Additional Firm Transportation Services for ESNG

0000019745-06-000016.txt : 20060602 0000019745-06-000016.hdr.sgml : 20060602 20060602163450 ACCESSION NUMBER: 0000019745-06-000016 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060531 ITEM INFORMATION: Entry into a Material Definitive Agreement FILED AS OF DATE: 20060602 DATE AS OF CHANGE: 20060602 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHESAPEAKE UTILITIES CORP CENTRAL INDEX KEY: 0000019745 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 510064146 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11590 FILM NUMBER: 06883695 BUSINESS ADDRESS: STREET 1: 909 SILVER LAKE BLVD STREET 2: PO BOX 615 CITY: DOVER STATE: DE ZIP: 19903-0615 BUSINESS PHONE: 3027346799 MAIL ADDRESS: STREET 1: 909 SILVER LAKE BLVD CITY: DOVER STATE: DE ZIP: 19904 8-K 1 esng_contr.htm ADDITIONAL FIRM TRANSPORTATION SERVICES FOR ESNG Additional Firm Transportation Services for ESNG

United States

Securities and Exchange Commission

Washington, D.C. 20549

_______________________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 31, 2006

Chesapeake Utilities Corporation

(Exact name of registrant as specified in its charter)

Delaware	001-11590	51-0064146
(State or other jurisdiction of	(Commission	(I.R.S. Employer
incorporation or organization)	File Number)	Identification No.)

909 Silver Lake Boulevard, Dover, Delaware 19904

(Address of principal executive offices, including Zip Code)

(302) 734-6799

(Registrant's Telephone Number, including Area Code)

_______________________________________________________________

(Former name, former address and former fiscal year, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

On May 31, 2006, Eastern Shore Natural Gas Company (“ESNG”), a wholly owned natural gas transmission subsidiary of Chesapeake Utilities Corporation (“Chesapeake”), entered into Precedent Agreements with Chesapeake, through its Delaware and Maryland Divisions, and Delmarva Power & Light Company (“DPL”), to provide additional firm transportation services for 20 years upon completion of ESNG’s latest proposed pipeline expansion project. Chesapeake and DPL (each, a “Customer” and, together, “Customers”) are currently parties to existing firm natural gas transportation service agreements with ESNG. In terms of ESNG’s total volumes transported in 2005, Chesapeake and DPL accounted for 33 percent and 11 percent, respectively.

ESNG has proposed to develop, construct and operate new pipeline facilities that would originate in Calvert County, MD, cross the Chesapeake Bay into Dorchester and Caroline Counties, MD, and then interconnect with ESNG’s existing facilities in Sussex County, DE. The total cost of the project is estimated at $93 million, with the final cost dependent upon the ultimate design of the pipeline, construction materials and labor costs.

Pursuant to the Precedent Agreements, the parties have agreed to proceed with obtaining the necessary governmental and regulatory authorizations, including the approval of the Federal Energy Regulatory Commission (“FERC). If an application for authorization to construct the project has not been filed with the FERC within 24 months of May 31, 2006 (the date the Precedent Agreements were executed), either Customer or ESNG may terminate its respective Precedent Agreement.

The Precedent Agreements provide that ESNG and each Customer shall enter into (1) an extension of their respective existing service agreements and (2) a firm transportation service agreement for a daily transportation quantity of 30,000 dekatherms upon (a) receipt of all necessary approvals for the project, (b) ESNG’s receipt of a formal financial commitment related to the financing of the project, and (c) final approval by ESNG’s board of directors.

If any one of the conditions described in (a), (b), or (c) above is not satisfied within 24 months after the FERC formally accepts ESNG’s application and institutes a decisional proceeding, either party (either Customer or ESNG) may thereafter, at its option, terminate their respective Precedent Agreement, and ESNG may withdraw its application.

Upon obtaining the final approvals and execution of the service contract extensions and the firm transportation service agreements, ESNG will initiate construction of the pipeline and facilities necessary to implement the firm transportation services. Services could commence as early as November 1, 2009, although either Customer may delay the date, as long as the request for deferral is communicated to ESNG by March 31, 2007. However, if the firm transportation services have not commenced within 24 months of the agreed upon date, either ESNG or the respective Customer may terminate its respective Precedent Agreement or the firm transportation service agreement, whichever is in effect at that time.

During the negotiations of the Precedent Agreements, ESNG and each of the Customers entered into Letter Agreements, which provide that, in the event that the project is not placed into service, each Customer would pay over a period of no less than 20 years up to $2 million of pre-certification costs incurred by ESNG, subject to FERC approval.

Copies of the Precedent Agreements (including the Letter Agreements) are being filed as Exhibits 10.1 through 10.3 to this report and are incorporated by reference into this Item 1.01. The description of the Precedent Agreements and the Letter Agreements above is a summary and does not purport to be complete and is qualified in its entirety by reference to the Precedent Agreements and the Letter Agreements.

A copy of the press release, dated June 2, 2006, announcing the transaction is attached hereto as Exhibit 99.1 and is incorporated by reference herein.

SIGNATURE

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 hereunto duly authorized.

Chesapeake Utilities Corporation

/s/ Michael P. McMasters

—————————————

Michael P. McMasters

Senior Vice President and Chief Financial Officer

Date: June 2, 2006

EX-10.1 2 cuc_de.htm PRECEDENT AGREEMENT WITH CHESAPEAKE UTILITIES CORP - DELAWARE DIVISION Agreement with Chesapeake Utilities Corp - Delaware Division

Exhibit 10.1

PRECEDENT AGREEMENT

FOR THE FIRM TRANSPORTATION OF NATURAL GAS

This PRECEDENT AGREEMENT for the Firm Transportation of Natural Gas ("Precedent Agreement") is made and entered into this 31^st day of May, 2006, by and between EASTERN SHORE NATURAL GAS COMPANY, a Delaware corporation (“Eastern Shore”) and CHESAPEAKE UTILITIES CORPORATION - DELAWARE DIVISION (“Shipper”), a Delaware corporation, sometimes jointly referred to herein as the (“Parties”) or singly as a (“Party”).

WITNESSETH:

WHEREAS, Eastern Shore is a natural gas company engaged in the transportation of natural gas in interstate commerce; and

WHEREAS, Eastern Shore proposes to develop, construct and operate new interstate pipeline facilities (the “Project”) to transport natural gas from an interconnection with the facilities of the Cove Point Liquefied Natural Gas (“LNG”) Plant located near Cove Point, Maryland to points on the Delmarva Peninsula where such facilities shall interconnect with the existing pipeline facilities of Eastern Shore; and

WHEREAS, Shipper is a Local Distribution Company connected to the natural gas pipeline facilities of Eastern Shore: and

WHEREAS, Eastern Shore and Shipper are Parties to existing firm transportation service agreements, and Shipper desires firm transportation service under Eastern Shore’s proposed Project for delivery of the quantities specified in Exhibit A hereto from the receipt point to the delivery points specified in Exhibit A hereto; and

WHEREAS, Eastern Shore is willing to endeavor to (1) seek the necessary governmental and regulatory authorizations, (2) construct the necessary facilities and (3) render the requested firm transportation service as described in this Precedent Agreement, subject to the terms and conditions set forth in this Precedent Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and intending to be legally bound, Eastern Shore and Shipper agree as follows:

Subject to Eastern Shore’s ability to enter into binding Precedent Agreements with customers for an aggregate quantity of firm transportation service which, in Eastern Shore's sole judgment, would make the construction of additional pipeline and/or compression facilities economical, and subject to all other terms and conditions of this Precedent Agreement, Eastern Shore shall proceed with due diligence to obtain such governmental and regulatory authorizations or exemptions as Eastern Shore deems necessary to construct and operate the pipeline and/or compression facilities necessary to render the firm transportation service contemplated herein. Eastern Shore reserves the right to file and prosecute any and all applications for such authorizations, any supplements or amendments thereto, and, if necessary, any court review, in such a manner as it deems to be in its best interest.

