ISDA Based Financial Swap to Fix Price Under APEA Contract

Larry, Steve & Jack,

Attached is an excel document with a transaction diagram summarizing the impact of an ISDA based transaction (financial swap) to fix the price of the APEA supply.

Effectively, Glendale enters into a transaction (under the ISDA) in which it "swaps" payments with a counter-party. For the APEA transaction, Glendale pays the ISDA counter-party a fixed price for an agreed to term and quantity and receives the 1st of month AECO index. Glendale, in turn, pays that index price to APEA. The impact is that Glendale has fixed its price under the APEA contract for such term and quantity as meets its needs.

The key is to get the ISDA executed. Then we can focus on the term, quantity and price provisions of the transaction.

An important factor to remember under the ISDA and in any financial transaction is that regardless of the physical delivery the ISDA based swap occurs. In other words, if the physical supply from AECO were interrupted by Force Majeure or other reason, Glendale is still obligated to "swap" payments with its ISDA counter-party.

As an example, assume that Glendale enters into a financial swap for 4,000 MMBtu/d for a 1 year term effective July 2001, swapping the 1st of month AECO index for a fixed price of $4.10 US/MMBtu. Also assume that APEA is unable to deliver gas for the entire month of August 2001 because of a pipeline outage (Force Majeure) and that the AECO 1st of month index for August is $5.00 US/MMBtu. Under the swap, Glendale pays the financial counterparty $508,400 (31 days * 4,000 MMBtu/d * $4.10/MMBtu). The financial counterparty pays Glendale $620,000 (31 days * 4,000 MMBtu/d * $5.00/MMBtu). The net position is a payment to Glendale of $111,600.

Call me if you have any questions about this. I will coordinate with Kim Ward to expedite the ISDA. Kim and I can also sit down with you to discuss these transactions.

Laird