EXHIBIT 10.5
[U.S. ENERGY SERVICES, INC. LOGO]
April 22, 2002
Illinois River Energy
c/o Xxxxxx Xxxxxxxxx
DENCO
Hwy 59 South
P.O. Box 173
Morris, MN 55267
Dear Xx. Xxxxxxxxx:
The purpose of this letter is to set forth the understanding and agreement
between U.S. Energy Services, Inc. ("U.S. Energy") and Illinois River Energy
("IRE").
PROJECT DESCRIPTION: IRE is developing an 80 million gallon per year ethanol
plant (the "Plant") in central Illinois. The Plant will use approximately 8 MW
of electricity and 8,000 MMBtu per day of natural gas. Production is scheduled
to begin during the 1st quarter of 2004.
U.S. ENERGY RESPONSIBILITIES: U.S. Energy will provide consulting and project
management services for supplies of natural gas and electricity for the Plant.
These services will be provided during the construction of the Plant and after
the Plant has been placed in service. These services will include but not be
limited to the following:
A. ENERGY INFRASTRUCTURE ADVISORY SERVICES
1. Provide a detailed analysis of natural gas distribution service options.
Options evaluated will include direct service from an Interstate
pipeline(s) or service from a Local Distribution Company (LDC).
2. Determine whether firm, interruptible, or a blend of interstate
transportation entitlement will provide the lowest burnertip cost. Factors
that will be considered include the cost of an alternate fuel system, and
availability of specific receipt point capacity.
3. Develop and implement a natural gas supply procurement plan. Natural gas
supplies will be solicited and purchased from qualified natural gas
producers who own and control natural gas production and have sufficient
financial capability to provide reliable service.
4. Provide advisory services to IRE regarding the purchase electricity. U.S.
Energy will conduct a competitive procurement for the Plant which will
include, but is not limited to, the following services:
a. Develop a Request for Proposal that addresses IRE's
short-term and long-term electric pricing and reliability
requirements.
b. Identify and obtain competitive service proposals from
qualified suppliers.
CONFIDENTIAL INFORMATION IRE ENERGY INITIALS______
U.S. ENERGY INITIALS______
c. Negotiate final electric service agreements that meet the
pricing and reliability requirements of IRE.
5. Evaluate the proposed electric distribution infrastructure (substation)
for reliability, future growth potential and determination of the division
of ownership of facilities between the utility and the Plant.
6. Investigate economic development rates, utility grants, equipment rebates
and other utility programs that may be available.
B. ON-GOING ENERGY MANAGEMENT SERVICES
1. Provide natural gas supply information to minimize the cost of natural gas
purchased by IRE. This will include acquiring multiple supply quotes and
reporting to IRE the various supply index and fixed prices. U.S. Energy
will not take title to IRE gas supplies, but will communicate supply
prices and potential buying strategies.
2. Negotiate with interstate pipelines, other shippers, to provide
transportation, balancing, and supply agreements that meet IRE's
performance criteria at the lowest possible cost.
3. Develop and implement a price management plan that is consistent with
IRE's pricing objectives and risk profile.
4. Provide daily nominations to the suppliers, interstate pipeline(s) and
other applicable shippers for natural gas deliveries to the Plant. This
will include daily electronic confirmations to IRE of all nominations and
actual daily usage. U.S. Energy will utilize customer or utility supplied
telemetering to obtain actual usage data.
5. Review and renegotiate electric service costs as required. This may
include:
a) Identifying new service tariffs or opportunities to renegotiate the
service agreement to provide lower costs.
b) Identifying operating changes that would lower the total cost of
electricity while maintaining production performance of the Plant.
7. Provide a monthly projection of energy (natural gas and electricity) and
annual summaries.
8. Provide natural gas and electric energy operating budgets for the Plant.
9. Provide a consolidated monthly invoice that reflects all applicable
natural gas and electric energy costs. U.S. Energy will be responsible for
reviewing, reconciling and paying all shipper, supplier and utility
invoices.
FEES: U.S. Energy's fee for services described above during the initial term of
this agreement shall be $3,000 per month, plus pre-approved travel expenses not
to exceed $3,500 during the initial term of this Agreement. All fees, except for
out-of-pocket travel expenses, will be deferred and collected only when
[U.S. ENERGY SERVICES, INC. LOGO]
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CONFIDENTIAL INFORMATION IRE ENERGY INITIALS______
U.S. ENERGY INITIALS______
and if the plant is financed. In the event the plant is not financed, this
Agreement shall become null and void and both parties will be relieved of
professional and/or financial obligations due the other party, including the
accrued monthly charges.
