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EXHIBIT 10.1
WICOR, INC. SYSTEM
SERVICE AGREEMENT
This Service Agreement (the "Agreement") is made and entered
into as of the 1st day of June, 1994, by and among WICOR, Inc., a
Wisconsin corporation ("WICOR"), Wisconsin Gas Company, a
Wisconsin corporation ("Wisconsin Gas"), WEXCO of Delaware, Inc.,
a Delaware corporation ("WEXCO"), Sta-Rite Industries, Inc., a
Wisconsin corporation ("Sta-Rite") and SHURflo Pump Manufacturing
Company, a California corporation ("SHURflo"), and supersedes the
Service Agreement dated as of January 1, 1988, as amended by
endorsement dated as of July 28, 1993.
WHEREAS, WICOR is a holding company owning all of the issued
and outstanding common stock of its subsidiaries, Wisconsin Gas,
WEXCO, Sta-Rite and SHURflo; and
WHEREAS, WICOR, WEXCO, Sta-Rite and SHURflo (hereinafter
referred to as "Nonutility Affiliates") are affiliated interested
with Wisconsin Gas pursuant to Stats., ss. 196.52 and 196.795; and
WHEREAS, it is necessary and convenient for WICOR to provide
certain common services for the benefit of its subsidiaries; and
WHEREAS, from time to time it may be necessary, convenient or
economical for any one of the parties to this Agreement to provide
certain services to one or more of the other parties, which may
require that Wisconsin Gas make available public utility affiliate
employees and/or property as referred to in s. 196.795(5)(r) and
(s) Stats.; and
WHEREAS, it is necessary and appropriate that pursuant to ss.
196.52 and 196.795, Stats., the costs for the aforementioned
services be determined, allocated and distributed.
NOW, THEREFORE, it is agreed by and among the parties as
follows:
ARTICLE I
AGREEMENT TO FURNISH SERVICES
1. WICOR agrees to provide certain common services and to
incur certain common expenses and fees, all as described in more
detail hereafter, for the benefit of its subsidiaries.
2. Each of the parties agrees to use its best efforts to
furnish such services as may from time to time be reasonably
requested by another party.
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ARTICLE II
DESCRIPTION OF SERVICES AND PROPERTY
The services that may be requested by a party hereto and
furnished pursuant to this Agreement shall include, but are not
limited to, the following: management, supervisory, accounting,
legal, financial, employee benefit services pursuant to an Order
of the Public Service Commission of Wisconsin dated April 28,
1994, in Docket 00-XX-000 ("Xxxxx 00, 0000 Xxxxx"), and similar
services.
Any party shall have the right, exercisable at its sole
discretion, to refuse to perform services or to provide property
to any other party, except as provided in the April 28, 1994
Order.
Wisconsin Gas may, in its sole discretion, sell, lease,
transfer to or exchange with a Nonutility Affiliate, property, as
defined in s. 196.795(5)(s), Stats., independent of and not
related to the provision of any of the services identified above.
Such property shall be provided in accordance with the provisions
of s. 196.795(5)(s), Stats. and Wisconsin Gas shall be compensated
for such property at the fair market value of such property.
ARTICLE III
COMPENSATION FOR SERVICES
Compensation for services or property provided by Wisconsin
Gas to a Nonutility Affiliate shall be at the greater of the cost
to Wisconsin Gas or the fair market value of such services. For
purposes of this Agreement, the cost to Wisconsin Gas of each such
service shall include those costs listed in Article V.
A Nonutility Affiliate may, if in its sole discretion it
elects to do so, provide services comparable to those listed
above, or property (both real and personal) to Wisconsin Gas upon
request.
Compensation for services provided by a Nonutility Affiliate
to Wisconsin Gas shall be at the lesser of the fair market value
or the cost to the Nonutility Affiliate of such services. For
purposes of this Agreement, the cost of each such service shall
include those costs listed in Article V.
The fair market value of a service provided by Wisconsin Gas
to a Nonutility Affiliate shall be equal to the cost which the
Nonutility Affiliate would have paid to obtain such service if
Wisconsin Gas could not or would not provide such service. In
determining the fair market value of a service it provides,
Wisconsin Gas shall make a good faith effort to identify the
resources necessary to perform the service, and the value of such
service based on a general knowledge of the relevant market for
such service as well as, if available, comparison with bids or
quotations for such a service. If Wisconsin Gas, despite its good
faith efforts, is not able to determine the fair market value of
a service, the fair market value shall be deemed to be equal to
the cost to Wisconsin Gas.
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The fair market value of a service provided by Wisconsin Gas
to a Nonutility Affiliate shall be compared to the cost to
Wisconsin Gas of providing the service and the Nonutility
Affiliate shall be charged the greater of the fair market value or
the cost of providing the service.
