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Gas Transportation And Balancing Agreement

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Sectors: Services
Governing Law: Illinois, View Illinois State Laws
Effective Date: May 01, 2001
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Exhibit 10.7


CONFIDENTIAL


GAS TRANSPORTATION AND
----------------------
BALANCING AGREEMENT
-------------------


This Agreement, dated as of May 1, 2001, between Northern Illinois Gas Company d/b/a Nicor Gas Company ("Nicor Gas" or "Company") and Elwood Energy LLC, Elwood Energy II, LLC, and Elwood Energy III, LLC (referred to collectively as "Elwood Energy" or "Customer").


WHEREAS, Elwood Energy is expanding its natural gas-fired electric power generation facility in or near Elwood, Illinois (the "Generation Facilities" described in more detail below), on a site located within the geographic area to which Nicor Gas provides gas distribution service; but within such distance of interstate natural gas pipeline facilities of Northern Border Pipeline Company ("NBPL") and Alliance Pipeline Company ("APL") that bypass of Company's gas distribution facilities is economically feasible and practical;


WHEREAS, Elwood Energy has provided an affidavit to Nicor Gas stating Elwood Energy's intent to bypass Company's facilities absent the transportation and balancing service from Nicor Gas called for under this Agreement and other evidence required by and satisfactory to Nicor Gas to verify the investment required by Elwood Energy in order to bypass Company's facilities;


WHEREAS, gas to be received by Elwood Energy at its Generation Facilities from Nicor Gas under this Agreement beginning on or about May 1, 2001 will be delivered to Nicor Gas for the account of Elwood Energy from interconnects with approved interstate pipeline facilities and redelivered by Nicor Gas to the gas pipeline facilities of The Peoples Gas Light and Coke Company ("Peoples Gas" or "PGLC") and transported via Peoples Gas' pipeline facilities to an interconnection directly (or indirectly via Elwood Energy gas pipeline facilities) with Nicor Gas' gas meters serving the Generation Facilities, where it will be delivered to Nicor Gas for redelivery to Elwood Energy; and


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WHEREAS, Elwood Energy has entered into this Agreement with Nicor Gas for contract service under Rate 17 of Nicor Gas' Schedule of Rates for Gas Service, and Nicor Gas has contracted with Peoples Gas to receive certain transportation and balancing services necessary for Nicor Gas to provide to Elwood Energy the services called for in this Agreement.


NOW, THEREFORE, the parties agree as follows:


1. Definitions. Unless a clear contrary intention appears, the following terms, where used in this Agreement, and in all exhibits, recitals, appendices and amendments related to this Agreement, shall have the following meaning:
(a) "APL" shall mean Alliance Pipeline Company.
(b) "Balancing and Storage Service" shall mean a service under which
Company (i) accepts quantities of gas delivered for the account
of Customer at the Receipt Point when and to the extent such
quantities are in excess of the Generation Facilities' metered
requirements, or (ii) delivers gas to Customer at the Delivery
Point when and to the extent the Generation Facilities' metered
requirements exceed quantities of gas delivered to Nicor Gas for
the account of Customer at the Receipt Point.
(c) "Balancing Service Account Balance" shall mean the quantity of
gas at any time in the account which is, for accounting purposes,
the quantity of gas delivered to Company at the Receipt Point
under the Balancing and Storage Service in excess of the quantity
of gas delivered to Customer at the Delivery Point under the
Balancing and Storage Service.


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(d) "Billing Month" shall mean the period between two consecutive
meter readings taken as nearly as practicable to thirty (30)-day
intervals.
(e) "Business Day" shall mean any day on which Company is open for
the conduct of business with the public, and each such day shall
commence at 8:00 a.m. CCT and end at 5:00 p.m. CCT.
(f) "Buy-Out Amount" shall have the meaning set forth in Section 14.
(g) "Central Clock Time" or "CCT" shall mean local time in Chicago,
Illinois.
(h) "Company" shall mean Northern Illinois Gas Company d/b/a Nicor
Gas Company or any successor or permitted assign.
(i) "Contract Quantity" shall mean Customer's MDCQ, MHQ, MMDN, MFBQS
and MFBQnS entitlements under this Agreement.
(j) "Contract Year" shall mean the twelve-month period beginning
April 1 of each year during the term of this Agreement except for
the first Contract Year which shall mean an eleven (11) month
period beginning on May 1, 2001 through March 31, 2002, inclusive
of the commencement and ending dates.
(k) "Critical Day" shall have, with respect to gas requested to be
injected into or withdrawn from storage in Company's facilities,
the meaning ascribed to it in Company's Schedule of Rates and
shall have, with respect to gas requested to be injected into or
withdrawn from storage in Peoples Gas' facilities in connection
with this Agreement, the meaning ascribed to it in the Peoples
Gas Agreement.
(l) "Customer" shall mean Elwood Energy LLC, Elwood Energy II, LLC,
and Elwood Energy III, LLC or any successor or permitted