Shipper agrees to use its good faith efforts to cooperate with Eastern Shore in obtaining all authorizations necessary for Eastern Shore to construct and operate the requisite facilities and render the firm transportation service contemplated herein. In addition, Shipper shall file with the Federal Energy Regulatory Commission (“FERC”) in support of Eastern Shore’s application for the FERC authorizations; provided, however, that nothing herein shall prevent Shipper from protesting any regulatory filings that are inconsistent with the terms and conditions of this Precedent Agreement. If the FERC determines that information relating to Shipper’s markets, gas supply or upstream or downstream transportation or storage arrangements is required from Eastern Shore, Shipper shall provide Eastern Shore with such information in a timely manner to enable Eastern Shore to respond within the time required by the FERC. If Shipper identifies any such information as being commercially sensitive or confidential, Eastern Shore shall treat such information as privileged and confidential and shall request that the FERC treat such information as privileged and confidential and place such information in a non-public file.

Subject to the terms and conditions of this Precedent Agreement, Shipper shall proceed with due diligence and a in timely fashion, to obtain such governmental and regulatory authorizations or exemptions as are necessary: (i) for Shipper to construct and operate any facilities necessary to enable Shipper to utilize the firm transportation service contemplated herein; and (ii) for the performance of its obligations as contemplated herein. Shipper reserves the right to file and prosecute any and all applications for such authorizations, any supplements or amendments thereto, and, if necessary, any court review, in such a manner as it deems to be in its best interest. Eastern Shore agrees to use best efforts to cooperate with Shipper in obtaining all authorizations necessary for Shipper to receive the firm transportation service contemplated herein. Shipper shall also, within sixty (60) days after execution of this Precedent Agreement, if requested by Eastern Shore, advise Eastern Shore in writing of: (a) any facilities which Shipper must construct, or cause to be constructed, in order for Shipper to utilize the firm transportation service contemplated in this Precedent Agreement; and (b) any necessary governmental and/or regulatory authorizations, approvals, certificates, and/or permits and/or exemptions associated with the facilities identified pursuant to (a) above. Shipper agrees to notify Eastern Shore promptly in writing when each of the required authorizations, approvals, and/or exemptions are received, obtained, rejected, or denied. Shipper may, in its reasonable discretion, determine whether each of the required authorizations has been granted in a manner acceptable to Shipper.

4.	Performance by Eastern Shore and Shipper of the duties and obligations assumed by each Party in Paragraphs 5, 6 and 7 of this Precedent Agreement is expressly made subject to the fulfillment of the following conditions precedent:

(a) the receipt by Eastern Shore, in form and substance acceptable to Eastern Shore in its sole discretion, of all certificates, permits, approvals and/or other authorizations contemplated herein from the FERC or other governmental authorities having jurisdiction, to construct and operate the necessary pipeline and/or compression facilities to provide the firm transportation service as contemplated herein;

(b) the receipt by Eastern Shore, no later than one hundred twenty (120) days following receipt of the last of the authorizations referred to in subparagraph (a) above, of a financial commitment or commitments from financial institutions, acceptable to Eastern Shore, to make the capital expenditures necessary to enable Eastern Shore to construct the facilities and to provide the transportation service contemplated herein;

(c) the receipt by Eastern Shore, no later than one hundred twenty (120) days following receipt of the last of the authorizations referred to in subparagraph (a) above, of the approval of its Board of Directors to make the capital expenditures necessary to enable Eastern Shore to construct the pipeline and/or compression facilities necessary to render the firm transportation service contemplated herein; and

(d) the receipt by Shipper, in form and substance acceptable to Shipper in its reasonable discretion, of all certificates, permits and other authorizations from all governmental and regulatory authorities having competent jurisdiction as are necessary for Shipper: (i) to construct and operate any facilities necessary to enable Shipper to utilize the firm transportation service contemplated herein; and (ii) to perform its obligations as contemplated herein.

The governmental and regulatory approvals required by this Precedent Agreement, as duly granted by the FERC and/or any other governmental agencies or authorities having jurisdiction, shall be final and non-appealable; provided, however, that the Parties may by written agreement waive the condition that such approvals be final and non-appealable.

Within thirty (30) days after satisfaction or mutual waiver of the conditions precedent set forth in Paragraph 4, Eastern Shore and Shipper shall enter into the necessary agreements to extend the term of each service agreement listed on Exhibit C, which is attached hereto and incorporated herein, for the periods specified on Exhibit C.

Within thirty (30) days after satisfaction or mutual waiver of the conditions precedent set forth in Paragraph 4, Eastern Shore and Shipper shall enter into a firm transportation service agreement under: (i) Eastern Shore’s Part 284 Firm Transportation Service FT Rate Schedule, as such may be amended or revised from time to time, or (ii) such other new rate schedule as the FERC may require as a condition to the issuance of authorizations required to provide the service contemplated herein, as such rate schedule may be amended or revised from time to time. Such firm transportation service agreement shall specify Shipper’s Maximum Daily Transportation Quantity (“MDTQ”) of twenty-two thousand five hundred (22,500) dekatherms (“dts”) per day and a primary term of service of twenty (20) years, as detailed on Exhibit A, which is attached hereto and incorporated herein. Eastern Shore shall provide such firm transportation service to Shipper at negotiated reservation and commodity rates, as set forth in Exhibit B, which is attached hereto and incorporated herein.

Upon satisfaction or mutual waiver of the conditions precedent set forth in Paragraph 4 herein, and after execution of the firm transportation service agreement as provided in Paragraph 6 and the contract extensions contemplated in Paragraph 5 herein, Eastern Shore shall proceed with due diligence to construct the authorized pipeline and/or compression facilities necessary to implement the firm transportation service contemplated herein. If, after proceeding with due diligence, Eastern Shore is unable to provide such firm transportation service for Shipper by the Service Commencement Date specified in Exhibit A, Eastern Shore shall continue to proceed with due diligence to complete arrangements for such service, and commence the firm transportation service for Shipper at the earliest practicable date thereafter. Subject to the provisions of Paragraph 8, Eastern Shore shall not be liable, nor shall this Precedent Agreement or the firm transportation service agreement be subject to cancellation if, despite its exercise of due diligence, Eastern Shore is unable to complete the construction of such pipeline and/or compression facilities and commence the firm transportation services contemplated herein by the Service Commencement Date specified in Exhibit A. Eastern Shore agrees to provide Shipper advance written notice of its best estimate of any revisions to the in-service date.

8.	This Precedent Agreement shall terminate upon execution of the firm transportation service agreement contemplated in Paragraph 6 above; provided, however, that:

(a) if Eastern Shore has not filed with FERC its certificate application for authorization to construct the Project within twenty-four (24) months after the execution of this Precedent Agreement, either Party may, at its option, terminate this Precedent Agreement by giving twenty (20) days prior written notice of its intention to terminate, without recourse by the other Party; or

(b) if the condition(s) precedent in Paragraph 4 above and the agreements to extend the contracts listed in Exhibit C have not been satisfied or waived by written agreement of the Parties within twenty-four (24) months after the FERC formally accepts Eastern Shore’s certificate application filing and institutes a decisional proceeding, either Party may thereafter, at its option, terminate this Precedent Agreement, without recourse by the other Party, and Eastern Shore, at its option, may withdraw its certificate application , without recourse by Shipper, in either case by giving twenty (20) days prior written notice of its intention to terminate; or

(c) if Eastern Shore has not commenced the firm transportation service within twenty-four (24) months of the Service Commencement Date as specified in Exhibit A, either Party thereafter may, at its option, terminate this Precedent Agreement and/or the firm transportation service agreement executed pursuant to Paragraph 6 above, by giving twenty (20) days prior written notice of its intention to terminate, without recourse by the other Party.

