor Woods Road Frederick, Maryland 21701 Attention: Sr. Vice-President, Works Manager WITH A COPY TO: Alumax Inc. 400 South El Camino Real San Mateo, California 94402 Attention: President, Primary Division IF TO POTOMAC: The Potomac Edison Company Downsville Pike Hagerstown, Maryland 21740 Attention: President WITH A COPY TO: Allegheny Power System Cabin Hill Greensburg, Pennsylvania 15601 Attention: Director, Rates Such persons and addresses may be changed, from time to time, by means of a notice given in the manner provided in this PARAGRAPH. 14.10. SEVERABILITY. If any provision of this Agreement is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to this Agreement to the full extent possible. In any 22 28 event, all other provisions of this Agreement shall be deemed valid and enforceable to the full extent possible. 14.11. CONSTRUCTION . No provision of this Agreement shall be construed against any party on the ground that the party or its counsel drafted the provision. The headings and captions contained herein are for the convenience of the parties and shall not be deemed to govern the substantive rights and duties of the parties hereto. When the terms of this Agreement provide for an action to be made or the existence of a condition to be established based upon the judgment or determination of either party, such judgment shall be exercised in good faith, without discrimination, and in accordance with prudent utility practice, when applicable, and shall not be arbitrary or capricious. 14.12. WAIVER. No party shall be deemed to have waived any right, power or privilege under this Agreement or any portion hereof unless such waiver shall have been duly executed in writing and acknowledged by the party to be charged with such waiver. The failure of any party hereto to enforce at any time any of the provisions of this Agreement in no way shall be construed to be waiver of any such provision, nor in any way to affect the validity of this Agreement or any part hereof, or the right of any party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. 14.13. THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall confer any rights upon any person or entity, which is not a party to this Agreement. 14.14. COOPERATION OF THE PARTIES. Each party hereto shall use its best good faith efforts to fulfill all of the conditions set forth in this Agreement over which it has control or influence. Each party covenants and agrees to cooperate in good faith to carry out the intent and purposes of this Agreement. 14.15. APPLICATION FOR CHANGE IN RATES. Subject to the parties' obligations under this Agreement, either Potomac or Eastalco may apply unilaterally at any time to any regulatory agency having jurisdiction for a change in the rates to be charged hereunder. 15. DEFINITIONS. The following terms, whenever capitalized and used herein shall have the following meanings: 23 29 15.1. "Actual Cost" shall mean the cost to Potomac of any capacity or energy produced or purchased by it for the use of Eastalco, and shall include line losses and any other costs incurred by Potomac to deliver such capacity or energy to Eastalco. 15.2. "Additional Capacity" shall have the meaning set forth in Sub- Paragraph 3.2.1.2. 15.3. "Additional Capacity Charge" shall have the meaning set forth in Sub-Paragraph 3.2.1.2. 15.4. "Allegheny" shall mean Allegheny Power System, Inc., a Maryland corporation and the parent corporation of Potomac. 15.5. "Allegheny System" shall mean the service territory of Allegheny including the customer loads and the distribution, transmission and generating facilities owned, operated or contracted for the purpose of serving electric loads in such territory. The service territory of the Allegheny System is comprised of the service territories of Allegheny's wholly-owned subsidiaries Potomac, the Monongahela Power Company and the West Penn Power Company. 15.6. "Alumax" shall mean Alumax Inc., a Delaware corporation and the parent corporation of Eastalco. 15.7. "Aluminum Price" shall mean the average monthly Midwest Market Price for Aluminum in cents per pound, expressed to the nearest tenth of a cent, during the preceding month, as published by Metals Week. 15.8. "Annual Aluminum Price" shall mean the average annual Midwest Market Price for Aluminum in cents per pound, expressed to the nearest tenth of a cent, during the calendar year as published by Metals Week, but not less than sixty cents (60.0(cents)) per pound. 15.9. "Bank" shall have the meaning set forth in Sub-Paragraph 11.2. 15.10. "Base Energy" shall have the meaning set forth in Sub-Paragraph 4.2.1. 15.11. "Base Energy Charge" shall have the meaning set forth in Sub- Paragraph 4.2.2.1. 15.12. "Bath County Surcharge " shall mean the surcharge in effect and approved by the Maryland Public Service Commission for Allegheny's pumped storage facility located in Bath County, Virginia. 24 30 15.13. "Billing Capacity" shall have the meaning set forth in Sub- Paragraph 3.2.2. 15.14. "Billing Period" shall mean a calendar month. 15.15. "CAA" and "CAAA" shall mean the Clean Air Act, 42 U.S.C. Section 7401 et seq., and the Clean Air Act Amendment, respectively. The Clean Air Act Amendment is P. L. 101-549, the amendment to Title IV of the CAA enacted November 15, 1990. Phase I and Phase II shall have the meanings set forth in the CAAA. 15.16. "Capacity Charge" shall have the meaning set forth in Sub- Paragraph 3.2.1. 15.17. "Capacity Revenues" shall mean (i) the amount received from the purchaser of idle capacity, less the cost of producing the energy delivered, including unreimbursed losses, or (ii) the amount identified by the parties to the sale of idle capacity as the price of capacity, if such identified amount reasonably represents a computation similar to (i) above, or (iii) the increase in the amount received by Potomac in excess of its costs from any non-affiliated transaction when such increase is due to Eastalco's idle System Capacity. 15.18. "Contract Energy" shall have the meaning set forth in Sub- Paragraph 4.1. 15.19. "Effective Cost of Power" shall mean the quotient of (i) the sum of all charges by Potomac that Eastalco reasonably would have incurred for one year of operation at an average plant load of 305,000 kilowatts, including the Capacity Charge, Base Energy Charge, Incremental Energy Charge, Bath County Surcharge, and Reactive Kilovolt-Ampere Charge, divided by (ii) 305,000 times the number of hours in the year less 34 million kilowatt-hours. The calculation of Effective Cost of Power shall be made in accordance with the formula set forth in Schedule A attached hereto. If any new charges, other than deferred charges or deferred surcharges, are made applicable to Eastalco by the Maryland Public Service Commission, the charges shall be included in the calculation. 15.20. "Effective Date" shall have the meaning set forth in Paragraph 2. 