3


assignee of these companies.
(m) "Customer's Purchase Option" shall have the meaning set forth in
Section 31.
(n) "Delivery Point" shall mean the outlet side of the
interconnection between Nicor Gas' meter(s) serving the
Generation Facilities and Elwood Energy's facilities for
receiving the gas from Nicor Gas for use in the Generation
Facilities.
(o) "Delivery Variance" shall have the meaning set forth in Section
41.
(p) "Dispatch Schedule" shall have the meaning set forth in Exhibit
B.
(q) "Effective Degree Day" or "EDD" shall be derived from (i) the
Degree Day meaning ascribed to it in Company's Schedule of Rates
and (ii) wind and langley correction factors. Each variable shall
be determined using Company's then existing weather service
resources.
(r) "Excess Storage Charge" shall have the meaning set forth in
Section 4(g).
(s) "Exercise Price" shall have the meaning set forth in Section 31.
(t) "Force Majeure" shall have the meaning set forth in Section 11.
(u) "Forecast Burn" shall be Customer's estimate of plant consumption
for the next calendar day(s) and shall have the meaning set forth
in Exhibit B, Communications Protocol.
(v) "Forecast Variance" shall have the meaning set forth in Section
42.
(w) "Gas Cost" or "GC" shall have the meaning ascribed to it in
Company's Schedule of Rates.
(x) "Gas Day" shall have the meaning ascribed to it in Company's
Schedule of Rates.


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(y) "Generation Facilities" shall mean Customer's Phase I and Phase
II electric power generating facilities comprised of nine (9)
simple-cycle natural gas turbine units with a combined installed
generating capacity of approximately 600 MW for Phase I (4-units)
and 775 MW for Phase II (5-units) at Customer's premises located
near the intersection of Noel and Patterson Roads in Elwood,
Illinois.
(z) "Global Point Agreement(s)" or "GPAs" shall mean a Global Point
Agreement between Company and NBPL, or other interstate
pipelines, to aggregate and treat interconnection locations
between Company and these pipelines as one nomination point
location in order to maximize the hourly delivery flexibility to
be provided to Customer or its authorized agents.
(aa) "Lender," "Lenders" and "Lender(s)" shall have the meaning set
forth in Section 16.
(bb) "Market Price" shall mean the price, converted to the
corresponding price per therm, set forth in Gas Daily under the
heading Daily Price Survey, Chicago-LDCs, Large e-use, midpoint
of the range for the flow date. Market Price for any Gas Day for
which Gas Daily is not published shall be determined by the issue
of Gas Daily first published after such Gas Day.
(cc) "Maximum Balancing Service Account Balance" or "MBAB" shall have
the meaning set forth in Section 2(b).
(dd) "Maximum Daily Contract Quantity" or "MDCQ" shall mean the
maximum quantity of gas that Company shall receive at the Receipt
Point and deliver to Customer at the Delivery Point on any Gas
Day. During the Summer Months, Customer's MDCQ


