Ancillary Services Agreement
This Ancillary Service Agreement (this "Agreement") is entered into as of
the ____ day of __________, 1999, by and between ___________________, a
__________ corporation (the "Receiving Company"), and
__________________________, a _____________ corporation (the "Providing
Company").
WHEREAS, each of the Receiving Company and the Providing Company is a
direct or indirect subsidiary of Dominion Resources, Inc. ("DRI");
WHEREAS, each of the Receiving Company and the Providing Company believes
that it is in the interest of the Receiving Company to provide for an
arrangement whereby the Receiving Company may, from time to time and at the
option of the Receiving Company, agree to purchase administrative, management
and other operating services from the Providing Company;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. SERVICES OFFERED. Exhibit I hereto lists and describes all of the
services that are available from the Providing Company. The Providing Company
hereby offers to supply those services to the Receiving Company. Such services
are and will be provided to the Receiving Company only at the request of the
Receiving Company.
II. SERVICES SELECTED.
A. Initial Selection of Services. Exhibit II lists the services the
Receiving Company hereby agrees to receive from the Providing Company.
B. Annual Selection of Services. The Providing Company shall send an annual
service proposal form to the Receiving Company on or about December 1 listing
services proposed for the coming calendar year. By December 31, the Receiving
Company shall notify Providing Company of the services it has elected to receive
from the Providing Company during the following calendar year.
III. PERSONNEL. The Providing Company will provide services by utilizing
the services of such executives, accountants, financial advisers, technical
advisers, attorneys, engineers, geologists, operating personnel and other
persons as have the necessary qualifications.
IV. COMPENSATION AND ALLOCATION. As and to the extent required by law, the
Providing Company will provide such services at cost. Exhibit III hereof
contains rules for determining and allocating costs for the Providing Company.
Exhibit III contemplates that the
Providing Company may be providing the same services to more than one Receiving
Company under separate Ancillary Services Agreements.
V. TERMINATION AND MODIFICATION.
A. Modification of Services. The Receiving Company may modify its selection
of services at any time during the calendar year by giving the Providing Company
written notice of the additional services it wishes to receive, and/or the
services it no longer wishes to receive, from the Providing Company. The
requested modification in services shall take effect on the first day of the
first calendar month beginning at least fifteen (15) days after the Receiving
Company sent written notice to the Providing Company.
B. Modification of Other Terms and Conditions. No other amendment, change
or modification of this Agreement shall be valid, unless made in writing and
signed by the parties hereto.
C. Termination of this Agreement. The Receiving Company may terminate this
Agreement as to the Providing Company by providing sixty (60) days advance
written notice of such termination to the Providing Company. The Providing
Company may terminate this Agreement as to the Receiving Company by providing
sixty (60) days advance written notice of such termination to the Receiving
Company. Termination of any separate Ancillary Services Agreement by either
party to the instant Agreement shall not affect the obligations of the Parties
pursuant to the instant Agreement unless the parties modify the instant
Agreement pursuant to Paragraph V.A and/or paragraph V.B.
This Agreement is subject to termination or modification at any time to the
extent its performance may conflict with the provisions of the Public Utility
Holding Company Act of 1935, as amended ("1935 Act"), or with any rule,
regulation or order of the Securities and Exchange Commission ("SEC") adopted
before or after the making of this Agreement. This Agreement shall be subject to
the approval of any state commission or other state regulatory body whose
approval is, by the laws of said state, a legal prerequisite to the execution
and delivery or the performance of this Agreement.
VI. NOTICE. Where written notice is required by this Agreement, said notice
shall be deemed given when mailed by United States registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
a. To the Receiving Company:
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b. To the Providing Company:
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VII. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of incorporation of the Providing Company,
without regard to its conflict of laws provisions.