15.21. "Escalated" shall mean multiplying the number to be escalated by the quotient derived by dividing (i) the Price Deflator Index for the most immediately available month at the time the decision of the Maryland Public Service Commission referred to in Sub-Paragraph 14.3.1. is made, by (ii) the quarterly Price Deflator Index for the fourth quarter of 1987. 25 31 15.22. "Failure of Service" shall mean breakdowns, destruction or failure of any kind of equipment or facilities of Potomac necessary for performance hereunder arising from any cause whatsoever, including transportation delays, reductions, shortages, curtailment or cessation of supplies, materials, equipment, facilities, labor, transportation or other factors of production or delays of suppliers. 15.23. "Firm Load Emergency" shall have the meaning set forth in Sub- Paragraph 9.2.1. 15.24. "Force Majeure Event" shall have the meaning set forth in Sub- Paragraph 12.1. 15.25. "General Emergency" shall have the meaning set forth in Sub- Paragraph 9.1. 15.26. "Incremental Energy" shall have the meaning set forth in Sub- Paragraph 4.2.1. 15.27. "Incremental Energy Charge" shall have the meaning set forth in Sub-Paragraph 4.2.2. 15.28. "Load Modulation" shall have the meaning set forth in Sub- Paragraph 8.3 . 15.29. "Load Reduction Period" shall have the meaning set forth in Sub- Paragraph 7.1. 15.30. "Lower Trigger Price" shall have the meaning set forth in Sub- Paragraph 4.4.3. 15.31. "Material Modification" shall mean any change to this Agreement which (i) causes the Effective Cost of Power to Eastalco to be higher than the Effective Cost of Power that would have occurred if the rate adjustment were made in accordance with the Stipulation attached hereto as Schedule D; or (ii) decreases Eastalco's Operating Flexibility from the amount provided under this Agreement; or (iii) changes in any substantive manner the Force Majeure provision set forth in Paragraph 12; or (iv) makes any other material change to this Agreement, which increases Eastalco's business risks, including, without limitation, Eastalco's costs. 26 32 15.32. "Maximum Demand" shall mean the maximum integrated kilowatt demand over a clock hour recorded on the Meters during a specified period. 15.33. "Maximum Instantaneous Demand" shall mean the maximum instantaneous kilowatt demand during any clock hour recorded on the Meters during the Billing Period. 15.34. "Maximum Profit Sharing Rate" shall have the meaning set forth in Sub-Paragraph 4.4.2. 15.35. "Meters" shall mean the metering equipment more particularly described in Paragraph 13. 15.36. "Minimum Load" shall mean 240,000 kilowatts times the number of hours in the Billing Period. 15.37. "Minimum Load Charge" shall have the meaning set forth in Paragraph 5. 15.38. "Monthly Peak" shall mean the highest integrated clock hour kilowatt demand on Potomac's system during a Potential Peak Hour of a Billing Period. 15.39. "Off-System Capacity" shall mean three-phase, three-wire, 230,000 volts (nominal), 60 cycle alternating current electric service furnished by Potomac under Paragraph 10. 15.40. "Off-System Energy" shall mean the kilowatt-hours associated with Off-System Capacity. 15.41. "Off-System Power" shall mean the least cost power available to Potomac after the regular loads of the Allegheny Power System have been supplied. The regular loads of the Allegheny Power System are the firm and interruptible loads including suspense account and previously existing OVEC supplemental power transactions on any of Allegheny's operating companies' systems. 15.42. "Operating Flexibility" shall mean Eastalco's ability to reduce its level of operation or modify its operation without incurring charges or increases in charges for capacity, energy or reactive power except as set forth in Paragraphs 4 or 5 or Sub-Paragraph 3.2.2. Without limiting the generality of the foregoing, the following are examples of changes in this Agreement that would reduce Operating Flexibility: 27 33 15.42.1. Any change to Sub-Paragraph 3.2.2. which increases the Billing Capacity that would be computed using any of the alternative computations set forth therein, without regard to whether the specific computation has established Billing Capacity for any Billing Period during the term of this Agreement, or is anticipated to establish Billing Capacity for any future Billing Period; 15.42.2. Any change to Paragraph 5 that would increase the amount that Eastalco would pay at any level of energy consumption as a result of the application of Paragraph 5; 15.42.3. Any change to the months included in the Summer Months, Winter Months or Spring/Fall Months; 15.42.4. Any change to Paragraph 7 or 8 that results in the reduction of Eastalco's ability to modulate load while maintaining its desired level of operation; 15.42.5. Any change to Paragraph 6 that results in reducing the recovery that Eastalco otherwise reasonably could expect to receive under Paragraph 6. 15.43. "Payment Month" shall have the meaning set forth in Sub-Paragraph 11.1. 15.44. "Point of Delivery" shall mean the point at the Eastalco facility at which Potomac's conductors connect with Eastalco's 230 kilovolt ring bus. 15.45. "Potential Peak Hours" shall have the meaning set forth in Sub- Paragraph 8.1. 15.46. "Price Deflator Index" shall mean a figure derived from the Implicit Price Deflator of the Gross National Product (1982 = 100), which is set forth in the Survey of Current Business, as published and seasonally adjusted by the Bureau of Economic Analysis of the Department of Commerce. A copy of such index for the base period of the fourth quarter of 1987 is attached hereto as Schedule C. From time to time the Bureau of Economic Analysis revises the Implicit Price Deflator. The revised Implicit Price Deflator as published for the fourth quarter of 1987 and the current month shall be used to derive the Price Deflator Index. If the revised Implicit Price Deflator is not published for the fourth quarter of 1987, then Potomac and Eastalco shall mutually agree on the appropriate value for the fourth quarter of 1987. 28 34 15.47. "Profit Sharing Rate" shall have the meaning set forth in Sub- Paragraph 4.4.1. 15.48. "Profit Sharing Surcharge" shall have the meaning set forth in Sub-Paragraph 4.4. 15.49. "Reactive Kilovolt-Ampere Capacity" shall mean the greatest reactive kilovolt-ampere demand integrated over a clock hour during the Billing Period. 15.50. "Reactive Kilovolt-Ampere Charge" shall have the meaning set forth in Sub-Paragraph 3.3. 15.51. "Recovery Period" shall mean a period commencing at the cessation of an emergency under Sub-Paragraph 9.1 or 9.2, extending not less than the number of hours established under the applicable formula set forth in Sub-Paragraph 9.1.4. or 10.3. and ending at the end of a clock hour. 15.52. "Sabotage" shall mean any act of sabotage except any intentional damage occurring during a strike at Eastalco's facility (i) to Eastalco's facility, or (ii) to Potomac's transmission line between Doubs Substation and Eastalco's facility. 