5


shall be 2,416,000 therms per Gas Day. During the Non-Summer
Months, Customer's MDCQ shall be 2,844,000 therms per Gas Day.
(ee) "Maximum Firm Balancing Quantity Non-Summer" ("MFBQnS") shall
mean the Non-Summer maximum Forecast Variance quantity Company
shall have the firm obligation to receive from or deliver to
Customer as Balancing and Storage Service (Injection/Withdrawal)
on any Gas Day.
(ff) "Maximum Firm Balancing Quantity Summer" ("MFBQS") shall mean the
Summer Month maximum Forecast Variance quantity Company shall
have the firm obligation to receive from or deliver to Customer
as Balancing and Storage Service (Injection/Withdrawal) on any
Gas Day.
(gg) "Maximum Hourly Quantity" or "MHQ" shall mean the maximum
quantity of gas that Company shall deliver to Customer at the
Delivery Point in any hour. During the Summer Months the MHQ
shall be 151,000 therms per hour. During the Non-Summer Months,
the MHQ shall be 177,750 therms per hour.
(hh) "Minimum-Maximum Daily Nomination" or "MMDN" shall have the
meaning set forth in Section 2(a).
(ii) "NBPL" shall mean Northern Border Pipeline Company.
(jj) "NBPL's Gas Tariff" shall mean NBPL's FERC Gas Tariff (First
Revised Volume No. 1) on file and in effect, as it may be revised
from time to time, with the Federal Energy Regulatory Commission
or any successor to that agency.
(kk) "NGPL" shall mean Natural Gas Pipeline Company of America.
(ll) "Non-Summer Months" shall mean the months of October, November,
December, January, February, March, April and May.
(mm) "Notices" shall have the meaning set forth in Section 33.


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(nn) "Operational Balancing Agreement(s)" or "OBAs" shall have the
meaning ascribed to it in NBPL's, NGPL's and APL's respective gas
tariffs.
(oo) "Operational Flow Order" or "OFO" shall have the meaning ascribed
to it in NBPL's, NGPL's, APL's and Company's respective gas
tariffs.
(pp) "Option Equipment" shall have the meaning set forth in Section
31.
(qq) "Peoples Gas" or "PGLC" shall mean The Peoples Gas Light and Coke
Company.
(rr) "Peoples Gas Agreement" shall have the meaning set forth in
Section 28.
(ss) "Person" shall have the meaning set forth in Section 16.
(tt) "Phase I Term" shall mean the period of time beginning May 1,
2001 and ending September 30, 2004 and shall apply to Customer's
initial four (4) gas turbine units in commercial operation prior
to the effective date of this Agreement (Elwood Units 1-4).
(uu) "Phase II Term" shall mean the period of time beginning May 1,
2001 and ending March 31, 2006 and shall apply to Customer's
additional five (5) gas turbine units (Elwood Units 5-9).
(vv) "Receipt Point" shall mean the interconnection(s) between NBPL,
NGPL and APL interstate pipeline facilities and Peoples Gas'
and/or Nicor Gas' LDC facilities, as applicable.
(ww) "Requested Authorized Use" shall have the meaning ascribed to it
in Company's Schedule of Rates.
(xx) "Schedule of Rates" shall mean Company's Schedule of Rates for
Gas Service (Ill.C.C. No. 16) on file and in effect, as it may be
revised from time to time, with the Illinois Commerce


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Commission or any successor to that agency.


(yy) "Storage Inventory Overrun Charge" shall have the meaning set
forth in Section 4(f).


(zz) "Summer Months" shall mean the months of June, July, August and
September.


(aaa) "Transportation Service" shall mean a service under which Nicor
Gas receives gas delivered to Nicor Gas for the account of
Elwood Energy at a Receipt Point, causes the gas to be
transported via Peoples Gas' pipeline facilities to the Delivery
Point, and redelivers the gas to Elwood Energy at the Delivery
Point.


(bbb) "Unauthorized Use" shall have the meaning ascribed to it in
Company's Schedule of Rates.


2. Services. Except as otherwise provided in this Agreement, the services provided by Company shall be firm and not subject to interruption, except for reason of Force Majeure. Company agrees to provide, and Customer agrees to pay for, the following services at Customer's Generation Facilities.


(a) Except as otherwise provided for in this Agreement, on any
Gas Day during the Summer Months and the Non-Summer Months during
the term of this Agreement, Customer shall have the right to firm
Transportation Service within the "Minimum-Maximum Daily
Nomination" or "MMDN" available, not to exceed the applicable
MDCQ, subject to the terms and conditions of this Agreement.
Company shall not be obligated to deliver gas to Customer at an
hourly rate in excess of the MHQ. Company will use its reasonable
efforts to deliver gas to Customer at an hourly rate in excess of
the MHQ and MDCQ as requested by Customer. Such use of gas at a
rate in


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excess of the Customer's MHQ and MDCQ, when requested by Customer
and subsequently approved by Company, shall not be deemed as
Unauthorized Use.


