1
Exhibit B-1.3
SERVICE AGREEMENT
This Service Agreement is executed this 1st day of March, 1998, by and
between Conectiv Resource Partners, Inc., a Delaware corporation and a mutual
service company formed under the terms of the Public Utility Holding Company Act
of 1935 ("Service Company') and Delmarva Energy Company, a Delaware Corporation
and an associate company of the Conectiv system ("Client Company" and
collectively with other associate companies that have or may in the future
execute this form of Service Agreement, the "Client Companies").
WITNESSETH
WHEREAS, the Securities and Exchange Commission (hereinafter referred
to as the "SEC") has approved and authorized as meeting the requirements of
Section 13(b) of the Public Utility Holding Company Act of 1935 (hereinafter
referred to as the "Act"), the organization and conduct of the business of the
Service Company in accordance herewith, as a wholly-owned subsidiary service
company of Conectiv; and
WHEREAS, the Service Company and certain Client Companies have entered
into this Service Agreement whereby the Service Company agrees to provide and
the Client Companies agree to accept and pay for various services as provided
herein and determined in accordance with applicable rules and regulations under
the Act, which require the Service Company to fairly and equitably allocate
costs among all associate companies to which it renders services; and
WHEREAS, economies and efficiencies benefiting the Client Companies
will result from the performance by Service Company of the services as herein
provided:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties to this Service Agreement covenant and
agrees as follows:
ARTICLE I - SERVICES
Section 1.1. The Service Company shall furnish to a Client Company, as
requested by a Client Company, upon the terms and conditions hereinafter set
forth, such of the services described in Appendix A hereto (as such may be
amended from time to time) at such times, for such periods and in such manner as
the Client Company may from time to time request and which the Service Company
concludes it is equipped to perform. The Service Company shall also provide a
Client Company with such special services, in addition to those services
described in Appendix A hereto, as may be requested by a Client Company and
which the Service Company concludes it is equipped to perform. In supplying such
services, the Service Company may arrange, where it deems appropriate, for the
services of such experts, consultants, advisors and other persons with necessary
qualifications as are required for or pertinent to the provision of such
services.
Section 1.2. Each Client Company shall take from the Service Company
such of the services described in Section 1.1 and such additional general or
special services, whether or not now contemplated, as are requested from time to
time by such Client Company and which the Service Company concludes it is
equipped to perform.
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Section 1.3. The services described herein shall be directly assigned,
distributed or allocated by activity, project, program, work order or other
appropriate basis. A Client Company shall have the right from time to time to
amend, alter or rescind any activity, project program or work order provided
that (i) any such amendment or alteration which results in a material change in
the scope of the services to be performed or equipment to be provided is agreed
to by the Service Company, (ii) the cost for the services covered by the
activity, project, program or work order shall include any additional expense
incurred by the Service Company as a direct result of such amendment, alteration
or rescission of the activity, project, program, or work order, and (iii) no
amendment, alteration or rescission of an activity, project, program, or work
order shall release a Client Company from liability for all costs already
incurred by the Service Company pursuant to the activity, project, program, or
work order, regardless of whether the services associated with such costs have
been completed.
ARTICLE II - COMPENSATION
Section 2.1. As compensation for the services to be rendered hereunder,
each Client Company shall pay to the Service Company all costs which reasonably
can be identified and related to particular services performed by the Service
Company for or on Client's behalf, such costs to be determined in accordance
with Rule 91 and other applicable rules and regulations under the Act. Where
more than one Client Company is involved in or has received benefits from a
service performed, costs will be directly assigned, distributed or allocated, as
set forth in Appendix A hereto, between or among such companies on a basis
reasonably related to the service performed.
Section 2.2. It is the intent of this Service Agreement that the
payment for services rendered by the Service Company to the Client Companies
under this Service Agreement shall cover all the costs of its doing business
(less the cost of services provided to associated companies not a party to this
Service Agreement and other non-associated companies), including but not limited
to, salaries and wages, office supplies and expenses, outside services employed,
insurance, injuries and damages, employee benefits, miscellaneous general
expenses, rents (including property leased from Client Companies for use by the
Service Company), maintenance of structures and equipment, depreciation and
amortization, and compensation for use of capital (initially one hundred percent
debt capital) as permitted by Rule 91 under the Act.
