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MANAGEMENT SERVICES AGREEMENT
between
LONG ISLAND POWER AUTHORITY
and
LONG ISLAND LIGHTING COMPANY
Dated as of
June 26, 1997
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TABLE OF CONTENTS
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RECITALS ................................................................... 1
ARTICLE I
DEFINITIONS; INTERPRETATION
SECTION 1.1. DEFINITIONS; INTERPRETATION .................................. 2
(A) Defined Terms ........................................... 2
(B) References Hereto ....................................... 2
(C) Gender and Plurality .................................... 2
(D) Persons ................................................. 2
(E) Headings ................................................ 2
(F) Entire Agreement ........................................ 2
(G) Costs and Cost Substantiation ........................... 2
(H) References to Transmission and Distribution of Power .... 3
(I) Actions Taken Pursuant to Agreement ..................... 3
(J) Prudent Utility Practice ................................ 3
(K) Delivery of Documents in Digital Format ................. 3
(L) Counterparts ............................................ 3
(M) Applicable Law .......................................... 3
(N) Severability ............................................ 3
(0) References to Days ...................................... 3
(P) Good Faith Obligation ................................... 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. REPRESENTATIONS AND WARRANTIES OF THE AUTHORITY .............. 5
(A) Existence and Power ..................................... 5
(B) Due Authorization and Binding Obligation ................ 5
(C) No Conflict ............................................. 5
(D) No Litigation ........................................... 5
(E) No Legal Prohibition .................................... 5
SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF THE MANAGER ................ 5
(A) Existence and Power ..................................... 5
(B) Due Authorization and Binding Obligation ................ 5
(C) No Conflict ............................................. 6
(D) No Litigation ........................................... 6
(E) No Legal Prohibition .................................... 6
(F) Parents and Licenses .................................... 6
(G) T&D System Familiarity .................................. 6
ARTICLE III
OWNERSHIP OF THE TRANSMISSION AND DISTRIBUTION SYSTEM
SECTION 3.1. OWNERSHIP OF THE T&D SYSTEM .................................. 7
(A) Authority Ownership ..................................... 7
(B) Engagement of Manager ................................... 7
(C) Use ..................................................... 7
(D) Encumbrances ............................................ 7
(E) Surrender of the T&D System ............................. 7
(i)
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(F) Right of Access ......................................... 7
ARTICLE IV
OPERATION OF THE T&D SYSTEM
SECTION 4.1. T&D SYSTEM GENERALLY ......................................... 9
(A) Reliance ................................................ 9
(B) Limitations on Manager Rights ........................... 9
(C) Curtailments and Shutdowns .............................. 9
SECTION 4.2. OPERATION AND MAINTENANCE .................................... 9
(A) General ................................................. 9
(B) Scope of Services ....................................... 9
(1) General ........................................... 9
(2) Implementation of Emergency Response and
Reporting ......................................... 11
(3) Customer Service Programs ......................... 11
(4) Revenue Requirements and Rate Design .............. 12
(C) T&D System Supervisor ................................... 12
(D) Operation and Maintenance Manual ........................ 12
(E) Delivery of Manual on Termination ....................... 13
SECTION 4.3. MAINTENANCE AND REPAIR OF T&D SYSTEM ......................... 13
(A) General ................................................. 13
(B) Maintenance Expenditures ................................ 13
(C) Ownership of T&D System Assets .......................... 14
(D) Retirement of T&D System Assets ......................... 14
(E) Insurance and Other Third Party Payments ................ 14
SECTION 4.4. PERFORMANCE GUARANTEES ....................................... 14
(A) Compliance and Remedies ................................. 14
(B) Conditions to Performance Guarantee Relief .............. 14
SECTION 4.5. RIGHTS AND RESPONSIBILITIES OF THE AUTHORITY ................. 15
(A) Generally ............................................... 15
(B) T&D System Policies and Procedures ...................... 16
(C) T&D System Access Policies and Prices ................... 16
(E) No Acceptance, Waiver or Release ........................ 17
SECTION 4.6. STAFFING AND LABOR ISSUES .................................... 17
SECTION 4.7. SAFETY ....................................................... 17
SECTION 4.8. VEHICLES AND EQUIPMENT ....................................... 18
(A) Vehicle and Equipment Identification .................... 18
(B) Vehicle Specifications, Maintenance and Appearance ...... 18
SECTION 4.9. CUSTOMER SERVICES, RATES AND RULES OF SERVICE ................ 18
(A) General ................................................. 18
(B) Billing Services ........................................ 18
(C) Account Records ......................................... 18
(D) Collection of Monies .................................... 18
(E) Customer Service Office Facilities ...................... 19
(F) Customer Service Office Hours ........................... 19
(G) Availability of Representatives ......................... 19
(H) Emergency Telephone Number .............................. 19
(I) New Connections ......................................... 19
(J) Customer Retention and Expansion activities ............. 19
SECTION 4.10. SERVICE COMPLAINTS AND DEFICIENCIES .......................... 19
(A) Complaints to Manager ................................... 19
SECTION 4.11. COMPLIANCE WITH APPLICABLE LAW ............................... 20
(ii)
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SECTION 4.12. LICENSES, PERMITS AND APPROVALS .............................. 20
SECTION 4.13. OPERATING PERIOD INSURANCE ................................... 20
SECTION 4.14. INFORMATION .................................................. 21
(A) Information System ...................................... 21
(B) Computer Database ....................................... 21
(C) Ownership of Information and Documentation .............. 21
SECTION 4.15. MANAGER'S REPORTING REQUIREMENTS ............................. 21
(A) Monthly Reports ......................................... 21
(B) Semi-Annual Reports ..................................... 22
(C) Other Costs Reports ..................................... 22
(D) Annual Reports .......................................... 22
(E) Operations Reports ...................................... 22
(F) Books and Records ....................................... 22
SECTION 4.16. FISCAL AFFAIRS, ACCOUNTING AND RECORD KEEPING ................ 23
(A) General ................................................. 23
(B) Bank Deposits ........................................... 23
(C) Record Keeping .......................................... 23
(D) Financial Audits ........................................ 23
(E) Authority Bank Accounts ................................. 24
(F) Maps, Plans and Specifications .......................... 24
SECTION 4.17. INVENTORY CONTROL ............................................ 24
SECTION 4.18. CAPITAL ASSET CONTROL ........................................ 24
SECTION 4.19. WARRANTIES ................................................... 24
SECTION 4.20. TECHNICAL ASSISTANCE ......................................... 24
SECTION 4.21. PURCHASE OF EQUIPMENT, MATERIALS AND SERVICES ................ 24
SECTION 4.22. OTHER SERVICES ............................................... 25
(A) Xxxx Payments ........................................... 25
(B) Attendance at Meetings .................................. 25
SECTION 4.23. EMPLOYEE PLANS ............................................... 25
SECTION 4.24. HAZARDOUS WASTE .............................................. 25
ARTICLE V
MAJOR CAPITAL IMPROVEMENTS
SECTION 5.1. MAJOR CAPITAL IMPROVEMENTS GENERALLY ......................... 26
(A) Generally ............................................... 26
(B) Insurance and Other Third Party Payments ................ 26
(C) Cost Disputes ........................................... 26
(D) Major Capital Improvement Cost Payments ................. 27
SECTION 5.2. MAJOR CAPITAL PLAN AND BUDGET ................................ 27
(A) Preparation ............................................. 27
(B) Schedule for Major Capital Plan and Budget Review ....... 28
(C) Projects in Excess of $500,000 .......................... 28
SECTION 5.3. COST DETERMINATION ........................................... 28
(A) Basis for Major Capital Improvement Cost Determination .. 28
(B) Source of Financing of Major Capital Improvements ....... 28
(C) Procurement and Contracting Procedures .................. 28
(D) Advancement of Funds for Major Capital Improvements and
Additions ............................................... 29
(E) Major Capital Improvements Cost Savings Incentive ....... 29
SECTION 5.4 PUBLIC WORKS IMPROVEMENTS .................................... 29
(A) Generally ............................................... 29
(iii)
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(B) Cost Disputes ........................................... 29
(C) Cost Determination ...................................... 30
(D) Public Works Improvements Cost Savings Incentives ....... 30
(E) Public Works Improvement Costs Estimate ................. 30
(F) Public Works Improvement Cost Payments .................. 30
SECTION 5.5. MAJOR CAPITAL IMPROVEMENTS FOR WHICH MANAGER IS RESPONSIBLE .. 30
ARTICLE VI
COMPENSATION AND BUDGETS
SECTION 6.1. SERVICE FEE .................................................. 31
(A) Formula ................................................. 31
(B) Fixed Direct Fee ........................................ 31
(C) Third Party Costs ....................................... 31
(D) Variable Payment ........................................ 31
(E) Management Fee, Cost Incentive Fee and Non-cost
Performance Incentives and Disincentives ................ 32
(F) Cost Overruns ........................................... 32
(G) Limitations ............................................. 32
(H) Carrying Costs .......................................... 32
SECTION 6.2. ANNUAL T&D BUDGET AND FIVE YEAR PLANNING BUDGET PROCESS ...... 32
(A) General ................................................. 32
(1) Direct Cost Budget .................................. 32
(2) Third Party Cost Budget ............................. 33
(3) Cost Incentive Fees ................................. 33
(B) Annual T&D Budget Preparation ........................... 33
(1) Generally ........................................... 33
(2) Initial Budgets ..................................... 33
(3) Direct Cost Budget Preparation ...................... 33
(4) Third Party Costs Budget Preparation ................ 34
(5) Rate Recommendations and Budget Review .............. 34
(6) Five-Year Planning Budget ........................... 34
(7) Budget Format ....................................... 35
(8) Accelerated Budget Preparation ...................... 35
(9) Manager Availability at Forums ...................... 35
SECTION 6.3 OTHER COSTS .................................................. 35
(A) "Other Costs" Definition ................................ 35
(B) Other Costs Reserve Estimate ............................ 36
(C) Other Costs Reimbursement ............................... 36
SECTION 6.4. NON-COST PERFORMANCE INCENTIVES AND DISINCENTIVES ............ 36
(A) Generally ............................................... 36
(B) Adjustments to Threshold Levels ......................... 37
(C) Limits on Incentives and Disincentives .................. 37
SECTION 6.5. AUThORITY NON-PERFORMANCE .................................... 37
(A) Costs of Construction Work and of Operation and
Maintenance ............................................. 37
(B) Major Capital Improvements to Repair Damage Caused by
Authority ............................................... 37
SECTION 6.6. MANAGER NON-PERFORMANCE ...................................... 37
SECTION 6.7. BILLING OF MAJOR CAPITAL; PUBLIC WORKS ....................... 38
SECTION 6.8. ANNUAL SETTLEMENT ............................................ 38
(A) Annual Settlement Statement ............................. 38
(B) Payment of Amounts Owed ................................. 38
(C) Carrying Costs .......................................... 38
(iv)
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SECTION 6.9. AUTHORITY'S PAYMENT OBLIGATIONS .............................. 38
(A) Source of Payments by Authority ......................... 38
(B) Disputes ................................................ 38
SECTION 6.10. ALLOCATION OF RISK OF CERTAIN COSTS AND LIABILITIES .......... 39
ARTICLE VII
DEFAULT, TERMINATION FOR CAUSE
AND DISPUTE RESOLUTION
SECTION 7.1. REMEDIES FOR BREACH .......................................... 41
SECTION 7.2. EVENTS OF DEFAULT BY THE MANAGER ............................. 41
(A) Events of Manager Default Defined ....................... 41
(1) Events of Default Not Requiring Cure Opportunity for
Termination ........................................ 41
(a) Change of Control of Manager .................. 41
(b) Worker Safety ................................. 41
(c) Customer Service .............................. 41
(d) Voluntary Bankruptcy .......................... 41
(e) Involuntary Bankruptcy ........................ 41
(f) Credit Enhancement ............................ 41
(g) Letter of Credit Draw ......................... 42
(2) Events of Default Requiring Cure Opportunity for
Termination ........................................ 42
(a) System Reliability ............................ 42
(b) Failure to Pay or Credit ...................... 42
(c) Failure Otherwise to Comply with Agreement or
Guaranty ...................................... 42
SECTION 7.3. EVENTS OF DEFAULT BY THE AUTHORITY ........................... 43
(A) Events of Authority Default Defined ..................... 43
(1) Failure to Pay ...................................... 43
(2) Failure to Comply with Agreement .................... 43
(3) Change of Control of LILCO .......................... 43
SECTION 7.4. PROCEDURE FOR TERMINATION FOR CAUSE .......................... 43
(A) Two-Year Notice ......................................... 43
(B) Termination by Authority ................................ 43
(1) Access ............................................. 43
(2) Assumption of Responsibilities ..................... 43
SECTION 7.5. CERTAIN OBLIGATIONS OF THE MANAGER UPON TERMINATION
OR EXPIRATION .......................................... 44
(A) Obligations on Termination or Expiration ................ 44
(B) Additional Obligations .................................. 45
(C) Authority Payment of Certain Transition Costs ........... 46
SECTION 7.6. NO WAIVERS ................................................... 46
SECTION 7.7. FORUM FOR DISPUTE RESOLUTION ................................. 46
SECTION 7.8. NON-BINDING MEDIATION; ARBITRATION ........................... 46
(A) Dispute Resolution ...................................... 46
(B) Negotiation and Non-Binding Mediation ................... 46
(C) Arbitration ............................................. 46
(D) Provisional Relief ...................................... 47
(E) Obligation to Repair .................................... 47
(F) Awards .................................................. 47
(G) Information Exchange .................................... 47
(H) Site of Arbitration ..................................... 47
(v)
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SECTION 7.9. AUTHORITY EMERGENCY POWERS ................................... 48
SECTION 7.10. WAIVER OF CERTAIN DEFENSES ................................... 48
ARTICLE VIII
TERM
SECTION 8.1. TERM OF AGREEMENT ............................................ 49
SECTION 8.2. MANDATORY COMPETITIVE SELECTION OF FUTURE MANAGERS ........... 49
SECTION 8.3. EXIT TEST .................................................... 49
ARTICLE IX
GENERAL
SECTION 9.1. MANAGER TO REMAIN AFFILIATE OF GUARANTOR; CREDIT ENHANCEMENT
IN CERTAIN CIRCUMSTANCES ..................................... 50
(A) Limitations ............................................. 50
(B) Material Decline in the Guarantor's Credit Standing ..... 50
(C) Credit Enhancement ...................................... 50
SECTION 9.2. UNCONTROLLABLE CIRCUMSTANCES GENERALLY ....................... 50
(A) Performance Excused ..................................... 50
(B) Notice, Mitigation ...................................... 50
(C) Conditions to Relief on Account of Uncontrollable
Circumstances ........................................... 51
(D) Acceptance of Relief Constitutes Release ................ 51
SECTION 9.3. INDEMNIFICATION .............................................. 51
(A) Indemnification by the Manager .......................... 51
(B) Indemnification by the Authority ........................ 52
SECTION 9.4. PROPERTY RIGHTS .............................................. 53
SECTION 9.5. PROPRIETARY INFORMATION ...................................... 54
(A) Manager Request .................................... 54
(B) Authority Non-Disclosure ........................... 54
(C) Permitted Disclosures .............................. 54
SECTION 9.6. RELATIONSHIP OF THE PARTIES .................................. 54
SECT1ON 9.7. ASSIGNMENT AND TRANSFER ...................................... 54
SECTION 9.8. INTEREST ON OVERDUE OBLIGATIONS .............................. 55
SECTION 9.9. NO DISCRIMINATION ............................................ 55
SECTION 9.10. APPROVAL OF SUBCONTRACTORS ................................... 55
SECTION 9.11. ACTIONS OF THE AUTHORITY IN ITS GOVERNMENTAL CAPACITY ........ 56
SECTION 9.12. BINDING EFFECT ............................................... 56
SECTION 9.13. AMENDMENTS ................................................... 56
SECTION 9.14. NOTICES ...................................................... 56
SECTION 9.15. FURTHER ASSURANCES ........................................... 56
SECTION 9.16. NO THIRD PARTY BENEFICIARIES ................................. 56
SECTION 9.17 STATE LAW REQUIREMENTS ....................................... 57
APPENDICES
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(1) Definitions
(2) Description of T&D System and T&D System Site Related Documents
(3) Notice Appendix
(vi)
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(4) Insurance
(5) Direct Cost Budget Indices
(6) Exit Test
(7) Non-Cost Performance Guarantees, Obligations, Incentives and
Disincentives
(8) Major Capital Improvements Construction Standards and Procurement
Requirements
(9) Operations Information and Format
(10) Budget Information and Format
(11) Cost Allocation Methodology
(12) Sample Service Fee Calculation
(13) Certain State Law Requirements
(14) System Policies and Procedures
(vii)
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and dated as of June 26, 1997
between the Long Island Power Authority, a corporate municipal instrumentality
of the State of New York and a body corporate and politic and a political
subdivision of the State of New York (the "Authority"), and Long Island Lighting
Company, a corporation or other entity organized and existing under the laws of
the State of New York (the "Manager").
RECITALS
WHEREAS, an affiliate of the Authority is expected to become the owner of
the T&D System (as defined herein) and the Authority wishes to make provision
for the operation and maintenance of the T&D System and for the performance of
the Construction Work (as defined herein) relating to the T&D System to be
undertaken in accordance with the terms hereof in order to assure the continued
delivery of electric energy to the customers of the T&D System.
WHEREAS, as an essential term and condition of the Acquisition Agreement,
the Authority has agreed to contract with the Manager for the purpose of
providing, and the Manager has agreed to provide, the Operation and Maintenance
Services (as herein defined) and the Construction Work in accordance with the
terms hereof and in a manner consistent with policies established by the
Authority.
WHEREAS, in accordance with the terms hereof, the Authority is to establish
the System Policies and Procedures for the T&D System and the Manager is
responsible for the implementation of those policies.
It is, therefore, agreed as follows:
1
ARTICLE I
DEFINITIONS; INTERPRETATION
SECTION 1.1. DEFINITIONS; INTERPRETATION. In this Agreement, unless the
context otherwise requires:
(A) Defined Terms. All initially capitalized terms used and not otherwise
defined herein are used as defined in Appendix 1 hereto. The definitions set
forth in Appendix 1 hereof shall control in the event of any conflict with the
definitions used in the recitals hereto. All terms used herein and not otherwise
defined herein or in Appendix 1 hereto are used as defined in the Acquisition
Agreement.
(B) References Hereto. The terms "hereby," "hereof," "herein," "hereunder"
and any similar terms refer to this Agreement, and the term "hereafter" means
after, and the term "heretofore" means before, the Contract Date.
(C) Gender and Plurality. Words of the masculine gender mean and include
correlative words of the feminine and neuter genders and words importing the
singular number mean and include the plural number and vice versa.
(D) Persons. Words importing persons include firms, companies,
associations, general partnerships, limited partnerships, limited liability
companies, trusts, business trusts, corporations and other legal entities,
including public bodies, as well as individuals.
(E) Headings. The table of contents and any headings preceding the text of
the Articles, Sections and subsections of this Agreement shall be solely for
convenience of reference and shall not constitute a part of this Agreement, nor
shall they affect its meaning, construction or effect.
(F) Entire Aureement. This Agreement, the Acquisition Agreement, the Power
Supply Agreement, the Energy Management Agreement, and the Generation Purchase
Right Agreement (the "Basic Agreements") collectively contain the entire
agreement between the parties hereto with respect to the transactions
contemplated by the Basic Agreements and nothing in this Agreement is intended
to confer on any person other than the parties hereto and their respective
permitted successors and assigns hereunder any rights or remedies under or by
reason of this Agreement. Without limiting the generality of the foregoing, this
Agreement and the other Basic Agreements shall completely and fully supersede
all other understandings and agreements among the parties with respect to such
transactions, including those contained in the Agreement in Principle.
(G) Costs and Cost Substantiation. Any cost proposed or incurred by the
Manager which is directly or indirectly chargeable to the Authority in whole or
in part hereunder shall be no greater than the fair market price, to the extent
available, for the good or service provided, or, if there is no market, shall be
a fair and reasonable price; provided, however, that use of Manager inventory
shall be charged to the Authority at the cost Manager paid for such inventory
(excluding any inter-company profit). The Manager shall maintain and, at the
Authority's request, provide Cost Substantiation for all such costs invoiced to
the Authority hereunder, and for all estimates and quotations furnished to the
Authority hereunder for the purpose of reviewing and approving costs for Major
Capital Improvements, Other Costs, additional operation services or other
additional work or costs incurred for which the Authority is responsible
hereunder.
2
(H) References to Transmission and Distribution of Power. The phrases
"transmit", "transmitted", "transmitting", and "transmission" and any similar
phrases herein, when used with respect to Power and Energy, shall mean and refer
to the operation of the T&D System in accordance with this Agreement and the
Performance Guarantees to transmit Power and Energy. The phrases "distribute",
"distributed", "distributing" and "distribution" and any similar phrases herein,
when used with respect to Power and Energy, shall mean and refer to the
operation of the T&D System in accordance with this Agreement and the
Performance Guarantees to distribute Power and Energy.
(I) Actions Taken Pursuant to Agreement. The parties acknowledge that this
Agreement sets forth procedures and intended results with respect to various
circumstances which may arise during the Term hereof. Such circumstances
include, without limitation, the "wheeling", "transmission" or "distribution" of
Power and Energy; Changes in Law and other Uncontrollable Circumstances; the
preparation of operating plans and schedules; and the assignment and transfer of
this Agreement. Unless otherwise agreed to by the parties, any such
correspondence, report, submittal, consent or other document or communication
given pursuant hereto on account of such a circumstance shall be considered as
between the parties to be an action taken pursuant to this Agreement and not an
amendment hereto.
(J) Prudent Utility Practice. Prudent Utility Practice shall be utilized
hereunder, among other things, to implement and in no event lower or diminish,
the Contract Standards.
(K) Delivery of Documents in Digital Format. In this Agreement the Manager
is obligated to deliver reports, records, drawings, proposals and other
documentary submittals in connection with the performance of its duties
hereunder. The Manager agrees that all such documents shall be submitted to the
Authority both in printed form (in the number of copies indicated) and, to the
extent reasonably available, in digital form. Electronic copies shall consist of
computer readable data submitted in consistent standard interchange format to
facilitate the administration and enforcement of this Agreement.
(L) Counterparts. This Agreement may be executed in any number of original
counterparts. All such counterparts shall constitute but one and the same
Agreement.
(M) Applicable Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York without regard to any
applicable principles of conflicts of law.
(N) Severability. If any clause, provision, subsection, Section or Article
of this Agreement shall be ruled invalid in any Legal Proceeding, then the
parties shall: (1) promptly meet and negotiate in good faith a substitute for
such clause, provision, section or Article which shall, to the greatest extent
legally permissible, effect the intent of the parties therein; (2) if necessary
or desirable to accomplish item (1) above, apply to the court or other
authority, as applicable, having declared such invalidity for a judicial
construction of the invalidated portion of this Agreement; and (3) negotiate in
good faith such changes in, substitutions for or additions to the remaining
provisions of this Agreement as may be necessary in addition to and in
conjunction with items (1) and (2) above to effect the intent of the parties
reflected in the invalid provision. The invalidity of such clause, provision,
subsection, Section or Article shall not affect any of the remaining provisions
hereof, and this Agreement shall be construed and enforced as if such invalid
portion did not exist.
(0) References to Days. All references to days herein are references to
calendar days.
3
(P) Good Faith Obligation. In the performance of any and all of their
respective obligations and responsibilities hereunder, the Authority and the
Manager shall be required to do so in good faith and with due diligence.
4
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. REPRSENTATIONS AND WARRANTIES OF THE AUTHORITY. The Authority
represents and warrants to the Manager that:
(A) Existence and Power. The Authority is a corporate municipal
instrumentality of the State and a body corporate and politic and a political
subdivision of the State of New York validly existing under the Constitution and
laws of the State, with full legal right, power and authority to enter into and
perform its obligations under this Agreement.
(B) Due Authorization and Binding Obligation. The Authority has duly
authorized the execution and delivery of this Agreement. This Agreement has been
duly executed and delivered by the Authority and constitutes a legal, valid and
binding obligation of the Authority, enforceable against the Authority in
accordance with its terms except insofar as such enforcement may be affected by
bankruptcy, insolvency, moratorium and other laws affecting creditors' rights
generally.
(C) No Conflict. Neither the execution nor the delivery by the Authority of
this Agreement nor the performance by the Authority of its obligations hereunder
nor the consummation by the Authority of the transactions contemplated hereby
(1) conflicts with, violates or results in a breach of any law or governmental
regulation applicable to the Authority or (2) conflicts with, violates or
results in a breach of any term or condition of any judgment, decree, agreement
or instrument to which the Authority is a party or by which the Authority or any
of its properties or assets are bound, or constitutes a default under any such
judgment, decree, agreement or instrument.
(D) No Litigation. There is no action, suit or other proceeding, at law or
in equity, before or by any court or governmental authority pending or to the
Authority or to the Authority's best knowledge, without having undertaken
independent investigation, threatened against the Authority, which is likely to
result in an unfavorable decision, ruling or finding which would materially and
adversely affect the validity or enforceability of this Agreement or any other
agreement or instrument to be entered into by the Authority in connection with
the transactions contemplated hereby, or which would materially and adversely
affect the performance by the Authority of its obligations hereunder or under
any such other agreement or instrument.
(E) No Legal Prohibition. There is no Applicable Law in effect on the date
as of which this representation is being made which would prohibit the
performance by the Authority of this Agreement and the transactions contemplated
hereby.
SECTION 2.2. REPRESENTATIONS AND WARRANTIES OF THE MANAGER. The Manager
hereby represents and warrants to the Authority that:
(A) Existence and Power. The Manager is duly organized and validly existing
as a corporation or other entity under the laws of the State of New York, with
full legal right, power and authority to enter into and perform its obligations
under this Agreement.
(B) Due Authorization and Binding Obligation. The Manager has duly
authorized the execution and delivery of this Agreement. This Agreement has been
duly executed and delivered by the Manager and constitutes the legal, valid and
binding obligation of the Manager, enforceable against the Manager in accordance
with its terms except insofar as such enforcement may be affected by bankruptcy,
insolvency, moratorium and other laws affecting creditors' rights generally.
5
(C) No Conflict. Neither the execution nor the delivery by the Manager of
this Agreement nor the performance by the Manager of its obligations hereunder
(1) conflicts with, violates or results in a breach of any law or governmental
regulation applicable to the Manager, (2) conflicts with, a violates or results
in a breach of any term or condition of any judgment, decree, contract,
agreement (including, without limitation, the certificate of incorporation of
the Manager) or instrument to which the Manager is a party or by which the
Manager or any of its properties or assets are bound, or constitutes a default
under any such judgment, decree, agreement or instrument or (3) will result in
the creation or imposition of any Encumbrance of any nature whatsoever upon any
of the properties or assets of the Manager.
(D) No Litigation. There is no action, suit or other proceeding, at law or
in equity, before or by any court or governmental authority, pending or, to the
Manager's best knowledge, threatened against the Manager which is likely to
result in an unfavorable decision, ruling or finding which would materially and
adversely affect the validity or enforceability of this Agreement or any other
agreement or instrument entered into by the Manager in connection with the
transactions contemplated hereby, or which would materially and adversely affect
the performance by the Manager of its obligations hereunder or by the Manager
under any such other agreement or instrument.
(E) No Legal Prohibition. There is no Applicable Law in effect on the date
as of which this representation is being made which would prohibit the
execution, delivery or performance by the Manager of this Agreement and the
transactions contemplated hereby.
(F) Patents and Licenses. The Manager and its Affiliates own or possess all
patents, rights to patents, trademarks, copyrights and licenses necessary to be
owned or possessed by the Manager and its Affiliates for the performance by the
Manager of this Agreement and the transactions contemplated hereby, without any
known material conflict with the rights of others.
(G) T&D System Familiarity. The Manager acknowledges that: (1) the Manager,
as the prior owner and operator of the T&D System is thoroughly familiar with
the entire T&D System and has had control over and has operated the T&D System;
(2) the Manager is familiar with local conditions which may be material to the
Manager's performance of its obligations under this Agreement; and (3) based on
the foregoing, the T&D System is acceptable and suitable for the performance of
the Manager's obligations hereunder and will permit the Manager to safely and
reliably operate and maintain the T&D System in compliance with the terms and
conditions of this Agreement. In making such acknowledgment, the Manager is not
relying on the Authority.
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ARTICLE III
OWNERSHIP OF THE TRANSMISSION AND DISTRIBUTION SYSTEM
SECTION 3.1. OWNERSHIP OF THE T&D SYSTEM. (A) Authority Ownership. The T&D
System is and shall be owned by the Authority (or a subsidiary thereof)
throughout the Term of this Agreement. The Manager shall not have any legal,
equitable, tax, beneficial or other ownership or leasehold interest in the T&D
System.
(B) Engagement of Manager. The Authority hereby engages the Manager as an
independent contractor to furnish the services described in this Agreement at
and for the compensation provided for hereunder. The Manager hereby accepts such
engagement upon the terms and conditions provided for herein.
(C) Use. During the Term hereof, the Manager may enter upon, occupy and
operate the T&D System to perform the Operation and Maintenance Services and/or
manage Construction Work for the Authority, all in accordance herewith, and for
no other purpose unless otherwise directed or approved by the Authority.
(D) Encumbrances. The Manager shall not, without the Authority's prior
written consent, directly or indirectly, create or permit to be created or to
remain, and will promptly discharge, at its expense, any Encumbrance on the T&D
System, other than (1) Encumbrances existing as of the date hereof, or (2) any
Lien affecting the T&D System (i) resulting solely from any action or failure to
act by the Authority or anyone claiming by, through or under the Authority
(other than the Manager and persons claiming by, through or under the Manager);
or (ii) created by Subcontractors that are promptly discharged or bonded against
by the Manager. Nothing in this Agreement shall be deemed to create any Lien or
Encumbrance in favor of the Manager on any asset of the Authority, including the
T&D System, as security for the obligations of the Authority hereunder.
(E) Surrender of the T&D System. At the end of the Term hereof, the Manager
shall peaceably leave and surrender the T&D System to the Authority in a
condition consistent with the Manager's construction, operation, maintenance,
repair and replacement responsibilities hereunder. In conjunction with such
surrender, the Exit Test shall be conducted in accordance with Section 8.3
hereof.
(F) Right of Access. Notwithstanding any other provision of this Agreement,
beginning on the Closing Date, the Authority, as the owner of the T&D System,
shall have a right of unrestricted access to the T&D System for itself, its
consultants and agents at such times and for such purposes as it deems necessary
or desirable. In addition, the Authority shall have a right of reasonable access
to the T&D System for other visitors upon reasonable notice to the Manager. The
Authority and its consultants and agents also shall have a right of unrestricted
access to the Allocated Common Facilities during normal business hours and, with
reasonable notice, outside of normal business hours. When, as reasonably
determined by the Authority to be necessary due to the nature of the task
performed, access to the Common Facilities shall be allowed to the Authority and
its consultants and agents on an unannounced basis for audit and oversight
purposes. All Authority personnel, representatives, designees and other visitors
shall comply with the Manager's on-site safety policies and procedures. The
Authority and its consultants and designees shall have a dedicated on-site
office space located at the current LILCO headquarters building or another
suitable site mutually agreed upon and a separate work space adequate to enable
the Authority to exercise its oversight rights and responsibilities under this
Agreement. Such work space initially shall include a separate lockable room or
rooms large enough for six people and shall provide space sufficient for
computer terminals, printer, telephones, a fax machine, lockable file cabinets
and desks and other office equipment and supplies. The file cabinets and desks
shall be able to
7
be locked or unlocked only by the Authority. All Authority personnel,
representatives and agents shall have access to a photocopying machine and other
commonly used supplies and facilities located on-site. In addition, the Manager
shall make available such additional or different office and work space and
equipment and supplies as reasonably requested by the Authority from time to
time.