In the event of termination pursuant to subparagraph (c) above, (i) Eastern Shore shall request FERC approval to abandon any certificate authorizations previously granted to provide the service contemplated herein, which request Shipper shall fully support, and (ii) the Parties’ obligations under this Paragraph 8 shall survive the expiration and/or termination of this Precedent Agreement and shall bind the Parties and any and all of their respective successors and assigns.

Pursuant to the terms of the letter agreement attached hereto as Exhibit D and incorporated herein, Shipper agrees to support recovery by Eastern Shore of certain Project development costs, as defined in Exhibit D, which is attached hereto and incorporated herein. Notwithstanding any other provision of this Precedent Agreement to the contrary, the Parties’ obligations under this Paragraph 9 and Exhibit D shall survive the expiration and/or termination of this Precedent Agreement and shall bind the Parties and any and all of their respective successors and assigns.

10.

Any company, which shall succeed by purchase, merger, or consolidation of title to properties, substantially or in their entirety, of Eastern Shore or Shipper, as the case may be, shall be entitled to the rights and shall be subject to the obligations of its predecessor in title under this Precedent Agreement. Any Party may, without relieving itself of its obligations under this Precedent Agreement, assign any of its rights hereunder to a company or companies with which it is affiliated but otherwise no assignment of this Precedent Agreement or any of the rights or obligations hereunder shall be made unless there first shall have been obtained the consent thereto in writing by the other Party.

11.	Eastern Shore may terminate this Precedent Agreement if, at any time, Shipper fails to comply with the creditworthiness requirements as set forth in Sections 11 and 19 of the General Terms & Conditions of Eastern Shore’s FERC Gas Tariff.

12.	No modification of this Precedent Agreement shall be made except by the execution of a written amendment to this Precedent Agreement.

13.	The interpretation and performance of this Precedent Agreement shall be in accordance with the laws of the State of Delaware, without recourse to the law governing the conflict of laws.

14.

Except as herein otherwise provided, any notice, or correspondence provided for in this Precedent Agreement, or any notice which either Party may desire to give to the other, shall be in writing and deemed to have been effectively given upon the third day following the day when same, properly addressed and postpaid, has been placed in the United States mail.

Routine communications shall be considered as duly delivered when mailed by registered, certified, or ordinary mail.

It is expressly understood and agreed, however, that any communications referred to hereunder may first be delivered by electronic means and shall be delivered as soon as practicable thereafter by registered, certified or ordinary mail to:

Eastern Shore Natural Gas Company

Ronald A. Craig

Contract & Billing Administrator

417 Bank Lane

Dover, DE 19904

Phone: (302) 734 - 6710 extension 6753

Fax: (302) 734 - 6745

Email: RCraig@chpk.com

Chesapeake Utilities Corporation - Delaware Division

Jeffery R. Tietbohl, Director of Regional Business & Planning

350 South Queen Street

Dover, DE 19904

Phone: (302) 734-6742

Fax: (302) 735-3061

Email: JTietbohl@chpk.com

IN WITNESS WHEREOF, the Parties hereto have caused this Precedent Agreement to be duly executed in several counterparts by their proper officers thereunto duly authorized as of the day and year first above written.

EASTERN SHORE NATURAL GAS COMPANY

/s/ Elaine B. Bittner

Elaine B. Bittner

Vice President

CHESAPEAKE UTILITIES CORPORATION

DELAWARE DIVISION

/s/ Paul M. Barbas

Paul M. Barbas

EXHIBIT A

FIRM TRANSPORTATION SERVICE REQUESTED BY SHIPPER

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

and

Chesapeake Utilities Corporation - Delaware Division

Dated

May 31, 2006

Commencement Date	Maximum Daily Transportation Quantity	Primary Receipt Point	Primary Delivery Point(s)	Termination Date
November 1, 2009*	22,500 dt	Cove Point, MD	DPA 4 - 6,500 DPA 5 - 8,500 DPA 6 - 3,500 DPA 6A - 750 DPA 6B - 2,000 DPA 8 - 1,100 DPA 9 - 150	October 31, 2029**

* Or upon such later date that facilities required to provide firm transportation service are placed in service. In addition, Shipper shall have a one-time option to defer the desired commencement date of the transportation service to either November 1, 2010, or November 1, 2011, which option shall expire on March 31, 2007. In the event Shipper elects to defer the commencement date, it must deliver such notice to Eastern Shore in writing no later than March 31, 2007. Shipper understands and acknowledges that Eastern Shore shall make this one-time option available to each shipper participating in the Project. Shipper agrees that if it, or any other shipper participating in the Project, elects to defer the commencement date of its transportation service on the Project, then Eastern Shore, at its sole discretion, may elect to defer the service commencement date for all shippers participating in the Project to the later of the commencement dates requested, provided that Eastern Shore notifies Shipper of Eastern Shore’s election no later than May 31, 2007.

** The later of October 31, 2029 or twenty (20) years from the Commencement Date.

EXHIBIT B

NEGOTIATED RATES

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

and

Chesapeake Utilities Corporation - Delaware Division

Dated

May 31, 2006

Eastern Shore Natural Gas Company and Chesapeake Utilities Corporation - Delaware Division mutually agree to the following rates for the firm transportation service contemplated herein:

Negotiated Reservation Rate

The initial Negotiated Reservation Rate shall be $30.40 per dt applicable to the first 15,000 dts (Block One) of Delaware’s total MDTQ of 22,500 dts contemplated in Exhibit A. Such initial Negotiated Reservation Rate is based on Eastern Shore’s current estimate of the capital investment of approximately $93 million required to complete the Project. Eastern Shore shall revise the initial Negotiated Reservation Rate applicable to Block One pursuant to the Reservation Rate Formula below to reflect the actual capital investment required to complete the Project. Delaware shall pay the Negotiated Reservation Rate, as adjusted to reflect the actual capital investment, subject to the Maximum Negotiated Reservation Rate limitations below. In the event the revised Negotiated Reservation Rate is higher than the initial Negotiated Reservation Rate, Delaware shall pay the initial Negotiated Reservation Rate until such time as Eastern Shore revises the Negotiated Reservation Rate, and Delaware shall pay the difference between the initial and Revised Negotiated Reservation Rate for the period from the Commencement Date to the date Eastern Shore revises the Negotiated Reservation Rate, without interest. In the event the revised Negotiated Reservation Rate is lower than the initial Negotiated Reservation Rate, Delaware shall pay the initial Negotiated Reservation Rate until such time as Eastern Shore revises the Negotiated Reservation Rate, and Eastern Shore shall refund the difference between the initial and revised Negotiated Reservation Rate for the period from the Commencement Date to the date Eastern Shore revises the Negotiated Reservation Rate, without interest.

The Negotiated Reservation Rate applicable to the remaining 7,500 dts (Block Two) of Delaware’s total MDTQ of 22,500 dts contemplated in Exhibit A, shall be fixed at $7.50 per dt.