Section 2.3. The method of assignment, distribution or allocation of
costs described in Appendix A shall be subject to review annually, or more
frequently if appropriate. Such method of assignment, distribution or allocation
of costs may be modified or changed by the Service Company upon the express
approval of the modification by each affected Client Company without the
necessity of an amendment to this Service Agreement provided that in each
instance, costs of all services rendered hereunder shall be fairly and equitable
assigned distributed or allocated, all in accordance with the requirements of
the Act and any orders promulgated thereunder and notice of such change is
provided to the Client Company.
Section 2.4. The Service Company shall render a monthly statement to
each Client Company which shall reflect the billing information necessary to
identify the costs charged for that month. By the tenth (10th) calendar day
following billing, each Client Company shall remit
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to the Service Company all charges. Monthly charges may be billed on an
estimated basis, but adjustments will be made within ninety (90) days to assure
that xxxxxxxx are in accord with Sections 2.1 and 2.2 above.
ARTICLE III - TERM
Section 3.1. This Service Agreement shall become effective as of the
day of above written, and shall continue in force for five (5) years until
terminated by either party upon no less than ninety (90) days' prior written
notice to the other party. Upon each five (5) year anniversary of this
agreement, the parties may extend this agreement, with or without modifications,
for an additional five (5) years by mutual written agreement to such and
extension. This Service Agreement shall also be subject to termination or
modification at any time, without notice, if and to the extent performance under
this Service Agreement may conflict with the Act or with any rule, regulation or
order of the SEC or any other regulatory body adopted before or after the date
of this Service Agreement.
ARTICLE IV - MISCELLANEOUS
Section 4.1. All accounts and records of the Service Company shall be
kept in accordance with the General Rules and Regulations promulgated by the SEC
pursuant to the Act and, in particular, the Uniform System of Accounts for
Mutual Service Companies and Subsidiary Service Companies in effect from and
after the date hereof, except as specifically approved by the SEC.
Section 4.2. Other existing subsidiaries and new direct or indirect
subsidiaries of Conectiv which may come into existence after the effective date
of this Service Agreement may become additional Client Companies (collectively,
the "New Client Companies") subject to this Service Agreement by execution of
this form of agreement, as it may be amended at that time. In addition, the
parties hereto upon the express approval of each affected Client Company shall
make such changes in the scope and character of the services to be rendered and
the method of assigning, distributing or allocating costs of such services among
the Client Companies and the New Client Companies under this Service Agreement
as may become necessary.
Section 4.3. The Service Company shall permit a Client Company access
to its accounts and records, including the basis and computation of allocations.
Section 4.4. This Service Agreement and any amendments hereto shall not
be effective until any necessary regulatory approvals have been obtained.
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IN WITNESS WHEREOF, the parties hereto have caused this Service
Agreement to be executed as of the date and year first above written.
CONECTIV RESOURCE PARTNERS, INC.
By: /s/ X. X. Xxxxxxx
-------------------------------
Title:
Delmarva Energy Company
By: /s/ X. X. Xxxx
-------------------------------
Title:
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APPENDIX A
PAGE 1 OF 17
This appendix describes (i) the Policies and Procedures (see pages 10-17) to be
used to accumulate costs of Service Company services and (ii) the direct
assignment of costs to Client Companies and allocation of costs to Client
Companies that cannot practicably be direct charged. Definitions of the ratios
are provided in Appendix B. The Service Company will provide to associate Client
Companies the following services:
I. Executive Management
a. The Executive Management function includes the services of the
Chairman/CEO and supporting staff.
b. To the extent possible, services will be directly charged using a
standard rate per hour as described in the Procedures found on pages
10-17 of Appendix A. Services that are not direct charged will be
accumulated in Cost Centers. Each Cost Center's expenses will be
allocated among Client Companies based on the blended ratio.