VIII. ENTIRE AGREEMENT. This Agreement, together with its exhibits,
constitutes the entire understanding and agreement of the parties with respect
to its subject matter, and effective upon the execution of this Agreement by the
respective parties hereof and thereto, any and all prior agreements,
understandings or representations with respect to this subject matter (except
for completion of obligations of the parties to each other arising before the
effective date of this Agreement) are hereby terminated and canceled in their
entirety and are of no further force or effect.
IX. WAIVER. No waiver by any party hereto of a breach of any provision of
this Agreement shall constitute a waiver of any preceding or succeeding breach
of the same or any other provision hereof.
X. ASSIGNMENT. This Agreement shall inure to the benefit of and shall be
binding upon the parties and their respective successors and assigns. No
assignment of this Agreement or any party's rights, interests or obligations
hereunder may be made without the other party's consent, which shall not be
unreasonably withheld, delayed or conditioned.
XI. SEVERABILITY. If any provision or provisions of this Agreement shall be
held to be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above mentioned.
By Receiving Company:
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Attest:
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By Providing Company:
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Attest:
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EXHIBIT I
DESCRIPTION OF SERVICES OFFERED BY PROVIDING COMPANY
UNDER THIS ANCILLARY SERVICES AGREEMENT
1. Accounting, Treasury and Finance. Provide advice and assistance to
Receiving Company in accounting, treasury and finance matters, including the
development of accounting practices, procedures and controls (including the
maintenance of the general ledger and related subsidiary systems), the
preparation and analysis of financial reports, and the processing of certain
accounts such as accounts payable, payroll, customer and cash management.
2. Legal and Regulatory. Provide advice and assistance with respect to
legal and regulatory issues as well as regulatory compliance, including 1935 Act
authorizations and compliance and regulatory matters under other Federal and
State laws.
3. Information Technology, Electronic Transmission and Computer Services.
Provide the organization and resources for the operation of an information
technology function including the operation of a data processing facility and
the management of a telecommunications network. Develop, implement and process
computerized applications for Receiving Company.
4. Software. License Receiving Company, on a non-exclusive, no-charge or
at-cost basis, to use all software which Providing Company has the right to
sell, license or sub-license; and, at Receiving Company's expense, permit
Receiving Company to enhance any such software and license others to use all
such software and enhancements to the extent that Providing Company shall have
the legal right to so permit.
5. Operations. Advise and assist Receiving Company in the study, planning,
engineering and construction of its energy plant facilities, advise and assist
in matters related to gas control and advise, assist and manage the planning,
engineering (including maps and records) and construction operations of
Receiving Company. Develop long-range operational programs for Receiving Company
and advise and assist Receiving Company in the coordination of such programs
with the programs of the other DRI subsidiaries.
6. Executive and Administrative. Advise and assist Receiving Company in the
solution of major problems and in the formulation and execution of the general
plans and policies of Receiving Company. Advise and assist Receiving Company as
to operations, the issuance of securities, the preparation of filings arising
out of or required by the various Federal and State securities, business, public
utilities and corporation laws, the selection of executive and administrative
personnel, the representation of Receiving Company before
regulatory bodies, proposals for capital expenditures, budgets, financing,
acquisition and disposition of properties, expansion of business, rate
structures, public relationships and other related matters.
7. Business and Operations Services. Advise and assist Receiving Company in
all matters relating to operational capacity and the preparation and
coordination of operating studies. Manage Receiving Company's purchase, sale,
movement, transfer and accounting of volumes to ensure continued recovery of all
prudently incurred energy purchase costs through local jurisdictional cost
recovery mechanisms. Compile and communicate information relevant to system
operation. Perform general business and operations support services, including
business, plant and facilities operation, maintenance and management, and
travel, aviation, fleet and mail services.
8. Exploration and Development. Advise and assist Receiving Company in all
geological and exploration matters including the acquisition and surrender of
acreage and the development of underground storage facilities.
9. Marketing. Plan, formulate and implement marketing programs (other than
energy marketing), as well as provide associated marketing services to assist
Receiving Company with improving customer satisfaction, load retention and
shaping, growth of energy sales and deliveries, energy conservation and
efficiency. Assist Receiving Company in carrying out policies and programs for
the development of plant locations and of industrial, commercial and wholesale
markets and assist with community redevelopment and rehabilitation programs.