15.53. "Schedule PP Customers" shall mean the customers of Potomac purchasing power and energy pursuant to Potomac's Schedule PP, as approved by the Maryland Public Service Commission, or any succeeding schedule that supersedes and replaces such schedule. 15.54. "Spring/Fall Months" initially shall mean the months of March, April, May, June, October and November. Beginning January 1, 1994 "Spring/Fall Months" shall mean the months of April, May, June, September, October and November. 15.55. "Strikes" shall mean strikes, picketing, lockouts or other labor disputes or disturbances, including threats of imminent strikes or work stoppages that reasonably require Potomac to restrict or terminate its operations or interrupt electric service to Eastalco. 15.56. "Summer Months" initially shall mean the months of July, August and September. Beginning January l, 1994 "Summer Months" shall mean the months of July and August. 15.57. "System Capacity" shall mean three-phase, three-wire, 230,000 volts (nominal), 60 cycle alternating current electric service furnished by Potomac in accordance with Sub-Paragraph 3.1., not including any Off-System Power. 29 35 15.58. "System Demand" shall mean the integrated kilowatt demand recorded on the Meters during the Monthly Peak, less any Off-System Capacity purchased during such hour. 15.59. "System Energy" shall have the meaning set forth in Sub- Paragraph 4.2.1. 15.60. "Undermodulation Charge" shall have the meaning set forth in Sub-Paragraph 3.4 hereof. 15.61. "Upper Trigger Price" shall have the meaning set forth in Sub- Paragraph 4.4.4. 15.62. "Winter Months" initially shall mean the months of January, February and December. Beginning January 1, 1994 "Winter Months" shall mean the months of January, February, March and December. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first set forth above. WITNESS: THE POTOMAC EDISON COMPANY /s/ T. J. Kloc /s/ James D. Latimer - ---------------------- ------------------------------------ T. J. Kloc, Comproller By: James D. Latimer, Vice President WITNESS: EASTALCO ALUMINUM COMPANY /s/ Oatha D. Marken /s/ Alan J. Scheib - ---------------------- ------------------------------------ Oatha D. Marken By: Alan J. Scheib, MIS Area Manager Vice President and Controller 30 36 SCHEDULE A EFFECTIVE COST OF POWER CALCULATION The Effective Cost of Power as referred to in Subparagraph 15.16 for one year at an average plant load of 305,000 kilowatts equals Annual Cost divided by Annual Kilowatt-hours, where: A) Annual Cost is calculated as the sum of Winter/Summer Demand Charges of (6 Mos.) (165,000 kW)(Capacity Charge), Spring/Fall Demand Charges of (6 Mos.) (265,000 kW)(Capacity Charge), Winter/Summer Bath County Charges of (165,000 kW)(4,374 Hrs.)(Bath Surcharge), Spring/Fall Bath County Charges of (265,000 kW)(4,392 Hrs.)(Bath Surcharge), Winter/Summer Base Energy Charges of (165,000 kW)(4,374 Hrs.)(Base Energy Charge) Spring/Fall Base Energy Charges of (265,000 kW)(4,392 Hrs.)(Base Energy Charge) Winter/Summer Incremental Energy Charges of [(305,000 kW-165,000 kW)(4,374 Hrs. 34,000,000 kWh][Average Increments Energy Charge (1)), Spring/Fall Incremental Energy Charges of (305,000 kW-265,000 kW)(4,392 Hrs.) (Average Incremental Energy Charge) (1) Winter/Summer Reactive Power Charges of (6 Mos.)[(.6)(305,000 kW) - (.25) (165,000 kW)] (Reactive Kilovolt-Ampere Charge), and Spring/Fall Reactive Power Charges of (6 Mos.)[(.6)(305,000 kW) - (.25)(265,000 (Reactive Kilovolt-Ampere Charge); and B) Annual Kilowatt-hours is calculated as (305,000 kW)(8,766 Hrs.) - 34,000,000 kWh = 2,639,630,000 kWh
(1) For the latest twelve months, the quotient derived by dividing the sum of the charges billed for Incremental Energy (adjusted if necessary for a 1 mill per kilowatt-hour adder) by the sum of the kilowatt-hours of Incremental Energy. 37 SCHEDULE A ---------- PAGE 2
COMPUTATION OF EFFECTIVE COST OF POWER AS OF DECEMBER 31, 1987 -------------------------------------------------------------- DEMAND CHARGE $ 7,000 /KW-MONTH BATH COUNTY SURCHARGE 2.72 MILLS/KWH BASE ENERGY CHARGE 12.44 MILLS/KWH INCREMENTAL ENERGY CHARGE 15.017 MILLS/KWH KVAR CHARGE $ 0.10 /KVAR-NORTH KVAR BILLING OVER 25.001 OF BILLING DEMAND PROJECTED OFF-SYSTEM ENERGY 34,000,000 KWH per YEAR AVERAGE ENERGY LOAD 305,000 KW PROJECTED KVAR DEMAND 183,000 (0.60 times AVERAGE ENERGY LOAD) BILLING NUMBER TOTAL TOTAL ANNUAL UNITS OF RATE CHARGE CHARGE DEMAND CHARGE REVENUE KW MONTHS $/KW $ $ WINTER/SUMMER 165,000 6 7,000 6,930,000 SPRING/FALL 265,000 6 7,000 11,130,000 TOTAL 18,060,000 BATH COUNTY SURCHARGE REVENUE AVERAGE KW HOURS KWH $/KWH WINTER/SUMMER 165,000 4,374 721,710,000 0.00272 1,963,051 SPRING/FALL 265,000 4,392 1,163,380,000 0.00272 3,165,754 TOTAL 5,123,905 BASE ENERGY CHARGE REVENUE AVERAGE KW HOURS KWH $/KWH WINTER/SUMMER 165,000 4,374 721,710,000 0.01244 8,978,072 SPRING/FALL 265,000 4,392 1,163,880,000 0.01244 14,478,667 TOTAL 23,456,740 INCREMENTAL ENERGY CHARGE AVERAGE KW HOURS KWH $/KWH WINTER/SUMMER 140,000 4,374 612,360,000 (34,000,000) 378,360,000 0.015017 8,685,232 SPRING/FALL 40,000 4,392 175,680,000 0.015017 2,638,187 TOTAL 11,323,419 KVAR BILLING KVAR REVENUE DEMAND KVAR MONTHS $/KVAR WINTER/SUMMER 183,000 -141,750 6 0.100 85,050 SPRING/FALL 183,000 116,750 6 0.100 70,050 TOTAL 155,100 ----------- TOTAL REVENUE EXCLUDING OFF-SYSTEM $38,124,063 =========== AVERAGE KW HOURS KWH TOTAL KWH 305,000 8,766 2,673,630,000 LESS OFF-SYSTEM ENERGY (34,000,000) ------------- TOTAL KWH EXCLUDING OFF-SYSTEM 2,639,630,000 KWH ============= EFFECTIVE COST OF POWER AS OF DECEMBER 31, 1987 TOTAL REVENUE EXCLUDING OFF-SYSTEM ================================== EQUALS TOTAL KWH EXCLUDING OFF-SYSTEM $0.02202 /KWH OR 22.02 MILLS/KWH ========
38 SCHEDULE B BASE RATE REVENUE CALCULATION For the purpose of determining whether a material modification to this agreement has occurred as described in Subparagraph 15.27: 1) Base rate revenue shall be calculated utilizing the billing determinants of the year used for rate design by the Commission's order. 2) Eastalco's base rate revenue shall equal Eastalco's total annualized revenue, including Incremental Energy revenue but excluding any amounts paid for Off-System Power, Bath Surcharge, and any Fuel-Related Surcharge, less the product of the System Energy multiplied by the Maryland Fuel Rate effective for Eastalco immediately preceding the Commission's order. 3) The base rate revenue of Schedule PP Customers shall equal that rate schedule's total annualized revenue excluding any revenue due to the Maryland Fuel Rate, the Bath Surchage, or any Fuel-Related Surcharge. 