IGS

In Mark Baldwin's June 19 letter, he proposed the following fee schedule for
project development:

Retainer: $1000/month plus expenses
Accepted project (meets TW's predetermined financial hurdles): Proposal $5000
Each month TW actively negotiating project: $1500/month (each project)
Letter of Intent: $5000
Signed Agreement: $10,000
Incentive Fee: To be determined

When I spoke with Mark, he explained that this schedule was based on
reaching certain milestones in the development of individual projects. In
his letter he also proposed monthly fees for regulatory services ($5000/mo.)
and market development services (including SoCal OIR related services --
$3000/mo.). This e-mail addresses the project development fee structure
only.

The recently expired Market Development agreement with IGS provided for a
one-time retainer of $15,000 and a monthly retainer of $5000, plus expenses,
and an incentive fee structure for any agreement between Transwestern and
third party "identified by IGS under this agreement." As you know, the
"identified by" language presented us with some ambiguity in the case of the
Southern Energy Gallup Expansion contract, in which both IGS and the TW
Commercial Group worked on the deal. Fortunately, the ambiguity worked to
Transwestern's advantage in that case, but my understanding is that in
ongoing dealings with IGS both parties would prefer more specificity in any
future consulting agreement.

Mark's proposal represents a step in the right direction because it provides
for payment on a per-project basis. This immediately eliminates the
"identified by" problem because we won't be obligated to pay him unless and
until he identifies a project we're interested in him working on.

I propose that we define some general terms and conditions in an enabling
agreement. If Mark brings us a project we want to pursue, we will pay him
according to these terms (and any other terms and conditions tailored to the
specific project, as needed). For each project, we would simply enter into a
short letter agreement referencing the enabling agreement. I've outlined the
agreement below as a starting point for discussion. The numbers are Mark's;
we'll have to discuss whether they are appropriate. I've omitted any payment
for a letter of intent because since they are nonbinding, letters of intent
are of little value to Transwestern.

Call me after you've reviewed this and let's discuss how you want to
proceed.

From time to time during the term of the enabling agreement, IGS may present
brief, preliminary project proposals to Transwestern. If Transwestern
desires IGS's assistance in developing a particular project, it will so
notify IGS in writing and shall execute an agreement with IGS adopting the
following terms and conditions:

1. Retainer for project development: $1000/month plus expenses. Project
development shall include but not be limited to: research, due diligence,
market analysis, negotiation with counterparties (to the extent specifically
authorized by Transwestern), reporting to marketing representatives of
Transwestern as requested by Transwestern, and preparing a detailed written
proposal. Transwestern and IGS may agree in writing to other
project-specific requirements. Transwestern shall continue to pay the
retainer each month until a definitive agreement is signed with the
counterparty or Transwestern notifies IGS in writing that it has decided to
terminate the project.

2. If Transwestern accepts the project described in IGS's written proposal
(or with modifications after reviewing the written proposal), it shall pay
IGS a fee of [the lesser of] $5000 [or ___% of the net present value of the
project]. "Accepting the project" means that the project meets
Transwestern's financial, regulatory and other criteria and the Transwestern
Commercial Group has obtained the necessary officer approval to pursue the
project to completion. Accepting the project and paying IGS pursuant to this
paragraph in no way obligates Transwestern to pursue the project to
completion.

3. If Transwestern signs a definitive agreement with a counterparty for the
project, it shall pay IGS $10,000. Additionally, the parties may negotiate
an additional incentive fee (to be agreed upon and documented at the outset
of the project).

(I will also include provisions on termination, confidentiality, etc.).