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ARTICLE IV
OPERATION OF THE T&D SYSTEM
SECTION 4.1. T&D SYSTEM GENERALLY. (A) Reliance. The Manager acknowledges
that the Authority, in meeting the Power and Energy requirements of the Service
Area, in providing an essential public service, and in complying with Applicable
Law, will rely on the performance by the Manager of its obligations hereunder.
(B) Limitations on Manager Rights. The Manager shall not transmit or
distribute Power and Energy other than Power and Energy obtained by, on behalf
of, or with the approval of the Authority, and shall not use the T&D System for
any purpose other than the purposes contemplated hereby or to serve or benefit
any person other than the Authority and its retail and wholesale customers in
the Service Area.
(C) Curtailments and Shutdowns. If deliveries of Power and Energy through
the T&D System are temporarily reduced, curtailed or shut down for any reason,
the Manager shall, with due consideration of its responsibility for safety and
system reliability, immediately advise the Authority as to the nature, reason
and probable duration thereof and the expected effect thereof on the operation
of the T&D System. Such notices shall be given in accordance with Appendix 3
hereto which shall be agreed upon by the Manager and the Authority. Any
announcement concerning such events made to the public or the media shall be
made in accordance with the provisions of subsection 4.2(B) and Section 4.5
hereof.
SECTION 4.2. OPERATION AND MAINTENANCE. (A) General. Commencing on the
Closing Date, the Manager shall provide Operation and Maintenance Services and
Construction Work for the T&D System on behalf of the Authority in accordance
with the Contract Standards.
(B) Scope of Services. Without limiting the generality of the provisions of
subsection 4.2(A) hereof, the Manager shall be responsible for the safe and
reliable operation and maintenance of the T&D System, management and/or
performance of construction of improvements thereto and delivery of Power and
Energy to the Authority's customers and shall be specifically responsible for
the following tasks and services:
(1) General. The Manager shall be responsible for the following activities:
(a) day-to-day operation and maintenance of the T&D System, including
emergency repairs and maintenance of an Open Access Same-time Information
System (OASIS);
(b) performance of routine facility additions and improvements,
including customer connections and disconnections;
(c) construction activities performed by the Manager's work force as
part of its routine operation and maintenance activities as well in
connection with Construction Work;
(d) supervision (including engineering and related design and
construction management services) of routine and major capital
improvements;
(e) preparation of recommended and monitoring of approved annual
capital and operating expenditure budgets, load and energy forecasts and
long and short range system and
9
strategic plans including integrated electric resource planning and system
and policy modifications necessary to transition to a competitive
environment;
(f) preparation of long and short range transmission and distribution
planning analyses to determine the need for capital additions to and to
assure the reliability of the T&D System;
(g) performance of accounting and tax and payment in lieu of tax
reporting functions and preparation of monthly reports concerning the T&D
System, including the maintenance of the fixed assets records;
(h) procurement from third parties of other goods and services in
connection with Operation and Maintenance Services, Construction Work and
inventory management in accordance with pre-established guidelines
developed by the Manager and approved by the Authority;
(i) compliance with Applicable Law;
(j) operation of the T&D System in compliance with applicable
provisions of the Authority bond resolutions, copies of which shall be
furnished by the Authority to the Manager, and with other requirements
pertaining to qualification of the Authority's bonds for tax-exemption
under the Code, which requirements shall be furnished, or otherwise
specified to, the Manager;
(k) repair or modification activities required due to Public Works
Improvements;
(l) provision of personnel and human resource-related matters and
personnel training for Manager personnel and provision of emergency and
other training to the Authority personnel (the extent of such Authority
personnel and training to be defined and established in adopted Annual T&D
Budgets approved by the Authority);
(m) day to day legal and tax management responsibilities relating to
the operation and maintenance of the T&D System and performance of the
Construction Work and Public Works Improvements;
(n) maintenance of the Operation and Maintenance Manuals for use by
Manager and by the Authority and its designees in accordance with
subsection 4.2(D) hereof;
(0) other actions necessary to safely and reliably operate the T&D
System in accordance with Prudent Utility Practice;
(p) administration and management, at the direction of the Authority,
of the Authority's interest in Nine Mile Point 2, including participation
in meetings of the joint owners of Nine Mile Point 2;
(q) billing and collection, in accordance with Authority direction, of
all attachment fees, rents and other revenues due to the Authority
associated with telecommunications and other equipment attached to or
located on the T&D System or T&D System Site; and
(r) billing and collection, in accordance with Authority direction, of
all fees and charges in connection with the use or availability of the T&D
System for wheeling services.
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(2) Implementation of Emergency Response and Reporting. The Manager
shall be responsible for implementation of all necessary emergency response
and reporting relating to the T&D System, including but not limited to,
response and reporting relating to storms and other unusual weather
occurrences. Such tasks and responsibilities at a minimum shall be
consistent with current NYSPSC standards applicable to the T&D System and
Prudent Utility Practice, except as otherwise reasonably directed by the
Authority, and shall include:
(a) timely reporting to the Authority of such emergency conditions
including regular updates as to the courses of action taken in response
thereto or in anticipation thereof and progress made in responding to such
emergency conditions;
(b) storm monitoring and mobilization of Manager, Manager Affiliate or
Subcontractor workforce (including workforce available under mutual
assistance agreements) in connection with anticipated storms;
(c) media, fire, police, and local government coordination;
(d) customer communications;
(e) system condition monitoring,
(f) repair and replacement of damaged components of the T&D System;
(g) public safety activities; and
(h) restoration of the T&D System to pre-emergency conditions.
(3) Customer Service Programs. The Manager shall be responsible for
implementation of Authority-approved customer service programs for the T&D
System which, at a minimum, shall be consistent with current NYSPSC
practices and standards applicable to the T&D System and Prudent Utility
Practice, except as otherwise directed by the Authority, and shall include,
but not be limited to, using its best efforts:
(a) complete and timely response to customer inquiries;
(b) development and maintenance of all necessary information and
accounting systems and controls relating to the provision and reporting of
customer services;
(c) marketing for retail system expansion and retail customer
retention;
(d) complete, timely and accurate reading of customer meters, issuance
of customer bills in a format approved by the Authority, and timely
collection of customer payments consistent with Section 4.9 and timely
investigation of customer xxxx inquiries and unusual usage;
(e) timely collection of reliability, meter reading, call answering,
collection and customer satisfaction performance data;
(f) inclusion of any communications to customers requested or
approved by the Authority in customer bills related to the provision of
energy services;
11
(g) other communications (all of which shall be Authority-approved) to
T&D System customers; and
(h) under Authority direction, assist in the development and/or
implementation of energy conservation and load management programs for the
T&D System and its customers, including coordination with third parties or
other resources necessary or desirable to develop and implement such
programs.
(4) Revenue Requirements and Rate Design. The Manager shall be
responsible for (i) the preparation of recommended revenue requirements for
the management of the T&D System in accordance with this Agreement, (ii)
the preparation of recommended rate classification and designs for the T&D
System; and (iii) at the Authority's request, public presentation of
recommended rate and capital expenditure adjustments at the Authority rate
hearings.
(C) T&D System Supervisor. The Manager shall appoint the supervisor of the
T&D System (the "T&D System Supervisor") within 30 days after the Contract Date,
who shall have at least ten (10) years experience with respect to the management
of the T&D System, a similar system or an electric utility generally, and who
shall be responsible for the day to day operation and maintenance of the T&D
System. The Manager shall inform the Authority of the identity of the person
serving from time to time as T&D System Supervisor, and of the telephone and
beeper numbers or other means by which such person and his or her designee may
be contacted at all times. The Manager and the Guarantor shall appoint officials
with senior supervisory responsibility for the operation of the T&D System (the
"Senior Executives") and shall inform the Authority of the telephone and beeper
numbers or other means by which such persons may be contacted at all times.
Recognizing the need for an amicable working relationship between the Authority
and the Manager, the Authority shall approve the appointment of the T&D System
Supervisor and all other Senior Executives of the Manager and any successors
thereto, such approval not to be unreasonably withheld. The Senior Executives
and the T&D System Supervisor shall attend monthly meetings, following Authority
receipt and review of the monthly reports delivered pursuant to Section 4.15(A)
hereof, with the Authority to discuss such matters as either party deems
appropriate.
(D) Operation and Maintenance Manual. At the request of Authority, the
Manager shall provide the Authority its representatives, consultants and agents
with access to the existing Operation and Maintenance Manual during the
Pre-Closing Period and shall modify, as necessary, such manuals to reflect the
conditions of this Agreement and any other changes in circumstances and deliver
to the Authority six (6) copies of an updated Operation and Maintenance Manual
no later than 60 days prior to the Closing Date. The Manager shall review and
discuss in good faith with the Authority any aspect of the existing and updated
Operation and Maintenance Manual. The content of the updated Operation and
Maintenance Manual shall be consistent with the terms and provisions of this
Agreement, shall provide for the operation and maintenance of the T&D System and
the training of employees in accordance with the Contract Standards, and shall
otherwise be sufficiently detailed to permit the T&D System to be operated and
maintained by a third party reasonably experienced in electricity transmission
and distribution operations. Neither the review of or comment upon, nor the
failure of the Authority to comment upon, the Operation and Maintenance Manual
shall relieve the Manager of any of its responsibilities under this Agreement,
be deemed to constitute a representation by the Authority that operating the T&D
System pursuant to the Operation and Maintenance Manual will cause the T&D
System to be in compliance with this Agreement and the Contract Standards, or
impose any liability upon the Authority except as expressly provided in
subsection 4.2(E) hereof. During the Term, the Manager shall remain responsible
for the Operation and Maintenance Manual and shall keep it current by making
necessary updates, supplements or revisions thereto to reflect the Contract
Standards. Manager shall promptly supply the Authority with six (6) copies of
any such updates, supplements or revisions thereto.
12
The Authority shall have the right to review and comment on any such updates,
supplements or revisions prior to their inclusion in the Operation and
Maintenance Manual. Upon the commencement of procurements for future contract
bids for the management of the T&D System, the Operation and Maintenance Manual,
with the exception of that information that the parties mutually agree in
writing is proprietary, shall be available to any qualified prospective bidder.
The Authority shall require such qualified prospective bidders to treat the
Operation and Maintenance Manual confidentially.
(E) Delivery of Manual on Termination. Upon the expiration or termination
of this Agreement for any reason whatsoever, the Manager shall deliver to the
Authority the Operation and Maintenance Manual for use in connection with the
operation and maintenance of the T&D System. Any final payments due at the time
of the termination of the Agreement shall be conditional upon delivery of such
Operation and Maintenance Manual. Such manual will be available for use by any
subsequent manager, provided any such manager is required by the Authority to
also maintain the confidentiality of information contained therein and is
prohibited from using any such information other than in connection with the
management of the T&D System. The Authority will hold Manager harmless from any
Loss and Expense solely resulting from any claims or Legal Proceedings commenced
by third parties based upon use by subsequent managers of such manuals.
SECTION 4.3. MAINTENANCE AND REPAIR OF T&D SYSTEM. (A) General. The Manager
shall maintain the T&D System, the T&D System Site and the Common Facilities in
good working order and repair and in a neat and orderly condition (including the
cleanup of litter and debris as required), and shall conduct periodic,
corrective, and preventive maintenance and repair of the T&D System consistent
with the Contract Standards for the purpose of, among other things, mitigating
and preventing abnormal wear, tear and usage. The Manager shall also maintain a
spare parts inventory as required under the Contract Standards. The Manager
shall maintain the aesthetic quality of the T&D System and the T&D System Site;
provided, however, that such maintenance responsibility shall not materially
adversely affect the reliability of the T&D System. As used herein,
"maintenance" means those routine and/or repetitive activities required or
reasonably recommended by the equipment or facility manufacturer, by the
Authority or by Manager, or customary in the industry to provide for the normal
useful life of property, plant, equipment or other capital items. As used
herein, "repair" means those non-routine/non-repetitive activities required for
operational continuity, safety and performance generally due to failure or to
avert a failure of the T&D System or any of its components. If the Manager
chooses to defer any scheduled maintenance or repair provided for in any
maintenance or repair program or in the Annual T&D Budget that is in excess of a
per item or category dollar amount or a dollar amount on a cumulative basis,
such dollar amount to be agreed upon by the parties prior to the adoption of the
initial Annual T&D Budget or for more than a number of months to be agreed upon
by the parties prior to the adoption of the initial Annual T&D Budget, the
Manager shall so advise the Authority and provide satisfactory justification
therefor, provided that the Manager may not defer any maintenance or repairs if
such deferral could reasonably be expected to materially and adversely affect
the reliability or safety of the T&D System.
(B) Maintenance Expenditures. The Manager shall be authorized to make
expenditures for routine repair, maintenance, or replacement as set forth in the
Annual T&D Budget. The Authority may require that the Annual T&D Budget set
forth on a project or category basis, anticipated repairs, maintenance, or
replacement in excess of a dollar amount to be agreed upon by the parties prior
to the adoption of the initial Annual T&D Budget. The Manager shall provide
proposals to, and obtain prior written authorization from, the Authority for
routine repair, maintenance, or replacement projects or categories not set forth
in the Annual T&D Budget if the projected cost therefor is reasonably estimated
to exceed a dollar limit for such projects or categories to be agreed upon by
the parties prior to the adoption of the initial Annual T&D Budget; provided,
however, the Manager shall
13
respond immediately to any emergency situations and shall notify the Authority
immediately upon initiating such emergency response.
(C) Ownership of T&D System Assets. All additions to the T&D System
purchased in conjunction or for the use with any part of the T&D System during
the Term shall be the property of the Authority, except those which are leased
or constitute part of the Common Facilities. Manager shall maintain, and provide
to the Authority, perpetual records of all capital items purchased, installed or
constructed (including, without limitation, vehicles, fixtures and equipment)
with the Authority's funds.
(D) Retirement of T&D System Assets. In the event the Manager intends to
retire from service T&D System assets constituting a "unit of property" as set
forth in the Authority's capital asset policies with an original cost at least
equal to a dollar amount that will be agreed upon by the parties prior to the
adoption of the initial Annual T&D Budget, the Manager shall notify the
Authority either in the proposed Annual T&D Budget, or, if the Annual T&D Budget
has been adopted for the applicable Contract Year, at least 90 days prior to the
scheduled retirement date. The Manager may not retire such T&D System assets
without the prior written approval of the Authority. Any salvage or residual
value of any T&D System assets shall be for the account of the Authority. All
retirements shall be conducted in accordance with the Bond Resolution.
(E) Insurance and Other Third Party Payments. To the extent that any repair
or replacement costs that are incurred pursuant to this Article can be recovered
by the Manager from any insurer providing the Required Construction Work
Insurance or the Required Operating Period Insurance, or from another third
party, the Manager shall exercise with due diligence such rights as it may have
to effect such recovery. The Manager shall give prompt written notice to the
Authority of the receipt of any such recovery which shall be applied as
appropriate to the restoration or reconstruction of the T&D System in accordance
with the Bond Resolution. The Manager shall provide the Authority with copies of
all documentation, and shall afford the Authority a reasonable opportunity to
participate in and, if the Authority so determines, to direct all conferences,
negotiations and litigation, regarding insurance claims which materially affect
the Authority's interest under this Agreement. All applicable insurance
recoveries shall be applied to reducing the cost of restoration or
reconstruction.
SECTION 4.4. PERFORMANCE GUARANTEES. (A) Compliance and Remedies.
Commencing on the Closing Date, the Manager shall at all times comply with the
Performance Guarantees, except to the extent excused by Uncontrollable
Circumstances or Authority Fault. If the Manager fails to comply with any
Performance Guarantee, the Manager shall, without relief under any other
Performance Guarantee under this Agreement, (1) promptly notify the Authority of
any such noncompliance, (2) promptly provide the Authority with copies of any
notices sent to or received from any Governmental Body having regulatory
jurisdiction with respect to any violations of Applicable Law, (3) promptly make
any applicable payments provided for herein, and to the extent required under
Section 6.10 hereof, any other resulting damages, fines, levies, assessments,
impositions, penalties or other charges resulting therefrom, and (4) at its own
cost and expense to the extent required under Section 6.10 hereof, promptly take
any action (including without limitation making all repairs, replacements and
operating changes) necessary in order to comply with such Performance Guarantee,
continue or resume performance hereunder and eliminate the cause of, and avoid
or prevent recurrence of noncompliance with such Performance Guarantee.
(B) Conditions to Performance Guarantee Relief. The Manager shall be
relieved of its obligation to comply with a Performance Guarantee to the extent
and for any period during which the operation of the T&D System is affected by
the occurrence of an Uncontrollable Circumstance or Authority Fault. Should any
such circumstances occur, the Manager shall nonetheless (1) in accordance with
the Contract Standards, use its best efforts to mitigate any noncompliance with
such Performance
14
Guarantee and restore T&D System performance to comply with this Agreement as
rapidly as practicable, and (2) promptly advise the Authority of the
circumstances and the Manager's planned course of action.
SECTION 4.5. RIGHTS AND RESPONSIBILITIES OF THE AUTHORITY. (A) Generally.
As the owner of the T&D System, the Authority retains the ultimate authority and
control over the assets and operations of the T&D System and the right to direct
the Manager, consistent with the provisions of the Agreement in connection with
the performance of the Manager's obligations under this Agreement. Without
limiting the generality of the foregoing, the Authority's specific rights and
responsibilities with respect to the T&D System shall include:
(a) the right to determine all T&D System rates and charges, line extension
policies and service rules and regulations applicable to the T&D System and
System Power Supply;
(b) the right to determine and to change from time to time, in its sole
discretion, all policies and procedures for the T&D System consistent with
Applicable Law and Prudent Utility Practice;
(c) the right to review, amend as appropriate and approve annual capital
and operating expenditure budgets pursuant to the procedures outlined in
subsection 6.2(B) hereof and approve or in its discretion, develop, all
long-range strategic plans for the T&D System and System Power Supply;
(d) to the extent the Manager acts as the representative of the Authority
in connection with the North American Electric Reliability Council, Northeast
Power Coordinating Council, the New York Power Pool, the ISO and any other
similar institutions or organizations, the right to direct the Manager's actions
with respect thereto;
(e) the right to determine customer service programs for the T&D System;
(f) the right to determine customer and public communications policy;
including the right to determine all billing formats, xxxx inserts, flyers and
other advertisements distributed by Manager (other than communications required
to address emergencies);
(g) the right to review and approve the power resource model/plan developed
for the T&D System and the load forecast developed by the Manager;
(h) the right to determine all energy efficiency and conservation and load
management policies and plans for the T&D System;
(i) the responsibility for management of the Authority's financial
resources including, but not limited to, determination of the source of
financing for major projects;
(j) responsibility for compliance with Bond Resolution provisions regarding
third party expert review of the annual operating and capital budgets and
compliance with rate covenants;
(k) overall legal responsibilities;
(1) responsibility for governmental relations and reporting, except to the
extent the Authority has expressly authorized and directed the Manager to assist
in such activities;
(m) the right to oversee and audit Manager operations and performance under
this Agreement;
15
(n) the right and responsibility for establishing future management service
contract procurement procedures and selecting a new manager or managers for the
T&D System and other Manager functions hereunder;
(o) the right to approve all contracts entered into by the Manager to the
extent required to meet the requirements of the state law applicable to the
Authority and as otherwise determined by the Authority;
(p) the responsibility to respond in a timely manner to all requests of
Manager for action or decision by the Authority with respect to all matters
requiring the approval, review or consent of the Authority hereunder and as to
such other matters relating to the obligations of the Manager hereunder as to
which the Manager shall reasonably request the response of the Authority in
accordance with the provisions of this Agreement;.
(q) the right of review and approval of recommended power supply agreements
and the right to own and construct new generation capacity;
(r) the right to establish policies for the T&D System generally,
including, without limitation, policies governing wholesale or retail access;
(s) the responsibility, on an annual and five year basis, to provide the
Manager with estimates for Authority's costs required to be funded with T&D
System revenues;
(t) the responsibility to directly make all appropriate payments in lieu of
taxes or taxes imposed on the Authority;
(u) the responsibility to undertake the obligations imposed on the
Authority as an owner of an interest in Nine Mile Point 2 under the provisions
of the Nine Mile Point Nuclear Station Unit 2 Operating Agreement and to
directly make all appropriate payments relating to the Authority's ownership
interest in Nine Mile Point 2.
In the event that any obligation of Manager hereunder conflicts with
Applicable Law, Applicable Law shall govern with respect to the Manager's
performance required hereunder.
(B) T&D System Policies and Procedures. Not later than thirty days prior to
the date on which the Manager is required to submit the proposed initial Annual
T&D Budget, the Authority will establish initial policies and procedures for the
operation and maintenance of the T&D System, which will take into consideration,
but not be bound by, policies and procedures in effect prior to the Closing
Date. Authority shall promptly notify the Manager of any subsequent changes to
the System Policies and Procedures. Appendix 14 provides a preliminary outline
of the topics for which the Authority will adopt such policies and procedures.
(C) T&D System Access Policies and Prices. The Authority intends to
establish nondiscriminatory prices and policies for access to, and use of, its
transmission facilities for its customers, Manager or its Affiliates, and other
parties providing similar services, in a manner which is designed to enable the
Authority to recover its costs and will not inequitably shift costs among
customers or classes of customers.
(D) Authority Representative. Not later than 30 days after the Contract
Date, the Authority shall select a representative (the "Authority
Representative"). The Authority Representative will act for and on behalf of the
Authority on all matters concerning this Agreement for which the
16
Authority has authorized such representative to act. The Authority shall advise
the Manager as to the scope of such authorization. In all such matters, the
Authority shall be bound, to the extent permitted by Applicable Law, by the
written communications, directions, requests and decisions made by the Authority
Representative. The Authority shall promptly notify the Manager in writing of
the selection of the Authority Representative and any subsequent
replacement(s).
(E) No Acceptance, Waiver or Release. No exercise of rights or failure to
exercise rights by the Authority hereunder shall be construed as the Authority's
acceptance of any Operation and Maintenance Service which is defective,
incomplete, or otherwise not in compliance with this Agreement, as the
Authority's release of the Manager from any obligation under this Agreement, as
an estoppel against the Authority, or as the Authority's acceptance of any claim
by the Manager. Notwithstanding any review or approval of the Authority
hereunder, in no event shall the Manager be excused from the performance of its
responsibilities hereunder, except to the extent due to Authority Fault, subject
to Section 6.5, or Uncontrollable Circumstances, subject to Section 9.2.
SECTION 4.6. STAFFING AND LABOR ISSUES. The Manager shall staff the T&D
System during the Term of this Agreement with the appropriate number of hourly
and salaried employees and utilize Subcontractors consistent with the Contract
Standards. The Manager shall provide proper training for the Manager's employees
in the performance of their work under this Agreement. The Manager shall give
due consideration to any comments of the Authority with respect to the
performance of specific employees. At all times, the Manager shall comply with
Prudent Utility Practice and Applicable Law with respect to the Manager's
employees and with respect to the Manager's obligations under this Agreement,
including, but not limited to, ERISA, wage withholding, social security, equal
employment opportunity, age and disability discrimination, unemployment
insurance, hours of labor, wages, working conditions, OSHA, immigration control
and other employer-employee related subjects. The Manager shall provide to the
Authority copies of the Manager's salary administration plan and the job
descriptions for each of the Manager's employees on the Closing Date and shall
thereafter provide copies of all subsequent amendments and changes thereto. The
Manager recognizes that a substantial portion of the work force at the T&D
System is currently unionized and agrees to honor existing labor contracts and
will not rely upon mandatory lay-offs to achieve any operational efficiencies.
The Manager shall require that Subcontractors agree to pay prevailing wage rates
and employee benefits in connection with the performance of the Operation and
Maintenance Services and Construction Work that is performed by a Subcontractor
(other than pursuant to existing Subcontractor arrangements and renewals and
replacements thereof) which would otherwise have been performed by union
employees of the Manager.
SECTION 4.7. SAFETY. The Manager shall maintain a safe T&D System at a
level at least consistent with the Contract Standards. Without limiting the
foregoing, the Manager shall:(1) take all reasonable precautions for the safety
of, and provide all reasonable protection to prevent damage, injury or loss by
reason of or related to the operation of the T&D System to, (a) all employees
working at the T&D System and all other persons who may be involved with the
operation or maintenance of the T&D System, (b) all materials and equipment
under the care, custody or control of the Manager on the T&D System Site, and
(c)other property on the T&D System Site, including trees, shrubs, lawns, walks,
pavements, roadways, structures and utilities; (2)establish and enforce all
reasonable safeguards for safety and protection, including posting danger signs
and other warnings against hazards and promulgating safety regulations; (3) give
all notices and comply with all applicable Laws relating to the safety of
persons or property or their protection from damage, injury or loss; and (4)
designate a qualified and responsible employee at the T&D System whose duty
shall be the supervision of plant safety, the prevention of fires and accidents
and the coordination of such activities as shall be necessary with federal,
State and local officials.
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SECTION 4.8. VEHICLES AND EQUIPMENT. (A) Vehicle and Equipment
Identification. The Manager's name, and vehicle or equipment number shall be
visibly displayed on both sides of its vehicles or other equipment used by the
Manager in the operation and maintenance of the T&D System. All such vehicles
and equipment owned by the Authority and used by the Manager shall also display
the name of the Authority as owner and identify the Manager as the operator. The
size and placement of such identifying information shall be approved by the
Authority. No other signs or markings shall be placed in the vehicles or other
equipment used by the Manager without the prior approval of the Authority,
except signs or markings relative to use of such equipment including traffic
safety signs or other safety markings.
(B) Vehicle Specifications. Maintenance and Appearance. All vehicles used
by the Manager in providing the Operation and Maintenance Services or in
conducting any Construction Work shall be registered with the appropriate state
Department of Motor Vehicles, shall be kept clean and in good repair and shall
be uniformly painted. No advertisement or other display shall be carried on any
vehicle without the written approval of the Authority.
SECTION 4.9. CUSTOMER SERVICES. RATES AND RULES OF SERVICE. K.11 (A)
General. The Manager shall perform normal and customary customer services in a
manner designed to achieve the highest level of customer service, including, but
not limited to: customer account service and maintenance; service restorations
account inquiry work; customer assistance, credit and collection services;
cashiering; account connection and disconnection; and conservation advice.
(B) Billing Services. The Manager shall, unless otherwise directed by the
Authority, read the meters of electric commercial, industrial, residential
heating and residential multiple rate period customers on a monthly basis and
all other electric customer meters on a bi-monthly basis. Manager shall,
according to the schedule of rates, tariffs and policies (the "Schedule of
Rates") then in effect, render bills to all T&D System customers in the name of
the Authority for electric service delivered on behalf of the Authority and in
the format determined by the Authority. To the extent directed by the Authority,
such bills shall also reflect electric services provided to T&D System customers
by other parties. The Authority may implement changes to such rates, rules of
service, regulations and procedures by giving written notice to the Manager not
later than sixty (60) days prior to the effective date of such change to the
extent practicable given the nature of the change.
(C) Account Records. The Manager shall maintain customer bills and records
as the Authority reasonably requests setting forth in accurate and reasonable
detail the actual and estimated meter readings, billing determinants, charges
made to the Authority's customers in accordance with the Schedule of Rates, and
payments received from each of the Authority's customers. At a minimum, the
Manager shall maintain the records in a manner such that data by various
customer classifications can readily be reported on a monthly basis, for the
fiscal year to date and for the most recent twelve-month period. The Manager
shall retain any records that it is required to maintain pursuant to this
subparagraph for the term of this Agreement and shall deliver them to the
Authority upon the Authority's request.
(D) Collection of Monies. The Manager shall use best efforts to collect on
a timely basis (1) all amounts due the Authority for service provided to
customers, and for other services, in accordance with the Schedule of Rates for
the periods in which services were provided, and (2) other monies owed to the
Authority pursuant to the operation of the T&D System. At the Authority's
direction, the Manager shall investigate and implement checking account debit
payment procedures for payment of customer bills. The Manager's responsibilities
shall also include, consistent with the System Policies and Procedures, the
institution of legal proceedings in the Authority's name to collect utility
xxxxxxxx and other monies owed the Authority related to the T&D System. The
Manager shall provide current billing information concerning customers of the
T&D System to the Authority monthly in such
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form as reasonably requested by the Authority and historical billing information
as otherwise reasonably requested by the Authority. All monies collected by the
Manager or its Subcontractors shall be the property of the Authority and shall
be deposited by the Manager daily in the account of the Authority specified
pursuant to Section 4.16. In collecting such monies, the Manager and any
Subcontractor shall act solely as an agent for the Authority and shall have no
right or claim to such moneys and, without limiting the generality of the
foregoing, shall have no right to assert a claim of set-off, recoupment,
abatement, counterclaim or deduction for any amounts which may be owed to the
Manager hereunder or with respect to any other matter in dispute hereunder. The
Manager is unconditionally and absolutely obligated to pay or deposit all such
monies as directed by the Authority.
It is expected that in accordance with current practice, gas customers of
Manager's Affiliate and the T&D System electric customers will be billed in a
single statement. In the event any electric customer who is also a gas customer
shall pay less than all of the amount due at any time under a single statement,
the amounts collected shall be applied pro rata between the amounts owed by such
customer with respect to electric service and gas service. To the extent moneys
are collected for any power supply services provided by any unrelated party,
amounts collected shall be allocated in accordance with the directions of the
Authority. Manager may elect to xxxx gas customers separately provided that
Manager shall bear all incremental costs arising by reason of any such election.
(E) Customer Service Office Facilities. The Manager shall maintain at all
times during the Term hereof customer service and/or payment offices within
Nassau and Suffolk Counties and in Far Rockaway with specific minimum
requirements to be agreed upon by the parties. The Manager shall establish a
local toll free customer service number that shall be identified on all
publications, bills and correspondence.
(F) Customer Service Office Hours. Except as otherwise approved by the
Authority, the Manager's customer service office hours shall be, at a minimum,
from 8:30 am. to 5 p.m. daily, except Saturdays, Sundays and holidays.
(G) Availability of Representatives. Representatives of the Manager shall
be available during normal business hours for communication with the Authority
or the public.
(H) Emergency Telephone Number. The Manager shall maintain a toll-free
emergency telephone number(s)) for use during other than normal business hours.
The Manager shall have a representative, or an answering service to contact such
representative, available at the emergency telephone number during all hours
other than normal office hours.
(I) New Connections. Manager shall provide new customer connection
services, which may include electric facility design, estimation of construction
costs, new service hook-up, credit check and job scheduling.