10. Corporate Planning. Advise and assist Receiving Company in studying and
planning in connection with operations, budgets, economic forecasts, capital
expenditures and special projects.
11. Purchasing. Advise and assist Receiving Company in the purchase of
materials, supplies and services, conduct purchase negotiations, prepare
purchasing agreements and administer programs of material control.
12. Rates. Advise and assist Receiving Company in the analysis of its rate
structure in the formulation of rate policies and in the negotiation of large
contracts. Advise and assist Receiving Company in proceedings before regulatory
bodies involving the rates and operations of Receiving Company and of other
competitors where such rates and operations directly or indirectly affect
Receiving Company.
13. Research. Investigate and conduct research into problems relating to
production, utilization, testing, manufacture, transmission, storage and
distribution of energy. Keep abreast of and evaluate for Receiving Company all
research developments and programs of significance affecting Receiving Company
and the energy industry, conduct research and development in promising areas and
advise and assist in the solution of technical problems arising out of Receiving
Company's operations.
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14. Tax. Advise and assist Receiving Company in the preparation of Federal
and other tax returns, and generally advise Receiving Company as to any problems
involving taxes including the provision of due diligence in connection with
acquisitions.
15. Environmental Compliance. Provide consulting, cleanup, and other
activities as required by Receiving Company to ensure full compliance with
applicable environmental statutes and regulations.
16. Customer Services. Provide services and systems dedicated to customer
service, including billing, remittance, credit, collections, customer relations,
call centers, energy conservation support and metering.
17. Energy Marketing. Provide services and systems dedicated to energy
marketing, including marketing and trading of gas and electric power, and energy
price risk management and development of marketing and sales programs in
physical and financial markets.
18. External Affairs. Provide services in support of corporate strategies
for managing relationships with federal, state and local governments, agencies
and legislative bodies. Formulate and assist with public relations and
communications programs and administration of corporate contribution and
community affairs programs.
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EXHIBIT II
SERVICES RECEIVING COMPANY AGREES TO RECEIVE FROM
PROVIDING COMPANY
SERVICE YES NO
1. Accounting, Treasury and Finance _____ _____
2. Legal and Regulatory _____ _____
3. Information Technology, Electronic Transmission
and Computer Services _____ _____
4. Software Pooling _____ _____
5. Operations _____ _____
6. Executive and Administrative _____ _____
7. Business and Operations Services _____ _____
8. Exploration and Development _____ _____
9. Marketing _____ _____
10. Corporate Planning _____ _____
11. Purchasing _____ _____
12. Rates _____ _____
13. Research _____ _____
14. Tax _____ _____
15. Environmental Compliance _____ _____
16. Customer Services _____ _____
17. Energy Marketing _____ _____
18. External Affairs _____ _____
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EXHIBIT III
METHODS OF ALLOCATION FOR PROVIDING COMPANY
Providing Company shall allocate costs independently to Receiving Company, or,
as the case may be, among companies receiving service from it under this and
similar Ancillary Service Agreements using the following methods:
I. The costs of rendering service by Providing Company will include all costs
of doing business including interest on debt but excluding a return for the
use of equity capital for which no charge will be made to Receiving
Company.
II. A. Providing Company will maintain a separate record of the expenses of
each department. The expenses of each department will include:
1. those expenses that are directly attributable to such department,
and
2. an appropriate portion of those office and housekeeping expenses
that are not directly attributable to a department but which are
necessary to the operation of such department.
B. Expenses of the department will include salaries and wages of
employees, rent and utilities, materials and supplies, depreciation,
and all other expenses attributable to the department. The expenses of
a department will not include:
1. those incremental out-of-pocket expenses that are incurred for
the direct benefit and convenience of an individual company or
group of companies,
2. Providing Company overhead expenses, including expenses of the
corporate secretary's department that are attributable to
maintaining the corporate existence of Providing Company, and all
other incidental overhead expenses including those auditing fees,
internal auditing department expenses and accounting department
expenses attributable to Providing Company.