(b) Customer shall be entitled to receive Balancing and Storage
Service during the Summer Months and the Non-Summer Months
subject to the terms and conditions of this Agreement. The
Balancing Service Account Balance at any time shall not exceed a
maximum of 7,250,000 therms ("Maximum Balancing Service Account
Balance" or "MBAB"). Any Balancing Service Account Balance in
excess of the MBAB shall be subject to either (i) the Storage
Inventory Overrun Charge or (ii) the Excess Storage Charge.
During the Summer Months, Customer's Maximum Firm Balancing
Quantity Summer ("MFBQS") shall be limited to 1,812,000 therms
per Gas Day. During the Summer Months, Balancing and Storage
Service in excess of Customer's MFBQS (1,812,000 therms) per Gas
Day shall be interruptible by Company. During the Non-Summer
Months, Customer's Maximum Firm Balancing Quantity Non-Summer
("MFBQnS") shall be limited to 888,750 therms per Gas Day. During
the Non-Summer Months, Balancing and Storage Service and Forecast
Variances in excess of Customer's MFBQnS (888,750 therms) per Gas
Day shall be interruptible by Company. During the Non-Summer
Months, Customer withdrawals from storage may be further limited
by Company on any Gas Day that Company forecasts that it will
experience sixty (60) or more Effective Degree Days or when
Company or Peoples Gas declares a Critical Day. On any Gas Day
that Company forecasts that it will experience sixty (60) or more
Effective Degree Days, Customer withdrawals from storage will


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be interruptible, based on reasonable operating limitations.
Nicor Gas may require Customer to nominate flowing supplies, if
necessary, to ensure firm service under this Agreement. On any
Gas Day that Company forecasts that it will experience sixty (60)
or more Effective Degree Days, Company shall have the right to
limit Company's firm deliveries to Customer's Generation
Facilities to Customer's corresponding firm city-gate deliveries
on applicable interstate pipelines for such day(s). However,
Company agrees that it will not unreasonably reduce Customer's
MFBQS and MFBQnS injection and withdrawal storage rights in order
for Company to provide incremental interruptible services. On
Critical Days declared by Company or Peoples Gas and on days that
Company forecasts that it will experience sixty-five (65) or more
Effective Degree Days, Customer's MFBQS and MFBQnS withdrawals
from storage will be interruptible, subject to reasonable
operating limitations, and Company's firm deliveries to the
Generation Facilities will be limited to Customer's corresponding
hourly confirmed city-gate volumes delivered on NBPL, APL and
NGPL as applicable. Company's forecast of Effective Degree Days,
and any corresponding reduction in transportation or storage
rights pursuant to this section, shall be made no later than the
time by which Company is required to declare a Critical Day
pursuant to Company's Schedule of Rates, but in any case no later
than 8:00 A.M. CCT on the calendar day prior to adjustment of the
Contract Quantities.


(c) Except as otherwise provided in this Agreement, Company's
Unaccounted-for Gas percentage shall not apply to any service
under this Agreement.


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3. Customer Responsibility. Acquisition and delivery of Customer-owned gas to the Receipt Point(s) shall be the sole responsibility of Customer.


4. Charges for Services. Notwithstanding anything to the contrary in Company's Schedule of Rates, charges for services under this Agreement shall be limited to the following:


(a) Reservation Charge payable for each Summer Month at the
rate of $0.045 per therm of M DCQ in such Billing Month.
(b) Volumetric Charge payable for each Billing Month at the
rate of $0.0037 per therm delivered by Company to Customer during
each Summer Month and $0.0092 per therm delivered by Company to
Customer during each Non-Summer Month.
(c) Delivery Variance Charge assessed at the rate of $0.05
per therm on each occurrence and for each Delivery Variance
greater than or equal to 50,000 therms on non-Critical and non-
OFO days as ascribed to in Section 41.
(d) Balancing and Storage Service Reservation Charge assessed
and payable for each Summer Month at the rate of $0.335 per therm
of Customer's Maximum Firm Balancing Quantity Summer ("MFBQS")
(1,812,000 therms) during such Billing Month .
(e) Forecast Variance Charge assessed daily and payable at
the end of the Billing Month at the following rates for the
absolute positive or negative variance, expressed in therms,
between the total daily quantity of gas delivered by Company to


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the Generation Facilities versus Customer's Forecast Burn as
described in Section 42.