II. Procurement and Corporate Services
a. The Procurement and Corporate Services function provides security,
including asset protection and investigative services; purchasing and
storeroom management; procurement and materials management; vehicle
resource management, including company vehicle maintenance; general
services including mail, graphics, records management and other office
services; building services including facilities management and
building maintenance; and real estate services, including
right-of-way.
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APPENDIX A
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b. To the extent practicable, services will be directly charged using a
standard rate per hour, as described in the Policies and Procedures
found on pages 10-17, except where another direct charge method is
specifically identified. Services that are not direct charged will be
allocated based on the following ratios:
1. security - labor $ ratio
2. purchasing and storeroom management and procurement and materials
management - materials stock expense ratio.
3. vehicle resource management - vehicle $ ratio.
4. general services - employee ratio
5. building services (facilities cost) - square footage ratio for
office space and non-office space
6. real estate - real estate investment ratio
III. Financial Services
a. The Financial Services function includes corporate planning; strategic
planning; budgeting; treasury and finance including risk management,
cash management, financing, and funded plans administration; investor
relations; accounting services including general ledger, corporate
accounting, accounts payable, payroll, plant/property accounting; tax
accounting services; regulatory affairs; insurance and claims
processing; and insurance and claims administration.
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b. To the extent practicable services will be directly charged using a
standard rate per hour as described in the Policies and Procedures
found on pages 10-17 of Appendix A, except where another direct charge
method is specifically identified. Costs that are not directly charged
will be allocated based on the following ratios:
1. insurance administration - blended ratio
2. claims administration - historical claims ratio
3. regulatory affairs - utility asset cost ratio
4. all other financial services - O&M ratio
c. Insurance premiums and claims that are not direct charged will be
allocated as follows:
1. property insurance and miscellaneous insurance coverage - asset
cost ratio
2. general liability insurance - labor $ ratio
3. Directors and Officers insurance - asset cost ratio
4. nuclear insurance - nuclear installed capacity ratio
IV. Human Resource and Performance Improvement Services
a. The Human Resource and Performance Improvement Services function
provides compensation and benefit services; personnel, employment and
staffing; employee/labor relations; skills training and management
development; performance improvement; and organizational development.
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b. To the extent practicable, services will be directly charged using a
standard rate per hour as described in the Policies and Procedures
found on pages 10-17 of Appendix A, except where another direct charge
method is specifically identified. Costs that are not direct charged
will be allocated as follows:
1. cost of benefits - To the extent practicable, each Client Company
will be directly charged their cost of employee benefits.
Employee benefit costs that cannot be directly charged to Client
Companies will be allocated based on the employee ratio.
2. compensation and benefits services - employee ratio
3. personnel, employment and staffing - employee ratio
4. employee/labor relations - employee ratio
5. skills training and management development - Flat fees will be
charged for each training class attendee. The fees will be
calculated on an annual basis by dividing total estimated
training costs by the estimated number of attendees. Any
remainder will be allocated based on the distribution of actual
fees charged.
6. performance improvement - employee ratio
7. organizational development - employee ratio
V. Legal and Internal Audit Services
a. The Legal and Internal Audit Services function provides internal audit
services and legal counsel related to general corporate issues.
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APPENDIX A
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b. Costs will be charged as follows:
1. legal services - All costs will be direct charged to other
Orders, Projects, or Cost Centers at a standard rate per hour.
Legal services related to Conectiv corporate activities, such as
review of consolidated financial reports, will be charged to the
appropriate Service Company Cost Center and included in those
functions billed to Client Companies, as discussed on pages 13
and 14 of Appendix A. Any residual resulting from standard rates
being different from actual costs will be allocated to the Client
Companies based on the actual legal direct labor charges during
the prior year.
2. audit services - To the extent practicable, services will be
directly charged using a standard rate per hour. Costs that are
not direct charged will be allocated based on the O&M ratio.