C. Providing Company will establish annual budgets for controlling the
expenses of each department and for determining estimated costs.
III. A. Employees in each department will be divided into two groups:
1. Group A will include those employees rendering service to
Receiving Company, and
2. Group B will include those office and general service employees,
such as secretaries, file clerks and administrative assistants,
who generally assist employees in Group A or render other
housekeeping services and who are not engaged directly in
rendering service to Receiving Company or a group of Receiving
Companies.
B. Expenses set forth in Section II. above will be separated to show:
1. salaries and wages of Group A employees, and
2. all other expenses of the department.
C. There will be attributed to each dollar of a Group A employee's salary
or wage, that percentage of all other expenses of his department (as
defined in B above), that his salary or wage is to the total Group A
salaries and wages of that department.
D. Group A employees in each department will maintain a record of the
time they are employed in rendering service to Receiving Company or
group of Receiving Companies. An hourly rate will be determined by
dividing the total expense attributable to a Group A employee as
determined under subsection C above by the productive hours reported
by such employee.
IV. The charge to Receiving Company for a particular service will be determined
by multiplying the hours reported by Group A employees in rendering such
service to Receiving Company by the hourly rates applicable to such
employees. When such employees render service to a group of Receiving
Companies, the charge to each Receiving Company will be determined by
multiplying the hours attributable to Receiving Company under the
allocation formulas set forth in Section IX of this Exhibit by the hourly
rates applicable to such employees.
V. To the extent appropriate and practical, the foregoing computations of
hourly rates and charges may be determined for groups of employees within
reasonable salary range limits.
VI. Those expenses of Providing Company that are not included in the annual
expense of a department under Section II. above will be charged to
Receiving Company as follows:
A. Incremental out-of-pocket costs incurred for the direct benefit and
convenience of Receiving Company or group of Receiving Companies will
be charged directly to such company or group of companies. Such costs
incurred for a
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group of Receiving Companies will be allocated on the basis of an
appropriate formula.
B. Providing Company overhead expenses referred to in Section II. above
will be charged to Receiving Company in the proportion that the
charges made to the Receiving Company for costs, other than those set
forth in this Section VI, are to total costs incurred by Receiving
Company or, as the case may be, to the total of such charges to all
Receiving Companies receiving such service.
VII. Notwithstanding the foregoing basis of determining cost allocations for
billing purposes, cost allocations for certain services involving machine
operations and production units will be determined on an appropriate basis
established by the Providing Company relating to the direct use of machine
equipment or production units.
VIII.Monthly bills will be issued for the services rendered to the Receiving
Company on an actual or estimated basis. Estimates will normally be
predicated on service department budgets and estimated productive hours of
employees for the year. At the end of each year, estimated figures will be
revised to reflect actual experience during such year and adjustments will
be made in amounts billed to give effect to such revision.
IX. When Group A employees render services to a group of Receiving Companies,
and direct charging of cost is not appropriate, the following formulas
shall be used to allocate the time of such employees to the individual
companies receiving such service:
A. The Service Department or Function formulas to be used when employees
render services to all Receiving Companies participating in such
service, for the services indicated are set forth below.
Service Department Basis of Allocation
or Function
Corporate Planning:
- Capital Budgets Total investment in plant recorded at
preceding December 31st.
- Operating &
Maintenance Budgets Total operating expenses, excluding purchased
gas expense, purchased power expense
(including fuel expenses), other purchased
products and royalties, for the preceding
year ended December 31st.
Business and Operations Throughput gas and/or electricity load for
Services the preceding year ended December 31st.
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Service Department Basis of Allocation
or Function
Rates Total regulated company operating expenses,
excluding purchased gas expense, purchased
power expense (including fuel expense),
other purchased products and royalties, for
the preceding year ended December 31st.