39 SCHEDULE C SURVEY OF CURRENT BUSINESS TABLE 7.4 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT [TABLE OMITTED] TABLE 7.5 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT BY MAJOR TYPE OF PRODUCT [TABLE OMITTED] TABLE 7.6 - IMPLICIT PRICE DEFLATORS FOR GROSS NATIONAL PRODUCT BY SECTOR [TABLE OMITTED] TABLE 7.7 - IMPLICIT PRICE DEFLATORS FOR THE RELATION OF GROSS NATIONAL PRODUCT, NET NATIONAL PRODUCT AND NATIONAL INCOME [TABLE OMITTED] TABLE 7.8 - IMPLICIT PRICE DEFLATORS FOR COMMAND-BASIS GROSS NATIONAL PRODUCT [TABLE OMITTED] TABLE 7.9 - FIXED WEIGHTED PRICE INDEXES FOR PERSONAL CONSUMPTION EXPENDITURES BY MAJOR TYPE OF PRODUCT 1982 WEIGHTS [TABLE OMITTED] TABLE 7.14 - FIXED WEIGHTED PRICE INDEXES FOR EXPORTS AND IMPORTS OF GOODS AND SERVICES, 1982 WEIGHTS [TABLE OMITTED] 40 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 Sixteenth Revision of Original Page No. 5 Canceling Fifteenth Revision of Original Page No. 5 ================================================================================ FUEL RATE APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS RATE FOR THE COST OF FUEL Effective with all bills rendered on and after February 4. 1994 there shall be a fuel rate of 1.363 cents per kilowatthour which shall be billed under all Rate Schedules and contracts served at voltages of less than 230.000 volts at 1.390 cents per kilowatthour and under contracts served at 230.000 volts at 1.287 cents per kilowatthour. This currently effective rate will be applied each month until changed as prescribed by procedures approved by the Public Service Commission of Maryland. All bills rendered shall include an amount equal to the Fuel Rate times the kilowatthours used in the billing period. The resulting charge is in addition to any minimum charge set out in the Rate Schedule and is added to the Customer's bill after any revenue surcharge and before any tax surcharge is levied against the Customer's total bill. CALCULATION OF CHANGES IN THE COST OF FUEL The fuel rate per kilowatthour taken to the nearest 0.001 cent. shall be calculated each month on Maryland P. S. C. Form 1 in accordance with Commission Orders No. 63304 and 63456 in Case No. 7241 and Orders No. 65827 and 65849 in Case No. 7604. The rate so calculated shall be modified to recognize taxes by application of the following formula. 1 ----- A - Fc x 1 - T A = Fuel rate in cents per kilowatthour. Fc = The amount designated as "Fuel Cost Per Kwh Sold" on Maryland P.S.C. Form 1 for the period ending with the second preceding month. T = The Gross Receipts Tax rate in effect during the billing month expressed as a decimal. The fuel rate calculated in this manner shall be adjusted by the following factor "L" to determine the amount to be billed to Customers. L = Adjustment factor for transmission line delivery efficiency. For service at 230.000 volts L - 0.944 For service at lower voltages L - 1.020 For bimonthly bills the A factor shall be the average of the factor for the month in which the bill is rendered and the factor for the preceding month. ================================================================================ ISSUED BY ALAN J. NOIA. PRESIDENT Issued February 1, 1994 Effective with February cycle bills rendered on and after February 4, 1994 subject to refund Issued under Order No. 70989 of the Public Service Commission in Case No. 8523J 41 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 Fourth Revision of Original Page No. 5A Canceling Third Revision of Original Page No. 5A ================================================================================ DEFERRED FUEL COST SURCHARGE APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS DEFERRED FUEL COST SURCHARGE Effective for all bills rendered on and after January 6, 1994 there shall be a deterred fuel cost surcharge of 0.062 cents per kilowatthour which shall be billed under all Rate Schedules and special contracts served at voltages of less than 230.000 volts at 0.063 cents per kilowatthour and under special contracts served at 230.000 volts at 0.059 cents per kilowatthour. This deterred fuel cost surcharge will be applied each month until terminated at the earliest of (1) the first day of the first January billing cycle in January 1996. (2) the first date of the first billing cycle after collection of a total of $9.232.675. or (3) the first day of the first billing cycle following the actual underrecovery balance in the deferred fuel account falling below $0. This charge is in addition to any minimum charge set out in the Rate Schedule and is added to the Customer's bill before any tax surcharge is levied against the Customer's total bill. CALCULATION OF DEFERRED FUEL COST SURCHARGE A = DFC 1 -------------- ------- S x 1 - T A = Deferred fuel cost surcharge in cent per kilowatthour. DFC = $9,232,675 of dollars of deferred fuel costs. S = 15,211,936 kilowatthours of jurisdictional sales for the period. T = The Gross Receipts Tax rate in effect during the billing month expressed as a decimal. (.02). The Deferred Fuel Cost Surcharge calculated in this manner shall be adjusted by the following factor "L" to determine the amount to be billed to Customers. L = Adjustment factor for transmission line delivery efficiency. For service at 230,000 volts L = 0.944 For service at lower voltages L = 1.020 ================================================================================ ISSUED BY ALAN J. NOIA, PRESIDENT Issued January 5, 1994 Effective with bills rendered on and after January 6, 1994 Issued in accordance with PSC letter dated 1/4/94 in Case No. 8523I 42 THE POTOMAC EDISON COMPANY Electric P.S.C. Md. No. 53 Fourth Revision of Original Page No. 50 Canceling Third Revision of Original Page No. 50 ================================================================================ CLEAN AIR ACT RECOVERY SURCHARGE APPLICABLE TO ALL SCHEDULES AND SPECIAL CONTRACTS Rate to Recover Costs Associated with the Compliance with the Clean Air Act Amendments of 1990 Effective with bills rendered on and after November 11. 1994 there will be a surcharge at 0.00% to be billed under all rate schedules and special contracts to recover the Commission approved costs incurred by the Company in compliance with the Clean Air Act Amendments of 1990. This surcharge will be applied each month until changed by the Public Service Commission of Maryland. All bills rendered shall include as a separate line item an amount equal to the Clean Air Act Recovery Surcharge (CAARS) rate times total revenue exclusive of taxes. The resulting charge is in addition to any minimum charge set out in the rate schedule or special contract and is added to the Customer's bill before any tax surcharge is levied against the Customer's total bill. Amounts billed hereunder shall be subject to late pay charges. ================================================================================ ISSUED BY JAMES D. LATIMER, EXECUTIVE VICE PRESIDENT Issued November 1, 1994 To become effective on all bills rendered on and after November 11, 1994 Issued under Order No. 71465 in Case No. 8652 43 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 Third Revision of Original Page No. 5E Canceling Second Revision of Original Page No. 5E ================================================================================ ENERGY CONSERVATION SURCHARGE APPLIES TO DESIGNATED RATE SCHEDULES Effective with bills rendered on and after July 7, 1994, there shall be a surcharge as set forth below to recover the cost associated