VI. Customer Services
a. The Customer Services function includes management of customer care
(customer service centers, dispatch, and billing) plus the Special
Billing group. The Special Billing group provides billing of
non-energy materials and services.
b. To the extent practicable, services will be directly charged using a
standard rate per hour, as described in the Policies and Procedures
found on pages 10-17. Costs not direct charged will be allocated to
Client Companies as follows:
1. management of customer care - # customers ratio
2. special billing - # of special bills ratio
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VII. Marketing Services
a. The Marketing Services function includes sales; market product and
sales planning; market and customer research; direct response
marketing; and marketing communication.
b. To the extent practicable, services will be directly charged using
a standard rate per hour. Costs that are not direct charged are
allocated based on the following ratios:
1. regulated sales and marketing services - # utility customers
ratio
2. competitive sales and marketing services - revenue ratio
VIII. Information Technology
a. The Information Technology function provides employee labor,
contractors, and other operating support of voice services; solutions
management including, applications delivery and support; information
management, including data administration and security; operations
management mainframe support; help desk; desktop support; network
support; consulting services, including business technology
management; mid-range operations, support for non-mainframe,
non-network systems; general management and administration.
b. To the extent practicable, service costs will be directly charged to
Orders, Projects, or Cost Centers using a standard rate per hour as
described in the Policies and Procedures found on pages 10-17. Orders
are used to capture costs of specific systems and applications. Costs
that are not direct charged will be allocated as follows:
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APPENDIX A
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1. voice services - telephone ratio
2. solutions management - end user ratio
3. information management - blended ratio
4. operations management - CPU time ratio
5. help desk - end user ratio
6. desktop support - end user ratio
7. network support - end user ratio
8. consulting services - blended ratio
9. general management and administration - blended ratio
IX. Communications Services
a. The Communications Services function includes general corporate
communications; governmental affairs and general corporate
advertising/branding.
b. To the extent practicable, services will be directly charged using a
standard rate per hour. Costs that are not direct charged will be
allocated based on the following ratios:
1. communications - employee ratio
2. governmental affairs - O&M ratio
3. general corporate advertising/branding - O&M ratio
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APPENDIX A
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X. Environmental and Safety Services
a. The Environmental and Safety Services function includes oversight of
environmental concerns related to air, water, land and waste, as well
as compliance with relevant regulations. This function also includes
reporting and compliance with safety regulations, and oversight of
corporate safety awareness programs.
b. To the extent practicable, services will be directly charged using a
standard rate per hour. Costs that are not direct charged will be
allocated based on the following ratios:
1. environmental - O&M ratio
2. safety - employee ratio
XI. Regulated Electric and Gas Delivery
a. The Regulated Electric and Gas Delivery function includes the
following electric and gas delivery services: delivery business
planning including, asset management, business planning, financial
analysis, distribution planning, engineering standards,
interconnection planning and arrangements, transmission planning, and
value added services; engineering services including distribution,
substation and transmission engineering, system protection, drafting
and construction management; system operations services including
senior management, finance director and administrative support,
electric and energy system operations, distribution operations, and
operations planning and analysis; electric maintenance services
including non-regional management and administrative support;
forestry supervision; meter shop; other delivery services including
process improvement, training, safety, performance analysis,
benchmarking, and enabling systems.
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b. To the extent practicable, services will be directly charged using a
standard rate per hour. All costs that are not direct charged will be
allocated based on the following ratios:
1. delivery services - T&D O&M ratio
2. system operations services - Kwh output ratio*
3. maintenance services - Kwh output ratio*
4. other delivery services - T&D O&M ratio
* (See Appendix B for gas conversion factor.)
XII. Energy Supply
a. The Energy Supply function includes services of executive vice
president, finance director, generation vice president/general
manager and Edgemoor and Hay Road managers. This function also
provides non-regulated operations and management; merchant functions
including marketing, portfolio management, risk management, and
strategic planning; and supply engineering and support including
technical support and project management.
b. To the extent practicable, services will be directly charged using a
standard rate per hour. All costs that are not direct charged will be
allocated based on the following ratios:
1. management and administration - Kwh generated ratio
2. merchant functions - merchant cost ratio
3. supply engineering and support - Kwh generated ratio
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APPENDIX A
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POLICIES AND PROCEDURES
General
-------
Service Company will provide services to Client Companies in accordance
with the terms of the Service Agreement. The Service Agreement will be
administered in accordance with the Act.