(J) Customer Retention and Expansion Activities. The Manager shall
undertake, subject to Authority approval, marketing and public information
activities to retain and expand the customer base served by the T&D System in
accordance with the System Policies and Procedures. In its sole discretion, the
Authority may undertake its own marketing and public information activities or
retain other parties to do so. In such event, the Annual T&D Budget will be
appropriately modified. Afl
SECTION 4.10. SERVICE COMPLAINTS AND DEFICIENCIES. (A) Complaints to
Manager. The Manager shall maintain during office hours a complaint service and
a telephone answering system having an answering capacity consistent with the
System Policies and Procedures. All service complaints and billing complaints
will be directed to the Manager. Copies of all complaints shall be
19
given to the Authority upon request. The Manager shall record all complaints,
including date and time, complainant name and address, and nature and date and
time of resolution of complaint, in a log. This log shall be available for
inspection by the Authority during the Manager's regular office hours. Copies
thereof shall be furnished to the Authority upon request. The Manager shall also
provide the Authority with a monthly report summarizing the status of any
complaints in such month. In particular, such summary shall specify any
complaints for which dollar damages in excess of a dollar amount to be agreed
upon by the parties prior to the adoption of the initial Annual T&D Budget have
been asserted. The Manager shall take such reasonable actions as may be
warranted in response to customer complaints to retain customers and provide
service in accordance with Prudent Utility Practice, the System Policies and
Procedures and Applicable Law.
SECTION 4.11. COMPLIANCE WITH APPLICABLE LAW. The Manager shall operate and
maintain the T&D System and otherwise perform all of its obligations hereunder
in accordance with Applicable Law. In the event that the Manager fails at any
time to comply with Applicable Law, then the Manager shall immediately remedy
such failure and, to the extent required by Section 6.10 hereof, do so at its
cost and expense and bear all Loss-and-Expense of either party resulting
therefrom subject, however, to the provisions hereof regarding Uncontrollable
Circumstances or Authority Fault and Section 6.10 hereof. Any such damage, fine,
assessment or other charge paid by the Manager due to a violation of Applicable
Law caused by Uncontrollable Circumstances or Authority Fault or with respect to
which Manager is not responsible under Section 6.10 hereof shall be reimbursed
to the Manager. Notwithstanding whether a regulatory enforcement action has been
undertaken by a Governmental Body, the Authority shall have an independent right
to require Manager to comply with all applicable Legal Entitlements and
Applicable Law.
SECTION 4.12. LICENSES, PERMITS AND APPROVALS. The Manager shall identify
for the Authority, prepare, and with Authority approval, make and prosecute all
filings, applications and reports necessary to obtain and maintain all permits,
licenses and approvals required to be made, obtained or maintained by each under
Applicable Law in order to operate the T&D System. Draft and record copies of
all such documents shall be timely given to the Authority. The Manager shall
supply all data and information in a timely manner, which may be required and
which is in the Manager's knowledge or control, and shall take all other action
necessary or desirable in order to assist the Authority in obtaining,
maintaining, renewing, extending and complying with the terms of all permits,
licenses and approvals necessary subsequent to the Closing Date in order to
perform the Operation and Maintenance Services and any Construction Work. The
data and information supplied by the Manager to the Authority and all regulatory
agencies in connection therewith shall be correct and complete in all material
respects, and to the extent required under Section 6.10 hereof the Manager shall
be responsible for any schedule and cost consequences which may result from the
submission of materially incorrect or incomplete information. Except as directed
by the Authority, the Manager shall not submit any data or information directly
to the regulatory agencies unless required to do so under Applicable Law or by
the terms of an existing license, permit or approval. The Manager shall report
immediately to the Authority all violations of the terms and conditions of any
permit, license, approval or Applicable Law pertaining to the T&D System. 3.4
SECTION 4.13. OPERATING PERIOD INSURANCE. Commencing with the Closing Date
and continuing throughout the remainder of the Term of this Agreement, the
Manager shall obtain and maintain, the Required Operating Period Insurance as
specified in Appendix 4 hereto and shall comply with all applicable Insurance
Requirements. The Manager shall name the Authority, its trustees, officers and
employees as additional insureds or named insureds, as appropriate, on its
insurance policies, which policies shall require 30 days prior written notice to
the Authority prior to any change in or cancellation of such policies. Insurance
coverage required pursuant to this Section shall be maintained with generally
recognized financially responsible i.nsifrers reasonably acceptable to the
Authority and
20
qualified and authorized to insure risks in the State. The cost of the Required
Operating Period Insurance shall be paid by the Manager, subject to
reimbursement by the Authority pursuant to Section 6.1 hereof as a Third Party
Cost. The Manager shall demonstrate to the Authority, by a bidding process or
other acceptable methods, that the premiums payable for the Required Operating
Period Insurance constitute a fair and reasonable price for the coverage
provided. The Authority shall have the right, upon 90 days' notice to the
Manager, at any time at its expense to cancel or replace and obtain
independently all or any portion of the Required Operating Period Insurance as
set forth in Appendix 4 hereto.
SECTION 4.14. INFORMATION. (A) Information System. The Manager shall, on
and after the Closing Date establish and maintain an information system to
provide storage and, to the extent practicable, real time retrieval for
Authority review and copying of T&D System operating data, including all
information necessary to verify calculations made pursuant to this Agreement.
(B) Computer Database. The Manager shall maintain for the Authority a
computer database which specifies each customer served by the T&D System, the
service classification applicable to each such customer, and any special
services provided to each such customer. The Authority shall be entitled to
access such database at any time.
(C) Ownership of Information and Documentation. The Authority will have
sole ownership of information related to customers served by the T&D System
(except to the extent such information is also owned by an Affiliate of the
Manager in its role as owner of the gas utility) and the operation of the T&D
System ("Authority Customer & Operations Data"). The Manager may not use any
Authority Customer & Operations Data for non-Authority related purposes without
the Authority's prior written permission. Such permission, if granted, will be
granted on a nondiscriminatory basis. Neither the Manager nor any Affiliate will
(1) use customer information systems to extract, sort or otherwise use Authority
Customer and Operations Data (including, without limitation, name, address,
telephone number, and energy usage) or (2) use mechanisms for customer access
(including, without limitation, meter reading, customers representatives and
service call center), available solely as a result of Manager's role as the
Manager of the T&D System, to market any services to customers served by the T&D
System other than the services provided under this Agreement. To the extent
Authority Customer and Operations Data is available from other sources, neither
the Manager nor its Affiliates shall be precluded from using in its business
such data obtained from other sources.
SECTION 4.15. MANAGER'S REPORTING REQUIREMENTS. (A) Monthly Reports The
Manager shall provide the Authority and the Consulting Engineer with monthly
reports no later than 15 Business Days after the end of each month, including
the following data: (1) on a monthly and year-to-date basis, the actual T&D
System costs versus the Annual T&D Budget and the prior year's costs at such
time, (2) a description and explanation of significant variations (at least
$1,000,000 and 3%) from the Annual T&D Budget (or any line item therein) or the
prior year's results including a description of any related changes in the tasks
performed or to be performed, (3) a description of partial or total shutdowns
for maintenance and repairs during the prior month and anticipated during the
current month, (4) any known or anticipated adverse conditions which may be
expected to arise during the next 30 day period that may affect the ability of
the Manager to transmit and distribute Power and Energy in accordance with the
Performance Guarantees and the annual operating plan established for the T&D
System, (5) the results of any regulatory or insurance inspections or tests
conducted during the prior month, (6) all Major Capital Improvements Costs and
Other Costs paid by the Manager during such Billing Period, including a
description and explanation of significant variations (at least $1,000,000 and
2%) from budgeted costs for such period, (7) identification of those costs which
are classified as capital versus operating in sufficient detail in order to
allow the Authority to determine which costs qualify for bonding under the Bond
Resolution and which are to be recovered through T&D System rates, (8) the
results of any environmental or other tests or monitoring procedure& conducted
by or at the direction of any federal,
21
State or local environmental or other regulatory agency during the prior
monthly period, and copies of any reports or other submittals made to or
received from any such agency, and (9) any other information or statement which
is requested by the Authority and which may be reasonably produced from records
a maintained by the Manager in the normal course of business. The Manager shall
also provide a quarterly forecast of projected expenditures by line item through
year-end. These reports shall present the data in form and detail reasonably
acceptable to the Authority and the Consulting Engineer and shall be certified
as to accuracy and completeness by the Manager.
(B) Semi-Annual Reports. The Manager will, on a semi-annual basis within 60
days after the end of each half of the Contract Year, provide the Authority and
the Consulting Engineer with a report of actual Direct Costs and Third Party
Costs together with:
(i) identification of any material Direct Costs projects or Third Party
Costs projects which were included in the Direct Cost Budget or the Third Party
Costs Budget from the previous Contract Year which were deferred to the current
Contract Year or proposed to be deferred to a subsequent Contract Year, or such
costs in the current Contract Year which the Manager proposes deferring beyond
the current Contract Year; and
(ii) such other information as may be reasonably requested by the
Authority.
(C) Other Costs Reports. The Manager shall promptly notify the Authority
when an event occurs, or is anticipated to occur, that the Manager believes
qualifies for treatment as an Other Cost. If practicable, the Manager shall
provide the Authority with an explanation and estimate of the incremental costs
caused by the event at the time of notification. If such explanation and
estimate is not provided at the time of notification, it shall be provided as
soon as practicable thereafter. The Manager shall submit an invoice certified as
to accuracy and completeness by the Manager, together with appropriate
supporting documentation, for reimbursement of the related incremental costs of
such event as soon as practicable and, if appropriate, on a progress basis. The
Authority shall have an opportunity to review such billing prior to payment and
shall have access to the Manager's books and records in order to confirm such
costs prior to reimbursing the Manager consistent with provisions of Section
6.3(C).
(D) Annual Reports. The Manager shall furnish the Authority and the
Consulting Engineer, with the Annual Settlement Statement, an annual summary of
the statistical data provided in the monthly reports, certified by the Manager
and the Manager's independent public accountants, as well as all other data
required to be furnished to the Authority pursuant to Appendix 9 hereto.
(E) Operations Reports. As reasonably requested by the Authority, the
Manager shall prepare appropriate reports concerning matters reasonably related
to the operation of or planning for the T&D System, including, but not limited
to: source of Power and Energy supply; revenues and unit sales of Power and
Energy supplied to customers in the aggregate and by customer class, including
an explanation of any significant variations from planned sales; environmental
requirements and compliance; compliance with Applicable Law; safety requirements
and compliance; and reports relating to any incentive and penalty provisions set
forth herein.
(F) Books and Records. The Manager shall prepare and maintain proper,
accurate and complete books, records and accounts regarding the operations and
financial or other transactions related to the T&D System to the extent
necessary (8 enable the Authority to prepare financial statements, regarding the
operations of the T&D System, certified in accordance with generally accepted
accounting principles, (2) to verify data with respect to any operations or
transactions in which the Authority has a financial or other material interest
hereunder, and (3) to prepare periodic performance reports and statements of the
T&D System, which shall be submitted by the Manager to the Authority.
22
The Manager shall, upon reasonable notice and demand from the Authority, produce
for examination and copying at the Manager's office, by representatives of the
Authority, all books of account, bills, vouchers, invoices, personnel rate
sheets, cost estimates and bid computations and analyses, Subcontracts, purchase
orders, time books, daily job diaries and reports, correspondence, and any other
documents showing all acts and transactions in connection with or relating to or
arising by reason of this Agreement. Manager shall at reasonable times produce
such books and records for examination and copying in order to allow the
Authority to determine the costs payable by the Authority under Article VI
hereof or any other costs for which the Authority may be responsible hereunder.
All such books and records and all supporting documents shall be available at
mutually agreeable locations in the Service Area. The Manager shall keep the
relevant portions of the books, records and accounts maintained with respect to
each Contract Year until at least the seventh anniversary of the last day of
each such Contract Year and provide access to or copies thereof to the Authority
at its reasonable request to the extent necessary to allow the Authority to
determine to its reasonable satisfaction the propriety of any request for
payment or charge hereunder. The provisions of this subsection 4.15(F) shall
survive the termination of this Agreement.
SECTION 4.16. FISCAL AFFAIRS, ACCOUNTING AND RECORD KEEPING. (A). The
Manager shall maintain possession of operating equipment, buildings, materials
and supplies, maps, plans, specifications, and customer billing records during
the Term in accordance with Manager's customary practices or in such manner as
the Authority may reasonably require and shall duly account to the Authority
therefor.
(B) Bank Deposits. All cash held by the Manager for the account of the
Authority and all cash collected by the Manager for the account of the Authority
after the Closing Date shall be deposited on each business day in bank accounts
in such bank as the Authority may direct and upon such terms and conditions as
may be specified by the Authority.
(C) Record Keeping. In addition to the requirements of Section 4.15(F), the
Manager shall maintain Authority's fixed asset books and records for those
activities performed by the Manager in general conformity with municipal
electric utility accounting standards or such other standards as reasonably
requested by the Authority. When requested by the Authority, the Manager shall
make reasonable changes in its standard accounting practices and procedures
applied to the books and records of the T&D System.
(D) Financial Audits. Financial information prepared as of the end of each
Contract Year, shall be certified by an officer of the Manager and an
independent public accountant who is experienced in electric utility system
accounting (which accountant shall be a member of a nationally recognized
accounting firm) and shall be delivered to the Authority within ninety (90) days
after the end of such Contract Year. In addition, the books and records upon
which the reports and statements required by this Article IV were prepared shall
be made available by the Manager to the Authority for audit by the Authority or
the Authority's designated independent auditor for a period not to exceed
twenty-four (24) months. Upon completion of the Authority's audit or upon
expiration of said twenty-four-month period, the statements, invoices and
records shall be deemed to be correct, provided no written protest by the
Authority has been provided to the Manager. If the Authority's audit establishes
that the total of all payments by the Authority to the Manager exceeds the
amount actually due hereunder, then Manager shall immediately refund the
overpayment to the Authority with interest at the Base Interest Rate from the
time such overpayment was made by the Authority to the Manager until repaid to
the Authority. If the Authority's audit establishes that the Authority has
underpaid the Manager, then the Authority shall immediately pay the Manager the
underpayment, with interest at the Base Interest Rate from the time such
underpayment was due until paid~ by the Authority.
23
(E) Authority Bank Accounts. The Authority may establish and maintain such
special bank accounts as may be necessary or desirable, including, but not
limited to, xxxxx cash funds and local accounts funds, and shall establish the
rules and procedures for access to any such accounts by the Manager and certain
of its designated employees.
(F) Maps, Plans and Specifications. At the expiration of this Agreement or
at such time that the Authority (or a successor manager of the T&D System)
assumes the functions requiring the same, the Manager shall transfer to or at
the direction of the Authority all maps, plans and specifications, and records
pertaining to the TAD System in its possession at that time. Notwithstanding the
Manager's possession of such maps, plans and specifications, and records, the
Manager acknowledges that the same remain and are the property of the Authority
provided that, to the extent they relate to facilities in addition to the T&D
System, the Manager shall retain a joint-ownership interest therein.
SECTION 4.17. INVENTORY CONTROL. The Manager shall, in consultation with,
and with approval of, the Authority, maintain an inventory of equipment, xxxx
parts, materials and supplies consistent with the Contract Standards and shall
maintain and document an inventory control program. The Manager shall comply
with the inventory policy agreed to by the Authority and the Manager and shall
purchase and store inventory in a manner consistent with the Annual T&D Budget.
Inventory shall be billed to the Authority on a cost basis as used. The Manager
shall complete, on an agreed-upon cycle count basis, a physical inventory of the
equipment, spare parts, materials and supplies and reconcile the same with the
inventory assets carried on the balance sheet and provide the information to the
Authority.
SECTION 4.18. CAPITAL ASSET CONTROL. Within 90 days after the Closing Date,
Authority and the Manager shall complete an inventory of all T&D System assets
constituting "Capital Assets as such term shall be defined in accordance with
directions of the Authority. Annually, no later than 60 days after the end of
each Contract Year, the Manager shall provide to the Authority a list of all
additions and retirements of Capital Assets from the perpetual records set forth
in subsection 4.17 hereof, with such detail as requested by the Authority for
maintenance of these records. Within 90 days after the sixth anniversary of the
Closing Date, the Manager shall assist the Authority in completing a physical
inventory of all Capital Assets. The Manager shall not dispose of, scrap, trade
or sell any individual Capital Asset having an original cost of $100,000 or more
without the Authority's prior written approval. To the extent directed by the
Authority, all vehicles and equipment shall be purchased in the name of the
Authority and title shall be so issued. As vehicles or other equipment are
acquired by the Manager for the Authority, the Manager shall forward all titles
to the Authority within 30 days after such acquisitions.
SECTION 4.19. WARRANTIES. The Manager shall maintain and enforce any
warranties or guarantees on any facilities, vehicles, equipment or other items
owned or leased by the Authority or purchased or leased on behalf of the
Authority and used by the Manager in carrying out this Agreement, and shall not,
by act or omission, negligently or knowingly invalidate in whole or part such
warranties or guarantees without the prior approval of the Authority.
SECTION 4.20. TECHNICAL ASSISTANCE. The Manager may contract for the
services of outside consultants, suppliers, manufacturers, or experts pursuant
to the limits of expenditure described in this Agreement or as provided in the
Annual T&D Budget, provided that the Manager shall remain responsible for the
performance or omissions of the same.
SECTION 4.21. PURCHASE OF EQUIPMENT, MATERIALS AND SERVICES. Consistent
with each Annual T&D Budget, the Manager shall arrange for the purchase or
rental for the account of the Authority of equipment, materials, and supplies
and services which are not purchased directly by the Authority or other items
necessary to properly operate and maintain the T&D System and
24
to maintain the records of the Authority, and to make such additions and
extensions to the T&D System, all as may be required from time to time by the
Authority. In this connection, any contracts let by the Manager shall be in
conformity with competitive bidding laws or regulations applicable to the
Manager, and, without the prior authorization of such specific contract by the
Authority, no such contract shall be for an amount greater than $250,000 or
extend for a term greater than one year. Subcontractors shall be subject to
approval by the Authority in accordance with Section 9.10.
SECTION 4.22. OTHER SERVICES. (A) Xxxx Payments. The Manager shall timely
pay all bills related to the T&D System which are proper, appropriate and not
otherwise disputed and which it has authority to pay and shall assure that, to
the extent within the Manager's control, no mechanic's or similar liens are
filed against any portion of the T&D System. In the event that the Manager fails
to pay any such xxxx timely, the Authority shall have the right, but not the
obligation, to pay such xxxx and deduct the amount of such payment (including,
but not limited to, any penalties which may be payable in respect of such xxxx),
plus interest at the Base Interest Rate from the time such payment was made by
the Authority until repaid the Manager and an administrative fee in an amount of
$50.
(B) Attendance at Meetings. The Manager shall attend meetings of the
Authority, with customers of the Authority, suppliers of the Authority and
others as reasonably requested by the Authority.
SECTION 4.23. EMPLOYEE PLANS. During the term of this Agreement, the
Manager `shall fully comply with all of the terms of its Plans and all
Applicable Law relating thereto. Any liability arising by reason of the
Manager's failure to do so shall be borne by the Manager. The Manager shall
promptly give notice to the Authority of any default under any Plans, or any
event which with the passage of time or giving of notice would be a default
under any Plan and shall not permit or suffer an event by the Manager which with
the passage of time or giving of notice would be a default under any Plan.
SECTION 4.24. HAZARDOUS WASTE. With respect to the performance of its
obligations hereunder and to the extent required by the provisions of the System
Policies and Procedures relating to unusual events in connection with the
handling, transporting or disposing of Hazardous Waste, the Manager shall give
notice to the Authority, and to any other Governmental Body as required by
Applicable Law, of its intention to handle, transport or dispose of such
Hazardous Waste. The Manager shall cause such Hazardous Waste to be handled,
transported and disposed of at a Disposal Facility in accordance with the
Contract Standards. The costs associated with such handling, transport and
disposal shall be borne by the Authority, unless the Manager is responsible
therefor under Section 6.10 hereof.
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ARTICLE V
MAJOR CAPITAL IMPROVEMENT
SECTION 5.1. MAJOR CAPITAL IMPROVEMENTS GENERALLY.
(A) Generally. The parties acknowledge that the Major Capital Plan and
Budget provided for herein is intended to provide for the implementation of
major repairs and replacements not constituting routine maintenance of the T&D
System. In addition, the Major Capital Plan and Budget is intended to recognize
that it will be necessary or desirable from time to time during the Term hereof
to modify, alter or improve the T&D System from its then-current condition. Such
modifications may be appropriate, by way of example, in order to increase the
efficiency or improve the performance of the T&D System, to anticipate or
address the obsolescence of any portion of the T&D System, to respond to a
Change in Law or to reduce Power and Energy supply costs. All such projects
which constitute Major Capital Improvements shall be made in accordance with
this Article and all Major Capital Improvements shall be owned by the Authority.
Under no circumstances shall any such Major Capital Improvement be considered to
constitute routine repair, maintenance or replacement of the T&D System, all of
which remain the responsibility of the Manager to be performed pursuant to
Section 4.3 hereof. The Manager shall make all Major Capital Improvements
described in the approved Major Capital Plan and Budget in accordance with the
provisions thereof. The Manager shall not make a Major Capital Improvement
without notifying the Authority and receiving written consent from the Authority
unless such Major Capital Improvement is included in the then current annual
Major Capital Plan and Budget. The Authority shall have the right, when the
Manager has materially exceeded the Major Capital Plan and Budget as of an
interim date to require the Manager to defer specific Major Capital Improvements
planned for the remainder of the year. In no event shall the approval or denial
of a Manager-requested Major Capital Improvement relieve the Manager of any of
its performance obligations hereunder or entitle the Manager to a cost
adjustment unless the Manager is entitled to recover such costs as an Other Cost
under Section 6.3 hereof or the Authority shall have agreed to such adjustments,
and except to the extent provided in Section 7.8. The requirements of Applicable
Law relating to Authority procurement of construction services shall govern
whether, to what extent and in what manner the Authority may exercise its rights
to contract with the Manager with respect to any Major Capital Improvement
pursuant to this Article.
(B) Insurance and Other Third Parry Payments. To the extent that any Major
Capital Improvement Costs that are incurred pursuant to this Article can be
recovered by the Manager from any insurer providing the Required Construction
Work Insurance or the Required Operating Period Insurance, or from another third
party, the Manager shall exercise with due diligence such rights as it may have
to effect such recovery. The Manger shall give prompt written notice to the
Authority of the receipt of any such recovery which shall be applied in
accordance with the Bond Resolution. The Manager shall provide the Authority
with copies of all documentation, and shall afford the Authority a reasonable
opportunity to participate in and, if the Authority so determines, to direct all
conferences, negotiations and litigation, regarding such insurance claims which
materially affect the Authority's interest under this Agreement. All applicable
insurance recoveries shall be applied to reducing the cost of restoration or
reconstruction.
(C) Cost Disputes. The Manager agrees to use its best efforts to limit the
costs incurred in making each Major Capital Improvement consistent with Prudent
Utility Practice. The Authority may, without limiting the Authority's obligation
to make timely payments of any Major Capital Improvement Costs consistent with
the mutually agreeable payment procedures established in accordance with 5.1(D)
hereof, object to any Major Capital Improvement Cost or to the payment of any
Major Capital Improvement Cost on the grounds that such Major Capital
Improvement Cost or the amount being
26
charged to the Authority was improperly computed, that the Major Capital
Improvement Costs incurred by the Manager were unreasonable for the work
performed, or that the work performed by the Manager in making the Major Capital
Improvement was materially delayed or not completed due to a circumstance for
which the Manager would be responsible for the costs of under Section 6.10
hereof.
(D) Major Capital Improvement Cost Payments. Payment for Major Capital
Improvement Costs will be made in accordance with mutually agreeable payment
procedures which shall reflect customary construction drawdown, milestone and
retainage provisions for similar projects.
SECTION 5.2. MAJOR CAPITAL PLAN AND BUDGET. (A) Preparation.
Contemporaneously with the preparation of the Annual T&D Budget, the Manager
shall prepare a proposed annual and five year Major Capital Plan and Budget
concerning planned Major Capital Improvement projects (the "Major Capital Plan
and Budget). Such Major Capital Plan and Budget shall identify, among other
things:
(i) proposed Major Capital improvements by function (e.g. transmission,
substation, distribution, communication, common plant, and public works) and
project location;
(ii) detailed project descriptions in the case of projects the costs of
which exceed a dollar limit to be agreed upon by the parties prior to the
adoption of the initial Annual T&D Budget, and general descriptions in all other
cases;
(iii) the planned initiation date of each project and the expected duration
of such project;
(iv) an estimate of the amount of the Major Capital Improvement Cost for
each project, including the dollar amount of capital expenditures per year if
the project requires more than a year to complete;
(v) a proposed drawdown schedule for each project;
(vi) an explanation of the relationship to other planned or subsequently
required capital additions or improvements of which each individual Major
Capital Improvement is a component;
(vii) the anticipated useful life of each improvement or addition;
(viii) the economic and engineering justifications for each capital
improvement or addition, including, where applicable, quantification of system
performance changes as a result of such improvement or addition, and the
expected effect, if any, of the capital improvement or addition on the ability
of the Manager to meet the Performance Guarantees;
(ix) an indication of whether the improvement or addition is planned for
performance by Manager work force or by third party contractor; and
(x) such other information as may be reasonably requested by the Authority.
Such Major Capital Plan and Budget shall include explanation and
justification of costs in a form acceptable to the Authority. Whether particular
costs are capital or operation and maintenance costs payable from the Annual T&D
Budget shall be determined by the Authority in accordance with the Bond
Resolution.
27
(B) Schedule for Major Capital Plan and Budget Review. The Manager shall
file a proposed Major Capital Plan and Budget with the Authority at the same
time the Annual T&D Budget proposal is filed pursuant to Section 6.2(B). The
Authority shall provide preliminary comments on the Major Capital Plan and
Budget within 60 days after receipt, provided additional time for review, if
required, may be agreed to by the parties. The Manager shall make all changes to
the Major Capital Plan and Budget reasonably requested by the Authority. Any
proposed Major Capital Plan and Budget submitted to the Authority by the Manager
may be made available to the public by the Authority at such time as it shall
deem appropriate for public review and comment. The annual Major Capital Plan
am! Budget will be approved by the Authority before or contemporaneously with
the adoption of the Annual T&D Budget, and prior to or contemporaneously with
the adoption of any rate adjustment by the Authority; provided that in the event
the Major Capital Plan and Budget has not been adopted by the Authority as of
the beginning of a Contract Year, the Manager may undertake such Major Capital
Improvements as reasonably approved by the Authority on a project-by-project
basis.
(C) Projects in Excess of $500.000. Other than for emergency repairs or
replacements, at the Authority's request, the Manager shall prepare a
repair-or-replace analysis for the Authority for repairs or replacements of the
T&D System costing more than $500,000 if the same have not been approved in the
Annual T&D Budget. The Authority shall decide whether to have such repair or
replacement implemented.
SECTION 5.3. COST DETERMINATION. (A) Basis for Major Capital Improvement
Cost Determination. Major Capital Improvements, except those awarded to the
Manager as a result of the competitive procurement procedures outlined in
subsection 5.3(C) hereof shall be performed, whether by the Manager's own
workforce or by a Subcontractor, at the cost of the service without any
multiplier fee or xxxx-up. Construction Work management and administration costs
will either be specifically budgeted on a project-specific outsourced basis, or
such costs will be captured within the then current Direct Cost Budget.
(B) Source of Financing of Major Capital Improvements. (1) Major Capital
Improvements other than those for which the Manager is responsible under Section
6.10 hereof will be financed by the Authority in accordance with the
construction drawdown payment procedures established pursuant to Section 5.1(D)
hereof, provided that the Authority and the Manager may agree to have the
Manager fund, subject to reimbursement, capital additions in the event of
emergency costing in the aggregate not more than a dollar amount to be agreed
upon by the parties prior to the adoption of the initial Annual T&D Budget.
(2) The Authority may in its sole discretion determine whether to fund
particular Major Capital Improvements from current revenue or from bond
proceeds. The Manager shall reflect the principal and interest repayment for
Major Capital Improvement Cost financing in its projections for System Revenue
Requirements in the Major Capital Plan and Budget.
(C) Procurement and Contracting Procedures. (1) Along with its proposed
annual Major Capital Plan and Budget, the Manager shall provide the Authority
with an explanation of its proposed process for procuring equipment,
construction, and other services related to implementing the Major Capital
Improvements so as to achieve favorable cost completion of the Major Capital
Improvements Such procurement process shall be performed in accordance with
Applicable Law and Appendix 8. Decisions as to outsourcing construction
management shall be made in accordance with the procedures and criteria to be
determined in accordance with Appendix 8 hereto.
(2) Wherever a Major Capital Improvement is to be performed under this
Agreement, the provisions and procedures set forth in Appendix 8 hereto shall
apply. In order to implement such
28
provisions with respect to any Major Capital Improvement costing in excess of a
dollar amount to be agreed upon by the parties prior to the adoption of the
initial Annual T&D Budget, the costs for which the Authority is responsible, the
Manager shall submit, at the Authority's discretion, a lump sum or an individual
element price proposal for such Major Capital Improvement, which shall be broken
out by the categories of work to be done and corresponding costs. Any such
proposal shall be deemed the Manager's offer to the Authority, binding for 60
days, to perform the Major Capital Improvement at the price quoted. The parties
shall promptly proceed to negotiate in good faith to reach agreement on the
price to be paid to the Manager for the Major Capital Improvement and on the
effect of such Major Capital Improvement on any costs or obligations of the
Manager under this Agreement. If the Authority does not accept the Manager's
proposal, the Authority may conduct a procurement to contract with a third-party
to undertake such Major Capital Improvement or, alternatively, the Authority may
require the Manager to solicit at least three competitive bids for such Major
Capital Improvements on a lump-sum or individual element basis, as requested by
the Authority. The Manager shall cooperate with and assist the Authority in
connection with any procurement undertaken by the Authority. To the extent that
the Manager or any Affiliate participates as a bidder in any competitive
solicitation process, the Manager shall establish internal controls and other
procedures satisfactory to the Authority for the purpose of assuring the
integrity of the competitive solicitation. Except as the Authority may otherwise
direct, competitive solicitations of bids shall be conducted in accordance with
the process and procedures to be established by the Authority. The Manager shall
promptly notify the Authority of any reasonable objection to the Authority's
inclusion of a party on a list of bidders.
(D) Advancement of Funds for Major Capital Improvements and Additions. Once
an annual Major Capital Plan and Budget is approved, the Authority shall advance
funds in accordance with an agreed upon drawdown schedule established to the
mutual satisfaction of the Authority and the Manager for payment of Major
Capital Improvement Costs. Such drawdown schedule shall conform to Applicable
Law, including the provisions set forth in Appendix 13 hereto.
(E) Major Capital Improvements Cost Savings Incentive. Manager shall be
entitled to incentive payments for cost savings and disincentive payments for
cost overruns and delays in scheduled completion of approved Major Capital
Improvements equal to 50% of all variances from the approved Major Capital Plan
and Budget; provided, however, that no such incentive or disincentive shall be
payable for cost variances in excess of 15% of the approved Major Capital Plan
and Budget. Such incentive and disincentive payments will relate to Major
Capital Improvements which are not subject to competitive bidding and those
projects in which Manager serves as construction manager over third party
contracts and not with respect to Major Capital Improvements in which the
Manager serves as the general contractor, except as otherwise agreed by the
Authority or as set forth in the terms and conditions of the contract.
Incentives and disincentives will be trued-up upon the closing and acceptance by
the Authority of approved capital projects.
SECTION 5.4 PUBLIC WORKS IMPROVEMENTS. (A) Generally. The Manager shall not
undertake a Public Works Improvement without previously notifying the Authority
and receiving the written consent of the Authority which shall not be
unreasonably delayed. In such notification, the Manager shall provide a proposed
project budget for such Public Works Improvement containing information that is
consistent with that required under Section 5.2 hereof. The budget for each
Public Works Improvement shall be subject to Authority approval and the Manager
shall not undertake any Public Works Improvement until the budget therefor has
been adopted. The parties may agree to adjust any Public Works Improvement
budget in the event the governmentally requested scope of work for such project
substantially changes from the originally budgeted scope of work.