ARTICLE IV
DESCRIPTION OF COST ALLOCATION
1. It is understood and agreed that each party shall bear
all costs the incurrence of which benefits solely such party, and
that each subsidiary shall bear a fair and equitable portion of
costs the incurrence of which benefits partly but not solely such
subsidiary.
2. Costs incurred initially by the parties are identified
below.
a. "Subsidiary Sole Costs" are costs
incurred initially by any subsidiary solely
for its benefit or directly for the benefit
of any single subsidiary.
b. "Subsidiary Shared Costs" are costs
incurred initially by any subsidiary, partly
for the benefit of at least two but not all
of the subsidiaries.
c. "Common Costs" are costs incurred by any
party which benefit the subsidiaries, which
include, but are not limited to, those items
set forth in Exhibit A attached hereto.
d. "WICOR Sole Costs" are costs incurred by
any party which do not benefit the
subsidiaries, which include, but are not
limited to, costs, expenses and fees incurred
in conjunction with investigating, reviewing
or planning a potential acquisition or
divestiture of any equity or ownership
interest in another corporation or business
enterprise and costs, expenses and fees
incurred in consummating any acquisition or
divestiture of such interest. Such costs
include interest expense associated with any
funds borrowed to finance an acquisition.
3. Costs identified above shall be apportioned and borne as
follows:
a. Subsidiary Sole Costs shall be borne by,
billed to or otherwise recorded as costs of
the subsidiary receiving the benefit
associated with the costs.
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b. Subsidiary Shared Costs shall be
examined and apportioned in a manner designed
to match cost responsibility with benefits
received. The costs so apportioned shall be
borne by, billed to or otherwise recorded as
costs of each subsidiary receiving a benefit
associated with the incurrence of the costs.
c. Common Costs shall be apportioned to,
borne by, billed to or recorded as costs of
each subsidiary according to the allocation
formula and procedures set forth in Exhibit B
attached hereto and made a part hereof. The
percentage allocations applicable to each
subsidiary set forth in Exhibit B shall be
recalculated annually using the formula and
procedures set forth in Exhibit B, which
among other things provides for using amounts
recorded on the books of account of the
parties at the end of the three preceding
calendar years.
d. WICOR Sole Costs shall be borne by,
billed to or otherwise recorded as costs of
WICOR.
4. The cost for services rendered by any part to any of the
other parties shall be accounted for and billed on a current
monthly basis with settlement of such xxxxxxxx to be made within
30 days after billing.
ARTICLE V
IDENTIFICATION OF COSTS TO BE ALLOCATED
1. The various costs referred to in this Agreement and to
be allocated to and borne by the parties as set forth herein
include:
a. The cost of any employee's services,
which shall be determined in the following
manner;
i. Actual Compensation based on direct labor expense
shall be determined for each employee and shall
include consideration for paid absences, such as
vacation and illness.
ii. The result calculated above will be multiplied by
both a fringe benefit percent and a "loading
factor." The fringe benefit percent shall include
the cost of such items as medical and dental
insurance, pensions, social security and life
insurance. The "loading factor" shall include such
intangible costs as activities necessary to
maintain professional licenses, other permits and
special skills, general training and business
reading and membership or participation in trade
associations and professional and business
organizations.
b. The cost of any property used in
connection with the services hereunder,
including, but not limited to, materials,
equipment, supplies and the like, as
reflected by the actual cost as recorded on
the books of account of the party supplying
such items. The cost of such property shall
include a return on the depreciated original
cost equal to the return authorized in the
latest Wisconsin Gas rate case.
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c. Travel and other out-of-pocket expenses
at actual cost as recorded on the books of
account of the party furnishing such items.
d. Fees and expenses incurred for outside
management, supervisory, accounting, legal,
financial, or similar services at actual cost
as recorded on the books of account of the
party initially bearing such cost.
ARTICLE VI
Each person who is an officer of both Wisconsin Gas and one
or more of the nonutility affiliates, or a person who is a member
of the incidental supporting staff of such officer, shall keep a
daily record of the amount of time devoted to nonutility
affiliates. Actual compensation based on direct labor expense
shall be determined for each employee and shall include
consideration for paid absences such as vacation and illness.
This amount shall be adjusted by both a loading factor and a
fringe benefit allocation factor as described in Article V.
ARTICLE VII
EFFECTIVE DATE - TERM - CANCELLATION
1. This Agreement shall commence as of the date first
written above or 60 days after approval by the Public Service
Commission of Wisconsin, whichever occurs first, and shall
continue until cancelled upon 60 days written notice by any party
to the other parties.
2. It is contemplated that, if and when WICOR acquires new
subsidiaries, such subsidiaries may become parties to this
Agreement by endorsement after review and approval by the Public
Service Commission of Wisconsin.