TERM: The initial term of this Agreement shall be from March 1, 2002 through
June 30, 2003, and thereafter for successive one year terms unless and until
terminated by either party with sixty (60) days notice.
BILLING AND PAYMENT: On the first of the month, U.S. Energy shall invoice IRE
for the work to be completed that month. IRE shall pay U.S. Energy within ten
(10) days of receipt of invoice.
INDEPENDENT CONTRACTOR: U.S. Energy shall be and remain an independent
contractor-consultant during the term of this Agreement, and U.S. Energy, its
directors, officers and employees, shall not act for, or bind IRE in any manner,
unless specifically authorized to do so by IRE.
CONFIDENTIALITY: U.S. Energy shall not divulge to any other person or party any
information developed by U.S. Energy hereunder or revealed to U.S. Energy
pursuant to this Agreement, unless such information is (a) already in U.S.
Energy's possession and such information is not known by U.S. Energy to be
subject to another Confidentiality Agreement, or (b) is or becomes generally
available to the public other than as a result of an unauthorized disclosure by
U.S. Energy, its officers, employees, directors, agents or its advisors, or (c)
becomes available to U.S. Energy on a non-confidential basis from a source which
is not known to be prohibited from disclosing such information to U.S. Energy by
legal, contractual or fiduciary obligation to the supplier, or (d) is required
by U.S. Energy to be disclosed by court order, or (e) is permitted by IRE. All
such information shall be and remain the property of IRE unless such information
is subject to another Confidentiality Agreement, and upon the termination of
this Agreement, U.S. Energy shall return all such information upon IRE's
request. Notwithstanding anything to the contrary herein, U.S. Energy shall not
disclose any information which is in any way related to this Agreement or U.S.
Energy's services hereunder without first discussing such proposed disclosure
with IRE.
CONFLICT OF INTEREST: U.S. Energy will not, directly or indirectly, engage in
any activities which would result in any conflict of interest with IRE, or
enable U.S. Energy to benefit from its relationship with IRE, except as provided
in this Agreement or approved by IRE.
NOTICES: Any formal notice, request or demand which a party hereto may desire to
give to the other respecting this Agreement shall be in writing and shall be
considered as duly delivered as of the postmark date when mailed by ordinary,
registered or certified mail by said party to the following addresses:
IRE: Illinois River Energy
Xxxxx XxXxxx
4000 North Division
Morris, ILL 60450
U.S. Energy: U.S. Energy Services, Inc.
(Payment) c/o US Bank SDS 12-1449
Account #: 173100561153
P.O. Box 86
Minneapolis, MN 55486
[U.S. ENERGY SERVICES, INC. LOGO]
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CONFIDENTIAL INFORMATION IRE ENERGY INITIALS______
U.S. ENERGY INITIALS______
(Notices): U.S. Energy Services, Inc.
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxxx Xxxxxx
ASSIGNMENT OR AMENDMENT: The Agreement may not be assigned or amended without
the written consent of U.S. Energy and IRE.
APPLICABLE LAW: The Agreement shall be construed in accordance with the laws of
the State of Minnesota.
ENTIRE AGREEMENT: This Agreement constitutes the entire Agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
Agreements and understanding pertaining hereto.
If the above correctly sets forth IRE Energy's understanding of the Agreement,
please so indicate in the spaces below and return one copy to U.S. Energy,
Attention: Xxxxx Xxxxxx.
Sincerely,
U.S. ENERGY SERVICES, INC.
BY: /s/ Xxxxx Xxxxxx (Sign)
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NAME: Xxxxx Xxxxxx (Print)
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TITLE: Vice President
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DATE: 5/29/02
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ACCEPTED AND DATED TO THIS 29TH
DAY OF APRIL, 2002.
ILLINOIS RIVER ENERGY
BY: /s/ Xxxxx Xxxxxxx (Sign)
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NAME: Xxxxx Xxxxxxx (Print)
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TITLE: President
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DATE: 5/14/02
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[U.S. ENERGY SERVICES, INC. LOGO]
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