Reservation Rate Formula

Block One Negotiated Reservation Rate = $30.40 + (Cost - $93,000,000)

2,700,000

Where,

Block One Negotiated Reservation Rate = the negotiated reservation rate to be applied to the first 15,000 dts of Delaware’s total MDTQ of 22,500 dts and

Cost = Actual Capital Cost of the Project.

Maximum Negotiated Reservation Rate

Unless otherwise agreed to in writing by both Parties, Shipper’s Negotiated Reservation Rate applicable to Block One (first 15,000 dts of total 22,500 dts MDTQ) shall not exceed $35.90 per dt, and Shipper’s Negotiated Reservation Rate applicable to Block Two (remaining 7,500 dts of total 22,500 dts MDTQ) shall not exceed $7.50 per dt.

Negotiated Commodity Rate

Delaware shall pay a negotiated commodity rate of $0.00 (zero) per dt for both Block One and Block Two quantities transported. Applicable commodity surcharges under Eastern Shore’s FERC Gas Tariff, if any, shall be paid by Delaware.

Fuel

Eastern Shore’s system-wide Fuel Retention Percentage (FRP), as determined and adjusted pursuant to Section 31 of the General Terms and Conditions of Eastern Shore’s FERC Gas Tariff, shall also be assessed.

EXHIBIT C

SERVICE AGREEMENT EXTENSIONS

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

and

Chesapeake Utilities Corporation - Delaware Division

Dated

May 31, 2006

Listing of Service Agreements to be Extended Pursuant to Paragraph 5 herein:

Contract No.	MTDQ		Termination Date		Extension Date
010001		8,690		March 31, 2010		March 31, 2015
010020		911		October 31, 2011		October 31, 2016
010021		6,193		October 31, 2009		October 31, 2014
010022		852		October 31, 2009		October 31, 2014
010023		1,767		October 31, 2017		October 31, 2022
010029		650		October 31, 2008		October 31, 2013
010030		1,416		October 31, 2008		October 31, 2013
010042		2,865		October 31, 2010		October 31, 2015
010045		1,800		October 31, 2011		October 31, 2016
010047		1,500		October 31, 2012		October 31, 2017
010048		362		March 31, 2010		March 31, 2015
010049		2,500		October 31, 2013		October 31, 2018
010052		2,400		October 31, 2014		October 31, 2019
010056		2,300		October 31, 2015		October 31, 2020
010067		4,500		October 31, 2015		October 31, 2020
020001		1,846		March 31, 2010		March 31, 2015
020009		3,235		March 31, 2013		March 31, 2018

EXHIBIT D

PRE-CERTIFICATION COST RECOVERY

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

and

Chesapeake Utilities Corporation - Delaware Division

Dated

April 1, 2006

[Eastern Shore Natural Gas Logo]

April 1, 2006

Mr. Jeffrey R. Tietbohl

Director of Regional Business and Planning

Chesapeake Utilities Corporation

350 South Queen Street

Dover, Delaware 19904

Re: Cove Point Project Pre-Certification Cost Recovery

Dear Mr. Tietbohl:

As you know, Chesapeake Utilities Corporation (“CUC”) and Eastern Shore Natural Gas Company (“Eastern Shore”) are negotiating a Precedent Agreement for the Firm Transportation of Natural Gas (“Precedent Agreement”) that sets forth the parties’ respective rights and obligations in connection with the firm transportation service that would be provided by the Cove Point Project, all as more fully stated therein. The parties agree that Eastern Shore should continue to proceed with its project activities, particularly those related to the Federal Energy Regulatory Commission’s (“FERC”) pre-filing NEPA and Certificate Application process.

The purpose of this Letter Agreement is to state the parties’ agreement regarding CUC’s support for Eastern Shore’s recovery of outside professional service costs in the event that the project is terminated prior to completion of construction. The parties’ agreement includes those costs incurred (i) as of the date of this Letter Agreement and (ii) between the date of this Letter Agreement and the date of the Final Certificate Order by FERC authorizing the Cove Point Project or the date in which the project is terminated, and includes those costs incurred for engineering, communications, governmental relations, economics, environmental, regulatory, and legal services (collectively, “Pre-Certification Costs”).

Mr. Jeffrey R. Tietbohl

April 1, 2006

Page 2

If the parties are unable to agree upon the terms of the Precedent Agreement by June 1, 2006, the parties agree that this Letter Agreement shall be null, void, and of no effect. The parties agree to negotiate diligently and in good faith toward the execution of the Precedent Agreement by that date. Furthermore, if the Cove Point Project proceeds to completion, this Letter Agreement shall be null and void, and of no effect.

It is the expectation of the parties that the cost recovery contemplated herein will be part of a settlement agreement or similar document that would be subject to FERC approval. The parties agree that CUC will support, in FERC proceedings initiated by Eastern Shore following the execution of this Letter Agreement and the Precedent Agreement, rates to be charged under firm transportation service agreements of all shippers who have executed a Cove Point Project Precedent Agreement with Eastern Shore that reflect a return of and return on each shipper’s proportionate share of such Pre-Certification Costs incurred by Eastern Shore in the event that the Cove Point Project is not completed.

Prior to filing the settlement agreement or similar document contemplated herein, Eastern Shore will use its best efforts to obtain support for or non-opposition of the settlement agreement or similar document reflecting such cost recovery from all of Eastern Shore’s firm transportation customers. Such rates will reflect amortization of CUC’s proportionate share of the Pre-Certification Costs over a period of no less than 20 years. CUC’s proportionate share is computed by taking its firm transportation nomination contained in the executed Precedent Agreement divided by the sum of the firm transportation nominations contained in all executed Cove Point Precedent Agreements up to a total level of Pre-Certification Costs equal to $3 million. For Pre-Certification Costs in excess of $3 million, CUC’s proportionate share is computed by dividing one (1) by the sum of all the shippers who have executed Cove Point Precedent Agreements plus Eastern Shore 1 . Unless a change is agreed to in writing by both parties, CUC’s total Pre-Certification Cost obligation shall in no event exceed $2.0 million.

_______________

1 For example, once total Pre-Certification Costs exceed $3,000,000, with a total of two (2) shippers (Chesapeake Utilities Corporation and Delmarva Power and Light Company), Chesapeake’s proportionate share would equal one (1) divided by three (3), or thirty-three and one-third (33 1/3) percent.

Mr. Jeffrey R. Tietbohl

April 1, 2006

Page 3

Cove Point Project Pre-Certification Costs will be accounted for in accordance with the FERC's Uniform System of Accounts.

Eastern Shore shall provide to CUC detailed quarterly reports no later than forty five days (45) days after the end of each quarter, on the types and amounts of Pre-Certification Costs it incurred during the quarter and on the types and amounts of Pre-Certification Costs it expects to expend in the upcoming quarter in furtherance of the Cove Point Project. At CUC’s request, Eastern Shore agrees to meet and discuss such quarterly reports. Eastern Shore shall also provide to CUC in a timely fashion copies of final reports and recommendations that Eastern Shore receives from its consultants and from parties involved in the FERC pre-filing NEPA and Certificate Application proceedings regarding Cove Point Project activities. In addition, at the following key stepping points in the project, CUC and Eastern Shore shall meet to discuss the progress of the project: (1) at the conclusion of FERC sponsored NEPA scoping meetings, (2) immediately after Eastern Shore files its formal certificate application with FERC and (3) upon issuance of FERC’s Preliminary Draft Environmental Impact Statement (“EIS”).