(B) Cost Disputes. The Manager shall use its best efforts to limit the
costs incurred in undertaking each Public Works Improvement consistent with
Prudent Utility Practice. The Authority
29
may, without limiting the Authority's obligations to make timely payments of any
Public Works Improvement Costs under subsection 5.4(C) consistent with the
mutually agreeable payment procedures established in accordance with Section
5.4(E) hereof, object to any Public Works Improvement Costs or to the payment of
any Public Works Improvement Costs on the grounds that such Public Works
Improvement Cost or the amount being charged to the Authority was improperly
computed, that the Public Works Improvement Costs incurred by the Manager were
unreasonable for the work performed or that the work performed by the Manager in
undertaking the Public Works Improvement was materially delayed or not completed
due to a circumstance for which the Manager would be responsible for the costs
of under Section 6.10 hereof.
(C) Cost Determination. Public Works Improvements shall be performed,
whether by the Manager's own workforce or by a Subcontractor, at the cost of the
service without any multiplier fee or xxxx-up; provided, however, that such
costs shall be reduced by all reimbursements or payments received from the
applicable Governmental Body for the planning, engineering, procurement and
completion of the Public Works Improvement. Construction management and
administration costs will either be specifically budgeted on a project-specific
outsourced basis or such costs will be captured within the then current Direct
Cost Budget. Decisions as to outsourcing construction management of Public Works
Improvements shall be made in accordance with the procedures and criteria set
forth in Xxxxxxxx 0 xxxxxx.
(X) Public Works Improvements Cost Savings Incentives. The Manager shall be
entitled to incentive payments for cost savings and disincentives for cost
overruns and delays in scheduled completion that result in incremental costs for
approved Public Works Improvement as follows: (a) no incentive or disincentives
shall be payable for all variances from the approved Public Works Improvement
project budget between 0% and plus or minus 2%, and (b) 50% of all variances
(whether positive or negative) from the approved Public Works Improvement budget
of 2.01% or more. Incentives and disincentives will be payable 60 days after the
project completion and acceptance by the Authority of approved Public Works
Improvements.
(E) Public Works Improvement Costs Estimate. The Manager shall recommend,
and the Authority shall adopt, an annual reserve level for Public Works
Improvements. Such reserve level shall be identified in each Major Capital Plan
and Budget and 5-year planning budget, although not included therein, in order
to enable estimation of total cash flows for the T&D System. Such estimates will
also be used by the Authority for determination of financial reserve
requirements for the T&D System.
(F) Public Works Improvement Cost Payments. Payment for Public Works
Improvement Costs will be made in accordance with mutually agreeable payment
procedures which shall reflect customary construction drawdown, milestone and
retainage provisions for similar projects.
SECTION 5.5. MAJOR CAPITAL IMPROVEMENTS FOR WHICH MANAGER IS RESPONSIBLE.
If the T&D System is damaged or destroyed by reason of circumstances for which
the Manager is responsible under Section 6.10 hereof, the Manager shall promptly
proceed to make or cause to be made all Major Capital Improvements reasonably
necessary to permit the Manager to perform its obligations under this Agreement.
The Manager shall give the Authority and the Consulting Engineer written notice
of, and reasonable opportunity to review and comment upon, any such proposed
Major Capital Improvement. All such Major Capital Improvement for which Manager
is responsible under Section 6.10 shall be made at the Manager's sole cost and
expense, and the Manager shall not be entitled to any compensation from the
Authority as a result thereof.
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ARTICLE VI
COMPENSATION AND BUDGETS
SECTION 6.1. SERVICE FEE. (A) Formula. Commencing with the first Billing
Period and for each Billing Period during the Term of this Agreement, the
Authority shall pay the Manager a Service Fee for the services provided by the
Manager under the terms of this Agreement in accordance with the following
formula:
SF =FDF + TPC + VP + CIF (+ or -) NCPI
Where
SF = Service Fee
FDF = Fixed Direct Fee
TPC = Third Party Costs
VP = Variable Payment
CIF - Cost Incentive Fee
NCPI = Non-cost Performance Incentives and Disincentives
Each component of the Service Fee shall be computed in accordance with this
Article and may be adjusted from time to time as provided in this Agreement. For
illustrative purposes, examples of the calculation of the Service Fee payable
hereunder are attached as Appendix 12 hereto. In addition to the Service Fee,
Manager shall be entitled to payment for cost overruns as set forth in Section
6.1(F).
(B) Fixed Direct Fee. The Authority will make a monthly payment to the
Manager equal to ninety (90%) of the approved annual Direct Cost Budget (the
"Fixed Direct Fee"). The monthly allocation of such payment will be determined
by the parties prior to the adoption of each Annual T&D Budget based on
historical monthly trends to minimize working capital costs.
(C) Third Party Costs. The Authority will make a monthly payment to the
Manager for the monthly allocation of the approved annual Third Party Cost
Budget. Monthly allocation of such payments will be determined by the parties
prior to the adoption of each Annual T&D Budget based on historical monthly
trends to minimize working capital costs.
(D) Variable Payment. The Manager will be entitled to a Variable Payment
equal to the lesser of (a) the difference between actual Total Costs (the sum of
the actual Direct Costs and the actual Third Party Costs), less the sum of the
Fixed Direct Fee and the lesser of actual or budgeted Third Party Costs or (b)
the difference between the approved Total Cost Budget (the sum of the Direct
Cost Budget and the Third Party Cost Budget) less the sum of the Fixed Direct
Fee and the lesser of the actual or budgeted Third Party Costs. Monthly
allocation of such payment shall be determined by the parties based on
historical monthly trends to minimize working capital costs. For administrative
ease, the calculation of the monthly Variable Payment shall be based on the
difference between the Total Cost budget and the sum of the amounts paid for the
Fixed Direct Fee and Third Party Costs.
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(E) Management Fee. Cost Incentive Fee and Non-cost Performance Incentives
and Disincentives. To the extent actual Total Costs are less than the approved
Total Cost Budget for the year, the Manager shall be paid the portion of its
Management Fee, described within the definition of Direct Costs in subsection
6.2(A) (relating to cost savings), in an amount equal to such cost savings up to
a maximum of $5 million. Beyond such $5 million level, the Manager will be paid
a Cost Incentive Fee equal to 50% of such additional savings, provided that no
incentive will be paid for savings in excess of 15% of the Total Cost Budget.
All savings above this cap shall be for the benefit of the Authority. The
amounts described in this subsection shall not be payable monthly, but shall
instead be paid as part of the Annual Settlement Statement process in accordance
with Section 6.8 hereof. The Manager shall also be entitled to share in any
amounts recovered in accordance with Section 4 of Appendix 7 hereto.
(F) Cost Overruns. To the extent actual Total Costs, excluding the
Management Fee, are greater than the Total Cost Budget, excluding the net
Management Fee, for the applicable Contract Year, the Manager shall absorb the
first dollars of such overruns, up to a maximum total of $15 million in each
Contract Year. For cost overruns in excess of this amount, the Manager shall be
entitled to a payment through the Annual Settlement Statement equal to the
amount of such excess overruns (the "Overrun Payment").
(G) Limitations. To the extent required by the terms of the letter ruling
obtained from the Internal Revenue Service in connection with the Agreement, the
ratio of (1) the sum of the Variable Payment plus the Cost Incentive Fee plus
the sum of the Non-cost Performance Incentives and Disincentives (described in
Section 6.4) plus the Overrun Payment divided by (2) the sum of (a) the amounts
described in (1) above and (b) the Fixed Direct Fee shall not be greater than
twenty percent (20%) in any Contract Year.
(H) Carrying Costs. Interest rates and charges due from one party to the
other for carrying costs for the timing of reimbursements for balances due for
differences between the lesser of actual Total Costs or the approved budgeted
Total Costs and the monthly payments for such costs shall be determined as set
forth in Section 6.8 hereof in connection with the Annual Settlement Statement.
SECTION 6.2. ANNUAL T&D BUDGET AND FIVE YEAR PLANNING BUDGET PROCESS. (A)
General. The Annual T&D Budget and the Five-Year Planning Budget will be
established in accordance with subsection 6.2(B) and will provide for the
determination and payment of the Manager's costs of operating and maintaining
the T&D System and performing its obligations hereunder, inclusive of fees paid
to the Manager. The Annual T&D Budget and the Five-Year Planning Budget shall be
comprised of two broad categories: Direct Costs (the "Direct Costs Budget") and
Third Party Costs (the "Third Party Costs Budget"). These categories of costs
shall exclude Incremental Internal Costs and additional Third Party Costs
relating to Major Capital Improvements, Public Works Improvements, and Other
Costs.
(1) Direct Cost Budget. In establishing the Direct Cost Budget for the
initial Annual T&D Budget hereunder, the Direct Cost Budget shall include (1)
amounts to compensate the Manager for Operation and Maintenance Services costs
anticipated to be reasonably predictable and incurred by the Manager through the
utilization of either its work force, or its owned assets, in carrying out its
responsibilities under the Agreement (the "Direct Costs") and (2) the Manager's
fee ("Management Fee"). Costs related to the Manager's work force shall include
compensation paid to employees of the Manager as well as an appropriate
allocation of such costs of employees of the Manager's parent or affiliates to
the extent such employees provide service to the Authority pursuant to the
Agreement. Costs related to the Manager's owned assets shall include an
appropriate allocation of depreciation and return on the undepreciated balance
and shall include an appropriate allocation for projects in progress at the
Closing Date. The determination of depreciation and return to be allocated shall
be based upon historical costs
32
and an agreed upon capital structure. The Management Fee shall be an annual
fixed amount of $15 million. Of this amount, however, $5 million must result
from cost savings. As a result, the Direct Cost Budget will include a net
Management Fee of $10 million.
(2) Third Party Cost Budget. The Third Party Cost Budget shall include
amounts for reimbursement of, on a dollar for dollar basis, all recurring
capital or operating costs incurred by the Manager in carrying out its
responsibilities under the Agreement and paid to parties other than Manager, its
parent or affiliates, and any of their employees (the "Third Party Costs"). Such
costs shall include, for example, costs incurred in respect of professional
fees, postage, materials and supplies, third party contract labor, rents,
property taxes on the Common Facilities, telecommunications, insurance, dues and
fees, advertising, and mutual assistance agreements with non-Affiliates of the
Manager.
(3) Cost Incentive Fees. The Manager shall be entitled to receive Cost
Incentive Fees, as provided in subsection 6.1(E) hereof, for costs savings from
the amounts included for Direct Costs and Third Party Costs in the approved
Annual T&D Budget.
(B) Annual T&D Budget Preparation. (1) Generally. On the date determined in
accordance with Schedule C to the Acquisition Agreement to be the date six
months preceding the projected Closing Date and thereafter no later than six
months prior to the end of each Contract Year, the Manager will prepare a
recommended annual budget for the operation and maintenance, including routine
capital projects not constituting Major Capital Improvements or Public Works
Improvements, of the T&D System and a recommended annual budget for total
revenue requirements, inclusive of the Authority's own costs, with the costs
that will be paid by the Authority to Manager under this Agreement specifically
and separately identified (together, the "Annual T&D Budget"). The recommended
Annual T&D Budget shall be accompanied by a five year T&D planning budget (the
Five-Year Planning Budget"). The Authority will hold at least one hearing to
solicit public input on the initial budgets. The Annual T&D Budget and Five-Year
Planning Budget shall be divided into a Direct Cost Budget and a Third Party
Cost Budget in accordance with the budget categories set forth in Appendix 10
hereto, consistent with the general definition of such costs in subsection
6.2(A) hereof. The initial Direct Cost Budget, once established and approved by
the Authority, will be indexed for each subsequent year during the Term of this
Agreement as described in Appendix 5. The Third Party Cost Budget, as contained
in the Annual T&D Budget and the Five Year Planning Budget, will be determined
and approved annually. Each Annual T&D Budget and Five-Year Planning Budget will
be composed of the indexed Direct Cost Budget and the annually determined and
approved Third Party Cost Budget. Direct Costs and Third Party Costs in the
adopted Annual T&D Budget shall be calculated and included in such budget at
cost without xxxx-up.
(2) Initial Budgets. The Manager shall propose and the Authority shall
review, amend as appropriate and approve the Annual T&D Budget and the Five-Year
Planning Budget for the first Contract Year prior to the Closing Date. Such
initial Annual T&D Budget and Five-Year Planning Budget shall reflect an
agreed-upon estimate of adjustments in T&D System costs attributable to
productivity improvements to be undertaken by the Manager and in accordance with
the Acquisition Agreement, estimated synergy savings from the combination of
Long island Lighting Company and The Brooklyn Union Gas Company pursuant to the
BUGLILCO Agreement.
(3) Direct Cost Budget Preparation. The amounts included for Direct Costs
in the initial Annual T&D Budget shall be based upon the agreed upon
disaggregated T&D System costs portion of the proposed 1997 rate year budget in
the LILCO 1996 rate case filing with the NYSPSC, adjusted to 1999 (the
anticipated first full calendar year of operation under the Agreement).
Adjustments to the 1997 base budget shall include, but not be limited to
adjustment of union labor costs in accordance with the existing union labor
contract, non-union labor costs in accordance with the Direct Cost Budget
33
Indices, other indices as used in the 1996 rate case filing to adjust from the
1997 rate year to the 1999 revenue requirements estimate, addition of the net
Management Fee of $10 million and known changes in facts and circumstances. Such
Direct Cost Budget shall also consider actual historical results from 1996
through the date of adoption of the initial Annual T&D Budget prepared on a
comparable disaggregated basis. Payment of any bonus or incentive pay to
officers of the Parent shall not be part of the Direct Cost Budget unless
mutually agreed to in writing by the parties.
Subsequent annual Direct Cost Budgets shall be calculated based upon the
initial Direct Cost Budget, subject to adjustments for the Direct Cost Budget
Indices described in Appendix 5 hereto and as follows:
(i) The union labor portion of the Direct Costs will be adjusted in
accordance with existing union contracts through February 13, 2001. Thereafter,
the cost of union labor and benefits will be adjusted based on Direct Cost
Budget Indices. At the Authority's option, Manager will consult with the
Authority on all future renegotiations of union labor contracts prior to final
agreement and will keep the Authority apprised of labor negotiations as they
progress;
(ii) All other portions of the Direct Cost budget, including non-union
labor, will be adjusted for the appropriate Direct Cost Budget Indices set forth
in Appendix 5.
(4) Third Party Costs Budget Preparation. If in any proposed Annual T&D
Budget or Five-Year Planning Budget the Manager proposes changes in components
of Third Party Costs (e.g. rates for professional services, unit costs for
materials and supplies, postage rates, insurance premiums, etc.) from the prior
budgets due to claims by the Manager of changes in costs significantly different
from previously applicable rates used in the previously adopted Third Party
Costs Budget, the Manager must provide documentation of the basis of such
changes. The Authority may require that the Manager demonstrate justification
for increases in components of Third Party Costs through competitively bidding
for contracts or services, or through other means. If the Annual T&D Budget has
not been adopted by the Authority prior to the beginning of a Contract Year, the
Manager, to the extent necessary to maintain T&D System reliability and safety,
shall be authorized to expend, amounts up to the actual Third Party Costs for
the first three months of the prior Contract Year.
(5) Rate Recommendations and Budget Review. The Annual T&D Budget and
Five-Year Planning Budget prepared by the Manager and submitted to the Authority
for review and approval shall be accompanied by any Manager-recommended rate
adjustments for the upcoming year and shall be submitted at least six months
before the anticipated Closing Date and six months before the beginning of each
subsequent Contract Year. The Authority shall have 60 days to review the
proposed Annual T&D Budget and Five-Year Planning Budget and any rate
adjustments and to propose modifications as it deems appropriate. The parties'
objective is to have the Annual T&D Budget and the Five-Year Planning Budget
adopted at least two months before the beginning of the next Contract Year. If
there is a rate adjustment, the Manager, at the Authority's request, shall
expedite its preparation and discussions with the Authority so as to enable the
public review process for a rate adjustment to begin sufficiently early to allow
approximately four (4) months of public review, comment, and adoption by the
Authority before the new rate year begins. All rate proposals will be subject to
public hearings prior to approval by the Authority.
(6) Five-Year Planning Budget. The Five-Year Planning Budget shall include
a projection of the Direct Cost Budget based on the load forecast most recently
approved by the Authority and a projection of the applicable indices. The
Manager acknowledges that the Authority's acceptance of the year 2 through 5
planning budgets as contained in the Five-Year Planning Budget shall not be
deemed to constitute approval of such budgets, although these later year
planning budgets will be used
34
as guidance for the reasonableness of any adjustments to subsequent annual
budgets to be adopted by the Authority.
(7) Budget Format. The Annual T&D Budget and Five-Year Planning Budget
shall be in a form acceptable to the Authority, with the initial Annual T&D
Budget and Five-Year Planning Budget to be prepared with the same categories and
levels of detail for historical costs and documented in a manner which enables
comparison to actual expenditures. The Annual T&D Budget and Five-Year Planning
Budget shall include the type and format of information shown in Appendix 10
hereto.
(8) Accelerated Budget Preparation. If, in the Authority's sole opinion,
trends in the cost of service, customer loads or other factors indicate a need
to consider changes in rates, cost allocation, or rate design, the Authority may
request a revised budget and rate recommendation from the Manager or preparation
of the budget on an accelerated schedule, with reasonable notice. The Authority
and the Manager shall agree on any reasonable incremental costs which may be
subject to reimbursement for such accelerated budget preparation.
(9) Manager Availability at Forums. At the Authority's request upon
reasonable notice, the Manager shall provide, in any public or private forums,
explanation and support for the Manager's T&D System management activities,
including, without limitation, activities relating to the Annual T&D Budget and
Five-Year Planning Budget, the Major Capital Plan and Budget, rates and rate
design.
SECTION 6.3 OTHER COSTS. (A) "Other Costs" Definition. (1) Other Costs are
those costs which cast reasonably be anticipated and shall include those costs
the Manager and the Authority agree are not included in the Direct Cost Budget,
Third Party Cost Budget or Major Capital Plan and Budget ("Other Costs"). Other
Costs include the Incremental Internal Costs and additional Third Party Costs
incurred by the Manager as a result of events (including but not limited to
major storms and extreme weather) that Manager and the Authority agree have
caused costs to be incurred by the Manager to respond to significant (i) damage
to or adverse affects on the T&D System, (ii) changes in the level of required
maintenance or operation of the T&D System, or (iii) tasks which are necessary
for safety reasons. In addition, Manager will be reimbursed for Other Costs
resulting from or as a consequence of:
(i) changes in work scope and projects agreed to by the Manager and
the Authority;
(ii) a Change in Law;
(iii) determinations made by the Authority pursuant to Section 4.5
resulting in changes in System Policies and Procedures; or
(iv) the Authority's assumption "of the day-to-day direction" of the
Manager pursuant to Section 7.4(B)(2).
None of the following shall constitute an event which can cause Other Costs to
arise:
(i) general economic conditions, interest or inflation rates, or
currency fluctuations or exchange rates,
(ii) the financial condition of the Authority, the Manager, the
Guarantor, any of their Affiliates or any Subcontractor,
35
(iii) the consequences of a failure by the Manager, the Guarantor, any
Subcontractor, any of their Affiliates or any other person to adhere
to the Contract Standards in the performance of any work hereunder;
(iv) the failure of the Manager to secure patents or licenses to be
owned or possessed by the Manager and its Affiliates in connection
with the technology necessary to perform their obligations hereunder;
(v) union work rules, requirements or demands which have the effect of
increasing the number of employees employed at the T&D System,
reducing the operating flexibility of the Manager or otherwise
increase the cost to the Manager of operating and maintaining the T&D
System, or
(vi) the failure of any Subcontractor or supplier to furnish labor,
materials, services or equipment for any reason.
(2) "Incremental Internal Costs" shall include those incremental internal
costs incurred by the Manager and approved by the Authority to provide for Major
Capital Improvements, Public Works Improvements, and Other Costs pursuant to the
Agreement to the extent such costs are not otherwise included as a Direct Cost
or a Third Party Cost. Such costs shall include, for example, unbudgeted
overtime wages for employees of the Manager or its Affiliates whose salaries are
included, directly or indirectly, in the Direct Cost Budget, and wages and
benefits for any additional employees hired to perform the task or a task
contemplated in the Direct Cost Budget not able to be performed by the Manager's
employees due to their deployment as a result of such event, and any incremental
allocation of costs related to employees of the Manager's parent or affiliates.
(3) The Authority and the Manager shall agree upon the occurrence of an
event that qualifies as one that has or is anticipated to lead to Other Costs.
The Authority's approval of the reimbursement of Other Costs shall not be
unreasonably withheld. Other Costs will not be taken into consideration in any
determination of incentives or disincentives as contemplated in this Agreement.
(B) Other Costs Reserve Estimate. Although Other Costs will not be
budgeted, the Manager shall recommend, and the Authority shall adopt, an annual
reserve level for Other Costs for each Annual T&D Budget and Five-Year Planning
Budget to enable estimation of total System Revenue Requirements. Such estimate
will also be used by the Authority for determination of financial reserve
requirements for the T&D System.
(C) Other Costs Reimbursement. The Manager will be reimbursed for
reasonably incurred Other Costs. Payment for such costs will be made as needed
from reserves retained by the Authority. Approved costs in excess of available
reserves will be reimbursed in a manner which minimizes working capital costs to
the Authority. Other Costs shall be billed as incurred, but not more frequently
than on a monthly basis. The Authority shall pay such invoice within 30 days of
receipt, subject to a 10% retention by the Authority pending completion of
review of such invoice. The Authority shall have 60 days to review such invoice
and supporting documentation after which time it shall pay the Manager the full
amount thereof, unless the Authority disputes any aspect of such invoice. Any
amounts determined to be owing by one party to the other through such dispute
resolution shall be paid, along with interest at the Base Interest Rate from the
date the Authority made its payment under this subsection until the date of
payment of the disputed or retained amounts.
SECTION 6.4. NON-COST PERFORMANCE INCENTIVES AND DISINCENTIVES. (A)
Generally. In addition to the cost saving incentives provided for in
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Section 6.2, the Manager will be eligible for incentives for performance above
certain threshold target levels of performance standards ("Non-cost Performance
Incentives") and subject to disincentives for performance below certain other
threshold minimum performance standard levels ("Non-cost Performance
Disincentives"), with an intermediate band of performance in which neither
incentives nor disincentives shall apply, for reliability, worker safety, and
customer service, all as described in Appendix 7 hereto.
(B) Adjustments to Threshold Levels. The threshold levels to which
Manager's performance is measured for purposes of determining the Non-cost
Performance Incentives and Non-Cost Performance Disincentives as described in
Appendix 7, may be increased or decreased by the mutual agreement of the Parties
to reflect material effects, if any, of (1) increases in Authority-approved
Annual T&D Budgets; (2) determinations by the Authority not to approve
maintenance or capital improvement projects as originally recommended by Manager
and not otherwise reflected in the annual T&D Budgets; (3) changes in System
Policies and Procedures; or (4) changes in the scope of Manager's services from
that which is contemplated in this Agreement.
(C) Limits on Incentives and Disincentives. In any Contract Year in no
event shall the total of the Non-cost Performance Incentives, net of any
applicable Non-cost Performance Disincentives, together with the System Power
Supply Incentive/Disincentive payable under Section 5.3.2 of the Energy
Management Agreement, be greater than $7.5 million, nor will the total Non-cost
Performance Disincentives, net of any applicable Non-cost Performance Incentives
together with the System Power Supply Incentive/Disincentive payable under
Section 5.3.2 of the Energy Management Agreement be greater than $7.5 million.
SECTION 6.5. AUTHORITY NON-PERFORMANCE. (A) Costs of Construction Work and
of Operation and Maintenance. If subsequent to the Closing Date, caused by an
event the costs of which the Authority is responsible for under Section 6.10
hereof, there shall be an increase in the Manager's cost of Construction Work or
Operation and Maintenance Services, the amount of any such incremental cost
increase shall be borne by the Authority to the extent it is responsible
therefor under Section 6.10 hereof and shall not be considered for purposes of
calculating any incentive or disincentive hereunder. The Manager shall give the
Authority and the Consulting Engineer prompt written notice of the occurrence of
any such event, including in such notice as and to the extent known (1) a
description in reasonable detail of the reasons why such increase is due to such
an event, (2) the projected amount of any increase in the Manager's cost of
Construction Work or Operation and Maintenance Services, including Cost
Substantiation therefor and any impact on the scheduled completion date, and (3)
the resulting adjustment in the compensation due hereunder. The Authority may
object to any adjustment to the compensation due hereunder due to any such
increase in the Manager's cost of operation and maintenance for any reason under
this Agreement, including the grounds that such adjustment was improperly
computed, that such costs are unreasonable for the work performed, that such
costs or the manner in which the work was carried out was not a reasonable
response to the event, or that the event is something for which the Manager is
responsible under Section 6.10 hereof has occurred. Notification and resolution
of any such dispute shall be made in accordance with the provisions of Section
7.8 hereof.
(B) Major Capital Improvements to Repair Damage Caused by Authority. If at
any time the T&D System is damaged or destroyed due to an event for which the
Authority is responsible under Section 6.10 hereof, the Authority shall pay, in
addition to and not in substitution for the payments required under subsection
(A) hereof, all Major Capital Improvement Costs and adjustments as are required
to be made by the Authority pursuant to Article V hereof.
SECTION 6.6. MANAGER NON-PERFORMANCE. If subsequent to the Closing Date,
due to an event for which the Manager is responsible under Section 6.10 hereof,
there shall be an increase in the Manager's cost of Construction Work or
Operation and Maintenance Services, or in the
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Authority's costs associated with performing obligations hereunder, the amount
of any such incremental cost increase shall be borne by the Manager to the
extent it is responsible therefor under Section 6.10 hereof. If at any time the
T&D System is damaged or destroyed due to an event for which the Manager is
responsible under Section 6.10 hereof, the Manager shall pay, in addition to and
not in substitution for the payments required above, all Major Capital
Improvement Costs and adjustments resulting therefrom.
SECTION 6.7. BILLING OF MAJOR CAPITAL: PUBLIC WORKS. Major Capital
Improvements shall be billed and paid as provided in Article V hereof.
SECTION 6.8. ANNUAL SETTLEMENT. (A) Annual Settlement Statement. Within 60
days after the end of each Contract Year, the Manager shall deliver to the
Authority an annual settlement statement (the "Annual Settlement Statement") in
a mutually agreed upon form, certified as to accuracy and completeness by the
Manager, setting forth the actual aggregate Service Fee payable with respect to
such Contract Year and a reconciliation of such amount with the amounts actually
paid by the Authority pursuant to the Billing Statements with respect to such
Contract Year, including, without limitation, all adjustments to the Service Fee
made pursuant to Article V hereof and this Article VI, all adjustments made
pursuant to subsection 6.8(B) hereof. If any amount is then in dispute, the
Annual Settlement Statement shall set forth the Manager's estimate of such
amount and a final reconciliation of such amount shall be made in the Billing
Statement for the Billing Period immediately following the resolution of such
dispute. The Annual Settlement Statement shall also include an accounting of any
incentives or disincentives accrued during the applicable Contract Year along
with appropriate supporting documentation. The Authority shall have an
opportunity to review such accounting prior to payment and shall have access to
the Manager's books and records in order to confirm such accounting prior to
payment. Such review will be performed within 90 days of receipt of the Annual
Settlement Statement.
(B) Payment of Amounts Owed. During the first quarter of the following
Contract Year, the monthly payments made to the Manager by the Authority shall
be (i) reduced by any overpayment by the Authority resulting from the sum of
actual Direct Costs and actual Third Party Costs being less than the payments
made by the Authority to the Manager for such costs during the previous year or
(ii) increased to reflect any Non-Cost Performance Incentive earned by the
Manager during the previous year and/or any Overrun Payment Due. In the final
Contract Year, such adjustments shall be made in the last month of such year for
the first nine months of the year, and a final adjustment will be made within 90
days after the end of the year.
(C) Carrying Costs. Any amounts determined in the Annual Settlement
Statement to be owing by one party to the other, other than Non-Cost Performance
Incentives or Non-Cost Performance Disincentives shall be paid with interest at
the Base Interest Rate calculated from July 1 of the preceding Contract Year
until the date of the Annual Settlement Statement.
SECTION 6.9. AUTHORITY'S PAYMENT OBLIGATIONS. (A) Source of Payments by
Authority. Amounts payable to Manager hereunder are to be paid from T&D System
revenues and other funds of the Authority available for such purposes in
accordance with the terms of the Bond Resolution.
(B) Disputes. If the Authority disputes any amount billed by the Manager in
any Billing Statement, the Authority shall pay that portion or the billed amount
which is not in dispute and shall provide the Manager with written objection
within 45 days of the receipt of such Billing Statement indicating the portion
of the billed amount that is being disputed and providing all reasons then known
to the Authority for its objection to or disagreement with such amount. If the
Authority and the Manager are not able to resolve such dispute within 30 days
after the Authority's objection, either party may refer such dispute for
resolution in accordance with Section 7.8 hereof. If any such amount is adjusted
in the
38
Manager's favor pursuant to agreement, mediation or otherwise, the Authority
shall pay the amount of such adjustment to the Manager, with interest thereon at
the Base Interest Rate from the date such disputed amount was due the Manager to
the date of payment in full of such amount. Nothing contained in this subsection
shall limit the authority of any authorized officer of the Authority or any
other governmental agency pursuant to Applicable Law to raise a further
objection to any amount billed by the Manager pursuant to an audit conducted by
the Authority or such governmental agency. No payment of amounts by the
Authority hereunder shall be construed as or shall constitute a waiver by the
Authority of its rights to dispute such amounts, to conduct a final audit or
reconciliation, or otherwise review the appropriateness of such amounts.
SECTION 6.10. ALLOCATION OF RISK OF CERTAIN COSTS AND LIABILITIES. Except
to the extent due to Authority Fault (as determined by either a final
non-appealable order or judgment of a court of competent jurisdiction (including
administrative tribunals) or a final non-appealable binding arbitration
decision), the Manager shall be responsible and liable to the Authority for, and
shall not be entitled to reimbursement from the Authority for any
Loss-and-Expense incurred by the Manager or the Authority,
(a) due to any gross negligence or willful misconduct by the Manager
during the period commencing six months prior to the Closing Date to the
extent LILCO knew or should have known of such gross negligence or willful
misconduct and during the Term in carrying out its obligations hereunder,
(b) due to any violation of or failure of compliance with Applicable
Law by the Manager (except as provided below) during the period commencing
six months prior to the Closing Date to the extent LILCO knew or should
have known of such violation or failure of compliance and during the Term
which materially and adversely affects
(i) the condition or operations of the T&D System,
(ii) the financial condition of the Authority,
(iii) the performance or ability of the Manager to perform its
obligations under this Agreement, or
(iv) the cost of providing electric service to the customers of
the T&D System, provided, however, that Manager shall not be
responsible and liable to the Authority under this clause (b) with
respect to any violation of, failure of compliance with, or liability
under, Environmental Laws (as defined in the Acquisition Agreement)
for which the Authority or the Manager may be strictly liable provided
that Manager (or for actions prior to the Closing Date, LILCO) acted
in a manner consistent with Prudent Utility Practice. Notwithstanding
the foregoing, Manager shall in all events be liable for any fine or
penalty arising by reason of any violation of or failure of compliance
with Applicable Law for acts or omissions of the Manager not
consistent with Prudent Utility Practice,
(c) due to any criminal violation of Applicable Law by the Manager (or
for actions prior to the Closing Date, LILCO), or
(d) due to an event which gives rise to a cost not included in the
Direct Cost Budget or Third Party Cost Budget or a cost incurred with
respect to Major Capital Improvements or
39
Public Works Improvements, that is incurred by reason of actions or
omissions of the Manager not consistent with Prudent Utility Practice.