Summer Months
-------------

Greater of +/- 20% of Forecast Burn or
200,000 therms $0.000/therm
* above & **= 1,208,000 therms $0.005/therm
* 1,208,000 & **= 1,812,000 therms $0.010/therm
* 1,812,000 & **= 2,416,000 therms $0.048/therm
* 2,416,000 therms (non-firm) Negotiable
(* = more than) (** = less than)


Non-Summer Months
-----------------

Greater of +/- 20% of Forecast Burn or
200,000 therms $0.000/therm
* above & **= 474,000 therms $0.005/therm
* 474,000 & **= 888,750 therms $0.055/therm
* 888,750 - 1,180,000 therms (non-firm) $0.055/therm
* 1,180,000 (non-firm) Negotiable


(* = more than) (** = less than)


(f) Storage Inventory Overrun Charge assessed monthly, at the
rate of $0.05 per therm, on each occurrence where the highest
daily quantity in storage is in excess of 7,250,000 therms, but
not to exceed 9,515,000 therms.
(g) Excess Storage Charge assessed monthly, at the rate of
$0.10 per therm, on each occurrence where the highest daily
quantity in storage is in excess 9,515,000 therms, or assessed
daily where Balancing and Storage Service on any day exceeds
2,416,000 therms but is less than 3,020,000 therms in the Summer
Months or where Balancing and Storage Service injections on any
day exceeds 1,180,000 therms but less than 1,475,000 therms in
the Non-Summer Months.
(h) Upstream Transportation Charges.
(i) Reservation Charge payable for each Summer Month at


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the rate of $0.0737 per therm of MDCQ (2,416,000) during
such Billing Month.
(ii) Volumetric Charge, inclusive of fuel, payable for each
Billing Month at the rate of $0.0044 per therm on quantities
delivered by Company to Customer during such Billing Month.
(i) Requested Authorized Use shall be a volumetric charge, at the
rate set forth in Section 7, on the quantities of gas requested
by Customer and authorized by Company for any such day.
(j) Unauthorized Use shall be a volumetric charge, at the rate set
forth in Section 7, on the last gas measured for such days.
Customer recognizes that charges authorized under this Agreement are
subject to Company's Rider 8, Adjustment of Municipal and State
Utility Taxes, of Company's Schedule of Rates, as in effect from time-
to-time. Customer further recognizes that should a taxing authority
having appropriate jurisdiction over Customer levy a tax on the use of
natural gas ("Gas Use Tax"), and subsequently require Company to
collect such a tax, Customer shall reimburse Company for any
applicable charges resulting from the invoked Gas Use Tax, provided
however, to the extent Company has the authority or discretion under
its Schedule of Rates to discount or waive the invoked tax, Company
shall use all reasonable means to mitigate the invoked tax liability
and through any appropriate discounts or exemptions, pass such
benefits on to Customer.


5. Billing and Payment.
(a) Each month during the term of this Agreement, Company
shall tender to Customer an invoice for services rendered during
the preceding month. Pipeline deliveries,


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Customer gas usage, determination of storage volume balances,
Forecast Variances, Delivery Variances, Requested Authorized Use,
and Unauthorized Use and balancing overruns will, however, be
calculated on a daily basis. Company may send its invoice to
Customer via facsimile. Customer shall remit payment to Company
by wire transfer or automated clearinghouse no later than
fourteen (14) days after Customer's receipt of such invoice.
(b) If Customer fails to remit the full amount payable by
it when due, interest on the unpaid portion shall accrue at a
rate equal to the lower of (i) the then-effective prime rate of
interest published under "Money Rate" by the Wall Street Journal,
plus one percent (1%) per annum from the due date until the date
of payment, or (ii) the maximum applicable lawful interest rate.
(c) If Customer fails to remit the full amount payable by
it when due, Company may, in the absence of a good faith dispute
as to the amount due and owing, suspend its performance under
this Agreement on ten (10) days' written notice to Customer.
Company may not suspend its performance under this Agreement for
any reason other than set forth in this subsection (c) of this
section.
(d) Minimum Monthl
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