Service Level Agreements
------------------------
The Service Company and each Client Company will prepare Service Level
Agreements ("SLA") to specify, in general terms, the services to be performed by
each department of the Service Company for each business group of a Client
Company. The purpose of the SLA is to establish shared services expectations
between the Service Company and each Client Company. The SLA is an
administrative tool used to facilitate the matching of a Client Company's needs
to the capabilities of the Service Company, and therefore, the SLA is not a
legally binding contract. Each SLA shall be reviewed and agreed upon at least
annually by authorized representatives of the Service Company and each Client
Company. In conjunction with this annual review of each SLA, the allocation
methods and ratios presented in Appendix A and B shall be reviewed and agreed
upon by the parties.
An SLA typically contains the following elements:
1. Scope of Services
2. Service Level Expectations
3. Unit Cost Expectations
4. Performance Measures
5. Billing Process
6. Major Contingencies
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Each SLA is approved by the individual(s) authorized to represent the
department of the Service Company and the business group of a Client Company
related to the services to be provided.
Cost Management
---------------
Service Company will maintain a cost management information system
which allows it to accumulate costs via cost objects. Cost objects are
collection tools and include: Orders, Projects, and Cost Centers. Orders and
Projects constitute a work order system for charging costs to specific jobs.
These tools collect costs for a limited amount of time and either transfer the
dollars to a cost center, if they are an expense, or to an asset and/or balance
sheet account for capitalized costs. Cost Centers collect resource costs and are
the final receiver of expenses collected in Orders as described above. This
system supports the philosophy of separating costs by business group and legal
entity on a fully costed basis. Service Company will use this system to maintain
an accounting system to record all costs of operations.
The cost of work performed by the Service Company will be collected in
Orders, Projects and Cost Centers. Time records and expense statements will be
used to track resource consumption. Labor related costs are expected to be the
most significant costs for the Service Company. To the extent practicable, the
Service Company employees shall be required to direct charge their time to an
appropriate cost object through the time reporting system. The following
guidelines are provided to ensure accuracy and efficient time keeping by Service
Company employees:
1. Time should be entered daily into the appropriate time reporting
system. If this is not practical, the employee should prepare
manually prepared time records, substantiating later electronic
time entry.
2. In no event should time entry be delayed past the end of the pay
period.
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APPENDIX A
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3. Employees should keep track of time in one hour increments.
4. Employee time shall be approved by the employee's supervisor
using the time reporting system.
Costs will be charged to Client Company Cost Centers, Orders or
Projects as work is performed and costs are incurred. The billing process agreed
upon in the SLA will be used by Service Company personnel to guide the
establishment of the necessary cost objects to charge costs to a Client Company.
When a service requested by a Client Company was not specified in the most
recent SLA, a new cost object may be created. In this instance, the new cost
object will be agreed upon by the Service Company department to provide the
service and the business group of the Client Company to receive the service. The
Controller's department is responsible to ensure that all of the billing
methodologies are consistent with the Service Agreement approved by the SEC. The
establishment of cost objects within the cost management information system for
use by the Service Company will be strictly controlled by the Controller's
department. The Controller's department will ensure that all cost objects have
been authorized by the appropriate Service Company department and the Client
Company business group.
Service Company will use a standard costing system. Resource cost
centers collect the actual costs of labor and related costs. As products or
services are provided by the Service Company cost centers, the services are
directly charged to Orders, Projects or other Cost Centers at standard rates.