Any action or omission identified in (a), (b), (c) or (d) shall be
determined by either a final non-appealable order or judgment of a court of
competent jurisdiction (including administrative tribunals) or a final
non-appealable binding arbitration decision and shall be attributable to the
Manager for purposes of the preceding sentence whether it is attributable to the
Manager or to any officer, member, agent, employee or representative of the
Manager or any Affiliate and any contractor, Subcontractor of any tier, or
independent contractor selected to perform any work hereunder not previously
objected to by the Manager to the extent permitted by Section 5.3 and related
dispute resolution provisions.
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ARTICLE VII
DEFAULT, TERMINATION FOR CAUSE
AND DISPUTE RESOLUTION
SECTION 7.1. REMEDIES FOR BREACH. Subject to the provisions of Section 7.8
hereof, the parties agree that, in the event that either party breaches any
other obligation under this Agreement or any representation made by either party
hereunder is untrue in any material respect, the other party shall have the
right to take any action at law or in equity it may have to enforce the payment
of any damages or the performance of such other obligation hereunder and such
right to recover damages or to be reimbursed as provided herein will ordinarily
constitute an adequate remedy for any breach of such other obligation or any
material untruth in any such representation. Either party may enforce by an
action for specific performance the other party's obligations hereunder in the
event a material breach thereof has occurred and is continuing. Neither party
shall have the right to terminate this Agreement for cause except after an Event
of Default determined in accordance with the provisions of this Article VII
shall have occurred.
SECTION 7.2. EVENTS OF DEFAULT BY THE MANAGER. (A) Events of Manager
Default Defined. (I) Events of Default Not Requiring Cure Opportunity for
Termination. Each of the following shall constitute an Event of Default on the
part of the Manager for which the Authority may terminate this Agreement without
any requirement of cure opportunity:
(a) Change of Control of Manager. Change of Control of the Manager,
the Parent or the Guarantor has occurred; provided, however, that the
combination effectuated under the BUGLILCO Agreement or the Acquisition
Agreement shall not constitute a Change of Control of the Manager for
purposes of this provision.
(b) Worker Safety. Failure for any two out of three consecutive years,
for reasons other than major storms or extreme weather, to achieve the
Minimum Worker Safety Standard;
(c) Customer Service. Failure for two out of three consecutive years
to achieve the Minimum Customer Service Standard.
(d) Voluntary Bankruptcy. The written admission by the Manager or the
Guarantor that it is bankrupt, or the filing by the Manager or the
Guarantor of a voluntary petition under the Federal Bankruptcy Code, or the
consent by the Manager, the Parent or the Guarantor to the appointment by a
court of a receiver or trustee for all or a substantial portion of its
property or business, or the making by the Manager, the Parent or the
Guarantor of any arrangement with or for the benefit of its creditors
involving an assignment to a trustee, receiver or similar fiduciary,
regardless of how designated, of all or a substantial portion of the
Manager's or the Guarantor's property or business.
(e) Involuntary Bankruptcy. The final adjudication of the Manager, the
Parent or the Guarantor as a bankrupt after the filing of an involuntary
petition under the Federal Bankruptcy Code, but no such adjudication shall
be regarded as final unless and until the same is no longer being contested
by the Manager, the Parent or the Guarantor nor until the order of the
adjudication shall be regarded as final unless and until the same is no
longer being contested by the Manager or the Guarantor nor until the order
of the adjudication is no longer appealable.
(f) Credit Enhancement. Failure of the Manager to supply, maintain,
renew, extend or replace the credit enhancement required under subsection
9.1(C) hereof within the time
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specified therein in the event there is a Material Decline in the
Guarantor's Credit Standing, as defined in Section 9.1 hereof.
(g) Letter of Credit Draw. Failure of the Manager to supplement,
replace or cause to be reinstated the letter of credit as described in
Section 9.1 hereof within 30 days following draws equal to, in the
aggregate, 50% of the face value thereof.
(2) Events of Default Requiring Cure Opportunity for Termination. Each of
the following shall constitute an Event of Default on the part of the Manager
for which the Authority may terminate this Agreement upon compliance with the
notice and cure provisions set forth below:
(a) System Reliability. Failure to achieve, for two out of three
consecutive years, the Minimum Reliability Standard for both XXXXX and
CAIDI as defined in Appendix 7 hereto for any of the same individual system
geographic operating divisions; provided that if the Authority and the
Manager shall agree that such failure is not capable of being cured within
the three year period, then such failure shall not be deemed an Event of
Default hereunder if and so long as the Manager shall provide assurances
satisfactory to the Authority that appropriate steps have been and are
being taken to effect a cure and that such failure will be cured within an
agreed upon appropriate period;
(b) Failure to Pay or Credit. The failure of the Manager to pay or
credit undisputed amounts owed to the Authority under this Agreement within
90 days following the due date for such payment or credit (including the
payment or crediting of any payments due to the Authority in connection
with the Performance Guarantees); and
(c) Failure Otherwise to Comply with Agreement or Guaranty. The
failure or refusal by the Manager to perform any material obligation under
this Agreement (other than those obligations contained in subsection
7.2(A)(1) above), or the failure of the Guarantor to comply with any of its
material obligations under the Guaranty unless such failure or refusal is
excused by an Uncontrollable Circumstance or Authority Fault; except that
no such failure or refusal specified in clause (b) or (c) of this Section
7.2(A)(2) shall constitute an Event of Default giving the Authority the
right to terminate this Agreement for cause under this subsection unless:
(i) The Authority has given prior written notice to the Manager
or the Guarantor, as applicable, stating that a specified failure or
refusal to perform exists which will, unless corrected, constitute a
material breach of this Agreement on the part of the Manager or the
Guaranty on the part of the Guarantor and which will, in its opinion,
give the Authority a right to terminate this Agreement for cause under
this Section unless such default is corrected within a reasonable
period of time, and
(ii) The Manager or the Guarantor, as applicable, has neither
challenged in an appropriate forum the Authority's conclusion that
such failure or refusal to perform has occurred or constitutes a
material breach of this Agreement nor corrected or diligently taken
steps to correct such default within a reasonable period of time, but
not more than 60 days, from receipt of the notice given pursuant to
clause (i) of this subsection (but if the Manager or the Guarantor
shall have diligently taken steps to correct such default within a
reasonable period of time, the same shall not constitute an Event of
Default for as long as the Manager or the Guarantor is continuing to
take such steps to correct such default).
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SECTION 7.3. EVENTS OF DEFAULT BY THE AUTHORITY. (A) Events of Authority
Default Defined. Each of the following shall constitute an Event of Default on
the part of the Authority for which the Manager may terminate this Agreement
upon compliance with the notice and cure provisions set forth below:
(1) Failure to Pay. The failure of the Authority to pay undisputed
amounts owed to the Manager under this Agreement within 90 days following
the due date for such payment.
(2) Failure to Comply with Agreement. The failure or refusal by the
Authority to perform any material obligation under this Agreement unless
such failure or refusal is excused by an Uncontrollable Circumstance or
Manager Fault; except that no such failure or refusal to pay or perform
shall constitute an Event of Default giving the Manager the right to
terminate this Agreement for cause under this Section unless:
(a) The Manager has given prior written notice to the Authority
swing that a specified failure or refusal to perform exists which
will, unless corrected, constitute a material breach of this Agreement
on the part of the Authority and which will, in its opinion, give the
Manager a right to terminate this Agreement for cause under this
Section unless such default is corrected within; reasonable period of
time, and
(b) The Authority has neither challenged in an appropriate forum
the Manager's conclusion that such failure or refusal to perform has
occurred or constitutes a material breach of this Agreement nor
corrected or diligently taken steps to correct such default within a
reasonable period of time but not more than 60 days from the date of
the notice given pursuant to clause (a) of this subsection (but if the
Authority shall have diligently taken steps to correct such default
within a reasonable period of time, the same shall not constitute an
Event of Default for as long as the Authority is continuing to take
such steps to correct such default).
(3) Change of Control of LILCO. A change of control of LILCO (after
acquisition by the Authority) which results in ownership control of LILCO
by other than a state public benefit corporation, authority, political
subdivision or other instrumentality of the State or any political
subdivision thereof.
SECTION 7.4. PROCEDURE FOR TERMINATION FOR CAUSE. (A) Two-Year Notice. If
any party shall have a right of termination for cause in accordance with this
Article VII the same may be exercised by notice of termination given to the
party in default at least two years prior to (or, in the case of a bankruptcy or
insolvency default or a Change of Control, simultaneously with, or, in the case
of an Event of Default specified in clause (0 or (g) of subsection 7.2(A)( 1)
hereof, six months) the date of termination specified in such notice (the
"Termination Date").
(B) Termination by Authority. (I) Access. In the event an Event of Default
of the Manager occurs and the Authority issues a termination notice described in
subsection (A) hereof, from the date of such issuance until the Termination
Date, the Authority shall have unrestricted access to all areas of, and all
information, data and records concerning, the T&D System and to Manager's
personnel necessary to monitor the performance of the Manager and to ensure that
the Manager complies with the provisions of this Agreement during such time
period (the "Termination Notice Period").
(2) Assumption of Responsibilities. At the Authority's sole option, the
Authority may elect at any time during the Termination Notice Period to direct
the Manager and its employees in the day-to-day performance of the Manager's
obligations under this Agreement. If the Authority so elects,
43
the Authority shall reimburse the Manager for its resulting Cost Substantiated
incremental costs incurred, and the Manager shall no longer be eligible to
receive any performance incentives otherwise payable hereunder nor be
responsible for the payment of any performance disincentives otherwise payable
under this Agreement; provided that the Manager shall be entitled to receive any
performance incentives otherwise payable hereunder and shall be responsible for
any performance disincentives otherwise payable hereunder for the period
preceding such assumption of day-to-day operations.
SECTION 7.5. CERTAIN OBLIGATIONS OF THE MANAGER UPON TERMINATION OR
EXPIRATION. (A) Obligations on Termination or Expiration. Upon a termination of
the Manager's right to perform this Agreement under Section 7.2 hereof or the
expiration of this Agreement in accordance with the terms hereof, the Manager
shall cooperate in the smooth transition to the new manager and, without
limiting the generality of the foregoing, in addition to those rights and
obligations under Schedule F to the Acquisition Agreement shall:
(1) transfer all records, customer lists and account information, the
Operation and Maintenance Manuals and personnel information to the new
manager;
(2) sell all existing materials and supplies utilized by the Manager
in the operation and maintenance of the T&D System to the new manager at
cost;
(3) stop the Operation and Maintenance Services and any Construction
Work on the date or dates and to the extent specified by the Authority,
provided that in so doing the Manager shall cooperate and coordinate with
the Authority and any successor manager so as to assure continued operation
of the T&D System;
(4) promptly take all action as necessary to protect and preserve all
materials, equipment, tools, facilities and other property;
(5) promptly remove from the T&D System Site all equipment,
implements, machinery, tools, temporary facilities of any kind and other
property owned or leased by the Manager which are not to be transferred to
any successor manager or the Authority, and repair any damage caused by
such removal;
(6) leave the T&D System in a neat and orderly condition;
(7) promptly remove all employees of the Manager and any
Subcontractors and vacate the T&D System Site, subject to subsection (B) of
this Section and further subject to the requirement that all employees of
the Manager shall be permitted by the Manager to take employment with the
Authority or a replacement manager of the T&D System;
(8) promptly deliver to the Consulting Engineer or the successor
manager, as the Authority shall direct, copies of all Subcontracts,
together with a statement of:
(a) the items ordered and not yet delivered pursuant to each
agreement;
(b) the expected delivery date of all such items;
(c) the total cost of each agreement and the terms of payment;
and
(d) the estimated cost of cancelling and/or assigning each
agreement;
44
(9) deliver to the Consulting Engineer or the successor manager, as
the Authority shall direct, promptly a list of:
(a) all special order items previously delivered or fabricated by
the Manager or any Subcontractor but not, a incorporated in the
Construction Work or the Operation and Maintenance Services; and
(b) all other supplies, materials, machinery, equipment and other
property previously delivered or fabricated by the Manager or any
Subcontractor but not yet incorporated in the Construction Work or the
Operation and Maintenance Services;
(10) advise the Authority promptly of any special circumstances which
might limit or prohibit cancellation of any Subcontract;
(11) as the Authority directs, terminate or assign to the new manager
all Subcontracts and make no additional agreements with Subcontractors
without the prior written approval of the Authority;
(12) as directed by the Authority, transfer to the Authority by
appropriate instruments of title, and deliver to such place as the
Authority may specify, all special order items;
(13) furnish to the Authority all information used in the preparation
of reports and other data necessary for the Authority (or any successor
manager) to operate the T&D System, and use its best efforts to obtain the
consent of any third party required to fulfill such obligation;
(14) notify the Authority promptly in writing of any Legal Proceedings
against the Manager by any Subcontractor relating to the termination of the
Construction Work or the Operation and Maintenance Services (or any
Subcontracts);
(15) give written notice of termination, effective as of date of
termination of this Agreement, promptly under each policy of Required
Construction Work Insurance and Required Operation Period Insurance (with a
copy of each such notice to the Authority), but permit the Authority to
continue and/or assign such policies thereafter at its own expense, if
possible; and
(16) take such other actions, and execute such other documents, as may
be necessary to effectuate and confirm the foregoing matters, or as may be
otherwise necessary or desirable to minimize the Authority's costs, and
take no action which will increase any amount payable to the Authority
under this Agreement.
(B) Additional Obligations. The Manager shall also provide, and shall use
its best reasonable efforts to cause its Subcontractors to provide, technical
advice and support to the Authority (or any replacement manager designated by
the Authority). Such advice and support shall be for a period of six months and
shall include providing any plans, drawings, renderings, blueprints, operating
and training manuals for all facilities, personal information, specifications or
other information useful or necessary for the Authority or any replacement
manager designated by the Authority to complete and carry out the Construction
Work and to perform the Operation and Maintenance Services. In addition, to the
extent requested by the Authority, the Manager shall use reasonable efforts to
retain any or all key operating and management employees and make them available
following termination or expiration of this Agreement to provide on-site,
real-time consulting advice to a replacement manager for the T&D System.
45
(C) Authority Payment of Certain Transition Costs. The Authority shall
reimburse the Manager within 60 days of the date of the Manager's invoice all
mutually agreeable costs incurred by the Manager in satisfying the requirement
of subsections (A) and (B) hereof, subject to Cost Substantiation.
SECTION 7.6. NO WAIVERS. No action of the Authority or Manager pursuant to
this Agreement (including, but not limited to, any investigation or payment),
and no failure to act, shall constitute a waiver by either party of the other
party's compliance with any term or provision of this Agreement. No course of
dealing or delay by the Authority or Manager in exercising any right, power or
remedy under this Agreement shall operate as a waiver thereof or otherwise
prejudice such party's rights, powers and remedies. No single or partial
exercise of (or failure to exercise) any right, power or remedy of the Authority
or Manager under this Agreement shall preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.
SECTION 7.7. FORUM FOR DISPUTE RESOLUTION. Subject to the provisions of
Section 7.8, it is the express intention of the parties that all legal actions
and proceedings related to this Agreement or to the T&D System or to any rights
or any relationship between the parties arising therefrom shall be solely and
exclusively initiated and maintained in courts of the State of New York having
appropriate jurisdiction; provided, however, that except in the case of a
termination due to a change in control or bankruptcy or insolvency, either party
may refer a challenge to the termination of this Agreement to an independent
arbitrator, following the use of expedited limited mediation provided for in
Section 7.8 hereof. During such arbitration process, the two-year notice period
provided for in Section 7.4 hereof shall continue to run and this Agreement
shall terminate at the end of such period, unless a final, binding ruling that
the termination of this Agreement was improper has been issued by such
arbitrator.
SECTION 7.8. NON-BINDING MEDIATION: ARBITRATION.
(A) Dispute Resolution. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the procedures specified in this
Section, which shall constitute the sole and exclusive procedures for the
resolution of such disputes.
(B) Negotiation and Non-Binding Mediation. The parties agree to use their
best efforts to settle promptly any disputes or claims arising out of or
relating to this Agreement through negotiation conducted in good faith between
executives having authority to reach such a settlement. Either party hereto may,
by written notice to the other party, refer any such dispute or claim for advice
or resolution by mediation by an Independent Engineer, financial advisor or
other suitable mediator. The parties shall mutually agree on the selection of
such mediator. If the parties are unable to agree, the parties shall each
designate a qualified mediator who, together, shall choose the mediator for the
particular dispute or claim. If the mediator is unable, within 30 days of such
referral, to reach a determination as to the dispute that is acceptable to the
parties hereto, the matter shall be referred to applicable Legal Proceedings.
All negotiations - A mediation discussions Pursuant to this paragraph shall
be confidential subject to Applicable Law and shall be treated as compromise and
settlement negotiations for purposes of Federal Rule of Evidence 408 and
applicable state rules of evidence.
(C) Arbitration. Any dispute arising out of or relating to this Agreement
or the breach, termination, or validity thereof, except for a termination due to
a Change in Control or due to a bankruptcy or insolvency or a failure to
provide, renew, reinstate or replace the credit enhancement required pursuant to
Section 9.1 which dispute has not' been resolved by a negotiation or mediation
as
46
provided in subsection 7.8(B) hereof within 30 days from the date that either
negotiations or mediation shall have been first requested, shall be settled by
arbitration before three independent and impartial arbitrators (the
"Arbitrators") in accordance with the then current rules of the American
Arbitration Association, except to the extent such rules are inconsistent with
any provision of this Agreement, in which case the provisions of this Agreement
shall be followed, and except that the arbitrations under this Agreement shall
not be administered by the American Arbitration Association. The Arbitrators
shall be (a) independent of the parties and disinterested in the outcome of the
dispute, provided that residents of Long Island shall not be deemed to be
interested merely by virtue of their residence on Long Island, (b) attorneys,
accountants, investment bankers, commercial bankers or engineers familiar with
contracts governing the operation of electric utility assets, and (c) qualified
in the subject area of the issue in dispute. The Arbitrators shall be chosen by
the parties, with each party choosing one arbitrator and those arbitrators
choosing the third Arbitrator. Judgment on the award rendered by the Arbitrators
may be entered in any court in the State of New York having jurisdiction
thereof. If either party refused to participate in good faith in the
negotiations or mediation proceedings described in subsection 7.8(B) hereof, the
other may initiate arbitration at any time after such refusal without waiting
for the expiration of the applicable time period. Except as provided in
subsection 7.8(D) hereof relating to provisional remedies, the Arbitrators shall
decide all aspects of any dispute brought to them including attorney
disqualification and the timeliness of the making of any claim.
(D) Provisional Relief. Either party may, without prejudice to any
negotiation, mediation, or arbitration procedures, proceed in any court to
obtain provisional judicial relief if, in the such party's sole discretion, such
action is necessary to avoid imminent irreparable harm, to provide uninterrupted
electrical and other services, or to preserve the status quo pending the
conclusion of the dispute procedures specified in this Section.
(E) Obligation to Repair. It is the intention of the parties that the
Manager's operation and maintenance obligations hereunder shall be implemented
by the Manager in accordance with this Agreement, notwithstanding the existence
of any dispute hereunder, including without limitation, responsibility for the
costs therefor. Such actions by the Manager shall in no case prejudice its
rights thereafter to dispute its responsibility for the costs therefor.
(F) Awards. The Arbitrators shall have no authority to award punitive
damages or any other damages aside from the prevailing party's actual and
consequential damages plus interest at the Base Interest Rate from the date such
damages were incurred. The Arbitrators shall not have the authority to make any
ruling, finding, or award that does not conform to the terms and conditions of
this Agreement. The Arbitrators may award reasonable attorneys' fees and costs
of the arbitration. The Arbitrator's award shall be in writing and shall set
forth the factual and legal bases for the award.
(G) Information Exchange. The Arbitrators shall have the discretion to
order a prehearing exchange of information by the parties, including, without
limitation, production of requested documents, the exchange of summaries of
testimony of proposed witnesses, and the examination by disposition of parties.
The parties hereby agree to produce all such information as ordered by the
Arbitrators and shall certify that they have provided all applicable information
and that such information is true, accurate and complete.
(H) Site of Arbitration. The site of any Arbitration brought pursuant to
this Agreement shall be either Mineola, New York or Hauppauge, New York.
47
SECTION 7.9. AUTHORITY EMERGENCY POWERS. Should the Manager, due to
Uncontrollable Circumstances or any other reason whatsoever, fail, refuse or be
unable to provide any or all Operation and Maintenance Services and Construction
Work contemplated hereby and the Authority or any Governmental Body finds that
such failure endangers or menaces the public health, safety or welfare, then, in
any of those events and to the extent of such failure, the Authority shall have
the right, upon notice to the Manager, during the period of such emergency, to
take possession of and use any or all of the Operating assets necessary to
transmit and distribute Power and Energy which the Manager would otherwise be
obligated to transmit and distribute. The Manager agrees that in such event it
will fully cooperate with the Authority to effect such a temporary transfer of
possession of the Operating Assets for Authority's use of the same. The Manager
agrees that, in such event, the Authority may take possession of and use any or
all of the Operating Assets for the above-mentioned purposes without paying the
Manager or any other person any additional charges or compensation whatsoever
for such possession and use; provided, however, that if such emergency is due to
Uncontrollable Circumstances, the Authority shall reimburse the Manager for its
Cost-Substantiated costs incurred due to such a transfer of the Operating
Assets. The parties acknowledge that if the Authority takes emergency possession
of the Operating Assets, any applicable cure period provided for in this
Agreement for the Manager's benefit shall be tolled until such tune as the
Manager resumes possession of the Operating Assets. The Authority may operate
the Operating Assets with Authority employees, or cause the Operating Assets to
be operated by subcontractors to the Authority or through the use of the
Manager's employees, and the Manager shall make its employees available for such
purposes. It is further agreed that the Authority may at any time, at its
discretion, relinquish possession of any or all of the Operating Assets to the
Manager and thereupon demand that the Manager resume the operations as provided
in the Agreement. It is specifically understood and agreed that the Authority's
exercise of its rights under this Section: (1) does not constitute a taking of
private property for which payment must be made other than as specifically
provided for in this Section; (2) shall not create any liability on the part of
the Authority to the Manager; and (3) that the indemnity provisions of the
Agreement of Section 9.3 hereof covering the Authority and the Manager are meant
to include circumstances arising under this Section. The Authority's right to
retain temporary emergency possession of the Operating Assets, and to operate
the T&D System shall terminate at the earlier of: (1) the time when such
services can, in the judgment of the Authority, be resumed by the Manager, or
(if earlier) (2) the time when the Authority no longer reasonably requires such
Operating Assets, as determined by the Authority.
SECTION 7.10. WAIVER OF CERTAIN DEFENSES. The Manager acknowledges that it
is responsible for the day-to-day operation and maintenance of the T&D System
and the design, construction, startup and testing of the Major Capital
Improvements and Public Works Improvements and agrees that, unless otherwise
permitted pursuant to the provisions of this Agreement with respect to the
occurrence of Uncontrollable Circumstances, and without limiting such
provisions, it shall not assert (i) impossibility or impracticability of
performance, (ii) lack of fitness for use or operation of the T&D System, (iii)
the existence, non-existence, occurrence or non-occurrence of any foreseen or
unforeseen fact, event or contingency that may be a basic assumption of the
Manager, (iv) commercial frustration of purposes or (v) contract of adhesion, as
a defense against any claim by the Authority against the Manager.
48
ARTICLE VIII
TERM
SECTION 8.1. TERM OF AGREEMENT. This Agreement shall become effective on
the Contract Date, and shall continue in effect until the eighth (8th)
anniversary of the Closing Date (the "Term"), unless earlier terminated in
accordance with its terms, in which event the Term shall be deemed to have
expired as of the date of such termination. All rights, obligations and
liabilities of the parties hereto shall commence on the Closing Date, subject to
the terms and conditions hereof. The Authority shall have no obligation to make
Service Fee payments hereunder until the Closing Date. The rights and
obligations of the parties hereto pursuant to Sections 3.1(E), 4.2(D), 4.2(E),
4.3(E), 4.14(C), 4.15(F), 4.16(D), 4.16(F), 4.24, 6.3, 6.10, 7.1, 7.4(BX2), 7.5,
7.7, 7.8, 7.10, 8.3, 9.1(C), 9.2, 9.3, 9.4 and 9.5 hereof shall survive the
termination or expiration of this Agreement, and no such termination or
expiration of this Agreement shall limit or otherwise affect the respective
rights and obligations of the parties hereto accrued prior to the date of such
termination or expiration. At the end of the Term of this Agreement, all other
obligations of the parties hereunder shall terminate unless extended.
SECTION 8.2. MANDATORY COMPETITIVE SELECTION OF FUTURE MANAGERS. The
Manager hereby acknowledges that the Authority will commence and conduct a
competitive procurement for T&D System management services following the fifth
anniversary of the Closing Date. The Manager shall have the right or be
ineligible, as the case may be, to submit a bid in such procurement on the same
basis as other bidders; provided that if this Agreement is terminated due to an
Event of Default of the Manager, the Manager shall not have the right to submit
a bid in such procurement. The Manager shall cooperate with the Authority during
such procurement process, including, by way of example, providing information
and documents requested by the Authority for dissemination to bidders and
providing access to the T&D System for such bidders.
SECTION 8.3. EXIT TEST. An exit test (the "Exit Test") will be commenced
six months prior to the expiration or termination of this Agreement to confirm
(1) that the Manager has performed the maintenance and Major Capital Improvement
and Public Work Improvements activities which were budgeted for the final year
of the Agreement or as otherwise previously approved by the Authority, in such
final year and (2) that the Manager has completed any remedial activities to
cure maintenance deficiencies or Major Capital Improvements and Public Works
Improvements which were previously determined to be incomplete as noted by the
Authority pursuant to the most recently conducted review of the condition of the
T&D System which review shall be conducted annually. The Exit Test shall be
carried out in accordance with the provisions of Appendix 6 hereto. If, as a
result of such Exit Test, an independent engineer selected by the Authority and
agreed to by the Manager, finds that maintenance, Major Capital Improvement and
Public Works Improvements, replacement, or remedial activities described in (1)
and (2) above have not been performed in accordance with this Agreement and that
the Authority has provided the funds for such activities as part of the payments
made during such final year or in the case of items noted as deficiencies or
incomplete items pursuant to (2) above were funded by the Authority in a
previous year, then the Manager shall, in its discretion, either perform such
incomplete maintenance, Major Capital Improvement, Public Works Improvements,
replacement, or remedial activities without further compensation from the
Authority, or within 90 days after termination of the Agreement, the Manager
shall reimburse the Authority for the cost to complete such work.
49
ARTICLE IX
GENERAL
SECTION 9.1. MANAGER TO REMAIN AFFILIATE OF GUARANTOR: CREDIT ENHANCEMENT
IN CERTAIN CIRCUMSTANCES. (A) Limitations. The Manager agrees that it will
remain an Affiliate of the Guarantor.
(B) Material Decline in the Guarantor's Credit Standing. For purposes of
this Section, a "Material Decline in the Guarantor's Credit Standing" shall be
deemed to have occurred if (1) in the event that the Guarantor has long-term
senior debt outstanding which has a credit rating by a Rating Service, such
rating by a Rating Service is established or is reduced below investment grade
level or (2) in the event the Guarantor does not have long-term senior debt
outstanding which has a credit rating by a Rating Service and the Guarantor has
a credit rating by a Rating Service, such credit rating is established or
reduced below investment grade level, or (3) in the event the Guarantor does not
have long-term senior debt outstanding which has a credit rating by a Rating
Service and the Guarantor does not have a credit rating by a Rating Service, in
which event the Guarantor shall seek a credit rating for the Guaranty from a
Rating Service, such rating is established or is reduced below investment grade
level or if no rating is established. The Manager immediately shall notify the
Authority of any Material Decline in the Guarantor's Credit Standing.
(C) Credit Enhancement. If, at any time during the Term hereof, a Material
Decline in the Guarantor's Credit Standing occurs, the Manager shall immediately
notify the Authority thereof and, within 30 days after such occurrence, shall
provide credit enhancement of its obligations hereunder, GENCO's obligations
under the Power Supply Agreement and the Energy Manager's obligations under the
Energy Management Agreement at its sole cost and expense in the form either of
(1) an unconditional guarantee of all of the Manager's obligations hereunder,
GENCO's obligations under the Power Supply Agreement and the Energy Manager's
obligations under the Energy Management Agreement provided by a corporation or
financial institution whose long-term senior debt is or would be rated
investment grade by a Rating Service or (2) an irrevocable letter of credit in
form and substance satisfactory to the Authority securing the Manager's
obligations hereunder, GENCO's obligations under the Power Supply Agreement and
the Energy Manager's obligations under the Energy Management Agreement in a face
amount of $60,000,000 provided by a financial institution whose long-term senior
debt is rated investment grade by a Rating Service; provided that if any such
letter of credit is drawn upon in the aggregate in an amount equal to 50% of the
face value of such letter of credit, the Manager shall, within 30 days
thereafter, supplement or replace such letter of credit with an additional
letter of credit such that the total amount of such letter of credit then
available equals $60 million. The amount of such letter of credit shall be
reduced by $30 million if the Energy Management Agreement has theretofore been
or is thereafter terminated and by $4 million if the Power Supply Agreement has
theretofore been or is thereafter terminated, such obligation to continue until
the expiration or termination of this Agreement, the Power Supply Agreement and
the Energy Management Agreement.
SECTION 9.2. UNCONTROLLABLE CIRCUMSTANCES GENERALLY. (A) Performance
Excused. Except as otherwise specifically provided in this Agreement, neither
the Authority nor the Manager shall be liable to the other for any failure or
delay in performance of any obligation under this Agreement (other than any
payment at the time due and owing) to the extent due to the occurrence of an
Uncontrollable Circumstance.
(B) Notice, Mitigation. The party experiencing an Uncontrollable
Circumstance shall notify the other party by hardcopy telecommunication or
telephone and in writing, on or promptly after the date the party experiencing
such Uncontrollable Circumstance first knew of the commencement
50
thereof, followed within 15 days by a written description of (1) the
Uncontrollable Circumstance and the cause thereof (to the extent known), (2) the
date the Uncontrollable Circumstance began and the cause thereof, its estimated
duration, the estimated time during which the performance of such party's
obligations hereunder will be delayed, and the impact, if any, on any scheduled
completion dates for Major Capital Improvements Public Works Improvements, (3)
to .he extent appropriate in accordance with Section 6.3, the estimated amount,
if any, by which Other Costs may arise as a result of such Uncontrollable
Circumstance, (4) its estimated impact on the other obligations of such party
under this Agreement and (5) potential mitigating actions which might be taken
by the Manager or Authority and any areas where costs might be reduced and the
approximate amount of such cost reductions. Each party shall provide prompt
written notice of the cessation of such Uncontrollable Circumstance. Whenever
such act, event or condition shall occur, the party claiming to be adversely
affected thereby shall, as promptly as reasonably possible, use its best
reasonable efforts to eliminate the cause therefor, reduce costs and resume
performance under this Agreement. While the delay continues, the Manager or
Authority shall give notice to the other party with a copy to the Consulting
Engineer, before the first day of each succeeding month, updating the
information previously submitted. The Manager shall furnish promptly (if and to
the extent available to the Manager) any additional documents or other
information relating to the Uncontrollable Circumstance reasonably requested by
the Consulting Engineer or the Authority.