3. It shall not be necessary for the parties to amend or
re-execute this Agreement in the event that allocation percentages
set forth in Exhibit B are changed as a result of the annual
recalculation of such percentages, or that new subsidiaries become
parties to this Agreement.
ARTICLE VIII
MISCELLANEOUS
1. Nothing herein contained shall be construed to release
the officers and directors of the parties from the obligation to
perform the duties of such offices or to limit the exercise of
their lawful powers.
2. The performance of this Agreement shall be subject to
valid rules, regulations and orders of any regulatory body having
jurisdiction, including approval by the Public Service Commission
of Wisconsin. The parties hereto acknowledge that Wisconsin Gas
is subject to the provisions of s. 196.795(5)(r) and (s), Stats.,
regarding the use of "public utility affiliate employe's services"
and "property" and agree that Wisconsin Gas shall minimize the use
of any "public utility affiliate employe's services" or "property"
as required by those subsections.
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3. Nothing herein shall limit the authority of the Public
Service Commission of Wisconsin with respect to inclusion or
exclusion of costs for the purpose of setting rates for Wisconsin
Gas, or limit the powers of that commission in any other respect.
4. All prior service agreements among the parties shall be
and hereby are terminated, without liability to any party;
provided, however, that all services performed and costs incurred
prior to the date hereof under such contracts shall be accounted
for under such contracts.
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IN WITNESS WHEREOF, each of the parties hereto has caused
these presents to be executed in its name on its behalf by its
duly authorized officers as of the day and year first above
written.
ATTEST: WICOR, Inc.
X.X. Xxxxxxxxx BY X.X. Xxxxxxxx
Secretary President
ATTEST: Wisconsin Gas Company
X.X. Xxxxxxxxx BY X.X. Xxxxxxxx
Secretary President
ATTEST: Sta-Rite Industries, Inc.
X.X. Xxxxxxxxx BY
Secretary President
ATTEST: WEXCO of Delaware, Inc.
X.X. Xxxxxxxxx BY X. Xxxxxxxx
Secretary President
ATTEST: SHURflo Pump Manufacturing
Company
X.X. Xxxxxxxxx BY X. Xxxxxxxxx
Assistant Secretary Chairman
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Exhibit
A
COMMON COSTS
The component costs of the Common Cost category of costs
include but are not limited to the following:
Accounting
WICOR Parent Company Records and Financial Statements
WICOR Consolidated Financial Statements
External WICOR Reports and Summary Internal Information
Annual Meeting Information
Invoice and Check Processing - WICOR
Accounting Research
Treasury Activities
Shareholder Activities (i.e., dividends, stock options, etc.)
Coordination of Cash Activities - WICOR
Annual Meeting Involvement
Financial Planning
Public Information
External WICOR Reports
WICOR News Releases
Annual Meeting Activities
General Activities
Time and Expenses of Officers and Employees of Subsidiaries
Devoted to
WICOR Matters Other Than Those Matters Constituting WICOR Sole
Costs
Secretarial Support
Annual Meeting - Proxy Handling
External Reports
Shareholder Activities
Tax
WICOR Tax Matters
Legal
Monitoring of Contracts/Consultants
Research
Other
Fringe Benefits Related to Direct and Indirect Labor
Stockholder Expense
Independent Accountants - Audit Activities
Outside Counsel - Legal Matters
Personal Expenses of Common Employees
Office Space
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Exhibit
B
ALLOCATION OF COMMON COSTS
It is understood and agreed by the parties that certain costs
incurred by or on behalf of WICOR provide a substantial benefit to
the subsidiaries. Some of the costs incurred would be, and were
prior to the establishment of WICOR, direct costs of the
individual subsidiary companies. Other costs would be duplicated
at each subsidiary were they not performed at the WICOR level.
The allocation method used to allocate Common Costs
emphasizes the operations of the subsidiaries by weighing equally
total assets, operating expenses (less income taxes) and gross
payroll of each subsidiary.
The allocation factors will be determined annually. Each
subsidiary's percentage of total assets, operating expenses (less
income taxes) and gross payroll will be calculated by comparing
such items to the sum of the subsidiaries' assets, operating
expenses (less income taxes) and gross payroll. Such figures will
be determined for the three years preceding the year for which the
allocation is to be made. The percentages of assets, operating
expenses and payroll so determined for such subsidiary will
themselves be averaged to arrive at each subsidiary's overall
average percentage to be used in allocating Common Costs. The
calculation of the allocation percentages as will be used for 1994
is attached hereto as Schedule 1.
If and when subsidiaries join the WICOR system, allocation
factors will be determined as if the subsidiary joining the system
were in the system for the entire period covered by the
calculation. These new allocation factors shall be applied to the
Common Cost pool commencing on the effective date of the new
subsidiary's acquisition or formation.
If the joining subsidiary does not have operating results for
any portion of the period, its share of Common Costs will be based
upon financial analysis until such time as actual operating
results are available.