Standard rates, which are calculated annually, are based upon anticipated
resource costs and activity levels, e.g. available hours to perform work. Any
residual amounts or costs that can not be practicably direct billed remain in
the resource cost center to be allocated to Client Companies on an appropriate
basis, as defined in the Service Agreement and approved by the SEC. The amount
billed to the Client Company is charged to Client Company Orders, Projects and
Client Cost Centers created to collect the costs of the services provided to
that company.
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APPENDIX A
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Service Company will have a tiered approach to billing Client
Companies. First and foremost, costs will be directly charged when practicable.
Secondly, costs will be allocated to the appropriate Client Cost Centers using
the appropriate allocation ratio. Finally, any residuals will be allocated using
the appropriate allocation ratio.
A. Direct Charges: Labor related services consumed for an Order, Project
or activity performed specifically for a Client Cost Center will be
directly charged to that cost object at a standard rate per unit of
labor or unit of services. The standard rate includes direct costs such
as labor, materials and supplies, including procurement and storeroom
costs, and overhead costs such as, vehicle costs, occupancy costs, and
benefits and payroll taxes. When identifiable, any non-labor costs,
those costs not included in the billed standard rates, will be directly
charged to a Client Company Project, Order or Cost Center. Any
residuals or variances will be assigned or allocated to the appropriate
Client Company.
B. Allocations: Costs accumulated that apply to all Client Companies or
to a group of Client Companies, which have not been directly charged as
described in A, above, will be allocated based on the allocation ratios
defined in Appendix B. Allocation ratios will be reevaluated by the
Service Company and expressly approved by each Client Company on at
least an annual basis. More frequent reevaluations will be made when
significant residuals result. Any revisions to allocation methods will
be agreed upon with the Client Companies before modifications are
implemented. The Controller's department shall be responsible for
ensuring that any revisions to allocation methodologies are approved by
the Client Companies and the SEC on a timely basis.
C. Service Company Cross Charges: Certain Service Company overhead costs,
such as the cost of benefits, purchasing and storeroom management,
procurement and materials management, and building services are charged
to Service Company functions that utilize these services and included
in their standard rate for billing to Client Companies. In addition,
certain Service Company direct charges, such as information technology
services, vehicles and legal are charged to Service Company functions
to the extent these
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APPENDIX A
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functions utilize these services. These charges are included in the
amounts that these functions xxxx to Client Companies.
Monitoring
----------
The Controller's Department shall be responsible for reviewing,
monitoring, and maintaining the process for the accumulation of Service Company
costs charged to Client Companies, either through direct charges or allocations.
In connection with the responsibility, the Controller's department shall:
1. Review and approve all SLA's
2. Control the establishment of all cost objects for billing Service
Company charges
3. Analyze the reasonableness of charges in the cost management
information system.
4. Review and evaluate the reasonableness of the monthly xxxx to
each Client Company
The Controller's department shall be responsible for updating all
allocations used by the cost management information system. Supporting
workpapers will be maintained with the Controller's department. The Controller's
department will be responsible to ensure that all allocations are proper,
accurate, and current. Also, the Controller's department shall be responsible
for ensuring that the allocations methodologies have been approved by the SEC.
Any modification of an allocation methodology which requires filing under 60-day
letter procedures based on existing SEC guidelines shall be filed on a timely
basis. The current guidelines require SEC approval of a modification of an
allocation methodology if the change will cause the lesser of $50,000 or five
percent (5%) change in the annual allocation of costs among Client Companies.
The Controller's department shall be responsible for ensuring to the extent
practicable that the
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APPENDIX A
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allocation methodologies are consistent with any orders or directives issued by
utility rate setting regulatory bodies having jurisdiction over the Company.
Billing
-------
Monthly, the Service Company will prepare and submit a xxxx to each
Client Company. The Controller's department shall be responsible for reviewing
the monthly bills, as necessary, with the pertinent officers of the Client
Companies, or their designees, who are responsible for approval of the bills.
Each xxxx will be approved on a timely basis by the appropriate officer of each
Client Company.
The monthly bills will contain the following information:
1. The Client Company.
2. The cost of each service billed to the Client Company.
3. For each service, the xxxx will show each Client Company order,
project, or cost center charged for the service.