with Company-sponsored programs which promote conservation and efficient use of energy and such other programs as recommended by The Collaborative and approved by the Commission. The Energy Conservation Surcharge (ECS) is applied to designated Rate Schedules to recover eligible costs applicable to that Rate Schedule. These charges will be applied each month until changed by the Commission. Applicable bills rendered shall include an amount equal to either the ECS Residential rate times the number of kilowatthours used in the billing period, or the ECS Commercial and Industrial revenue percentage rate times the total revenue exclusive of taxes, whichever is specified. The resulting charge is in addition to any minimum charge set out in the Rate Schedule and is added to the Customer's energy charge or bill before any tax surcharge is levied against the Customer's total bill. Amounts billed hereunder shall be subject to late pay charges. CALCULATION OF SURCHARGE The Surcharge is calculated for the 12-month period beginning January 1. For the Residential class, the Surcharge is $0.00029 per kilowatthour and is calculated by dividing the eligible costs expected to be allocated to that Customer class for the period by the kilowatthour sales expected for that schedule over the same period. For the Commercial and Industrial class, the Surcharge is 3.48% of total revenue exclusive of taxes and is calculated by dividing the eligible costs expected to be allocated to that Customer class for the period by the total expected annual revenue from that Customer class. The calculation includes an adjustment for gross receipts tax. Eligible costs will be based on program descriptions filed with the Commission by November 1 of the previous year, which will be consistent with the Long Range Plan filed previously during the same year. An estimated Surcharge will be filed with the Commission on February 1. The formal ECS will be filed March 1 to become effective April 1 for the next twelve months. Upon determination that an ECS, if left unchanged, would result in a material over/undercolection, the Company may file a proposed interim revision of the ECS for Commission approval. ================================================================================ ISSUED BY ALAN J. NOIA, PRESIDENT Issued June 29, 1994 To become effective on all bills rendered on or after July 7, 1994 Approved at Public Service Commission's Administrative Meeting of June 29, 1994 44 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 Second Revision of Original Page No. 5E-1 Canceling First Revision of Original Page No. 5E-1 ================================================================================ For ECS calculation and application purposes, the costs and revenues for each of the rate schedules will be combined into Rate Schedule Groupings as follows: ENERGY CONSERVATION SURCHARGE EFFECTIVE JULY 7, 1994
RATE SCHEDULE RATE PER KWH PERCENT OF REVENUE ------------- ------------ ------------------ Residential R $0.00029 N/A Commercial and Industrial C N/A 3.48% G N/A 3.48% C-A N/A 3.48% CSH N/A 3.482 PH N/A 3.48% PP N/A 3.48% Eastalco N/A N/A Lighting OL N/A N/A AL N/A N/A MSL N/A N/A SL N/A N/A Frederick/Hagerstown N/A N/A
================================================================================ ISSUED BY ALAN J. NOIA, PRESIDENT Issued June 29, 1994 To become effective on all bills rendered on or after July 7, 1994 Approved at Public Service Commission's Administrative Meeting of June 29, 1994 45 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 Second Revision of Original Page No. 5E-2 Canceling First Revision of Original Page No. 5E-2 ================================================================================ ELIGIBLE COSTS Costs eligible for recovery through the ECS are approved by the Commission and include: Program Costs -- Program Costs are the estimated costs for research, development, implementation and operation of experimental and pilot programs and of programs approved by the Commission to be incurred by the Company during the 12 month period commencing each January 1, net of program amounts presently included in base rates. Program costs include, but are not limited to Company labor, rebates, payments to third parties for program implementation direct marketing costs incurred by the Company, market research costs, experimental and pilot program development, consultant fees, applicable software licenses, program measurement and monitoring hardware, and all other administrative activities associated with program development and implementation such as advertising, program management, research and development activities, experimental and pilot program development, and monitoring and evaluation. All program costs for Residential Class programs will be deferred and amortized (straight line) over five years. All program costs associated with Commercial and Industrial Class programs will be deferred and amortized (straight line) over seven years. Beginning in 1995 the ECS for residential programs will be calculated on a basis which amortizes program costs over seven years. Unamortized balances will accrue interest monthly at the rate of return (adjusted for taxes) allowed in the Company's last Maryland rate proceeding. Lost Revenues -- Lost revenues are base rate revenues, including surcharges that do not have a true-up provision, not billed because of lost sales from approved conservation programs. They are determined prospectively for the 12 month period commencing each January 1. The estimates of lost revenue are prepared on a program basis by Rate Schedule. Lost revenues are calculated as decremental demand and energy per participant or measure installed times appropriate base rate demand and energy charges, net of gross receipts tax. The estimates are based on "best available" demand and energy savings data and the latest available measurement and evaluation information. Lost revenues are calculated monthly and deferred with interest until recovered in revenue, unless the earnings test is not satisfied. Reconciliation of lost revenues is based upon actual program participation or number of measures installed. There is no retroactive adjustment for changes in the per unit demand and energy savings estimates. Lost revenues accrue between base rate cases except when the earnings test is not satisfied. ================================================================================ ISSUED BY ALAN J. NOIA, PRESIDENT Issued June 23, 1994 To become effective on all bills rendered on or after July 7, 1994 Approved at Public Service Commission's Administrative Meeting of June 29, 1994 46 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 First Revision of Original Page No. 5E-3 Canceling Original Page No. 5E-3 ================================================================================ ELIGIBLE COSTS (Continued) Performance-Based Shared Savings Incentive -- The Company can earn an incentive if it attains specified goals. Goals are established as a part of each program approved by the Commission. Achievement will be based on the aggregate energy saved by all active, approved programs. The energy saved per measure or participant will not be adjusted retroactively. The number of measures, units, or participants will be the actual number attained. The amount of the incentive will be based on a share of the net savings from each program as calculated using the Total Resource Cost Test (TRC) filed by the Company and approved by the Commission. The aggregate goals and the Company's shared savings amounts are:
% Goal Achieved % TRC --------------- ----- Less than 80% 0% 80% - 99% 6% 100% - 119% 7.5% 120% & Over 10%
The highest percent incentive determined above applies uniformly to the aggregate total of all net savings of all of the programs used in establishing the goal. The incentive will be grossed-up for all relevant taxes. Recovery of any incentive awarded through the ECS will be based on the actual amount earned in the previous year. Reconciliation Factor -- The reconciliation factor corrects for over/undercollection of program costs, lost revenues, interest, and incentives. The differences between the prospective estimates of program costs, lost revenues, incentives, and interest included in the current year ECS and the actual costs determined at the end of the year are included in the ECS reconciliation factor. The reconciliation factor is debited or credited against the costs eligible for recovery through the ECS during the next year. Interest is included in the reconciliation factor on the over/undercollection at the rate of return, adjusted for taxes, allowed in the Company's last Maryland rate proceeding. Interest shall apply to the over/undercollection as recorded in the deferred accounts and will be compounded semi-annually. The factor is adjusted for gross receipts taxes. ================================================================================ ISSUED BY ALAN J. NOIA, PRESIDENT Issued April 7, 1994 To become effective on all service rendered on or after May 5, 1994 Approved at Public Service Commission's Administrative Meeting of April 6, 1994 47 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 First Revision of Original Page No. 5E-4 Canceling Original Page No. 5E-4 ================================================================================ COST ALLOCATION Eligible costs will be allocated to the Rate Schedules participating in specific programs as follows: Program Costs: (a) Direct program costs will be assigned to specified approved programs. (b) Common costs will be allocated to each approved program in proportion to assigned program costs. (c) If a single program involved more than one Rate Schedule Grouping, the total assigned program costs will be allocated to the Rate Schedules participating in the programs by ratio of the number of participants or measures in the individual schedules. Cost Based Shared Savings Incentive -- Earned incentive costs are allocated to the Rate Schedules and Rate Schedule Groupings participating in proportion to the allocation of total assigned program costs for the year in which the incentive was earned. Lost Revenues and Reconciliation Factor -- Any such eligible costs or credits are directly assigned to the schedule of origin. EARNINGS TEST The ECS is subject to an earnings test. The test is performed by the Company on the first day of the month using the Company's most recent quarterly financial results on file with the Commission. The earnings test is passed when the Company's actual rate of return, on a Commission-adjusted basis, including adjustments for the ECS costs, is equal to or below the rate of return allowed in the Company's last Maryland rate proceeding. The earnings test is failed when the actual rate of return exceeds the return allowed in the Company's last Maryland rate proceeding. During periods in which the Company fails the earnings test (1) the Commission approved ECS, as revised each April 1, will continue unadjusted, and (2) incentives previously earned and approved by the Commission, as well as program costs, will be unaffected by the earnings test, and (3) no further lost revenues will be deferred. The portion of the ECS related to lost revenues recovery will be applied to reduce the balance of the deferred costs during such periods. Deferred costs earn interest compounded semi-annually at the rate of return (adjusted for taxes) allowed in the Company's last Maryland rate proceeding. ================================================================================ ISSUED BY ALAN J. NOIA, PRESIDENT Issued June 29, 1994 To become effective on all bills rendered on or after July 7, 1994 Approved at Public Service Commission's Administrative Meeting of June 29, 1994 48 THE POTOMAC EDISON COMPANY Electric P. S. C. Md. No. 53 Original Page No. 5F ================================================================================ COGENERATION PURPA PROJECT SURCHARGE Effective with service rendered on and after January 5, 1994 through January 4, 1996, there shall be a surcharge per KWH at rates set forth below to recover costs associated with COGENERATION PURPA PROJECTS approved by the Maryland Public Service Commission. These rates will be applied each month until changed by the Commission. Applicable bills rendered shall include an amount equal to the surcharge rate times the number of kilowatthours used in the billing period. The resulting charge is in addition to any minimum charge set out in the Rate Schedule and is added to the Customer's energy charge before any tax surcharge is levied against the Customer's total bill. Amounts billed hereunder shall be subject to late pay charges. COGENERATION PURPA SURCHARGE ---------------------------------------------
Schedule Rate Per KWH -------- ------------ R $0.00026 C 0.00023 G 0.00023 C-A 0.00031 CSH 0.00031 PH 0.00021 PP 0.00018 Eastalco 0.00009 OL 0.00003 AL 0.00003 MSL 0.00003 SL 0.00003 Fred/Hag 0.00003