(C) Conditions to Relief on Account of Uncontrollable Circumstances. If and
to the extent that Uncontrollable Circumstances interfere with, delay or
increase the cost of the Manager's performing any Construction Work or the
Operation and Maintenance Services in accordance herewith, and the Manager has
given timely notice as required by subsection 9.2(B) hereof, the Manager shall
be entitled to an increase or extension in the Service Fee or the schedule for
performance equal to the amount of the increased cost or the time lost as a
result thereof. In the event that the Manager believes it is entitled to with
respect to compensation or any other relief hereunder on account of any
Uncontrollable Circumstance, it shall furnish the Authority written notice of
the specific relief requested and detailing the event giving rise to the claim
within 45 days after the giving of notice delivered pursuant to subsection
9.2(B) hereof. Within 45 days after receipt of such a timely submission from the
Manager, the Authority shall issue a written determination as to the extent, if
any, it concurs with the Manager's claim for relief, and the reasons therefor.
(D) Acceptance of Relief Constitutes Release. The Manager's acceptance of
compensation or schedule relief under this Section shall be construed as a
release of the Authority by the Manager (and all persons claiming by, through,
or under the Manager) for any and all Loss-and-Expense resulting from, or
otherwise attributable to, the event giving rise to the relief claimed.
SECTION 9.3. INDEMNIFICATION. (A) Indemnification by the Manager. The
Manager agrees that to the extent permitted by law it will protect, indemnify
and hold harmless the Authority and its respective representatives, trustees,
officers, employees and subcontractors (as applicable in the circumstances),
(the "Authority Indemnified Parties") from and against (and pay the full amount
of) any Loss-and-Expense and will defend the Authority Indemnified Parties in
any suit, including appeals, for personal injury to, or death of, any person, or
loss or damage to property arising out of any matter for which the Manager is
responsible under Section 6.10 hereof. The Manager shall not, however, be
required to reimburse or indemnify any Authority Indemnified Party for any
Loss-and-Expense to the extent any such Loss-and-Expense is due to (a) any
matter for which the Authority is responsible under Section 6.10 hereof, (b) the
negligence or other wrongful conduct of any Authority Indemnified Party, (c) any
Uncontrollable Circumstance, (d) any act or omission of any Authority
Indemnified Party judicially determined to be responsible for or contributing to
the Loss-and-Expense, or (e) any matter for which the risk has been specifically
allocated to the Authority hereunder. An Authority Indemnified Party shall
promptly notify the Manager of the assertion of any claim against it for which
it is entitled to be indemnified hereunder, shall give the Manager the
opportunity to defend such claim, and shall not settle
51
the claim without the approval of the Manager. The Manager shall be entitled to
control the handling of any such claim and to defend or settle any such claim,
in its sole discretion, with counsel of its own choosing that is reasonably
acceptable to the Authority Indemnified Parties; provided, however, that, in the
case of any such settlement, the Manager shall obtain written release of all
liability of the Authority Indemnified Parties, in form and substance reasonably
acceptable to the Authority Indemnified Parties. Notwithstanding the foregoing,
each Authority Indemnified Party shall have the right to employ its own separate
counsel in connection with, and to participate in (but, except as provided
below, not control) the defense of, such claim, but the fees and expenses of
such counsel incurred after notice to the Manager of its assumption of the
defense thereof shall be at the expense of such Authority Indemnified Party
unless:
(i) the employment of counsel by such Authority Indemnified Party has
been authorized by the Manager;
(ii) counsel to such Authority Indemnified Party shall have reasonably
concluded that there may be a conflict on any significant issue
between the Manager and such Authority Indemnified Party in the
conduct of the defense of such claim; or
(iii) the Manager shall not in fact have employed counsel reasonably
acceptable to the Authority Indemnified Party to assume the defense
of such claim within twenty (20) days following the receipt by the
Manager of the notice from the Authority Indemnified Party regarding
the assertion of the applicable claim,
in each of which cases the fees and expenses of counsel for such Authority
Indemnified Party shall be at the expense of the Manager; provided, however,
that, with respect to clauses (ii) and (iii) of this sentence, the Manager shall
not be obligated to pay the fees and expenses of more than one law firm, plus
local counsel if necessary in each relevant jurisdiction, for all such Authority
Indemnified Parties with respect to any claims arising out of the same events or
facts or the same series of events or facts. The Manager shall not be entitled,
without the consent of such Authority Indemnified Party, to assume or control
the defense of any claim as to which counsel to such Authority Indemnified Party
shall have reasonably made the conclusion that there may be a conflict on any
significant issue between the Manager and such Authority Indemnified Party in
the conduct of the defense of such claim as set forth in clause (ii) above,
provided that the foregoing limitation shall apply only with respect to those
issues for which there may be such a conflict. These indemnification provisions
are for the protection of the Authority Indemnified Parties only and shall not
establish, of themselves, any liability to third parties. The provisions of this
subsection 9.3(A) shall survive termination of this Agreement.
(B) Indemnification by the Authority. The Authority agrees that to the
extent permitted by law, it will protect, indemnify and hold harmless the
Manager and its Affiliates and their respective officers, directors,
Subcontractors (as applicable in the circumstances) and employees (the "Manager
Indemnified Parties") from and against (and pay the full amount of) any
Loss-and-Expense, and will defend the Manager Indemnified Parties in any suit,
including appeals, for personal injury to, or death of, any person, or loss or
damage to property arising out of any matter for which the Authority is
responsible under Section 6.10 hereof. The Authority shall not, however, be
required to reimburse or indemnify any Manager Indemnified Party for any
Loss-and-Expense to the extent any such Loss-and-Expense is due to (a) any
matter for which the Manager is responsible under Section 6.10 hereof, (b) the
negligence or other wrongful conduct of any Manager Indemnified Party, (c) any
Uncontrollable Circumstance, (d) any act or omission of any Manager Indemnified
Party judicially determined to be responsible for or contributing to the
Loss-and-Expense, (e) any matter for which the risk has been specifically
allocated to the Manager hereunder. A Manager Indemnified Party shall promptly
notify the
52
Authority of the assertion of any claim against it for which it is entitled to
be indemnified hereunder, shall give the Authority the opportunity to defend
such claim, and shall not settle the claim without the approval of the
Authority. The Authority shall be entitled to control the handling of any such
claim and to defend or settle any such claim, in its sole discretion, with
counsel of its own choosing that is reasonably acceptable to the Manager
Indemnified Party; provided, however, that, in the case of any such settlement,
the Authority shall obtain written release of all liability of the Manager
Indemnified Party, in form and substance reasonably acceptable to the Manager
Indemnified Party. Notwithstanding the foregoing, each Manager Indemnified Party
shall have the right to employ its own separate counsel in connection with, and
to participate in (but, except as provided below, not control) the defense of,
such claim, but the fees and expenses of such counsel incurred after notice to
the Authority of its assumption of the defense thereof shall be at the expense
of such Manager Indemnified Party unless:
(i) the employment of counsel by such Manager Indemnified Party has been
authorized by the Authority;
(ii) counsel to such Manager Indemnified Party shall have reasonably
concluded that there may be a conflict on any significant issue
between the Authority and such Manager Indemnified Party in the
conduct of the defense of such claim; or
(iii) the Authority shall not in fact have employed counsel reasonably
acceptable to the Authority Indemnified Party to assume the defense
of such claim within twenty (20) days following the receipt by the
Authority of the notice from the Manager Indemnified Party regarding
the assertion of the applicable claim,
in each of which cases the fees and expenses of counsel for such Manager
Indemnified Party shall be at the expense of the Authority; provided, however,
that, with respect to clauses (ii) and (iii) of this sentence, the Authority
shall not be obligated to pay the fees and expenses of more than one law firm,
plus local counsel if necessary in each relevant jurisdiction, for all such
Manager Indemnified Parties with respect to any claims arising out of the same
events or facts or the same series of events or facts. The Authority shall not
be entitled, without the consent of such Manager Indemnified Party, to assume or
control the defense of any claim as to which counsel to such Manager Indemnified
Party shall have reasonably made the conclusion that there may be a conflict on
any significant issue between the Authority and such Manager Indemnified Party
in the conduct of the defense of such claim as set forth in clause (ii) above,
provided that the foregoing limitation shall apply only with respect to those
issues for which there may be such a conflict. These indemnification provisions
are for the protection of the Manager Indemnified Parties only and shall not
establish, of themselves, any liability to third parties. The provisions of this
Section 9.3(B) shall survive termination of this Agreement.
SECTION 9.4. PROPERTY RIGHTS. The Manager shall pay, subject to Authority
reimbursement as a Third Party Cost, all royalties and non-governmental license
fees relating to the operation and maintenance of the T&D System and the design,
construction and testing of any Major Capital Improvements. The Manager agrees
that it will protect, indemnify and hold harmless the Authority and any of the
Authority Indemnified Parties from and against all Loss-and-Expenses, and will
defend the Authority Indemnified Parties in any suit, including appeals, arising
out of or related to infringement of such patent, trademark or copyright
relating to, or for the unauthorized use of trade secrets by reason of, the
operation or maintenance of the T&D System or the design, construction or
testing of any Major Capital Improvements, or at its option, will acquire the
rights of use under infringed patents, or modify or replace infringing equipment
with equipment equivalent in quality, performance, useful life and technical
characteristics and development so that such equipment does not so infringe. The
Manager shall not, however, be required to reimburse or indemnify any person for
any Loss-and-Expense
53
due to the negligence or wrongful conduct of such person. The provisions of this
Section 9.4 shall survive termination of this Agreement, but only for a period
of time equal to the unexpired statute of limitations applicable to any claim
for which indemnification might be required.
SECTION 9.5. PROPRIETARY INFORMATION. (A) Manager Request. The parties
hereto hereby acknowledge that the Manager has a proprietary interest in certain
information that may be furnished pursuant to the provisions of this Agreement.
The Manager acknowledges that the Authority may be required to disclose
information upon request under Applicable Law. The Manager shall have the right
to request the Authority in writing not to publicly disclose any information
which the Manager believes to be proprietary and not subject to public
disclosure under Applicable Law, any such request to be accompanied by an
explanation of its reasons for such belief. Any information which is the subject
of such a request shall be clearly marked on all pages, shall be bound, and
shall be physically separate from all non-proprietary information. At the
Manager's request, the Authority and its agents, consultants and employees
(including the Consulting Engineer) given access to such information shall
execute and comply with the terms of a confidentiality agreement in a mutually
acceptable form, subject to Applicable Law.
(B) Authority Non-Disclosure. In the event the Authority receives a request
from the public for the disclosure of any information designated as proprietary
by the Manager pursuant to subsection (A) of this Section, the Authority (1)
shall use reasonable efforts, consistent with Applicable Law, to provide notice
to the Manager of the request prior to any disclosure, and (2) shall use
reasonable efforts, consistent with Applicable Law, to keep in confidence and
not disclose such information unless it is entitled to do so pursuant to the
provisions of subsection (C) of this Section. The Manager shall indemnify, hold
harmless and defend the Authority against all Loss-and-Expense incurred from the
withholding from public disclosure of information designated as proprietary by
the Manager or otherwise requested by the Manager to be withheld.
(C) Permitted Disclosures. Notwithstanding any confidential or proprietary
designation thereof by the Manager, the Authority may disclose the following:
(1) information which is known to the Authority without any restriction as to
disclosure or use at the time it is furnished, (2) information which is or
becomes generally available to the public without breach of any agreement, (3)
information which is received from a third party without limitation or
restriction on such third party or the Authority at the time of disclosure, or
(4) following notice to the Manager pursuant to subsection (B) of this Section,
information which, in the opinion of counsel for the Authority, is required to
be or may be disclosed under any Applicable Law, an order of a court of
competent jurisdiction, or a lawful subpoena.
SECTION 9.6. RELATIONSHIP OF THE PARTIES. Except as otherwise expressly
provided herein, neither party to this Agreement shall have any responsibility
whatsoever with respect to services provided or contractual obligations assumed
by the other party hereto, and nothing in this Agreement shall be deemed to
constitute either party a partner, agent or legal representative of the other
party or to create any fiduciary relationship between the parties.
SECTION 9.7. ASSIGNMENT AND TRANSFER. This Agreement may be assigned by
either parry hereto only with the prior written consent of the other party,
except that without the consent of the other party (1) the Authority may make
such assignments, create such security interests in its rights hereunder and
pledge such monies receivable hereunder as may be required in connection with
issuance of Revenue Bonds; (2) the Authority may assign its rights, obligations
and interests hereunder, or transfer such rights and obligations by operation of
law, to any other governmental entity or to a subsidiary of the Authority
provided that the successor entity gives reasonable assurances to the Manager
that it will be able to fulfill the Authority's obligations hereunder; and (3)
the Manager may
54
assign its rights, obligations and interests hereunder to the Parent or any
Affiliate thereof; provided, however, that with respect to clause (3)
immediately above, the Manager may not, without the consent of the Authority,
make any assignment or other transfer to any person of its rights and
obligations under this Agreement unless the Guaranty is and remains in full
force and effect and unless the Guarantor or a majority-owned direct or indirect
subsidiary of the Guarantor shall have control of and responsibility for the
Operation and Maintenance Services and any Construction Work. Effective upon the
Closing Date, the Authority may assign its rights, obligations and interests
hereunder to Long Island Lighting Company and the Manager shall assign all of
its rights, obligations and interests hereunder to the Parent or any Affiliate
thereof pursuant to clause 3 above.
SECTION 9.8. INTEREST ON OVERDUE OBLIGATIONS. Except as otherwise provided
herein, all amounts due hereunder, whether as damages, credits, revenue or
reimbursements, that are not paid when due shall bear interest at the Base
Interest Rate on the amount outstanding from time to time, on the basis of a
365-day year, counting the actual number of days elapsed, and all such interest
accrued at any time shall, to the extent permitted by law, be deemed added to
the amount due, as accrued. The parties agree that the Base Interest Rate will
apply to payments under this Agreement as specified herein in lieu of any
different rate that would otherwise apply generally to late payments by the
Authority.
SECTION 9.9. NO DISCRIMINATION. The Manager shall not discriminate nor
permit discrimination by any of its officers, employees, agents and
representatives against any person because of age, race, color, religion,
national origin, sex or, with respect to otherwise qualified individuals,
handicap. The Manager will take all actions reasonably necessary to ensure that
applicants are employed, and that employees are treated during employment,
without regard to their age, race, color, religion, sex, national origin or,
with respect to otherwise qualified individuals, handicap. Such action shall
include, without limitation, recruitment and recruitment advertising; layoff or
termination; upgrading, demotion, transfer, rates of pay or other form of
compensation; and selection for training, including apprenticeship. The Manager
shall impose the non-discrimination provisions of this Section 9.9 by contract
on all Subcontractors hired to perform work related to the T&D System and shall
take all reasonable actions necessary to enforce such provisions. The Manager
will post in conspicuous places, available to employees and applicants for
employment, notices setting forth the provisions of this nondiscrimination
clause.
SECTION 9.10. APPROVAL OF SUBCONTRACTORS. The Authority shall have the
right to approve all Subcontractors engaged to perform any work related to the
T&D System, or any portion of the Construction Work or Operation and Management
Services. For contracts in which at least $250,000 would be paid to a
Subcontractor in a Contract Year the Authority shall have the right to approve
such Subcontractors on a contract-by-contract basis. Prior to the beginning of
each Contract Year Manager shall propose a list of pre-approved Subcontractors
for the Authority's review and approval, which shall specify the proposed
categories of potential work under contracts pursuant to which less than
$250,000 would be paid for each such Subcontractors for such Contract Year. The
Manager also shall furnish the Authority, along with such list, with all
information requested by the Authority to the extent reasonably available to the
Manager pertaining to the proposed Subcontractors and categories of subcontracts
in the following areas: (1) the qualification and experience of the proposed
subcontractors for the services to be performed or for the supplies or equipment
to be furnished, (2) any conflicts of interest, (3) any record of felony
criminal convictions or pending felony criminal investigations, (4) any final
judicial or administrative finding or adjudication of illegal employment
discrimination, and (5) any known final judicial or administrative finding or
adjudication of non-performance in contracts with the Authority or the State. In
its sole discretion, Authority may approve any proposed Subcontractor for such
Contract Year or for a designated shorter period or for a specific subcontract.
If a Subcontractor is approved for a Contract Year or shorter period, such
Subcontractor shall be deemed to be approved for
55
the specified categories of potential work for the duration of such Contract
Year or shorter period unless the Authority otherwise notifies the Manager. The
approval or withholding thereof by the Authority of any proposed Subcontractor
shall not create any liability of the Authority to the Manager, such
Subcontractor, third parties or otherwise.
SECTION 9.11. ACTIONS OF THE AUTHORITY IN ITS GOVERNMENTAL CAPACITY.
Nothing in this Agreement shall be interpreted as limiting the rights and
obligations of the Authority in its governmental or regulatory capacity, or as
limiting the right of the Manager to bring any legal action against the
Authority, not based on this Agreement, arising out of any act or omission of
the Authority in its governmental or regulatory capacity.
SECTION 9.12. BINDING EFFECT. This Agreement shall become binding and
effective on the Closing Date and shall thereafter bind and inure to the benefit
of the parties hereto and any successor or assignee acquiring an interest
hereunder in compliance with the provisions of Section 9.7 hereof.
SECTION 9.13. AMENDMENTS. Neither this Agreement nor any provision hereof
may be changed, modified, amended or waived except by written agreement duly
executed by all parties.
SECTION 9.14. NOTICES. Any notices or communications required or permitted
hereunder shall be in writing and shall be sufficiently given if sent by
registered or certified mail return receipt request, postage prepaid, or by
nationally recognized overnight delivery service, signature required upon signed
receipt to the following:
If to the Manager: Long Island Lighting Company
Executive Offices
000 Xxxx Xxx Xxxxxxx Xxxx
Xxxxxxxxxx, Xxx Xxxx 00000
Attention: Chief Executive Officer
If to the Authority: Long Island Power Authority
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Executive Director
With copy to: Chairman, Long Island Power Authority
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Changes in the respective addresses to which such notices may be directed may be
made from time to time by any party by written notice to the other party.
Notices and communications given by mail hereunder shall be deemed to have been
given 5 days after the date of dispatch; all other notices shall be deemed to
have been given upon receipt.
SECTION 9.15. FURTHER ASSURANCES. Each party agrees to execute and deliver
any instruments and to perform any acts as may be necessary or reasonably
requested by the other in order to give full effect to this Agreement. The
Authority and the Manager, in order to carry out this Agreement, each shall use
all reasonable efforts to provide such information, execute such further
instruments and documents and take such actions as may be reasonably requested
by the other and not inconsistent with the provisions of this Agreement and not
involving the assumption of obligations or liabilities different from or in
excess of or in addition to those expressly provided for herein.
56
SECTION 9.16. NO THIRD PARTY BENEFICIARIES. Unless specifically set forth
herein, neither party to this Agreement shall have any obligation to any third
party other than Indemnified Parties as a result of the agreements contained
herein.
SECTION 9.17 STATE LAW REQUIREMENTS. All contracts entered into by the
Authority are required under State law to contain certain terms and conditions,
as set forth in Appendix 13 hereto and the provisions of such Appendix 13 are
hereby deemed incorporated in this Agreement at this place. To the extent of any
conflict between any other provision of this Agreement and Appendix 13, Appendix
13 shall control. The Manager shall comply with such terms and conditions during
the Term of this Agreement.
57
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers or representatives as of the
date first above written.
LONG ISLAND POWER AUTHORITY
By /s/ Xxxxxxx X. Xxxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman
By /s/ Xxxxxxx Xxxx
----------------------------------
Name: Xxxxxxx Xxxx
Title: Deputy Chairman
LONG ISLAND LIGHTING COMPANY
By /s/ X. X. Xxxxxxxxxxx
----------------------------------
Name: Xx. Xxxxxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
58
APPENDICES
----------
1. Definitions
2. Description of T&D System and T&D System Site Related Documents
3. Notice Appendix
4. Insurance
5. Direct Cost Budget Indices
6. Exit Test
7. Non-Cost Performance Guarantees, Obligations, Incentives and Disincentives
8. Major Capital Improvements Construction Standards and Procurement
Requirements
9. Operations Information and Format
10. Budget Information and Format
11. Cost Allocation Methodology
12. Sample Service Fee Calculation
13. Certain State Law Requirements
14. System Policies and Procedures
APPENDIX 1
DEFINITIONS
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings set forth below:
"Acquisition Agreement" means the Agreement of Plan of Exchange and Merger
dated as of June 26, 1997 by and among BL Holding Corp., Long Island Lighting
Company, Long Island Power Authority and LIPA Acquisition Corp.
"Act" means the Long Island Power Authority Act, N.Y. Pub. Auth. Law ss.
1020 et. seq.
"Affiliate" means any person, corporation or other entity directly or
indirectly controlling or controlled by another person, corporation or other
entity or under direct or indirect common control with such person, corporation
or other entity.
"Agreement" means this Management Services Agreement between the Manager
and the Authority, including the Appendices hereto, as the same may be amended
or modified from time to time in accordance herewith.
"Agreement in Principle" means the Agreement in Principle, dated as of
March 19,1997 by and among the Authority, Long Island Lighting Company and The
Brooklyn Union Gas Company, concerning, among other things, agreements among the
parties to transfer certain assets, to purchase power and to provide management
services.
"Allocated Common Facilities" means the offices and workspace at the
current LILCO headquarters building or other suitable mutually agreed upon site
dedicated by the Manager for use by the Authority and its representatives and
consultants.
"Annual Settlement Statement" has the meaning specified in subsection 6.8
hereof.
"Annual T&D Budget" has the meaning set forth in Section 6.2 hereof.
"Appendix" means an appendix to this Agreement, as the same may be amended
or modified from time to time in accordance with the terms hereof.
"Applicable Law" means any law, rule, regulation, condition or requirement,
guideline, ruling, ordinance or order of or any Legal Entitlement issued by, any
Governmental Body and applicable from time to time to the performance of the
obligations of the parties hereunder.
Authority" means the Long Island Power Authority and its subsidiaries, and
its successors or assigns as permitted hereunder.
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"Authority Customer & Operations Data" has the meaning set forth in
subsection 4.14(C) hereof.
"Authority Fault" means any breach, failure of compliance, or
nonperformance by the Authority with its obligations hereunder or any negligence
or willful misconduct by the Authority under this Agreement (whether or not
attributable to any officer, trustee, member, agent, employee, representative,
contractor, subcontractor of any tier, or independent contractor of the
Authority other than the Manager and its Subcontractors) that materially and
adversely affects the Manager's performance or the Manager's rights or
obligations under this Agreement.
"Authority Indemnified Parties" has the meaning specified in subsection
9.3(A) hereof.
"Base Interest Rate" means the lesser of (1) the maximum rate of interest
permitted by Applicable Law and (2) (a) for interest accuring during the first
six months or less after the date on which a payment was payable hereunder, 6
month LIBOR, and (b) for interest accuring more than six months after the date
on which such payment was payable hereunder, the Prime Rate plus 1.00%, in each
case, as 6 month LIBOR or the Prime Rate was reported in the Wall Street Journal
for each day.
"Billing Period" means each calendar month in each Contract Year, except
that (1) the first Billing Period shall begin on the Closing Date and shall
continue to the last day of the month in which the Closing Date occurs and (2)
the last Billing Period shall end on the last day of the Term of this Agreement.
Any computation made on the basis of a Billing Period shall be adjusted on a pro
rats basis to take into account any Billing Period of less than the actual
number of days in the month to which such Billing Period relates.
"Billing Statement" has the meaning specified in Section 6.6 hereof.
"Bondholders" means the holders of the Revenue Bonds.
"Bond Resolution" means the bond resolutions to be adopted by the
Authority, pursuant to which the Authority shall issue the Revenue Bonds or
other indebtedness described therein to finance certain costs of the T&D System
and other purposes of the Authority.
"BUGLILCO Agreement" means the Amended and Restated Agreement and Plan of
Exchange dated as of June 26,1997, by and among the Guarantor, LILCO and The
Brooklyn Union Gas Company.
"Capital Assets" has the meaning specified in Section 4.18 hereof.
"Change in Law" means any of the following events or conditions having, or
which may reasonably be expected to have, a material and adverse effect on the
performance by the parties of their respective obligations under this Agreement
(except for payment obligations), or on the operation or maintenance of the T&D
System:
(1) the adoption, promulgation, issuance, modification or written
change in administrative or judicial interpretation on or after the Closing
Date of Applicable Law, unless such Applicable Law was on or prior to the
Closing Date duly adopted, promulgated, issued or
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otherwise officially modified or changed in interpretation, in each case in
final form, to become effective without any further action by any
Governmental Body or governmental official having jurisdiction;
(2) the order or judgment of any Governmental Body, on or after the
Closing Date, to the extent such order or judgment is not the result of
willful misconduct or negligent action or omission or lack of reasonable
diligence of the Manager or of the Authority, whichever is asserting the
occurrence of a Change in Law; provided, however, that the contesting in
good faith or the failure in good faith to contest any such order or
judgment shall not constitute or be construed as such a willful misconduct
or negligent action or omission or lack of reasonable diligence; or
(3) the denial of an application for, delay in the review, issuance or
renewal of, or suspension, termination, interruption, imposition of a new
condition in connection with the issuance, renewal or failure of issuance
or renewal on or after the Closing Date of any Legal Entitlement to the
extent that such denial, delay, suspension, termination, interruption,
imposition or failure interferes with the performance of this Agreement,
and to the extent that such denial, delay, suspension, termination,
interruption, imposition or failure is not the result of willful misconduct
or negligent action or omission or a lack of reasonable diligence of the
Manager or of the Authority, whichever is asserting the occurrence of a
Change in Law; provided, however that the contesting in good faith or the
failure in good faith to contest any such denial, delay, suspension,
termination, interruption, imposition or failure shall not be construed as
such a willful misconduct or negligent action or omission or lack of
reasonable diligence.
A "Change in Law" shall not include a change in any tax or similar law regarding
taxes or similar charges not chargeable to or reimbursable by the Authority
under Article VI hereof.
"Change of Control" means (i) the acquisition of beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act")) of 35% or more of the outstanding shares of securities the holders of
which are generally entitled to vote for the election of directors of the
Manager or the Guarantor, as the case may be (including securities convertible
into, or exchangeable for, such securities or rights to acquire such securities
or securities convertible into, or exchangeable for such securities, "Voting
Stock"), on a fully diluted basis, by any Person or group of Persons (within the
meaning of Section 13 or 14 of the 0000 Xxx); (ii) any sale, transfer or other
disposition of beneficial ownership of 35% or more of the outstanding shares of
Voting Stock, on a fully diluted basis, of the Manager or the Guarantor, as the
case may be; (iii) any merger, consolidation, combination or similar transaction
of the Manager or the Guarantor, as the case may be, with or into any other
Person, whether or not the Manager or the Guarantor, as the case may be, is the
surviving entity in any such transaction; (iv) any sale, lease, assignment,
transfer or other disposition of the beneficial ownership in 35% or more of the
property, business or assets of the Manager or the Guarantor, as the case may
be; (v) a Person other than the current shareholders of the Manager or the
Guarantor, as the case may be, obtains, directly or indirectly, the power to
direct or cause the direction of the management or policies of the Manager or
the Guarantor, as the case may be, whether through the ownership of capital
stock, by contract or otherwise; (vi) during any period of 12 consecutive
calendar months when individuals who were directors of the Manager or the
Guarantor, as the case may be, on the first day of such period cease to
constitute
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a majority of the board of directors of the Manager or the Guarantor, as the
case may be; or (vii) any liquidation, dissolution or winding up of the Manager
or the Guarantor, as the case may be.
"Code" mean the Internal Revenue Code of 1986, as amended.
"Closing Date" has the meaning ascribed to that term in the Acquisition
Agreement.
"Common Facilities" shall have the meaning attributed to that term in the
FERC Uniform System of Accounts.
"Construction Work" means the services to be provided and materials to be
supplied by Manager relating to the design, procurement, construction, start-up
and testing of the Major Capital Improvements and Public Works Improvements.
"Construction Work" shall include, without limitation, the employment and
furnishing of all labor, materials, equipment, supplies, tools, plant,
scaffolding, transportation, insurance, temporary facilities, and other things
and services necessary in order for Manager to perform its obligations under
this Agreement with respect to the Major Capital Improvements and Public Works
Improvements as well as all permitting, design, engineering, construction,
shakedown, testing, administrative, accounting, record-keeping, notification and
similar services relating to such obligations. A reference to "Construction
Work" shall mean "any part and all of the Construction Work" unless the context
otherwise requires.
"Consulting Engineer" means a nationally recognized consulting engineer or
firm of consulting engineers, having experience with respect to the design,
construction, testing, operation and maintenance of electricity transmission and
distribution systems, which is designated as the Consulting Engineer for the
purposes of this Agreement from time to time in writing by the Authority.
"Contract Date" means the date of delivery of this Agreement as executed by
the parties hereto.
"Contract Standards" means the terms, conditions, requirements, methods,
techniques, standards and practices of (1) Applicable Law, (2) the System
Policies and Procedures, (3) the substantive requirements and standards and
guidelines established by the NYSPSC that apply as of the Closing Date to the
operation and maintenance of the T&D System, except to the extent otherwise
directed by the Authority, (4) Prudent Utility Practice, (5) the Performance
Guarantees, (6) the Operation and Maintenance Manual, (7) applicable equipment
manufacturer's specifications and reasonable recommendations, (8) applicable
Insurance Requirements, and (9) any other term, condition or requirement
specifically provided in this Agreement to be observed by the Manager.
"Contract Year" except as the Authority shall otherwise propose subject to
the approval of the Manager, which approval shall not be unreasonably withheld,
means the calendar year commencing on January 1 in any year and ending on
December 31 of that year; provided, however, that the first Contract Year shall
commence on the Closing Date and shall end on December 31 of that year, and the
last Contract Year shall commence on January 1 prior to the date this Agreement
expires or is terminated, whichever is appropriate, and shall end on the last
day of the Term of this Agreement or the effective date of any termination,
whichever is appropriate. Any computation made on the basis of a Contract Year
shall be adjusted on a pro rata basis to take into account any Contract Year of
less than 365/366 days.
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"Cost Incentive Fee" has the meaning set forth in Section 6.1 hereof.
"Cost Substantiation" or "Cost Substantiated" means, with respect to any
cost reasonably incurred or to be incurred by the Manager which is directly or
indirectly chargeable in whole or in part -- to the Authority as an Other Cost,
a Major Capital Improvement Cost or a Public Works Improvement Cost hereunder,
the delivery to the Authority of a certificate reasonably acceptable to the
Authority signed by an authorized engineering officer and an authorized
financial officer of the Manager, certifying that it is true, complete and
correct and setting forth the amount of such cost and the provisions of this
Agreement under which such cost is properly chargeable to the Authority, stating
that such cost is a fair and reasonable price for the service or materials
supplied or to be supplied and that such services and materials are reasonably
required pursuant to this Agreement, and accompanied by copies of such
documentation as shall be necessary to reasonably demonstrate that the cost as
to which Cost Substantiation is required has been or will be paid or incurred.