The cost management information system will contain detailed
information supporting each service charged to a Client Company. Using the cost
management information system, the Controller's department will provide the
officer of the Client Company, or his designee, detailed information on direct
and allocated charges as may be required in order to approve the xxxx.
Furthermore, each Client Company cost center head and project manager
is responsible for validating, in a timely manner, costs charged to their cost
center or project, including amounts billed by the Service Company. This
validation is a key component of Conectiv's system of internal controls. Using
the cost management information system, cost centers are able to drill down on
all costs billed to them by the Service Company to determine the specifics of
each cost. The Controller's department will assist Client Company cost centers,
as necessary, to research and validate charges to their cost centers.
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When an erroneous charge is discovered, the Controller's department is
responsible for correction of the error in the subsequent month.
Dispute Resolution
------------------
If there is a dispute between a Client Company and the Service Company
concerning the appropriateness of an amount billed to a Client Company, the
Controller's department will meet with the appropriate representatives for the
Client Company cost center and the Service Company to resolve the dispute. If
the dispute cannot be resolved by the Controller's department, the issue will be
referred to the Chief Financial Officer and the Service Company Operating
Committee for final resolution.
Internal Audit
--------------
The Internal Audit department shall perform an audit of the Service
Company billing process within every two years. Computer systems, xxxxxxxx, and
source documents will be examined to ensure on a test basis that the services
provided are authorized, documented, and accurately recorded in the accounting
records. The audits will include an examination of the allocation factors used
to ensure that the methodologies have been approved by the SEC. Also, the audits
will evaluate the adequacy of the system of internal controls over the billing
process and the reasonableness of each allocation methodology used to distribute
costs to the Client Companies.
Evaluation and Measurement
--------------------------
In order to encourage the Service Company to operate efficiently and
cost effectively, and provide high quality service, the Service Company will
establish benchmarking as well as initiate a customer review process. The
customer review process will be based on a customer-oriented service philosophy
and measure success based on customer satisfaction. It will allow for customer
input into the volume and value of the products and services provided by the
Service
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APPENDIX A
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Company, including benchmarking of the cost/quality of the services by the
Client Company. These reviews will be part of the annual budget development
process and the completion of the Service Level Agreements between the Service
Company and its customers. In addition to the review process with customers, the
Service Company will establish a benchmarking plan for services where it is
practicable to establish external benchmarks within 24 months to continue to
improve the effectiveness of services offered to the Client Companies and to
ensure that the services offered are cost competitive. Also, Client Companies
may request benchmarking of services provided by the Service Company.
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DEFINITION OF SERVICE COMPANY ALLOCATION METHODS
------------------------------------------------
Ratio Title Ratio Description
----------- -----------------
Employee Ratio A ratio the numerator of
which is the number of employees
of a Client Company, the
denominator of which is the
number of employees in all Client
Companies using the service. This
ratio will be calculated
quarterly.
Square Footage Ratio
office space A ratio the numerator of which
is the number of square feet of
office space occupied by a Client
Company, the denominator of which
is the total number of square
feet of office space occupied by
all Client Companies using the
service.
non-office space A ratio the numerator of which
is the number of square feet of
non-office space occupied by a
Client Company, the denominator
of which is the total number of
square feet of non-office space
occupied by all Client Companies
using the service.
Telephone Ratio A ratio the numerator of which
is the number of telephones used
by a Client Company, the
denominator of which is the
number of telephones used by all
Client Companies using the
service.
CPU Time Ratio A ratio the numerator of which
is the number of hours of CPU
time used for a particular system
application, the denominator of
which is the total number of CPU
hours used by all companies.
Costs are allocated to Orders
based on this ratio. That cost is
then either included in the cost
of other Service Company services
or directly routed to the
appropriate Client Company.
End User Ratio A ratio the numerator of which
is the number of users of
computer systems within a Client
Company, the denominator of which
is the total number of users of
computer systems within all
Client Companies using the
service.
