Market Design Economics and Power Systems
100 Summer Street Suite 3200
Boston, MA 02110
(617) 531-2818 ...

February 3, 2004

Privileged and Confidential - Prepared at the Request of Counsel

Toni Kemmerle
Principal Real Estate Attorney
Maine Department of Transportation
16 State House Station

Augusta, ME 04333-0016

Craig P. Wilson
Kirkpatrick & Lockhart LLP
240 North Third Street
Harrisburg, Pennsylvania 17101

Re: Sears Island - Potential Consulting Advisory Tasks

Dear Ms. Kemmerle,

Levitan & Associates, Inc. (LAI) appreciates the time you and your colleagues spent with us during our conference call yesterday. As requested, we are pleased to provide you with a list of potential consulting advisory tasks that we could perform for the Maine Department of Transportation (MDOT) regarding the value of an LNG facility on Sears Island and your department's negotiations with prospective developers.

The first four tasks listed below are designed to assist MDOT immediately during this critical early stage in your discussions with project developers. These tasks will provide you with important background information on the qualifications of the developer(s), the commercial and legal aspects of potential deal structures, financial arrangements for existing LNG (and other energy infrastructure) facilities, and the relative advantages / disadvantages of the Sears Island site.

Task 1 - Due Diligence on Developer Qualifications
LAI will draw up a series of questions designed to provide MDOT with useful information about the developer's ability to permit, construct, and operate an LNG facility, as well as to structure the LNG import and gas sale contracts. These questions will cover permitting experience, contract structure, financial strength, engineering / technical expertise, operating capabilities, development plans / schedule, and other key qualifications. We will review and format the responses so that you have an initial basis for assessing the commercial viability of each developer's proposed project. At a later point we would be pleased to identify any shortcomings in the responses and follow up on behalf of 'VIDOT in a succeeding and separate task.

Estimated Cost: $8,000 for two developers
Estimated Duration: 2 weeks, depending upon developer(s) responsiveness


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Toni Kemmerle and Craig Wilson Privileged and Confidential
February 3, 2004 Prepared at the Request of Counsel

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Task 2 - Potential Deal Structures
LAI will work with legal counsel to outline the basic commercial and legal issues for a range of deal structures for MDOT. The potential structures may include outright sale of land, fixed property payments (rental or lease), escalation provisions, royalty payments (tied to facility utilization or throughput), etc. We will prepare a matrix that delineates the advantages and disadvantages associated with each option in general terms, as well as MDOT's ability to have its upfront (prior to facility operation) costs covered on a current basis by the developer.

Estimated Cost: $10,000 - $12,500
Estimated Duration: 2-3 weeks

Task 3 - Financial Arrangements of Existina LNG Facilities
LAI will research the property value, tax, and other financial arrangements of existing LNG and other, comparable energy infrastructure facilities for property and land lease information that may be useful to MDOT. Comparable energy infrastructure facilities would include gas processing plants and oil refineries. We will limit our research to what we can uncover in a relatively short time frame, and the results will be presented to you in a letter report.

Estimated Cost: $8, 000 - $10, 000
Estimated Duration: 2 weeks

Task 4 - Overview of Competing Sites
LAI will develop an overview of the advantages and disadvantages of Sears Island relative to other potential LNG sites so that you can gauge your negotiations with developers. Simply put, the better Sears Island stacks up against the competition, the better your negotiating position. LAI will survey the half dozen or so competing LNG sites in the Northeast and Atlantic Canada that have been publicly announced and document their development and permitting status. Our qualitative assessment will cover basic site characteristics such as deep water access, marine fishery and recreational activities, community acceptance, site suitability, environmental issues, distance to pipeline transportation, right-of-ways / easements, etc. We would be able prepare a more detailed assessment of the competitive sites and assess each competing project's likelihood of success in a succeeding and separate task.

Estimated Cost: S1 0, 000 - S1?,500
Estimated Duration: 2 - 3 weeks


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Toni Kemmerle and Craig Wilson Privileged and Confidential
February 3, 2004 Prepared at the Request of Counsel Page 3 of 3

Task 5 - LNG Facility Valuation
LAI can develop a financial valuation of the proposed LNG facility by constructing a detailed cash flow projection of LNG plant revenues, operating expenses, and capital costs. We would then apply an appropriate discount rate to the net earnings or cash flow to arrive at a market- based valuation for Sears Island. Applying the discount rate is analogous to a capitalization factor, and the resulting valuation would be consistent with the income capitalization approach to appraisal value. Our projection of revenues and LNG import expenses would be based upon our forecast of natural gas prices and price differentials ("basis") at applicable market hubs in the Northeast. We will incorporate any useful information provided by a developer, such as market or economic feasibility studies. Our report for MDOT will include key assumptions, financial model print-outs, and a range of reasonable values to test the effects of shifting gas and oil commodity prices.

Estimated Cost: $50,000 - $75, 000
Estimated Duration: 6 - 8 weeks

Task 6 - Miscellaneous
Once we are engaged, LAI will be available to answer questions, conduct analysis, and provide guidance to MDOT on an as-needed basis. We will endeavor to respond promptly to your inquiries and research tasks, and to assign the most qualified LAI personnel.

Estimated Cost: standard billing rates (attached)
Estimated Duration: nla

The first four tasks can be conducted on a task order basis so that MDOT can decide which tasks should be performed and in what order. We appreciate this opportunity to be considered for this important assignment. If you would like to discuss these potential tasks or other matters regarding a Sears Island LNG facility, please feel free to contact either Richard Levitan or me at 617.53 1.2818, or at and sgp@, respectively. We look forward to working with you and the rest of the MDOT team.


Seth Parker
Vice President