After the Certificate Application for the Cove Point project is filed with the FERC or at such time as the cumulative Pre-Certification Costs for such project exceed a total of $2,000,000, Eastern Shore shall provide information to CUC regarding the reason(s) for procurement(s) prior to executing any contract or purchase order for Project development goods or services for an amount in excess of $150,000. CUC shall have three (3) business days within which to request clarification regarding such information. No such clarification shall delay or otherwise interfere with either Party's rights and obligations under the Precedent Agreement or interfere with activities undertaken in accordance with the Precedent Agreement to advance the project. Notwithstanding the above, CUC can request a meeting with Eastern Shore at any time during the project to discuss the progress of the project.

By the review process set forth in this Letter Agreement, CUC is not assuming any responsibility or liability with respect to the accounting procedures used by Eastern Shore or any oversight related to the pre-construction or construction of the Cove Point Project.

Mr. Jeffrey R. Tietbohl

April 1, 2006

Page 4

If this letter accurately reflects CUC’s understanding and is acceptable, please so indicate by signing in the space provided.

EASTERN SHORE NATURAL

GAS COMPANY

/s/ Elaine B. Bittner

Elaine B. Bittner

Vice President

AGREED AND ACCEPTED:

CHESAPEAKE UTILITIES CORPORATION

/s/ Paul M. Barbas

Paul M. Barbas

Executive Vice President &

Chief Operating Officer

EX-10.2 3 cuc_md.htm PRECEDENT AGREEMENT WITH CHESAPEAKE UTILITIES CORP - MARYLAND DIVISION Agreement with Chesapeake Utilities Corp - Maryland Division

Exhibit 10.2

PRECEDENT AGREEMENT

FOR THE FIRM TRANSPORTATION OF NATURAL GAS

This PRECEDENT AGREEMENT for the Firm Transportation of Natural Gas ("Precedent Agreement") is made and entered into this 31^st day of May, 2006, by and between EASTERN SHORE NATURAL GAS COMPANY, a Delaware corporation (“Eastern Shore”) and CHESAPEAKE UTILITIES CORPORATION - MARYLAND DIVISION (“Shipper”), a Delaware corporation, sometimes jointly referred to herein as the (“Parties”) or singly as a (“Party”).

WITNESSETH:

WHEREAS, Eastern Shore is a natural gas company engaged in the transportation of natural gas in interstate commerce; and

WHEREAS, Shipper is a Local Distribution Company connected to the natural gas pipeline facilities of Eastern Shore: and

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and intending to be legally bound, Eastern Shore and Shipper agree as follows:

Subject to the terms and conditions of this Precedent Agreement, Shipper shall proceed with due diligence and in a timely fashion, to obtain such governmental and regulatory authorizations or exemptions as are necessary: (i) for Shipper to construct and operate any facilities necessary to enable Shipper to utilize the firm transportation service contemplated herein; and (ii) for the performance of its obligations as contemplated herein. Shipper reserves the right to file and prosecute any and all applications for such authorizations, any supplements or amendments thereto, and, if necessary, any court review, in such a manner as it deems to be in its best interest. Eastern Shore agrees to use best efforts to cooperate with Shipper in obtaining all authorizations necessary for Shipper to receive the firm transportation service contemplated herein. Shipper shall also, within sixty (60) days after execution of this Precedent Agreement, if requested by Eastern Shore, advise Eastern Shore in writing of: (a) any facilities which Shipper must construct, or cause to be constructed, in order for Shipper to utilize the firm transportation service contemplated in this Precedent Agreement; and (b) any necessary governmental and/or regulatory authorizations, approvals, certificates, and/or permits and/or exemptions associated with the facilities identified pursuant to (a) above. Shipper agrees to notify Eastern Shore promptly in writing when each of the required authorizations, approvals, and/or exemptions are received, obtained, rejected, or denied. Shipper may, in its reasonable discretion, determine whether each of the required authorizations has been granted in a manner acceptable to Shipper.

4.	Performance by Eastern Shore and Shipper of the duties and obligations assumed by each Party in Paragraphs 5, 6 and 7 of this Precedent Agreement is expressly made subject to the fulfillment of the following conditions precedent:

Within thirty (30) days after satisfaction or mutual waiver of the conditions precedent set forth in Paragraph 4, Eastern Shore and Shipper shall enter into a firm transportation service agreement under: (i) Eastern Shore’s Part 284 Firm Transportation Service FT Rate Schedule, as such may be amended or revised from time to time, or (ii) such other new rate schedule as the FERC may require as a condition to the issuance of authorizations required to provide the service contemplated herein, as such rate schedule may be amended or revised from time to time. Such firm transportation service agreement shall specify Shipper’s Maximum Daily Transportation Quantity (“MDTQ”) of seven thousand five hundred (7,500) dekatherms (“dts”) per day and a primary term of service of twenty (20) years, as detailed on Exhibit A, which is attached hereto and incorporated herein. Eastern Shore shall provide such firm transportation service to Shipper at negotiated reservation and commodity rates, as set forth in Exhibit B, which is attached hereto and incorporated herein.

8.	This Precedent Agreement shall terminate upon execution of the firm transportation service agreement contemplated in Paragraph 6 above; provided, however, that:

10.

11.	Eastern Shore may terminate this Precedent Agreement if, at any time, Shipper fails to comply with the creditworthiness requirements as set forth in Sections 11 and 19 of the General Terms & Conditions of Eastern Shore’s FERC Gas Tariff.

12.	No modification of this Precedent Agreement shall be made except by the execution of a written amendment to this Precedent Agreement.

13.	The interpretation and performance of this Precedent Agreement shall be in accordance with the laws of the State of Delaware, without recourse to the law governing the conflict of laws.

14.

Routine communications shall be considered as duly delivered when mailed by registered, certified, or ordinary mail.

Eastern Shore Natural Gas Company

Ronald A. Craig

Contract & Billing Administrator

417 Bank Lane

Dover, DE 19904

Phone: (302) 734 - 6710 extension 6753

Fax: (302) 734 - 6745

Email: rcraig@chpk.com

Chesapeake Utilities Corporation - Maryland Division

Jeffery R. Tietbohl, Director of Regional Business & Planning

350 South Queen Street

Dover, DE 19904

Phone: (302) 734-6742

Fax: (302) 735-3061

Email: JTietbohl@chpk.com

EASTERN SHORE NATURAL GAS COMPANY

/s/ Elaine B. Bittner

Elaine B. Bittner

Vice President

CHESAPEAKE UTILITIES CORPORATION

MARYLAND DIVISION

/s/ Paul M. Barbas

Paul M. Barbas

EXHIBIT A

FIRM TRANSPORTATION SERVICE REQUESTED BY SHIPPER

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

and

Chesapeake Utilities Corporation - Maryland Division

Dated

May 31, 2006

Commencement Date	Maximum Daily Transportation Quantity	Primary Receipt Point	Primary Delivery Point(s)	Termination Date
November 1, 2009*	7,500 dt	Cove Point, MD	DPA 10 - 3,750 DPA 12 - 3,750	October 31, 2029**

** The later of October 31, 2029 or twenty (20) years from the Commencement Date.

EXHIBIT B

NEGOTIATED RATES

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

and

Chesapeake Utilities Corporation - Maryland Division

Dated

May 31, 2006

Eastern Shore Natural Gas Company and Chesapeake Utilities Corporation - Maryland Division mutually agree to the following rates for the firm transportation service contemplated herein:

Negotiated Reservation Rate

The initial Negotiated Reservation Rate shall be $30.40 per dt applicable to the first 5,000 dts (Block One) of Maryland’s total MDTQ of 7,500 dts contemplated in Exhibit A. Such initial Negotiated Reservation Rate is based on Eastern Shore’s current estimate of the capital investment of approximately $93 million required to complete the Project. Eastern Shore shall revise the initial Negotiated Reservation Rate applicable to Block One pursuant to the Reservation Rate Formula below to reflect the actual capital investment required to complete the Project. Maryland shall pay the Negotiated Reservation Rate, as adjusted to reflect the actual capital investment, subject to the Maximum Negotiated Reservation Rate limitations below. In the event the revised Negotiated Reservation Rate is higher than the initial Negotiated Reservation Rate, Maryland shall pay the initial Negotiated Reservation Rate until such time as Eastern Shore revises the Negotiated Reservation Rate, and Maryland shall pay the difference between the initial and Revised Negotiated Reservation Rate for the period from the Commencement Date to the date Eastern Shore revises the Negotiated Reservation Rate, without interest. In the event the revised Negotiated Reservation Rate is lower than the initial Negotiated Reservation Rate, Maryland shall pay the initial Negotiated Reservation Rate until such time as Eastern Shore revises the Negotiated Reservation Rate, and Eastern Shore shall refund the difference between the initial and revised Negotiated Reservation Rate for the period from the Commencement Date to the date Eastern Shore revises the Negotiated Reservation Rate, without interest.

The Negotiated Reservation Rate applicable to the remaining 2,500 dts (Block Two) of Maryland’s total MDTQ of 7,500 dts contemplated in Exhibit A, shall be fixed at $7.50 per dt.

Reservation Rate Formula

Block One Negotiated Reservation Rate = $30.40 + (Cost - $93,000,000)

2,700,000

Where,

Block One Negotiated Reservation Rate = the negotiated reservation rate to be applied to the first 5,000 dts of Maryland’s total MDTQ of 7,500 dts and

Cost = Actual Capital Cost of the Project.

Maximum Negotiated Reservation Rate

Unless otherwise agreed to in writing by both Parties, Shipper’s Negotiated Reservation Rate applicable to Block One (first 5,000 dts of total 7,500 dts MDTQ) shall not exceed $35.90 per dt, and Shipper’s Negotiated Reservation Rate applicable to Block Two (remaining 2,500 dts of total 7,500 dts MDTQ) shall not exceed $7.50 per dt.

Negotiated Commodity Rate

Maryland shall pay a negotiated commodity rate of $0.00 (zero) per dt for both Block One and Block Two quantities transported. Applicable commodity surcharges under Eastern Shore’s FERC Gas Tariff, if any, shall be paid by Maryland.

Fuel

EXHIBIT C

SERVICE AGREEMENT EXTENSIONS

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

and

Chesapeake Utilities Corporation - Maryland Division

Dated

May 31, 2006

Listing of Service Agreements to be Extended Pursuant to Paragraph 5 herein:

Contract No.	MTDQ		Termination Date		Extension Date
010002		4,739		March 31, 2010		March 31, 2015
010016		569		October 31, 2011		October 31, 2016
010017		442		October 31, 2009		October 31, 2014
010018		1,429		October 31, 2017		October 31, 2022
010019		3,143		October 31, 2009		October 31, 2014
010031		350		October 31, 2008		October 31, 2013
010050		300		October 31, 2013		October 31, 2018
010053		300		October 31, 2014		October 31, 2019
010057		300		October 31, 2015		October 31, 2020
010066		2,000		October 31, 2015		October 31, 2020
020002		969		March 31, 2010		March 31, 2015
020008		1,737		March 31, 2013		March 31, 2018

EXHIBIT D

PRE-CERTIFICATION COST RECOVERY

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Chesapeake Utilities Corporation - Maryland Division

Dated

April 1, 2006

[Eastern Shore Natural Gas Logo]

April 1, 2006

Mr. Jeffrey R. Tietbohl

Director of Regional Business and Planning

Chesapeake Utilities Corporation

350 South Queen Street

Dover, Delaware 19904

Re: Cove Point Project Pre-Certification Cost Recovery

Dear Mr. Tietbohl:

Mr. Jeffrey R. Tietbohl

April 1, 2006

Page 2

_______________

Mr. Jeffrey R. Tietbohl

April 1, 2006

Page 3

Cove Point Project Pre-Certification Costs will be accounted for in accordance with the FERC's Uniform System of Accounts.

Mr. Jeffrey R. Tietbohl

April 1, 2006

Page 4

If this letter accurately reflects CUC’s understanding and is acceptable, please so indicate by signing in the space provided.

EASTERN SHORE NATURAL

GAS COMPANY

/s/ Elaine B. Bittner

Elaine B. Bittner

Vice President

AGREED AND ACCEPTED:

CHESAPEAKE UTILITIES CORPORATION

/s/ Paul M. Barbas

Paul M. Barbas

Executive Vice President &

Chief Operating Officer

EX-10.3 4 dpl.htm PRECEDENT AGREEMENT WITH DELMARVA POWER AND LIGHT COMPANY Precedent Agreement with Delmarva Power and Light Company

Exhibit 10.3

PRECEDENT AGREEMENT

FOR THE FIRM TRANSPORTATION OF NATURAL GAS

This PRECEDENT AGREEMENT for the Firm Transportation of Natural Gas ("Precedent Agreement") is made and entered into this 31^st day of May, 2006, by and between EASTERN SHORE NATURAL GAS COMPANY, a Delaware corporation (“Eastern Shore”) and DELMARVA POWER & LIGHT COMPANY (“Shipper”), a Delaware corporation, sometimes jointly referred to herein as the (“Parties”) or singly as a (“Party”).

WITNESSETH:

WHEREAS, Eastern Shore is a natural gas company engaged in the transportation of natural gas in interstate commerce; and

WHEREAS, Shipper is a Local Distribution Company connected to the natural gas pipeline facilities of Eastern Shore: and

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and intending to be legally bound, Eastern Shore and Shipper agree as follows:

4.	Performance by Eastern Shore and Shipper of the duties and obligations assumed by each Party in Paragraphs 5, 6 and 7 of this Precedent Agreement is expressly made subject to the fulfillment of the following conditions precedent:

Within thirty (30) days after satisfaction or mutual waiver of the conditions precedent set forth in Paragraph 4, Eastern Shore and Shipper shall enter into a firm transportation service agreement under: (i) Eastern Shore’s Part 284 Firm Transportation Service FT Rate Schedule, as such may be amended or revised from time to time, or (ii) such other new rate schedule as the FERC may require as a condition to the issuance of authorizations required to provide the service contemplated herein, as such rate schedule may be amended or revised from time to time. Such firm transportation service agreement shall specify Shipper’s Maximum Daily Transportation Quantity (“MDTQ”) of thirty thousand (30,000) dekatherms (“dts”) per day and a primary term of service of twenty (20) years, as detailed on Exhibit A, which is attached hereto and incorporated herein. Eastern Shore shall provide such firm transportation service to Shipper at negotiated reservation and commodity rates, as set forth in Exhibit B, which is attached hereto and incorporated herein.

8.	This Precedent Agreement shall terminate upon execution of the firm transportation service agreement contemplated in Paragraph 6 above; provided, however, that:

10.

11.	Eastern Shore may terminate this Precedent Agreement if, at any time, Shipper fails to comply with the creditworthiness requirements as set forth in Sections 11 and 19 of the General Terms & Conditions of Eastern Shore’s FERC Gas Tariff.

12.	No modification of this Precedent Agreement shall be made except by the execution of a written amendment to this Precedent Agreement.

13.	The interpretation and performance of this Precedent Agreement shall be in accordance with the laws of the State of Delaware, without recourse to the law governing the conflict of laws.