Rates for service under each of the Company's Rate Schedules are subject to this surcharge. ================================================================================ ISSUED BY ALAN J. NOIA, PRESIDENT Issued December 28, 1993 To become effective on all service rendered on or after January 5, 1994 through January 4, 1996 Approved at Public Service Commission's Administrative Meeting of December 22, 1993 49 STIPULATION REGARDING THE ESTABLISHMENT OF RATES UNDER THE POWER CONTRACT BETWEEN POTOMAC EDISON AND EASTALCO PARTIES The parties to this stipulation are: The Potomac Edison Company Eastalco Aluminum Company Maryland People's Counsel Staff of the Maryland Public Service Commission Westvaco Corporation TERM OF THIS STIPULATION This stipulation shall be effective upon the approval by the Public Service Commission of Maryland of the new power contract between The Potomac Edison Company and Eastalco, which is attached hereto. This stipulation shall remain effective until the earlier of (i) the date that the contract terminates or (ii) the effective date of a further amendment to that contract that is inconsistent with this stipulation. COST OF SERVICE ALLOCATION As part of any application for a change in base rates, Potomac Edison shall prepare and present a 6 CP - Defined Months cost of service allocation study which allocates costs between Eastalco and all other customer classes based on the six coincident peaks of each customer class in the months defined as Winter Months and Summer Months in the power contract between Potomac Edison and Eastalco. Such cost allocation study shall be substantially the same as the cost allocation study included as Part 2 of Exhibit FDS-2 in the Direct Testimony and Exhibits of Francis D. Stillman, Potomac Edison Exhibit No. 5 in Case Number 8469, except that the 12 CP cost allocator labelled D1, Demand at Generation Level (ACP), shall be replaced by the 6 CP - Defined Months allocator. In particular, all cost of service allocations related to production and transmission plant will use the 6 CP - Defined Months allocator. This includes the investment in CAA related capital plant for compliance with Phase I and Phase II OF THE CAAA. 1 50 STIPULATION (Continued) - June 15, 1993 RATES TO EASTALCO Subject only to the Rate Shock Provision, the base rates to Eastalco shall be established to produce an indexed rate of return of not less than 0.995 nor more than 1.005 based on the 6 CP-Defined Months cost of service allocation normalized as discussed below. RATE SHOCK PROVISION In order to avoid rate shock to any customer class, in each base rate proceeding the base rates to Eastalco shall be established to produce an indexed rate of return as close as possible to 1.0 based on the 6 CP - Defined Month allocation subject to the following: If Potomac Edison receives a base rate increase, the percentage increase in base rates to Eastalco shall not be less than twenty-five percent (25%) nor more than one hundred seventy-five percent (175%) of the percentage increase in jurisdictional base revenues. If Potomac Edison receives a base rate decrease, the percentage decrease in base rates to Eastalco shall not be less than twenty-five percent (25%) nor more than one hundred seventy-five percent (175%) of the percentage decrease in jurisdictional base revenues. NORMALIZATION PROVISION Potomac Edison shall make a normalization adjustment to remove any Profit Sharing Surcharge revenue from the 6 CP - Defined Month cost of service study. If Potomac Edison believes that reductions in Eastalco System Demands were less than normal during the test year, or that there were increases in revenues from Eastalco that were caused by Eastalco's failure to reduce System Demand to a normal level, then Potomac shall use its best efforts to make adjustments to normalize the 6 CP - Defined Month cost of service study. A normalization adjustment for the winter/summer time period may only occur if Eastalco's System Demand is greater than 10 MW from the average of the winter/summer months of the cost of service study year and the previous year. A normalization adjustment to eliminate ratchet revenues for the spring/fall time period may only occur if Eastalco's System Demand is greater than the billing capacity 2 51 STIPULATION (Continued) - June 15, 1993 calculated according to the Eastalco Contract, Subparagraph 3.2.2.2.4. The adjustment could reduce Eastalco's revenues to the level which would have occurred if the billing capacity calculated in Subparagraph 3.2.2.2.4 had been used in the monthly bill calculation. Such normalization adjustments may include but are not limited to: (i) revenue from the operation of the ratchet provisions in the Eastalco Contract (Subparagraphs 3.2.2.1.5 and 3.2.2.2.6) may be removed from the 6 CP - Defined Month allocation study; (ii) billing demands shall be recomputed as if normal reductions in Eastalco's System Demands had occurred in the study period and revenue reduced accordingly; and (iii) the 6 CP allocation factor shall be determined based on normal reductions in Eastalco's System Demands. RATES TO OTHER CUSTOMERS Except as set forth below under "allocation of profit sharing revenues" the allocation of the remaining revenues, costs and rate base to customer classes other than Eastalco and the design of rates to recover such costs from all customer classes other than Eastalco shall not be affected by this stipulation. The cost allocation will be a two-step process. The 6 CP-Defined Month cost of service study used to establish rates to Eastalco will be the first step. The second step will be a cost of service study for all other customers. All costs, revenues and rate base related to Eastalco as determined in the 6 CP- Defined Months cost of service study, will be removed from the second cost of service study. NO PRECEDENTS This stipulation represents a compromise among the parties in recognition of Eastalco's separate class status, its unique contract, manner of usage of electrical energy, and usage of electricity as a production process raw material. Agreement to the terms of this stipulation does not mean that any party supports the application of rate allocations and principles in this stipulation outside of the specific context of this stipulation. No party shall cite this agreement in any tribunal for any purpose outside of this stipulation. This stipulation is not evidence of acceptance or rejection of any rate allocation or rate design principle by any party. Moreover, the parties agree that this agreement shall be of no precendential value and is in no way 3 52 STIPULATION (Continued) - June 15, 1993 intended to influence Commission decisions regarding proper cost allocation or rate design except as specifically agreed herein. ALLOCATION OF PROFIT SHARING REVENUES Under conditions set forth in the new Subparagraph 4.4 of the Eastalco power contract, Eastalco will pay a profit sharing surcharge to Potomac Edison. The revenue from the profit sharing surcharge shall be distributed by Potomac Edison to all its Maryland jurisdiction customer classes other than Eastalco. The timing of distributions and the allocation of profit sharing revenues among customer classes other than Eastalco shall be done in accordance with Exhibit A, "Procedures for Refund of Eastalco 'Profit Sharing' Revenues to Potomac Edison's Other Maryland Jurisdictional customers," which is attached hereto and made a part of this stipulation. ADJUSTMENT OF PROFIT SEARING The formulas set forth in the Electric Service Agreement between Eastalco and Potomac Edison for the Lower Trigger Price and the Upper Trigger Price have been developed based on the best information and projections of inflation and aluminum prices currently available. The intent of these formulas is that during periods of strong aluminum markets there should be some revenues from the Profit Sharing Surcharge. Potomac and Eastalco shall review these formulas prior to June 1, 1996, and each three years thereafter, to determine whether they are working as intended and report to the Commission their determination. If, after review of the report, any party determines that the formulas are operating in such a manner that the amount of revenue from the Profit Sharing Surcharge is higher than intended or lower than intended, taking into account the conditions of the aluminum market, the parties agree to negotiate in good faith modifications to the formulas or this stipulation. The intent of such negotiations would be to reestablish the benefits to all parties intended to be achieved by this stipulation. OTHER MATTERS The parties acknowledge that Eastalco's load and its load modulation activities have a significant effect on Maryland demand and generation resources required. 