Such documentation, to the extent applicable, shall include reasonably detailed
information concerning (1) all applicable Subcontracts, (2) the amount and
character of materials furnished, the persons from whom purchased, the amounts
payable therefor and related delivery and transportation costs and any sales or
personal property taxes, (3) a statement of the equipment used and any rental
payable therefor, (4) Manager and Subcontractor worker hours, duties, wages,
salaries, benefits, assessments, taxes and premiums, (5) Manager administration,
bonds, insurance, and other expenses, and (6) in the case of costs incurred by
Affiliates of the Manager, such additional information as may be reasonably
requested by the Authority to demonstrate that such costs do not reflect any
inter-company profit and reflect a fair and reasonable price for the work or
services. Any Cost Substantiation required with respect to costs reasonably
incurred by the Authority which are directly or indirectly chargeable in whole
or in part to the Manager hereunder shall include similarly detailed
information, and shall be certified by an authorized administrative and
financial official of the Authority.
"Direct Cost Budget" has the meaning set forth in Section 6.2 hereof.
"Direct Cost Budget Indices" has the meaning specified in Appendix 6
hereto.
"Direct Costs" has the meaning set forth in Section 6.2 hereof.
"Disposal Facility" means either a sanitary Hazardous Waste landfill or
other Hazardous Waste disposal or management facility, selected by the Manager
which (1) is operated in accordance with prudent industry practices (as
applicable to Hazardous Waste disposal facilities) and the applicable Contract
Standards and (2) is being operated at the time of disposal or delivery in
accordance with Applicable Law as evidenced by the absence of any regulatory
sanctions, notices of violations or other significant enforcement actions with
respect to material environmental matters.
"Encumbrances" means any lien, lease, mortgage, security interest, charge,
judgment, judicial award or encumbrance with respect to the T&D System (other
than those associated with any retainage holdback on construction materials,
supplies and equipment).
"Energy Management Agreement" means the Energy Management Agreement dated
as of June 26, 1997 by and between Long Island Lighting Company and the
Authority, as the same may be amended from time to time in accordance therewith.
1-5
"Event of Default" has the meaning specified in Sections 7.2 and 7.3
hereof.
"Exit Test" has the meaning set forth in Section 8.3 hereof.
"Existing Power Supply Agreements" means the power supply agreements which
exist between LILCO and other parties for the purchase of capacity and/or energy
which are in effect as of the Contract Date and which were, either in existence
as of March 19, 1997 or which were entered into in accordance with the
provisions of Section 6.1(p) of the Acquisition Agreement on or prior to the
Closing Date.
"Fees-And-Costs" means reasonable fees and expenses of employees,
attorneys, architects, engineers, accountants, expert witnesses, contractors,
consultants and other persons, and costs of transcripts, printing of briefs and
records on appeal, copying and other reimbursed expenses, and expenses of any
Legal Proceeding.
"Final Determination" means a judgment, order, or other determination in
any Legal Proceeding which has become final after all appeals or after the
expiration of all time for appeal.
"Five-Year Planning Budget" has the meaning, set forth in Section 6.2
hereof.
"Fixed Direct Fee" has the meaning set forth in Section 6.1 hereof.
"GENCO" means the owner of the Generating Facilities, as defined in the
Power Supply Agreement.
"Governmental Body" means any federal, State or local legislative,
executive, judicial or other governmental board, agency, authority, commission,
administration, court or other body other than the Authority, or any official
thereof having jurisdiction with respect to any matter which is a subject of
this Agreement.
"Guarantor" means BL Holding Corp. and its successors and assigns permitted
under the Guaranty Agreement.
"Guaranty Agreement" or "Guaranty" means the Guaranty Agreement to be
entered into prior to the Closing Date from the Guarantor to the Authority
substantially in the form provided as an Exhibit to the Acquisition Agreement,
as the same may be amended from time to time in accordance therewith.
"Hazardous Waste" means any waste which by reason of its composition or
characteristics is defined or regulated as a hazardous waste, toxic substance,
hazardous chemical substance or mixture, or asbestos under Applicable Law, as
amended from time to time, including, but not limited to, "Hazardous Substances"
as defined in CERCLA and the regulations promulgated thereunder.
"Incremental Internal Costs" has the meaning set forth in Section 6.3
hereof.
"Independent Engineer" means a nationally recognized engineer or firm of
engineers having experience with respect to the planning, design, construction,
testing, operation and maintenance
1-6
of electricity transmission and distribution systems, and with respect to
electricity rate design which is selected by the parties for mediation purposes
pursuant to Section 7.8 hereof.
"Insurance Requirement" means any rule, regulation, code, or requirement
issued by any fire insurance rating bureau or any body having similar functions
or by any insurance company which has issued a policy of Required Construction
Work Insurance or Required Operation Period Insurance under this Agreement, as
in effect during the term hereof.
"ISO" means the party or governing board responsible for the operation of
transmission facilities and the dispatch of power generation facilities
contemplated to succeed the New York Power Pool as part of the restructuring of
the electric utility industry within the State of New York.
"Legal Entitlement" means any permit, license, approval, authorization,
consent and entitlement of whatever kind and however described which is required
under Applicable Law to be obtained or maintained by any person with respect to
the performance of any obligation under this Agreement.
"Legal Proceeding" means every action, suit, litigation, arbitration,
administrative proceeding, and other legal or equitable proceeding having a
bearing upon this Agreement.
"Lien" means any and every lien against the T&D System, the T&D System
Site, the Construction Work, the Operation and Maintenance Services or against
any monies due or to become due from the Authority to the Manager under this
Agreement, for or on account of the Construction Work or the Operation and
Maintenance Services.
"LILCO", as of the date hereof, means Long Island Lighting Company.
"Loss-and-Expense" means any and all losses, liabilities, obligations,
damages, delays, fines, penalties, judgments, deposits, costs, claims, demands,
charges, assessments, taxes, or expenses, including all Fees-And-Costs.
"Major Capital Improvement" means any repair, replacement, improvement,
alteration or addition to the T&D System or any part thereof (other than any
repair, replacement, improvement, alteration or addition constituting routine
maintenance of the T&D System) contained in the Major Capital Plan and Budget
and that has a useful life at least equal to three years.
"Major Capital Improvement Cost" means the cost of any Major Capital
Improvement which the Manager reasonably incurs hereunder and proves by Cost
Substantiation including, without limitation, expenditures for material,
equipment, incremental labor, and services supplied by architects, engineers and
Subcontractors, and expenses related to managing and administering the Major
Capital improvement.
"Major Capital Improvement Cost" shall not include amounts for an allowance
for overhead, profit, or contingency.
"Major Capital Plan and Budget" has the meaning set forth in Section 5.2
hereof.
"Management Fee" has the meaning set forth in Section 6.2 hereof.
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"Manager" means the Long Island Lighting Company and its successors or
assigns expressly permitted pursuant to Section 9.7.
"Manager Fault" means any breach, failure of compliance, or nonperformance
by the Manager with its obligations hereunder or any negligence or willful
misconduct by the Manager under this Agreement (whether or not attributable to
any officer, member, agent, employee, representative, contractor, Subcontractor
of any tier, or independent contractor of the Manager or any Affiliate of the
Manager) that materially and adversely affects the Manager's performance or the
Manager's rights or obligations under this Agreement.
"Manager Indemnified Parties" has the meaning specified in subsection
9.3(B) hereof.
"Minimum Reliability Standard" has the meaning set forth in Appendix 7
hereto.
"Minimum Worker Safety Standard" has the meaning set forth in Appendix 7
hereto.
"Minimum Customer Service Standard" has the meaning set forth in Appendix 7
hereto.
"New York Power Pool" means the member system currently comprising of
Consolidated Edison Company of New York, Inc., Central Xxxxxx Gas and Electric
Company, Long Island Lighting Company, Orange and Rockland Utilities, Rochester
Gas and Electric Company, New York State Electric and Gas Corporation, Niagara
Mohawk Power Corporation, and the Power Authority of the State of New York, as
such organization or membership may change from time to time.
"Nine Mile Point 2" means the Authority's 18 percent ownership interest in
Xxxx Xx. 0 xx xxx Xxxx Xxxx Xxxxx Xxxxxxx Power Generating Station located in
Scriba, New York and operated pursuant to a joint operating agreement by Niagara
Mohawk Power Corporation.
"Non-Electric Utilities" means any and all utility services and
installations whatsoever other than electricity (including gas, water,
telephone, other telecommunications of every kind and sewer), and all piping,
wiring, conduit, and other fixtures of every kind whatsoever related thereto or
used in connection therewith.
"NYSDEC" or "DEC" means the Department of Environmental Conservation of the
State of New York.
"NYSPSC" or "PSC" means the Public Service Commission of the State of New
York.
"Operating Assets" means the T&D System and all of the assets of the
Manager used in the operation and maintenance of the T&D System and the
performance of the Manager's obligations under this Agreement.
"Operation and Maintenance Manual" has the meaning set forth in Section
4.2(D) hereof.
"Operation Period" means the period commencing on the Closing Date and
ending on the date this Agreement expires in accordance with its terms, or if
earlier, on the Termination Date.
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"Operation and Maintenance Services" means the services to be provided and
materials to be supplied by the Manager pursuant to this Agreement during the
Operation Period, except Construction Work. Operation and Maintenance Services
shall include, without limitation, the employment and furnishing of all labor,
materials, equipment, supplies, tools, storage, transfer, transportation,
insurance, delivery and other items and services necessary in order for Manager
to perform its routine operation and maintenance obligations under this
Agreement, as well as all related administrative, accounting, record-keeping,
notification and similar services relating to such obligations. A reference to
"Operation and Maintenance Services" shall mean "any part and all of the
Operation and Maintenance Services" unless the context otherwise requires.
"Other Costs" shall have the meaning set forth in Section 6.3 hereof.
"Parent" has the meaning ascribed to such term in the Acquisition
Agreement.
"Performance Guarantees" means the Minimum Reliability Standard, the
Minimum Worker Safety Standard and the Minimum Customer Service Standard.
"Plans" has the meaning given in the Acquisition Agreement.
"Power and Energy" means the electrical energy and capacity available from
the System Power Supply.
"Power Supply Agreement" means the Power Supply Agreement dated as of June
26, 1997, between Authority and Long Island Lighting Company for the purchase of
electric capacity and energy as the same may be amended from time to time in
accordance therewith.
"Pre-Closing Period" means the period, from and including the Contract Date
up to and including the day preceding the Closing Date.
"Prime Rate" means the rate announced by Citibank, N.A. from time to time
at its principal office as its prime lending rate for domestic commercial loans,
the Prime Rate to change when and as such prime lending rate changes.
"Prudent Utility Practice" at a particular time means any of the practices,
methods, and acts (including but not limited to the practices, methods and acts
engaged in or approved by a significant portion of the electrical utility
industry prior thereto), which, in the exercise or reasonable judgment in light
of the facts and the characteristics of the T&D System and System Power Supply
known at the time the decision was made, would have been expected to accomplish
the desired result at the lowest reasonable cost consistent with reliability,
safety and expedition and good customer relations. Prudent Utility Practice is
not intended to be limited to the optimum practice, method or act, to the
exclusion of all others, but rather to be a spectrum of possible practices,
methods or acts.
"Public Works Improvements" means Major Capital Improvements performed as a
result of requirements or requests of a Governmental Body.
"Public Works Improvement Costs" means the cost of any Public Works
Improvement which the Manager reasonably incurs hereunder and proves by Cost
Substantiation including, without
1-9
limitation, expenditures for material, equipments, incremental labor and
services supplied by architects, engineers and Subcontractors, and expenses
related to managing and administering the Public Works Improvements. "Public
Works Improvement Costs" shall not include amounts for an allowance for
overhead, profit or contingency.
"Rating Services" means Xxxxx'x Investors Service, Inc., Standard and
Poor's Rating Services, Fitch Investors Services, and Duff & Xxxxxx or any of
their successors.
"Required Construction Work Insurance" has the meaning specified in
Appendix 5 hereto.
"Required Operating Period Insurance" has the meaning specified in Appendix
5 hereto.
"Resource Conservation and Recovery Act" or "RCRA" means the Resource
Conservation and Recovery Act, 42 U.S.C.A. ss. 6901 et.seq., as amended or
superseded.
"Revenue Bonds" means any bonds, notes or other obligations issued or
secured under the Bond Resolution.
"Schedule of Rates" has the meaning set forth in subsection 4.9(B) hereof.
"Senior Executives" has the meaning set forth in subsection 4.2(C) hereof.
"Service Area" means the counties of Suffolk and Nassau and that portion of
the County of Queens constituting LILCO's franchise area as of the effective
date of the Act. "Service Area" does not include the Villages of Freeport,
Greenport and Rockville Centre.
"Service Fee" has the meaning specified in Section 6.1 hereof.
"State" means the State of New York.
"Subcontract" means an agreement between the Manager and a Subcontractor,
or between two Subcontractors, as applicable.
"Subcontractor" means every person (other than employees of the Manager)
employed or engaged by the Manager or any person directly or indirectly in
privity with the Manager (including every sub-subcontractor of whatever tier)
for any portion of the Construction Work or Operation and Maintenance Services,
whether for the furnishing of labor, materials, supplies, equipment, services,
or otherwise.
"System Policies and Procedures" means the policies and procedures adopted
from time to time by the Authority with respect to the T&D System and the System
Power Supply in accordance with Applicable Law and Prudent Utility Practices.
"System Power Supply" means electric capacity and energy from all power
supply sources owned by or under contract to the Authority, including, but not
limited to, the Existing Power Supply Agreements, the Power Supply Agreement,
the Authority's rights and interests with respect to the Nine Mile Point 2, and
the Authority's interest in any future generating facilities, spot market
capacity and
1-10
energy purchases made on behalf of the Authority, and any load control programs
or measures adopted by the Authority.
"System Revenue Requirements" means the sum of the annual Service Fee, plus
an estimate of other costs plus debt service requirements on the Authority's
Revenue Bonds plus the Authority's costs as reported to the Manager pursuant to
Section 6.2(B)(2) hereof.
"T&D System" means the electricity transmission and distribution system
owned by the Authority, as described in Appendix 2 hereto, and all other assets,
facilities, equipment or contractual arrangements of the Authority used to
provide the transmission and distribution of Power and Energy to the Service
Territory. "T&D System" also shall include all capital improvements made to the
T&D System after the Contract Date, less retirements.
"T&D System Supervisor" has the meaning specified in subsection 4.2(C)
hereof.
"T&D System Site" means the real property and interests therein upon which
the components of the T&D System are and will be located, including, without
limitation, those described in Appendix 2 hereto
"Term" has the meaning set forth in Section 8.l hereof. "Termination Date"
has the meaning set forth in subsection 7.4(A) hereof.
"Termination Notice Period" has the meaning set forth in subsection 7.4(B)
hereof. "Third Party Cost Budget" has the meaning set forth in Section 6.2
hereof. "Third Party Costs" has the meaning set forth in Section 6.2 hereof.
"Total Cost" has the meaning set forth in Section 6.1 hereof.
"Transaction Agreement" means any agreement entered into by any person in
connection with the transactions contemplated by this Agreement including,
without limitation, the Bond Resolution, the Power Supply Agreement, the Energy
Management Agreement and the Acquisition Agreement.
"Trustee" means the trustee acting under the Bond Resolution for the
benefit of the Bondholders.
"Uncontrollable Circumstance" means any act, event or condition, whether
affecting the T&D System, the System Power Supply, the Authority, the Manager,
or any of the Authority's subcontractors or the Manager's Subcontractors to the
extent that it materially and adversely affects the ability of either party to
perform any obligation under the Agreement (except for payment obligations), if
such act, event or condition is beyond the reasonable control and is not also
the result of the misconduct or negligent action or omission or failure to
exercise reasonable diligence on the part of the party relying thereon as
justification for not performing an obligation or complying with any condition
required of such party under the Agreement; provided, however, that the
contesting in good faith or the
1-11
failure in good faith to contest such action or inaction shall not be construed
as willful or negligent action or a lack of reasonable diligence of either
party.
(1) Inclusions. Subject to the foregoing, such acts or events may but not
necessarily shall include, and shall not be limited to, the following:
(a) an act of God (but not including reasonably anticipated weather
conditions for the geographic area of the T&D System, other than major
storms and extreme weather events) landslide, lightning, earthquake, fire,
explosion, flood, sabotage or similar occurrence, acts of a public enemy,
extortion, war, blockade or insurrection, riot or civil disturbance;
(b) a Change in Law;
(c) the failure of any appropriate Governmental Body or private
utility having operational jurisdiction in the area in which the T&D System
is located, to provide and maintain Non-Electric Utilities to any facility
comprising part of the T&D System which are required for the performance of
this Agreement and which failure directly results in a delay or curtailment
of the performance of the Operation and Maintenance Services or any
Construction Work;
(d) any failure of tide to any portion of the T&D System Site or any
enforcement of any Encumbrance on the T&D System Site or on any
improvements thereon not consented to in writing by, or arising out of any
action or agreement entered into by, the party adversely affected thereby;
(e) the preemption of materials or services by a Governmental Body in
connection with a public emergency or any condemnation or other taking by
eminent domain of any portion of the T&D System.
(f) the presence of archeological finds, endangered species, Hazardous
Waste or Hazardous Substances at the T&D System Site, except to the extent
the Manager or the Guarantor knew or should have known of such presence or
to the extent identified in the documents referenced in Appendix 2 hereto.
(2) Exclusions. It is specifically understood that none of the following
acts or conditions shall constitute Uncontrollable Circumstances:
(a) general economic conditions, interest or inflation rates, or
currency fluctuations or exchange rates,
(b) the financial condition of the Authority, the Manager, the
Guarantor, any of their Affiliates or any Subcontractor,
(c) the consequences of error, neglect or omissions by the Manager,
the Guarantor, any Subcontractor, any of their Affiliates or any other
person in the performance of any work hereunder;
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(d) any increase for any reason in premiums charged by the Manager's
insurers or the insurance markets generally for the Required Construction
Work Insurance or the Required Operating Period Insurance;
(e) the failure of the Manager to secure patents or licenses in
connection with the technology necessary to perform its obligations
hereunder;
(f) equipment malfunction or failure;
(g) union work rules, requirements or demands which have the effect of
increasing the number of employees employed at the T&D System, reducing the
operating flexibility of the Manager or otherwise increase the cost to the
Manager of operating and maintaining the T&D System.
(h) any impact of prevailing wage laws on the Manager's operation and
maintenance costs with respect to wages and benefits,
(i) the failure of any Subcontractor or supplier to furnish labor,
materials, services or equipment for any reason;
(j) strikes, work stoppages or other labor disputes or disturbances,
or
(k) any act, event or circumstance occurring outside of the United
States.
"Variable Payment" has the meaning set forth in Section 6.1 hereof.
1-13
APPENDIX 2
DESCRIPTION OF T&D SYSTEM
AND T&D SYSTEM SITE RELATED DOCUMENTS
The T&D System consists of all real and personal property, equipment,
machinery, tools and materials and other similar items relating to the
transmission and distribution of Power and Energy retained by Long Island
Lighting Company at the time of its merger with the Authority's subsidiary under
the terms of the Acquisition Agreement. The T&D System extends, without
limitation, from the points of interconnection with Consolidated Edison Company
of New York, the New York Power Authority, and Connecticut Light & Power and the
on-island generating plants owned by GENCO on the low voltage side of the
step-up transformers in the switch yards, or others and interconnections as they
are built to the meters of the transmission and distribution facilities,
equipment and property up through the retail and wholesale electric customers'
point of interconnection with the meter. Prior to the adoption of the initial
Annual T&D Budget, the parties shall further specify the detailed description of
the T&D System based upon, among other things, documents and information
provided by the Manager or an Affiliate of the Manager.
2-1
APPENDIX 3
NOTICE APPENDIX
The Manager shall give notice to the Authority as to the matters relating
to Operation and Maintenance Services and Construction Work, at the times and in
the manner as shall be specified in the System Policies and Procedures. Except
as the Authority shall otherwise agree, such notice shall, at a minimum, be
consistent with the notices provided to the NYSPSC by LILCO as of the Contract
Date under applicable NYSPSC requirements.
3-1
APPENDIX 4
INSURANCE
In accordance with Section 4.13 of the Agreement, the Manager shall obtain
and maintain insurance policies with respect to the Operation and Maintenance
Services (the "Required Operation Period Insurance") and the Construction Work
(the "Required Construction Work Insurance"), covering such risks and in such
amounts as are required under Applicable Law and as are consistent with Prudent
Utility Practice. The parties shall agree upon the types and amounts of coverage
and deductible amounts prior to the Closing Date. In addition, the Manager shall
obtain and maintain such other insurance coverages as requested by the Authority
during the Term. The Authority, its trustees, officers and employees shall be
additional or named insureds, as appropriate, on all such policies, which shall
require 30 days prior written notice to the Authority prior to any change in or
cancellation of such policies. Such coverages shall be maintained with generally
recognized financially responsible insurers reasonably acceptable to the
Authority and qualified and authorized to insure risks in the State of New York.
At the Authority's discretion, it may, at its expense, cancel or replace and
obtain independently some or all of such insurance, following at least 90 days'
written notice to the Manager.
4-1
APPENDIX 5
DIRECT COST BUDGET INDICES
Indices to be used in determining the initial and subsequent Direct Cost Budgets
as described in subsection 6.2(B)(3) shall be mutually agreeable objective
indices such as:
--------------------------------------------------------------------------------
Cost Component Cost Index
--------------------------------------------------------------------------------
Union Labor and Benefits Local 1381 and Local 1049
February 14, 1998 - 2.5% increase
August 14, 1998 - 1% increase
February 14, 1999 - 2.5% increase
August 14, 1999 - 1% increase
February 14, 2000 - 2.5% increase
August 14, 2000 - 1% increase
Effective February 14, 2001 - Employment Cost
Index - Service Producing Industries,
Union workers*
--------------------------------------------------------------------------------
Non-Union Labor Regional Employment Cost Index - Service Producing
Industries, Non-union workers
--------------------------------------------------------------------------------
Administrative and General:
- Labor and employee Regional Employment Cost Index - Service Producing
benefits Industries, Non-union workers
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Cost Component Growth Indices
--------------------------------------------------------------------------------
Distribution Cost
- Meter Expenses Percentage Increase in Number of Active Meters
(586,587,597)
- Other Distribution O&M Percentage in Conductor Miles
--------------------------------------------------------------------------------
Customer Service & Customer Percentage increase in Number of Customers
Accounts
--------------------------------------------------------------------------------
o Commencing on the Closing Date, non-union labor and benefit costs included
in the Direct Cost Budget shall be escalated annually at the beginning of
each contract year using the U.S. Labor Department's Bureau of Labor
Statistics Employment Cost Index (ECI) for nonunion workers in
service-producing industries. Commencing February 14,
----------
* As published by the United States Labor Department's Bureau of Labor
Statistics
2001, union labor and benefit costs included in the Direct Cost Budget shall be
escalated annually at the beginning of each contract year using the U.S. Labor
Department's Bureau of Labor Statistics Employment Cost Index (ECI) for union
workers in service-producing industries. Prior to February 14, 2001, escalations
in union labor and benefit costs will be based on the percent wage increases
outlined in the provisions of the existing labor contracts. The initial Direct
Cost Budget shall be adjusted each year based on the difference between the 1997
base year index and the current year index.
5-2
APPENDIX 6
EXIT TEST
The following provides an overview of the scope of the "Exit Test" to be
performed on behalf of the Authority in accordance with Section 8.3 of the
Agreement. The Exit Test will include, topically and in detail, those reviews,
evaluations, inspections, and audits as contemplated in Section 8.3 of the
Agreement undertaken on behalf of the Authority periodically during the course
of the Agreement for assessment of the T&D System since the last regular
periodic review, including determination of the need for corrective, remedial,
or replacement actions noted in previous periodic reviews performed on behalf of
the Authority, but not yet corrected or completed as of the date of completion
of the Exit Test. The Exit Test will include review of reporting, testing,
inspection, and recordkeeping performed by or on behalf of the Manager or its
Affiliates, agents or Subcontractors, including, but not limited to, the topics
set forth below.
(A) Maintenance Review
1. Job Records
2. Document Review
3. Budget Compliance
4. Standards Compliance
5. Field Survey
6. Rights of Way Maintenance
7. Rolling Stock Condition
8. Reliability
9. Care of Equipment
(B) Major Capital Improvements and Public Works Improvements Review
1. Job Records
2. Document Review
3. Budget Compliance
4. Standards Compliance
5. Schedule Performance
6. Field Survey
(C) Deficiencies
1. Responsibility
2. Cure Policy Compliance Status
3. Remedial Activity
4. Resolution
6-1
(D) Reporting/Proof of Performance
1. Compliance
2. Budget
3. Inventory
6-2
APPENDIX 7
NON-COST PERFORMANCE INCENTIVES
AND DISINCENTIVES; PILOT PAYMENTS
The following are the formulas for non-cost performance incentives and
disincentives in accordance with Section 6.4(A) of the Agreement related to
reliability, worker safety, and customer service.
1. OPERATING AREA RELIABILITY
The Manager will earn an incentive or incur a disincentive computed in
accordance with a formula based on specific minimum, midpoint and objective
System Avenge Annual Interruption Frequency Index (XXXXX) and Customer Avenge
Interruption Duration Index ("CAIDI") levels for each of the four divisions as
set forth below. For purposes of this incentive, interruptions during major
storms are excluded from the XXXXX and CAIDI statistics. Major storms, as
currently defined by the NYSPSC, are periods of adverse weather during which
service interruptions affect at least 10 percent of the customers in an
operating area and/or result in customers being without electric service for a
duration of at least 24 hours.
===============================================================================================
XXXXX Levels CAIDI Levels
Operating =======================================================================
Division Minimum Midpoint Objective Minimum Midpoint Objective
-----------------------------------------------------------------------------------------------
Queens-Nassau 1.230 1.080 0.930 1.120 1.025 0.930
-----------------------------------------------------------------------------------------------
Central 1.400 1.245 1.090 1.350 1.230 1.110
-----------------------------------------------------------------------------------------------
West Suffolk 1.600 1.450 1.300 1.210 1.150 1.090
-----------------------------------------------------------------------------------------------
East Suffolk 2.100 1.925 1.750 1.190 1.040 0.890
===============================================================================================
In each year, performance in each division for each reliability measure
shall be compared to the minimum, midpoint, and objective standard set forth in
the above table. For performance
7-1
at or below the minimum level for each division, the Manager shall incur a
disincentive of $800,000 for XXXXX and $200,000 for CAIDI. For performance at or
in excess of the objective level for each division, the Manager shall receive an
incentive of $800,000 for XXXXX and $300,000 for CAIDI. For performance at the
midpoint levels and below the objective levels, the Manager shall receive
one-half of the full incentive payment. For performance between the minimum and
midpoint levels (the "dead band"), the Manager shall neither incur a
disincentive nor receive an incentive payment. The total possible incentive
payment can be earned by equaling or exceeding the objective level for each
measure in each division. The maximum total reliability incentive or
disincentive shall be $4,000,000.
For the purpose of Section 7.2, the Minimum Reliability Standards for XXXXX
and CAIDI shall be as set forth below.
=========================================================
Minimum Reliability Standard
0perating ==============================
Division XXXXX XXXXX
Queens-Nassau 1.53 1.31
---------------------------------------------------------
Central 1.71 1.59
---------------------------------------------------------
West Suffolk 1.90 1.33
---------------------------------------------------------
East Suffolk 2.45 1.49
=========================================================
2. WORKER SAFETY
The Authority shall provide an annual incentive payment to the Manager of
$100,000 per Chargeable Accident less than 75 rated on a three-year rolling
average. The Manager shall neither earn an incentive payment nor incur a
disincentive payment obligation for periods in which the number of chargeable
accidents falls between 75 and 80, inclusive (the "dead band"). The Manager
shall incur a penalty of $100,000 per Chargeable Accident for years in which the
7-2
three-year rolling average number of Chargeable Accidents is greater than the
80. Data from years prior to the Commencement Date shall be used to compute the
three-year averages in the first and second years. The upper and lower limits of
the dead band shall be adjusted annually in proportion to the changes in total
workforce (full time equivalents) for the departments to which this incentive
plan applies: Electric Design & Construction, Electric Service, Electric System
Operations, and Meter Readers. The total annual incentive or disincentive shall
not exceed $1,000,000.
A Chargeable Accident, for incentive purposes, are those which are charged
to the involved employee's department in accordance with LILCO General Operating
Procedure 10103, Exhibit 9.9. It is any injury or illness suffered by an
employee, while at work, that requires offsite treatment administered by a
physician or registered professional under the direction of a physician,
(whether the treatment is received at a clinic, doctor's office, hospital, or
other medical facility) with the exception of injuries in the following
categories:
(1) company sanctioned sports activities
(2) assaults by customers
(3) insect bites
(4) animal bites
(5) injuries resulting from running to safety while being threatened with
attack by customer, animal or insect
(6) medical conditions not related to work (diabetic shock, etc.)
(7) certain occupational illnesses that occur due to chronic exposure in
the work place specifically: Carpal Tunnel Syndrome, respiratory
illnesses (such as Asbestosis),
7-3
chronic hearing loss, or other medical conditions due to exposure to
substances in work place (rashes from unknown substances, etc.)
(8) Motor Vehicle accidents in which the employee is not at fault.
For the purpose of Section 7.2, the Minimum Worker Safety Standard shall be 95
Chargeable Accidents on a three-year rolling average basis.
3. CUSTOMER SERVICE
(A) Call Answering
The Manager shall earn an incentive or incur a discentive for customer call
answering performance on a basis that shall be mutually agreed to prior to the
beginning of the second Contract Year.
(B) Meter Reading
For purposes of the meter reading incentive, "Estimated Meter Reads" are
defined as those scheduled meter reads which were not performed. These exclude
"management estimates" due to sustained periods of abnormal weather conditions
or abnormal weather events such as hurricanes, nor'easters, winter storms, heavy
snow cover, "black ice", flooding, and ice storms. When these conditions occur,
and it is the opinion of the Manager of Customer Offices and the Senior Vice
President of Customer Relations that meter reading effectiveness is diminished
by slow travel or increased safety hazards, the resulting estimates will be
excluded. The Manager will record specific data concerning the excluded
estimated meter reads and the reasons for their exclusion.
Management estimates due to meter reading personnel being assigned to storm
response efforts are also excluded.
7-4
The meter reads considered by this mechanism currently are for both
electric and gas meters, until such time as the meter reading performance for
electric and gas meters can be separately determined.
The percentage of Estimated Meter Reads shall be calculated for each month
by dividing the number of scheduled meter readings that are not completed, by
the total number of scheduled meter reads. The Authority shall provide an
incentive payment of $200,000 to the Manager for each month in which the
percentage of Estimated Meter Reads is equal to or less than 10.9%. The Manager
shall neither earn an incentive payment nor incur a disincentive payment for
months during which Estimated Meter Reads fall between 10.9% and 11.1%,
exclusive (the "dead band"). In months during which the Estimated Meter Reads
are at or above 11.1 percent, the Manager shall incur a disincentive payment of
S200,OOO.
For the purpose of Section 7.2, the Minimum Customer Service Standard shall
be Estimated Meter Reads not in excess of 11.6% in more than six months during a
year.
(C) Accounts Receivable
The Manager shall earn an incentive or incur a disincentive for accounts
receivable performance on a basis that shall be mutually agreed to prior to the
beginning of the second Contract Year.