14.

Routine communications shall be considered as duly delivered when mailed by registered, certified, or ordinary mail.

Eastern Shore Natural Gas Company

Ronald A. Craig

Contract & Billing Administrator

417 Bank Lane

Dover, DE 19904

Phone: (302) 734 - 6710 extension 6753

Fax: (302) 734 - 6745

Email: rcraig@chpk.com

Delmarva Power & Light Company

W. Thomas Bacon, Jr.

Director, Gas Supply Planning P.O. Box 6066

Newark, DE 19714

Phone: (302) 451-5019

Fax: (302) 451-5264

Email: tom.bacon@conectiv.com

EASTERN SHORE NATURAL GAS COMPANY

/s/ Elaine B. Bittner

Elaine B. Bittner

Vice President

DELMARVA POWER & LIGHT COMPANY

/s/ Charles R. Dickerson

Charles R. Dickerson

Vice President

EXHIBIT A

FIRM TRANSPORTATION SERVICE REQUESTED BY SHIPPER

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

May 31, 2006

Commencement Date	Maximum Daily Transportation Quantity	Primary Receipt Point	Primary Delivery Point	Termination Date
November 1, 2009*	30,000 dt	Cove Point, MD	DPA 1 - 15,975 DPA 3 - 7,885 DPA 4 - 6,140	October 31, 2029**

** The later of October 31, 2029 or twenty (20) years from the Commencement Date.

EXHIBIT B

NEGOTIATED RATES

Exhibit To The Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

May 31, 2006

Eastern Shore Natural Gas Company and Delmarva Power & Light Company mutually agree to the following rates for the firm transportation service contemplated herein:

Negotiated Reservation Rate

The initial Negotiated Reservation Rate shall be $30.40 per dt applicable to the first 20,000 dts (Block One) of Delmarva’s total MDTQ of 30,000 dts contemplated in Exhibit A. Such initial Negotiated Reservation Rate is based on Eastern Shore’s current estimate of the capital investment of approximately $93 million required to complete the Project. Eastern Shore shall revise the initial Negotiated Reservation Rate applicable to Block One pursuant to the Reservation Rate Formula below to reflect the actual capital investment required to complete the Project. Delmarva shall pay the Negotiated Reservation Rate, as adjusted to reflect the actual capital investment, subject to the Maximum Negotiated Reservation Rate limitations below. In the event the revised Negotiated Reservation Rate is higher than the initial Negotiated Reservation Rate, Delmarva shall pay the initial Negotiated Reservation Rate until such time as Eastern Shore revises the Negotiated Reservation Rate, and Delmarva shall pay the difference between the initial and Revised Negotiated Reservation Rate for the period from the Commencement Date to the date Eastern Shore revises the Negotiated Reservation Rate, without interest. In the event the revised Negotiated Reservation Rate is lower than the initial Negotiated Reservation Rate, Delmarva shall pay the initial Negotiated Reservation Rate until such time as Eastern Shore revises the Negotiated Reservation Rate, and Eastern Shore shall refund the difference between the initial and revised Negotiated Reservation Rate for the period from the Commencement Date to the date Eastern Shore revises the Negotiated Reservation Rate, without interest.

The Negotiated Reservation Rate applicable to the remaining 10,000 dts (Block Two) of Delmarva’s total MDTQ of 30,000 dts contemplated in Exhibit A, shall be fixed at $7.50 per dt.

Reservation Rate Formula

Block One Negotiated Reservation Rate = $30.40 + (Cost - $93,000,000)

2,700,000

Where,

Block One Negotiated Reservation Rate = the negotiated reservation rate to be applied to the first 20,000 dts of Delmarva’s total MDTQ of 30,000 dt and

Cost = Actual Capital Cost of the Project.

Maximum Negotiated Reservation Rate

Unless otherwise agreed to in writing by both Parties, Shipper’s Negotiated Reservation Rate applicable to Block One (first 20,000 dt of total 30,000 dts MDTQ) shall not exceed $35.90 per dt, and Shipper’s Negotiated Reservation Rate applicable to Block Two (remaining 10,000 dts of total 30,000 dts MDTQ) shall not exceed $7.50 per dt.

Negotiated Commodity Rate

Delmarva shall pay a negotiated commodity rate of $0.00 (zero) per dt for both Block One and Block Two quantities transported. Applicable commodity surcharges under Eastern Shore’s FERC Gas Tariff, if any, shall be paid by Delmarva.

Fuel

EXHIBIT C

SERVICE AGREEMENT EXTENSIONS

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

May 31, 2006

Listing of Service Agreements to be Extended Pursuant to Paragraph 5 herein:

Contract No.	MTDQ		Termination Date		Extension Date
010005		1,139		March 31, 2010		March 31, 2015
010038		3,085		November 30, 2009		November 30, 2014
010040		1,200		October 31, 2010		October 31, 2015
010043		10,000		October 31, 2011		October 31, 2016
010046		3,000		October 31, 2012		October 31, 2017
010055		3,000		October 31, 2015		October 31, 2020
040001		776		October 31, 2005		October 31, 2010

EXHIBIT D

PRE-CERTIFICATION COST RECOVERY

Exhibit to the

Precedent Agreement

Between

Eastern Shore Natural Gas Company

And

Delmarva Power & Light Company

Dated

April 1, 2006

[Eastern Shore Natural Gas Logo]

April 1, 2006

Mr. Charles R. Dickerson

Vice President, Gas Delivery

Delmarva Power & Light Company

630 Martin Luther King Jr. Blvd.

Wilmington, Delaware 19899

Re: Cove Point Project Pre-Certification Cost Recovery

Dear Mr. Dickerson:

As you know, Delmarva Power & Light Company (“Delmarva”) and Eastern Shore Natural Gas Company (“Eastern Shore”) are negotiating a Precedent Agreement for the Firm Transportation of Natural Gas (“Precedent Agreement”) that sets forth the parties’ respective rights and obligations in connection with the firm transportation service that would be provided by the Cove Point Project, all as more fully stated therein. Delmarva requested and Eastern Shore has agreed to modify the Precedent Agreement to allow Delmarva to begin receiving service contemplated in the Cove Point Project no later than November 1, 2011. However, the parties agree that Eastern Shore should continue to proceed with its project activities, particularly those related to the Federal Energy Regulatory Commission’s (“FERC”) pre-filing NEPA and Certificate Application process.

The purpose of this Letter Agreement is to state the parties’ agreement regarding Delmarva’s support for Eastern Shore’s recovery of outside professional service costs in the event that the project is terminated prior to completion of construction. The parties’ agreement includes those costs incurred (i) as of the date of this Letter Agreement and (ii) between the date of this Letter Agreement and the date of the Final Certificate Order by FERC authorizing the Cove Point Project or the date in which the project is terminated, and includes those costs incurred for engineering, communications, governmental relations, economics, environmental, regulatory, and legal services (collectively, “Pre-Certification Costs”).

Mr. Charles R. Dickerson

April 1, 2006

Page 2

It is the expectation of the parties that the cost recovery contemplated herein will be part of a settlement agreement or similar document that would be subject to FERC approval. The parties agree that Delmarva will support, in FERC proceedings initiated by Eastern Shore following the execution of this Letter Agreement and the Precedent Agreement, rates to be charged under firm transportation service agreements of all shippers who have executed a Cove Point Project Precedent Agreement with Eastern Shore that reflect a return of and return on each shipper’s proportionate share of such Pre-Certification Costs incurred by Eastern Shore in the event that the Cove Point Project is not completed.