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Labor $ Ratio A ratio the numerator of which
is the amount of labor $ of a
Client Company, the denominator
of which is total labor $ for all
Client Companies using the
service. This ratio will be
calculated monthly.
Historical Claims Ratio A ratio the numerator of which
is the total claims expense of a
Client Company, the denominator
of which is the total claims
expense for all Client Companies
using the service.
Asset Cost Ratio A ratio the numerator of which
is the total cost of assets in a
Client Company, the denominator
of which is the total costs of
assets for all Client Companies
using the service. Assets are
limited to plant, property and
investments.
O&M Ratio A ratio the numerator of which
is the total direct (i.e.,
excludes charges allocated by the
Service Company) operations and
maintenance expense, excluding
depreciation and fuel costs, of a
Client Company, the denominator
of which is total direct
operations and maintenance
expense, excluding depreciation
and fuel costs, of all Client
Companies using the service.
Revenue Ratio A ratio the numerator of which
is the total revenues of a client
Company, the denominator of which
is the total revenues for all
Client Companies using the
service.
# Customer Ratio A ratio the numerator of which
is the number of customers served
by a Client Company, the
denominator of which is the total
number of customers for all the
Client Companies using the
service.
# Utility Customers Ratio A ratio the numerator of which
is the number of utility
customers served by a Client
Company, the denominator of which
is the total number of utility
customers for all Client
Companies using the service.
Nuclear Installed Capacity Ratio A ratio the numerator of which
is the nuclear facility installed
capacity of a Client Company, the
denominator of which is the total
nuclear facility installed
capacity of all Client Companies
using the service.
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Materials Stock Expense Ratio A ratio the numerator of which
is the materials stock expense of
a Client Company, the denominator
of which is the total materials
stock expense of all Client
Companies using the service.
Real Estate Investment A ratio the numerator of which
is the cost of real estate leases
and land and buildings owned by a
Client Company, the denominator
of which is the total cost of
real estate leases and land and
buildings for all Client
Companies using the service.
# of Special Bills Ratio A ratio the numerator of which
is the number of special bills
issued for a Client Company, the
denominator of which is the total
number of special bills issued
for all Client Companies.
Utility Asset Cost Ratio A ratio the numerator of which
is the total cost of utility
assets in a Client Company, the
denominator of which is the total
costs of utility assets for all
Client Companies using the
service.
T&D O&M Ratio A ratio the numerator of which
is the total direct (i.e.,
excludes charges allocated by the
Service Company), operations and
maintenance expense, excluding
depreciation and fuel costs, of a
Transmission and Distribution
Client Company, the denominator
of which is total direct
operations and maintenance
expense, excluding depreciation
and fuel costs, of all
Transmission and Distribution
Client Companies.
Kwh Generated Ratio A ratio the numerator of which
is the number of kilowatt hours
generated by a Client Company,
the denominator of which is the
total number of kilowatt hours
generated by all Client Companies
using the service.
Kwh Output Ratio A ratio the numerator of which
is the number of kilowatt hours
purchased and generated by a
Client Company, the denominator
of which is the total number of
kilowatt hours purchased and
generated by all Client Companies
using the service.
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Merchant Cost Ratio A ratio the numerator of which
is the dollar amount of direct
charges of the merchant function
to a specific Client Company, the
denominator of which is the total
dollar amount of direct charges
of the merchant function to all
Client Companies using the
service.
Vehicle $ Ratio A ratio the numerator of which
is the dollar amount of vehicle
charges in a specific Client
Company, the denominator of which
is the total amount of vehicle
charges in all Client Companies
using the service.
Blended Ratio A composite ratio which is
comprised of an average of the
Employee Ratio, the Labor $
Ratio, and the Asset Cost Ratio,
for all Client Companies using
the service.
Note: Where applicable, the following will be utilized to convert gas sales to
equivalent electric sales: 0.303048 cubic feet of gas equals 1 kilowatt-hour of
electric sales (Based on electricity at 3412 Btu/Kwh and natural gas at 1034
Btu/cubic foot.)