Research Gross revenues from the sale of natural gas
(including intercompany sales) and
electricity, recorded during the preceding
year ended December 31st.
Tax The sum of the total income and total
deductions as reported for Federal Income Tax
purposes on the last return filed.
Customer Services For metering, the number of gas or electric
meters for the preceding year ended December
31st; otherwise the number of customers for
the preceding year ended December 31st.
Operations: Number of customers at the end of the
preceding year ended December 31st.
Information Technology:
LDC/EDC Computer Applications Number of residential and commercial
customers at the end of the preceding year
ended December 31st.
Other Computer Applications Number of users or usage of specific computer
systems at the end of the preceding year
ended December 31st.
Network Computer Applications Number of network devices at the end of the
preceding year ended December 31st.
Telecommunications Applications Number of telecommunications units at the end
of the preceding year ended December 31st.
Facility Services:
Building Services Square footage of office space as of the
preceding year ended December 31st.
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Service Department Basis of Allocation
or Function
Processing Services:
Payroll Number of employees on the previous December
31st or the number of payroll payments
generated during the previous year ending
December 31st.
Cash Management & Number of customer payments processed during
Customer Payment Processing the preceding year ended December 31st.
Accounts Payable Processing Number of accounts payable documents
processed during the preceding year ended
December 31st.
Fleet Administration Number of vehicles at December 31st.
Purchasing Dollar value of contract procurements for the
preceding year ended December 31st.
Engineering Services:
General Services Gas pipeline and/or electric supply line
footage as of the preceding year ended
December 31st.
Transmission and Storage
Services Total investment in storage and transmission
plant as of the preceding year ended
December 31st.
Gas Supply: Gas volumes purchased for each affiliate
for the preceding year ended December 31st.
Electricity Supply: Electricity load purchased for each affiliate
for the preceding year ended December 31st.
Marketing
Shared Projects Annual marketing plan budget for the current
year of allocation.
Other Indirect Costs Total marketing direct and shared project
costs billed to each Receiving Company for
the preceding year ended December 31st.
Material Management Material inventory assets as of the preceding
year ended December 31st.
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Service Department Basis of Allocation
or Function
Financial Accounting and
Reporting Number of financial related transactions,
records and reports generated, and account
code combinations for the preceding year
ended December 31st.
Regulated Fixed Assets Regulated companies fixed assets added,
retired or transferred during the preceding
year ended December 31st.
B. Company Group Formulas to be used in the absence of a service
department or function formula or when service rendered by employees
is for a different group of Receiving Companies than those companies
regularly participating in such service:
Company Group Basis of Allocation
All companies (includes all Total operating expenses, excluding
Receiving Companies except purchased gas expense, purchased power
Providing Company) expense (including fuel expense), other
purchased products and royalties, for the
preceding year ended December 31st.
All retail companies Volume of gas and quantity of electricity
sold at retail during the preceding year
ended December 31st (converted to dollar
value).
All wholesale companies Gross revenues from sales for resale recorded
during the preceding year ended December
31st.
All companies having Gross investment in transmission plant
transmission lines recorded at preceding December 31st.
All production companies Production plant budget for the current year
of allocation.
Appalachian production Gross investment in Appalachian production
companies plant recorded at preceding December 31st.
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All storage companies Gross investment in storage plant, excluding
non-current inventory, recorded at preceding
December 31st.
All Companies/ The weighted average of the previous three
Shareholder Activities years of Providing Company xxxxxxxx.
All unregulated companies Total unregulated companies' operating
expenses, excluding purchased gas expense,
purchased power expense (including fuel
expense), other purchased products and
royalties, for the preceding year ended
December 31st.
All regulated companies Total regulated companies' operating
expenses, excluding purchased gas expense,
purchased power expense (including fuel
expense), other purchased products and
royalties, for the preceding year ended
December 31st.
C. If the use of a basis of allocation would result in an inequity
because of a change in operations or organization, then the Providing
Company may adjust the basis to effect an equitable distribution.
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