4 53 STIPULATION (Continued) - June 15, 1993 They further acknowledge that notifications required from Eastalco to the Company as regards contract extension or termination are an important factor in effective least cost planning for its Maryland customers. The parties also acknowledge that Eastalco's load for planning purposes is about 140 MW of Potomac Edison's total estimated demand in the year 2000 and that Eastalco's presence or absence beyond the initial contract term thus creates a significant planning uncertainty. The parties will not challenge the prudence of any plant that, at the time construction began, was prudent to build, even though, after construction started, or was completed, the plant served to provide excess capacity due solely to the absence of Eastalco as a 140 MW customer. This does not limit the rights of any party to challenge whether the plant construction was accomplished in a prudent manner or whether the Company proceeded with the start or continuation of construction at a time when the Company had actual knowledge that Eastalco would no longer continue as a 140 MW customer and actual knowledge that such additional plant was not needed for service to other customers. This agreement also does not restrict or diminish the parties' rights to raise any issues regarding whether any portion of the Company's rates are "just and reasonable." 5 54 STIPULATION (Continued) - June 15, 1993 REQUEST FOR APPROVAL The parties jointly request that the Commission approve the amendment to the contract between Potomac Edison and Eastalco and this stipulation. The Potomac Edison Company Eastalco Aluminum Company By /s/ Thomas J. By /s/ Alan J. Scheil ------------------------------- ------------------------------ Comptroller Vice-president and Controller Date 6/15/93 Date June 16, 1993 ----------------------------- ----------------------------- Maryland Office of People's Staff, Public Service Commission Counsel of Maryland By /s/ By /s/ Allen N. Freifield ------------------------------- ------------------------------ Date 2/ /93 Date 6/21/93 ----------------------------- ---------------------------
Westvaco Corporation joins in this stipulation excepting only to the "Other Matters " section. Westvaco Corporation By /s/ --------------------- Date 6-17-93 ------------------- 6 55 EXHIBIT A PROCEDURES FOR REFUND OF EASTALCO "PROFIT SHARING" REVENUES TO POTOMAC EDISON'S OTHER MARYLAND JURISDICTIONAL CUSTOMERS 1) Potomac Edison will track the profit sharing revenues received from Eastalco on a monthly basis and accumulate them in a deferred account. 2) The balance in the deferred account will earn interest, compounded semi-annually, at the rate of return allowed in the Company's last Maryland base rate proceeding. 3) Once each year, Potomac Edison will examine the account for refund to Maryland jurisdictional customers other than Eastalco. A) The deferred account will be examined each November to include any profit sharing revenues resulting from Eastalco's billings through October. The Rate Adjustment Credit for the following year will commence with customer bills for the first billing cycle in January. B) If the balance in the deferred account equals or exceeds $1,000,000, a credit will be determined for the next calendar year. This credit, in cents/kWh or $/kWh, will be applied to customer bills for the ensuing 12-month calendar period as a Rate Adjustment Credit (RAC). C) If the balance is less than $1,000,000, no credit will be calculated. The balance will carry over into the following year and continue to earn interest as described above until the next review. If, however, the balance is less than $1,000,000 and an existing "RAC" is in effect, the existing "RAC" will continue until the month prior to when the account would reach a zero balance. D) The balance to be returned to other customers will be allocated among the rate schedules in accordance with the demand allocation method approved in Potomac Edison's last Maryland base rate case. Once the amounts have been allocated by cost of service study rate schedule groupings, the "RAC" will be calculated by dividing the schedule's allocated dollars by its projected kWh for the next calendar year. 4) Potomac Edison will track the credits made to customer bills and reduce the balance in the deferred account on a monthly basis by the amount of those credits throughout the refund year. 5) Any over or under refund will be reflected in the deferred account balance for the following annual review. 7 EX-11.01 5 CALCULATION OF EARNINGS PER SHARE 1 EXHIBIT 11.01 ALUMAX INC. CALCULATION OF EARNINGS PER COMMON SHARE (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended June 30, June 30, --------------- ---------------- 1997 1996 1997 1996 ------ ------ ------ ------- Primary earnings per common share 1. Net earnings ...................................... $ 35.8 $ 83.1 $ 62.5 $ 178.5 2. Deduct - Series A Convertible Preferred dividends ......................... -- (2.4) -- (4.7) ------ ------ ------ ------- 3. Earnings applicable to common shares .............. $ 35.8 $ 80.7 $ 62.5 $ 173.8 ====== ====== ====== ======= 4. Average primary shares outstanding ................ 55.9 45.7 55.9 45.6 ====== ====== ====== ======= 5. Primary earnings per common share (line 3 divided by line 4) .................. $ 0.64 $ 1.77 $ 1.12 $ 3.81 ====== ====== ====== ======= Fully diluted earnings per common share 6. Earnings applicable to common shares .............. $ 35.8 $ 80.7 $ 62.5 $ 173.8 7. Add - Series A Convertible Preferred dividends .... -- 2.4 -- 4.7 ------ ------ ------ ------- 8. Earnings applicable to common shares .............. $ 35.8 $ 83.1 $ 62.5 $ 178.5 ====== ====== ====== ======= 9. Average fully diluted shares outstanding .......... 56.0 55.3 55.9 55.2 ====== ====== ====== ======= 10. Fully diluted earnings per common share (line 8 divided by line 9) .................. $ 0.64 $ 1.50 $ 1.12 $ 3.23 ====== ====== ====== =======
-20- EX-27.01 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q OF ALUMAX INC FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1997 JUN-30-1997 27 0 462 18 543 1,109 3,103 1,080 3,320 399 650 0 0 1 1,706 3,320 1,433 1,433 1,106 1,304 (2) 1 27 104 42 63 0 0 0 63 1.12 1.12
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