4. PILOT PAYMENTS
The Authority has the sole discretion for determining whether to challenge
any payment in lieu of tax (PILOT) payments made on any Retained Asset. At the
Authority's request, the Manager shall assist the Authority in evaluating
whether to challenge any PILOT payment and with its concurrence shall represent
the Authority in any litigation challenging such
7-5
PILOT payment. In the event the Manager challenges any excessive PILOT payment
in court, any PILOT refunds received shall be shared 25%/75% between the Manager
and the Authority, respectively. The Manager shall be responsible for all
litigation-related costs pertaining to such challenge, provided, however, that
if such litigation is terminated solely at the Authority's request, or if this
Agreement expires or is terminated by either party, the Manager shall be
reimbursed for all of its costs related to litigations brought at the request of
the Authority plus interest at the Base Interest Rate to the extent such costs
are not included in the Annual T&D Budget.
7-6
APPENDIX 8
MAJOR CAPITAL IMPROVEMENTS CONSTRUCTION STANDARDS
AND PROCUREMENT REQUIREMENTS
Construction Standards
The Manager and its Subcontractors shall perform all Construction Work in a
timely, safe and efficient manner consistent with the Contract Standards and the
Major Capital Plan and Budget, unless otherwise directed in writing by the
Authority. In developing any design and engineering specifications, whether for
bid documents or for its own use, the Manager shall utilize good engineering
practices and shall consult with and implement the reasonable recommendations of
the Authority. The Authority shall have access to all construction sites in
accordance with Section 3.1(F) and shall have the right to review all
Construction Work on an on-going basis for, among other things, compliance with
milestone schedules, performance testing, final completion and other customary
construction contract provisions. The Authority and the Manager shall also agree
to additional procedures or standards to be followed on a project-by-project
basis prior to the adoption of each Major Capital Plan and Budget.
Procurement Requirements
In conducting any procurements for all or a portion of Construction Work,
the Manager shall comply with Applicable Law and shall use its best efforts to
obtain such services or materials on a least cost basis, subject to the Contract
Standards. The parties shall agree on additional guidelines for such
procurements prior to the adoption of the initial Major Capital Plan and Budget
and from time to time during the Term. Any decision by the Manager to perform
Construction Work with its own workforce rather than by use of a Subcontractor
shall be made with due consideration of the goal of utilizing the lowest cost
responsible party to perform such work, unless otherwise directed by the
Authority or warranted due to the cost, size, scope or complexity of a
particular Major Capital Improvement or Public Works Improvement, as well as
additional provisions to be agreed to by the parties prior to the adoption of
the Major Capital Plan and Budget.
8-1
APPENDIX 9
OPERATIONS INFORMATION AND FORMAT
The parties shall establish prior to the Closing Date the format and types
of such additional information and data concerning the T&D System and the
performance of the Manager's obligations under this Agreement that shall be
provided by the Manager with the Annual Settlement Statement after the end of
each Contract Year. Such information shall include, without limitation, data
sufficient to allow the Authority to verify the amounts set forth in the Annual
Settlement Statement, information concerning the performance of the Manager with
its maintenance and Construction Work responsibilities, any fines or penalties
incurrent to a Governmental Body, and known violations of Applicable Law and
such other matters to enable the Authority to oversee the Manager's compliance
with the terms of this Agreement.
9-1
APPENDIX 10
BUDGET INFORMATION AND FORMAT
Utilizing the FERC Uniform System of Accounts (USoA) as a framework, the
Manager shall prepare proper, accurate and complete Direct Cost and Third Party
Costs Budgets. The Manager may establish subaccounts within the USoA prime
accounts to provide greater detailed descriptions of cost activities. Detail
shall be sufficient enough to enable the Authority to prepare pro forma
financial statements and financial ratios regarding the operations of the T&D
System. Underlying accounting data shall be maintained to provide adequate
support for the respective budgets.
The format of the Direct Cost Budget and Third Party Cost Budget shall be
mutually agreed to by the Authority and the Manager no later than six months
prior to the anticipated Closing Date.
10-1
APPENDIX 11
COST ALLOCATION METHODOLOGY
The cost allocation methodology described herein shall be developed jointly
by a team composed of representatives from the Authority and the Manager. This
team will recommend a plan to establish the cost allocation procedures to be
followed by the Manager in performing its Operation and Maintenance Services and
Construction Work.
The initial task of this joint project team will be to obtain a detailed
understanding of the nature of (1) the restructured operations of the Parent to
determine an appropriate definition of the segments or recipients of activity
and related costs, (2) costs directly incurred and (3) costs which are or could
be charged to residual overhead pools for subsequent allocation to the segments
or recipients of activity. Upon completing this task, the joint project team
will recommend appropriate allocation methodologies and procedures to charge its
direct costs and allocate its indirect costs to its internal constituents. Such
procedures and methods will be based on cost causation principles consistent
with generally accepted cost accounting principles. Allocations shall be based
on cost without xxxx-up. The parties recognize that in establishing cost
allocation methodologies, appropriate consideration must be given to the NYSPSC
accepted allocation methodology for the gas business and the FERC accepted
allocation methodology for the generation business.
The objectives of the joint team will be to: (i) review LILCO's current
allocation practices with regard to costs charged to O&M T&D costs and T&D
capital projects, identify changes to existing processes related to
restructuring and develop alternatives appropriate to the new corporate
organization, considering prospective changes to the way the Manager will charge
its costs to the Authority in the future; (ii) review LILCO's current and
proposed cost accounting systems and develop appropriate analysis techniques and
cost tracking framework; and (iii) develop budgeting and monitoring techniques.
The joint team will determine the number of cost pools to be used and
prepare a schedule of cost elements for the Annual T&D Budget year by
responsibility area, FERC prime account and general ledger posting source. For
each cost pool, the joint teams will establish an allocation methodology. Some
typical methodology examples used include:
11-1
Cost Function Examples
------------- --------
1. Payroll-related Direct labor costs
Total labor costs
2. Personnel-related Number of employees
Number of hires
3. Activity-related Number of transactions
Volume
Number of reports
4. Space-related Square footage
5. Revenue and/or expense-related Revenues
O&M Expenses
Net income
Total revenues and expenses
6. Asset-related Book value
Net book value
Replacement value
11-2
APPENDIX 12
SAMPLE SERVICE FEE CALCULATION
The examples set forth below are sample calculations of the Service Fee, as
provided for in the Agreement. These examples are provided for reference only
and are not meant to be indicative of expected amounts of the applicable budgets
and costs. The language contained in the provisions of the body of the Agreement
shall control with respect to such applicable provisions in the event of any
conflict with this Appendix.
Years Formula
1 2 3
Direct Cost Budget --------------------------------------------
T&D Salaries 255.0 261.4 267.9
Common Plant Capital Recovery 14.0 14.4 14.7
Management Fee 15.0 15.0 15.0
--------------------------------------------
Direct Cost Budget 284.0 290.7 297.6
LILCO/BU Synergy Savings (20.0) (45.0) (60.0)
Management Savings (5.0) (5.0) (5.0)
Efficiency/Productivity Savings (2.0) (4.0) (5.0)
--------------------------------------------
Net Direct Cost Budget A 257.0 236.7 227.6
--------------------------------------------
Third Party Cost
Materials & Supplies 0.0 0.0 0.0 Included for illustration
Sub-contract Labor 0.0 0.0 0.0 purposes
Professional Fees 0.0 0.0 0.0
Mailing 0.0 0.0 0.0
Other 0.0 0.0 0.0
--------------------------------------------
Third Party Cost Budget B 116.0 118.9 121.9
--------------------------------------------
Budgeted Total Costs C 373.0 355.6 349.5 (A+B)
============================================
Actual Cost
Direct Cost D 242.0 226.2 208.4
Management Fee E 15.0 15.0 15.0
--------------------------------------------
Third Party Cost F 257.0 241.2 223.4 (D+E)
G 116.0 121.3 119.4
--------------------------------------------
Actual Total Costs H 373.0 362.4 342.8 (F+G)
--------------------------------------------
G
Payment Calculation
Fixed Direct Fee I 231.3 213.0 204.9 (A * 90%)
Variable Payment J 25.7 23.7 18.5 Lesser of (C-I-N) or (H-I-N)
Cost Incentive Fee K 0.0 0.0 3.3 Greater of (C-H) *50% or zero
Non-cost Performance Incentives L L 5.0 5.0 5.0 Direct input
--------------------------------------------
M 262.0 241.7 231.7 (I+J+K+L)
Third-party Costs N 116.0 118.9 119.4 Lesser of B or G
--------------------------------------------
Service Fee O 378.0 360.6 351.1 (M+N)
Overrun Payment P 0.0 0.0 0.0 (H-E)-(C-10)or zero
--------------------------------------------
Total Q $378.0 $360.6 $ 351.1 (O+P)
============================================
Included for illustration
APPENDIX 13
PROVISIONS REQUIRED BY STATE LAW
1.1 MANAGER TO COMPLY WITH LEGAL REQUIREMENTS. The Manager, in performing its
obligations under this Agreement, shall comply with all applicable laws and
regulations. All provisions required by such laws and regulations to be included
in this Agreement shall be deemed to be included in this Agreement with the same
effect as if set forth in full.
1.2 MANAGER TO OBTAIN PERMITS. ETC. Except as otherwise instructed in writing by
the Authority, the Manager shall obtain and comply with all legally required
licenses, consents, approvals, orders, authorizations, permits, restrictions,
declarations, and filings required to be obtained by the Authority or the
Manager in connection with this Agreement.
1.3 WORKERS' COMPENSATION INSURANCE. The Manager agrees that:
(a) It will secure Workers' Compensation and Disability Insurance and keep
insured during the life of this Agreement such employees as are required to be
insured by the provisions of Chapter 41 of the Laws of 1914, as amended, known
as the Worker's Compensation Law; ax~
(b) This Agreement shall be voidable at the election of the Authority and
of no effect unless the Manager complies with the requirement in paragraph (a)
of this Section.
1.4 NO ASSIGNMENT WITHOUT CONSENT. The Manager agrees that: (a) It is prohibited
from assigning, transferring, or otherwise disposing of this Agreement, or of
its rights or interests therein, or its power to execute such Agreement to any
person, company, partnership, or corporation, without the previous written
consent of the Authority. Assignments of this Agreement expressly referred to in
clause (3) of the first sentence of Section 9.7 of this Agreement have been so
consented to.
(b) If the prohibition contained in paragraph (a) above is violated, the
Authority may revoke and annul this Agreement and the Authority shall be
relieved from any and all liability and obligations hereunder to the Manager and
to the person, company, partnership, or corporation to whom such assignment,
transfer, or other disposal shall have been made, and the Manager and such
assignee or transferee shall forfeit and lose all the money theretofore earned
under this Agreement.
1.5 NON-DISCRIMINATION. (a) The Manager shall not discriminate against employees
or applicants for employment because of race, creed, color, national origin,
sex, age, disability,
13-1
or marital status, and will undertake or continue existing programs of
affirmative action to ensure that minority group persons and women arc afforded
equal opportunity without discrimination. Such programs shall include, but not
be limited to, recruitment, employment, job assignment, promotion, upgrading,
demotion, transfer, layoff, termination, rates of pay or other forms of
compensation, and selection for training and retraining, including
apprenticeship and on-the-job training.
(b) At the request of the Authority, the Manager shall request each
employment agency, labor union, or authorized representative of workers with
which it has a collective bargaining or other agreement or understanding and
which is involved in the performance of this Agreement to furnish a written
statement that such employment agency, labor union, or representative shall not
discriminate because of race, creed, color, national origin, sex, age,
disability, or marital status and that such union or representative will
cooperate in the implementation of the Manager's obligations hereunder.
(c) The Manager shall state, in all solicitations or advertisements for
employees placed by or on behalf of the Manager in the performance of this
Agreement, that all qualified applicants will be afforded equal employment
opportunity without discrimination because of race, creed, color, national
origin, sex, age, disability, or marital status.
The Manager shall submit an equal employment opportunity policy statement
to the Authority which shall contain, but not be limited to, the provisions (a)
through (c) of this section. (As required by NYCRR ss.142.1(d)(2) and (3)).
(d) The Manager will include provisions (a) through (c) of this section in
every subcontract or purchase order in such a manner that such provisions will
be binding upon each subcontractor or vendor as to its work in connection with
this Agreement.
(e) The Manager shall furnish to the Authority such information and reports
regarding its compliance with the above requirements as the Authority may from
time to time request.
(f) The provisions of this section shall not be binding upon the Manager or
any subcontractor in the performance of work or the provision of services or any
other activity that is unrelated, separate or distinct from this Agreement, as
expressed by its terms.
(g) The requirements of this section do not apply to any employment outside
the State of New York or application for employment outside the State of New
York or solicitations or advertisements therefor, or to any existing programs of
affirmative action regarding employment outside the State of New York.
(h) Any disputes regarding this section shall be resolved as provided in
Section 316 of the New York State Executive Law.
13-2
1.6 INTERNATIONAL BOYCOTT PROHIBITION. The Manager expressly agrees and
certifies that neither the Manager nor any person, firm, partnership, or
corporation which is substantially owned by or affiliated with the Manager has
participated, is participating, or will participate in an international boycott
in violation of the provisions of the United States Export Administration Act of
1969, as amended, or the Export Administration Act of 1979, as amended, or the
regulations of the United States Department of Commerce promulgated thereunder.
The Manager understands that such agreement and certification constitutes a
material term of this Agreement.
1.7 FAILURE OR REFUSAL TO TESTIFY. Upon the refusal of any person, including any
member, officer, or director of the Manager, when called before a grand jury,
head of state department, temporary state commission or other state agency, the
organized crime task force in the department of law, head of a city department,
or other city agency, which is empowered to compel the attendance of witnesses
and examine them under oath, to testify in an investigation concerning any
transaction or contract had with the state, any political subdivision thereof or
of a public authority, to sign a waiver of immunity against subsequent criminal
prosecution or to answer any relevant question concerning such transaction or
contract:
(a) such person, and any firm, partnership, or corporation of which he or
she is a member, partner, director, or officer (including, if applicable, the
Manager), shall be disqualified from thereafter selling to or submitting bids to
or receiving awards from or entering into any contracts with any public
authority or official thereof, for goods, work, or services, for a period of
five years after such refusal, or until a disqualification shall be removed
pursuant to law; and
(b) any and all contracts made with any public authority or official
thereof, since July 1, 1959 (including if applicable, this Agreement), by such
person and by any firm, partnership or corporation of which he is a member,
partner, director, or officer (including, if applicable, the Manager), may be
canceled or terminated by the public authority without incurring any penalty or
damages on account of such cancellation or termination, but any monies owing by
the public authority for goods delivered or work done prior to the cancellation
or termination shall be paid.
1.8 MINORITY AND WOMEN-OWNED BUSINESS ENTERPRISE PROCEDURES
(a) DECLARATION OF POLICY AND STATEMENT OF GOALS. It is the policy of the
Authority to provide Minority and Women-Owned Business Enterprises ("M/WBEs")
the greatest practicable opportunity to participate in the Authority's
contracting activity for the procurement of goods and services. To effectuate
this policy, the Manager shall comply with the provisions of this section and
the provisions of Article 15-A of the New York State Executive Law. The Manager
will use its best efforts to achieve the below-stated M/WBE Goals
13-3
set for the Agreement, and will cooperate in any efforts of the Authority, or
any government agency which may have jurisdiction, to monitor and assist the
Manager's compliance with the Authority's M/WBE policy.
Minority-Owned Business Enterprise (MBE) Subcontracting Goal *%
Women-Owned Business Enterprise (WBE) Subcontracting Goal *%
(b) DEFINITIONS.
(1) "CERTIFICATION". The process conducted by the Director of the Division
of Minority and Women's Business Development in the Department of
Economic Development to verify that a business enterprise qualifies
for New York State Minority or Women-Owned Business Enterprise status.
To initiate the certification process, contact one of the offices
listed below.
ALBANY OFFICE: (000) 000-0000
Xxxxx Xxxxxxx, 0xx Xxxxx
Xxxxxx, Xxx Xxxx 12224
NEW YORK CITY XXXXXX
0 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(2) "CERTIFIED BUSINESS". A business enterprise which has been approved by
the Director for status as a MBE or WBE subsequent to verification
that the business enterprise is owned, operated, and controlled by
Minority Group Members, or women.
(3) "CONTRACT SCOPE OF WORK". For purposes of this section, this means:
(i) Specific tasks required by the Agreement;
(ii) Services or products which must be provided to perform specific
tasks required by this Agreement; and
(iii) Components of any overhead costs billed to the Authority
pursuant to this Agreement.
----------
** To be specified at time of adoption of initial Annual T&D Budget.
13-4
(4) "DAY". A calendar state business day unless otherwise specified.
(5) "DIRECTOR". The Director of the Division of Minority and Women's
Business Development in the Department of Economic Development.
(6) "DIRECTORY". The Directory of Certified Businesses, prepared by the
Director.
(7) "GOAL". A percentage of participation, which is not a set aside or
quota, that represents a target toward which the Manager must aim in
expending good faith efforts to subcontract with or otherwise ensure
the commercial involvement of minority and women-owned businesses on
this Agreement.
(8) "OFFICE" or "OFFICE OF MINORITY AND WOMEN'S BUSINESS DEVELOPMENT".
Office in the New York State Department of Economic Development
created by Article 15-A of the Executive Law.
(9) MINORITY GROUP MEMBER. A United States citizen or permanent resident
alien who is and can demonstrate membership in one of the following
groups:
(i) Black persons having origins in any of the Black African racial
groups;
(ii) Hispanic persons of Mexican, Puerto Rican, Dominican, Cuban,
Central or South American descent of either Indian or Hispanic
Origin, regardless of race;
(iii) Native American or Alaskan native persons having origins in any
of the original peoples of North America;
(iv) Asian and Pacific Islander persons having origins in any of the
Far East countries, South East Asia, the Indian subcontinent or
the Pacific Islands;
(v) Other groups which the Office may determine to be eligible for
M/WBE status.
(10) MINORITY-OWNED BUSINESS ENTERPRISE. A business enterprise, including a
sole proprietorship, partnership or corporation that is:
(i) At least fifty-one percent owned by one or more Minority Group
Members;
13-5
(ii) An enterprise in which such minority ownership is real,
substantial and continuing;
(iii) An enterprise in which such minority ownership has, and exercises
the authority to control independently, the day-to-day business
decisions of the enterprise for at least one year; and
(iv) An enterprise authorized to do business in New York State and is
independently owned and operated.
(11) "SUBCONTRACT. An agreement in which a portion of the Manager's
obligation under this Agreement is undertaken or assumed.
(12) "WOMEN-OWNED BUSINESS ENTERPRISE". A business enterprise, including a
sole proprietorship, partnership or corporation that is:
(i) At least fifty-one percent owned by one or more United States
citizens or permanent resident aliens who are women;
(ii) An enterprise in which the ownership interest of such women is
real, substantial and continuing;
(iii) An enterprise in which such women ownership has, and exercises
the authority to control independently, the day-to-day business
decisions of the enterprise for at least one year; and
(iv) An enterprise authorized to do business in New York State and is
independently owned and operated.
(c) REQUIREMENTS
(1) The Manager shall search for, assess the capabilities of and generally
deal with potential M/WBE subcontractors in a fair and responsive manner,
allowing them the opportunity to participate in the Contract Scope of Work.
(2) The Manager will designate, and make known to the Authority an M/WBE
Officer who will have the responsibility for and authority to effectively
administer the M/WBE Program.
(3) The Manager shall submit its Preliminary Subcontracting Plan on a
preliminary subcontracting plan form, which shall identify the Certified
Businesses it will utilize to meet its M/WBE Contract Goals. Approval of
any such firm is solely within the
13-6
discretion of the Authority. The Manager will also designate an M/WBE
Officer who will have the responsibility for, and authority to, effectively
administer these procedures. If the Manager believes it may be unable to
meet the Goals, the reasons shall be submitted in writing with the form.
(4) The Manager may inspect the current New York State Certification
Directory of Minority and Women Owned Businesses, prepared for use by state
agencies and contractors in complying with Executive Law Article 15-A, (the
Directory) at the Authority's office. In addition, printed or electronic
copies of the Directory may be purchased from the Office of Minority and
Women's Business Development.
(5) Firms certified as both MBE and WBE may count toward either the MBE or
WBE Goal on a single contract, but not both, regardless of whether either
Goal is thus exceeded. The Manager must choose the Goal to which the
participation value is to be applied in the preliminary Subcontracting
Plan.
(6) Within 10 days following the adoption of the initial Annual T&D Budget
and in any event no later than 60 days prior to the anticipated Closing
Date, the Manager shall submit a complete Utilization Plan, which shall
include identification of the M/WBEs which the Manager intends to use; the
dollar amount of business with each such M/WBE; the Contract Scope of
Work which the Manager intends to have performed by such M/WBEs; and the
commencement and end dates of such performance. The Authority will review
the plan and, within 20 days of its receipt, issue a written acceptance of
the plan or comments on deficiencies in the plan.
(7) The Authority shall consider a partial or total waiver of Goal
requirements only upon the submission of a written request for a waiver
following the Manager's unsuccessful good faith efforts at compliance. Such
waiver request may be made simultaneously with the submission of the
Utilization Plan.
(8) The Manager shall include in each Subcontract, in such a manner that
the provisions will be binding upon each subcontractor, all of the
provisions herein including those requiring subcontractors to make a good
faith effort to solicit participation by M/WBEs.
(9) The Manager shall keep records, canceled checks and documents for at
least one (1) year following completion of this Agreement. These records,
and canceled checks, documents or copies thereof will be made available at
reasonable times upon written request by the Authority or any other
authorized governmental entity.
(10) The Manager shall submit monthly compliance reports regarding its
M/WBE utilization activity on a Compliance Report Form acceptable to the
Authority. Reports
13-7
are due on the first business day of each month, beginning 30 days after
the Closing Date.
(11) The Authority will conduct compliance reviews for determination of the
Manager's performance relative to meeting the specified M/WBE Goal which
may include review and inspection of documents pertaining to the Manager's
efforts towards meeting the Goals and on-site interviews with personnel of
Manager and its subcontractors. The Manager will fully cooperate to assist
the Authority in this endeavor.
(12) The Manager shall not use the requirements of this section to
discriminate against any qualified company or group of companies.
(d) CONDITIONS FOR SATISFYING M/WBE GOALS. M/WBE participation will be
counted toward the total Contract M/WBE Goals subject to the following
conditions:
(1) If the Manager is unable to meet the Goals with Certified Businesses by
making all of the good faith efforts defined herein, the Manager shall
actively solicit uncertified M/WBEs to satisfy the Goals. Uncertified firms
will be required to submit an application for certification (to the Office
of Minority and Women's Business Development) and will be counted as
contributing towards the contract Goals only after they have been
certified.
(2) The Manager must keep records of efforts to utilize certified M/WBE's
including
(i) The firm's name, address and telephone number.
(ii) A description of the information provided to the M/WBE.
(iii) A written explanation of why an agreement with the M/WBE was not
obtained.
(3) Price alone will not be an acceptable basis for rejecting M/WBE bids if
any of the bids are reasonable.
(4) Geographical limitation in the M/WBE search is not an acceptable reason
for not meeting the M/WBE goal when traditionally non-local firms have been
generally utilized.
(5) the Authority reserves the right to reject any firm as counting toward
meeting the Manager's M/WBE goal if, in the opinion of the Authority, the
facts as to that firm's business and technical organization and practices
justify the rejection.
13-8
(e) MANAGER'S GOOD-FAITH EFFORTS. To satisfy the M/WBE participation
requirements, the Manager agrees to make the following good-faith efforts
in a timely manner:
(1) Submission of a completed, acceptable Utilization Plan as described
herein.
(2) Advertising in appropriate general circulation, trade and minority and
women-oriented publications.
(3) Written solicitations made in a timely manner of certified minority and
women-owned business enterprises listed in the Directory.
(4) Attendance at meetings, if any, scheduled by the Authority with
certified M/WBEs capable of performing the Contract Scope of Work.
(5) Written notification to M/WBE trade associations located within the
region where the Contract Scope of Work will be performed.
(6) Structuring the Contract Scope of Work for purposes of subcontracting
with certified M/WBEs.
(7) Where certified M/WBEs have expressed an interest to the Manager in
performing work that the Manager normally performs with its own sources and
the Contract Scope of Work has not been fully performed, the Manager shall
consider subcontracting such work or portions of it to meet the M/WBE
Goals.
1.9. COMMENCEMENT OF ACTIONS ON STATE PUBLIC WORKS CONTRACTS. The time within
which an action on this Agreement against the Manager must be commenced shall be
computed from the date of completion of the physical work. The Manager may
notify the Authority in writing, that such physical work has been completed by
specifying a completion date, which date shall be no more than thirty days
previous to the date of such notice, in which case the completion date set forth
in such notice shall be deemed to be the date of completion of the physical work
unless the Authority, within tiny days of receipt of such notice, notifies the
Manager in writing of its disagreement. In the event that the Manager fails to
send the notice provided for herein or the Authority disagrees in the manner
provided herein, the date of completion of the physical work shall be determined
in any other manner provided by law. X.0
00-0
XXXXXXXX 00
XXXXXXX XX T&D SYSTEM POLICIES AND PROCEDURES
Terms And Conditions Of Electric Service
The following is a representative outline of the topics to be addressed by
Authority in the T&D System Policies and Procedures in accordance with Section
4.5(B).
(A) Introduction
1. Purpose
2. Application
3. Modification
4. Responsibility of Enforcement
(B) General Information
1. Definitions
2. Application for Electric Service
(a) New Occupancy
(b) Responsibility for Changes in Service
3. Characteristics of Electric Service
4. Service Interruptions
5. Application of Rates
6. Extension of Customer's Wiring System
7. Continuity and Quality of Electric Service
8. Single Phase and Three Phase Service to Customers Served Under
Residential Rate Schedules
9. Single Phase and Three Phase Service to Customers Served Under
Commercial Rate Schedules
10. Method of Supplying Electric Service
(a) General Residential Service
(b) Multiple Dwelling Units, Apartment Complexes
(c) Commercial Service
(d) Industrial Service
(e) Temporary Service
(f) Other
11. Access by Authorized Agents to Customer's Premises
12. Electric Service Deposits
(a) Commercial Deposits
14-1
(b) Residential Deposits
(c) Interest on Utility Service Deposits
(d) Errors in Usage Records
(e) Unclaimed Deposits
13. Billing for Electric Service
(a) Average/Level Billing Program
(b) Defined Payment Program
(c) Utility Assistance Programs
(d) Law Payment Charge
(e) Estimated Billing
(f) Delinquent Bills
(g) Shared Customer Meter Billing
14. Testing of Meters Upon Request of Customer
15. Adjustment of Bills for Meter Inaccuracy and Incorrect Metering
16. Change of Occupancy
17. Discontinuance of Electric Service
18. Denial of Electric Service to a Customer
19. Customer's Responsibility for Utility Property
20. Tampering with the Utility's Measuring Equipment or Other Property
(a) Sub-Metering
(b) Meter Seals
(c) Tampering with Shut-Off Device
(d) Penalties for Energy Diversion
(e) Responsibility of Enforcement
21. Fraudulent Use of Electricity
22. Street Light Policy
(C) Electric Service Regulations
1. Customer's Wiring-National Electric Code
2. Electric Service Inspection
3. Availability of Electric Service
4. Minimum Service Connection
5. Exclusive Use of Utility's Electric Service
6. Resale of Utility's Electric Service
7. Point of Delivery of Electric Service
8. Grounding/Bonding Conductors and Electrodes Meters
9. Equipment Which Adversely Affects Electric Service
(a) General
(b) Motors
(c) Intermittent Electric Loads
(d) Voltage and Wave Form Sensitive Equipment
14-2
(e) Power Factor
(f) Interference Producing Equipment
(g) Radio Antennas
(D) Standard Extension Policy
1. General
2. Rights-of-Way
3. Overhead Distribution System-Overhead Service
4. Single Phase Underground Secondary Service from Overhead Distribution
System
5. Three Phase Underground Secondary Service from Overhead Distribution
System
6. Single Phase Underground Secondary Service from Underground
Distribution System-Residential (a) Easement Guidelines on Underground
Distribution System
7. Underground Service from Primary System
(a) Delivery at Primary Voltage Through Utility-Owned Transformers
(Primary Extension)
(b) Loads Served at Primary Voltage to Customer-Owned Equipment
8. Underground Distribution System
9. Permanent Electric Service
10. Indeterminate Electric Service
11. Temporary Electric Service for Construction
(E) Storm Restoration Procedures
1. Safety
(a) General Operations
(b) General Procedures
2. Orientation and Training
(a) Service Restoration Program - General
(b) Pre-Storm Operations
(c) Radio Procedure
(d) Mapping
(e) Hot-Stick Operator Training
(f) Patrolling and Reporting Storm Damage
(g) Storm Training
(h) Training of Manager's affiliates and authorized company personnel
3. Customer Service During Storms/Storm -Restoration
(a) Essential Customer Report
(b) Portable Generators
14-3
4. Service Restoration
(a) Area Storm Operations
(b) Storm Damage Reporting
(c) Lineworker Responsibilities
(d) Map Posting
(e) Initial Clearing of Main Lines
(f) Restoration of Primary and Secondary Lines
(g) Service Restoration/Trouble Calls
(h) Switching
(i) Hot-Stick Operations
(j) Service Restoration Paperwork
(k) Streetlight Restoration
(1) Area Daily Crew Log
(m) Tagging Out Procedures
(n) Public, Fire & Emergency Coordination and Communication
(o) Public, Governmental and Media Communications
(p) Mutual Aid
(F) Work Order. Status Assessment and Condition Reporting Forms
(G) Operating Procedures
1. Planning
(a) Job Planning Check List
(b) Vehicle Material am! Equipment Check List
(c) Job Preliminary Procedures
(d) Clearing and Tree Trimming
(e) Trenching
(f) Commitment of Special Equipment
(g) Street Crossings
(h) Sketch Procedures
(i) Revisions and Alterations to Jobs
(j) Voiding Jobs
(k) Conflicts of Interest
(H) Customer Service -- General
1. Customer Calling Centers
2. Complaint Handling Procedure
3. Emergency Hotline
4. Billing Disputes
5. Alternative Power Supplier Policies
14-4
6. DSM/Energy Efficiency Program Communications
7. Billing Inserts and Customer Comnxnunications
(I) Rights-of-Way and Easements
1. Transmission Facilities
2. Distribution Facilities
3. Changes to ROW
4. Locked Gates
5. Easement Encroachments
6. Railroad Crossings
(J) General Job and Operation Procedures
1. Information on Job Sketches
2. Phase Diagrams
3. Slab/Conduit Inspections
4. Cable in Conduit Guidelines
5. Protection Coordination
6. Transformer Sizing
7. Wire Sag and Tension
8. Locating Buried Facilities
9. Clearances
10. Poles and Crossarms
11. Conductors am! Cables
12. Guying
13. Transformers
14. Grounding
15. Secondaries and Services
16. Metering
17. Voltage Regulation
18. Switching
19. Tagging Procedures
20. Outage Reporting
21. Tree Trimming
22. Care of Equipment
23. Customer-Owned Equipment
24. Coordination With Other Utilities
25. Communications
(a) Inter-Utility
(b) SCADA
(c) Telephone System
14-5
(d) Radio
(K) Load Forecasting and Resource Planning
1. Load Forecasting
2. Resource Planning
(a) Off-System Purchases
(b) Fully-Owned Generation
3. Competitive Positioning Strategies
(a) ESCO Cooperation
(b) DSM/Load Control
(c) Energy Pricing - Compilation and Distribution
(d) Retail Wheeling Policies
(e) Transmission Access Policies
(i) Network
(ii) Point-to-Point
4. Power Supply Solicitation Procedures
14-6