Prior to filing the settlement agreement or similar document contemplated herein, Eastern Shore will use its best efforts to obtain support for or non-opposition of the settlement agreement or similar document reflecting such cost recovery from all of Eastern Shore’s firm transportation customers. Such rates will reflect amortization of Delmarva’s proportionate share of the Pre-Certification Costs over a period of no less than 20 years. Delmarva’s proportionate share is computed by taking its firm transportation nomination contained in the executed Precedent Agreement divided by the sum of the firm transportation nominations contained in all executed Cove Point Precedent Agreements up to a total level of Pre-Certification Costs equal to $3 million. For Pre-Certification Costs in excess of $3 million, Delmarva’s proportionate share is computed by dividing one (1) by the sum of all the shippers who have executed Cove Point Precedent Agreements plus Eastern Shore 1. Unless a change is agreed to in writing by both parties, Delmarva’s total Pre-Certification Cost obligation shall in no event exceed $2.0 million.

_______________

1 For example, once total Pre-Certification Costs exceed $3,000,000, with a total of two (2) shippers (Delmarva and Chesapeake Utilities), Delmarva’s proportionate share would equal one (1) divided by three (3), or thirty-three and one-third (33 1/3) percent.

Mr. Charles R. Dickerson

April 1, 2006

Page 3

Cove Point Project Pre-Certification Costs will be accounted for in accordance with the FERC's Uniform System of Accounts.

Eastern Shore shall provide to Delmarva detailed quarterly reports no later than forty five days (45) days after the end of each quarter, on the types and amounts of Pre-Certification Costs it incurred during the quarter and on the types and amounts of Pre-Certification Costs it expects to expend in the upcoming quarter in furtherance of the Cove Point Project. At Delmarva’s request, Eastern Shore agrees to meet and discuss such quarterly reports. Eastern Shore shall also provide to Delmarva in a timely fashion copies of final reports and recommendations that Eastern Shore receives from its consultants and from parties involved in the FERC pre-filing NEPA and Certificate Application proceedings regarding Cove Point Project activities. In addition, at the following key stepping points in the project, Delmarva and Eastern Shore shall meet to discuss the progress of the project: (1) at the conclusion of FERC sponsored NEPA scoping meetings, (2) immediately after Eastern Shore files its formal certificate application with FERC and (3) upon issuance of FERC’s Preliminary Draft Environmental Impact Statement (“EIS”).

After the Certificate Application for the Cove Point project is filed with the FERC or at such time as the cumulative Pre-Certification Costs for such project exceed a total of $2,000,000, Eastern Shore shall provide information to Delmarva regarding the reason(s) for procurement(s) prior to executing any contract or purchase order for Project development goods or services for an amount in excess of $150,000. Delmarva shall have three (3) business days within which to request clarification regarding such information. No such clarification shall delay or otherwise interfere with either Party's rights and obligations under the Precedent Agreement or interfere with activities undertaken in accordance with the Precedent Agreement to advance the project. Notwithstanding the above, Delmarva can request a meeting with Eastern Shore at any time during the project to discuss the progress of the project.

By the review process set forth in this Letter Agreement, Delmarva is not assuming any responsibility or liability with respect to the accounting procedures used by Eastern Shore or any oversight related to the pre-construction or construction of the Cove Point Project.

Mr. Charles R. Dickerson

April 1, 2006

Page 4

If this letter accurately reflects Delmarva’s understanding and is acceptable, please so indicate by signing in the space provided.

EASTERN SHORE NATURAL

GAS COMPANY

By: /s/ Elaine B. Bittner

Elaine B. Bittner

Vice-President

AGREED AND ACCEPTED:

DELMARVA POWER & LIGHT COMPANY

By: /s/ Charles R. Dickerson

Charles R. Dickerson

Vice President

EX-99.1 5 pressrelease.htm PRESS RELEASE - CHESAPEAKE UTILITIES ANNOUNCES ESNG PIPELINE EXPANSION Press Release - Chesapeake Utilities Announces ESNG Pipeline Expansion

Exhibit 99.1

[Chesapeake Utilities Corporation Logo]

FOR IMMEDIATE RELEASE

JUNE 2, 2006

NYSE: CPK

CHESAPEAKE UTILITIES CORPORATION ANNOUNCES

PROJECT TO SIGNIFICANTLY INCREASE ACCESS TO NATURAL GAS SUPPLY

Eastern Shore Natural Gas Company Planning Expansion of Pipeline System

DOVER, DE - John R. Schimkaitis, President and CEO of Chesapeake Utilities Corporation, announced today that its wholly owned natural gas transmission subsidiary, Eastern Shore Natural Gas Company (ESNG), has entered into agreements with two of its customers to expand the capacity of its interstate pipeline system by approximately 33 percent. The proposed project would be ESNG’s largest expansion since the original construction of the pipeline in 1959.

“ESNG’s expansion project will enable its customers to cost effectively diversify their current gas supply mix and meet the region’s growing demand for clean burning natural gas,” said Mr. Schimkaitis. “This project provides a long term, reliable solution that will bring a new supply of clean burning natural gas into the region. We will be working closely with regulatory agencies and communities on the project to accomplish this goal.“

“This new source of natural gas to the Delmarva Peninsula will enhance overall natural gas system reliability and help ensure that there are adequate supplies for many years to come,” added Mr. Schimkaitis. ESNG is also currently funding a study to quantify the pipeline expansion’s economic benefits to the region, which are expected to be substantial.

The newly signed agreements culminate three years of discussions between ESNG and its customers regarding their interest in natural gas transportation service and access to additional natural gas supply sources. This project would bring an additional 60,000 dekatherms of natural gas capacity to the Delmarva Peninsula. A dekatherm of natural gas heats approximately one home on a peak winter heating day.

The project would include approximately 63 miles of pipeline that originates in Calvert County, MD, crosses the Chesapeake Bay into Dorchester and Caroline Counties, MD and then connects with ESNG’s existing system in Sussex County, DE. The total project is expected to cost approximately $93 million, depending upon the final design, construction materials and labor costs. Prior to commencing construction, ESNG must file with, and get the approval of, the Federal Energy Regulatory Commission (FERC), as well as secure all of the necessary permits.

With the execution of these two agreements, ESNG expects to begin the pre-filing process with the FERC in the latter part of 2006 or early 2007. The regulatory and permitting process for a project of this size could be 24 months or even longer, with new services targeted to begin in late 2009. The FERC pre-filing process provides those parties interested in this project the opportunity to comment on the project.

ESNG currently serves 12 industrial customers, three electric generation customers, four non-affiliated local distribution companies and two affiliated natural gas divisions. ESNG completed construction of the only natural gas pipeline (now more than 331 miles in length) on the Delmarva Peninsula in 1959, providing access to natural gas for thousands of customers.

Chesapeake Utilities Corporation is a diversified utility company engaged in the distribution, transmission and marketing of environmentally friendly natural gas in Delaware, Maryland and Florida; distribution and wholesale marketing of propane in Delaware, Maryland, Virginia, Pennsylvania and Florida; advanced information services; and other related businesses. Eastern Shore Natural Gas Company is the only natural gas transmission pipeline on the Delmarva Peninsula and has supplied the region’s growing demand for a reliable energy source for more than 47 years. Chesapeake is traded on the New York Stock Exchange under the symbol CPK. Information about Chesapeake's businesses is available at www.chpk.com.

###

FOR MORE INFORMATION:

Stephen C. Thompson, President, ESNG

302.734.6799

Elaine Bittner, Vice President, ESNG

302.734.6710