Exhibit J-2
Form of
Master Services Agreement
between
CenterPoint Energy, Inc.
and
its Associate Companies
This Master Services Agreement (the "Agreement"), dated as of _________,
2003, is entered into in multiple parts by and between the companies whose names
appear on the signature pages hereof, (each, a "Company" or "Recipient" and
collectively, the "CenterPoint Companies" or "Recipients"), and CenterPoint
Energy, Inc., a Texas corporation ("CenterPoint").
RECITALS
A. In connection with the authorizations provided by order dated July 5,
2002 (HCAR No. 27548), CenterPoint registered as a holding company under the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act").
B. CenterPoint has filed an Application seeking authority (the "Financing
Order") for certain financing and other transactions through March 31, 2006. It
is contemplated that CenterPoint will file an Application regarding the
formation of a subsidiary service company to provide services to CenterPoint and
its subsidiaries.
C. During the interim period before service company authority is granted,
which is not intended to exceed one year, CenterPoint will provide services, as
set forth herein, to its Associate Companies.
Accordingly, CenterPoint and the CenterPoint Companies desire to enter into
this Master Services Agreement to allow for the provision of temporary services
by CenterPoint to the CenterPoint Companies.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
I. TERM OF AGREEMENT.
This Agreement shall be effective beginning on the date of the Financing
Order up to one year from the date of such order or such other period as
permitted by the Securities and
Exchange Commission (the period during which this Agreement remains effective
being referred to herein as the "Term").
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II. SERVICES OFFERED.
Exhibit I to the Agreement lists and describes the services that may be
available from CenterPoint. CenterPoint offers to supply those services to each
Recipient that is a party to the Agreement. The services are and will be
provided to the Recipient only at the request of the Recipient. From time to
time, the parties may identify additional services that CenterPoint may provide
to Recipients under this Agreement. CenterPoint will consult with the Recipients
to delineate the scope and terms of additional services that may be offered.
The services offered may be further described in Service Level Agreements
that define performance metrics or standards and other procedures and
requirements with respect to the provision of a particular category of services.
To the extent a category of service is more fully described in a Service Level
Agreement, it is incorporated into this Agreement by reference.
CenterPoint shall maintain sufficient resources to perform its obligations
under this Agreement and shall perform its obligations in a commercially
reasonable manner. If no specific performance metrics for the provision of a
service are established, CenterPoint shall provide the service exercising the
same care and skill as it exercises in performing similar services for itself.
If a Recipient requests the level at which any service to be provided to be
scaled up to a level in excess of the level in effect during the prior twelve
months, the Recipient shall give CenterPoint such advance notice as it may
reasonably require sufficient to make any necessary preparations to perform such
services on the scaled up or modified basis. The level of a service shall be
considered scaled up if providing the service at the proposed level involves an
increase in personnel, equipment or other resources that is not de minimis and
is not reasonably embraced by the agreed definition and scope of that service
prior to the proposed increase.
II. SERVICES SELECTED
A. Initial Selection of Services.
Each Recipient shall designate on Exhibit II to the Agreement, which may be
amended when additional services are offered, the services that it agrees to
receive from CenterPoint. Designation may also be in the form of an opt-out
where each company agrees to receive all services from CenterPoint except those
specifically enumerated in Exhibit II.
B. Annual Selection of Services.
CenterPoint shall send an annual service proposal form to each Recipient on
or about July 1 listing services proposed for the next fiscal year. By July 31,
the Recipient shall notify CenterPoint of the services it has elected to receive
during the next fiscal year.
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III. PERSONNEL
CenterPoint will provide services by using the services of executives,
accountants, financial advisers, technical advisers, attorneys, engineers and
other persons with the necessary qualifications.
If necessary, CenterPoint, after consultation with the Recipient, may also
arrange for the services of affiliated or unaffiliated experts, consultants,
attorneys and others in connection with the performance of any of the services
supplied under this Agreement. CenterPoint also may serve as administrative
agent, arranging and monitoring services provided by third parties to Recipient,
whether such services are billed directly to Recipient or through CenterPoint.
CenterPoint's sole responsibility to the Recipient for errors or omissions
in services shall be to furnish correct information and/or adjustments in the
services, at no additional cost or expense to Recipient; provided, Recipient
must promptly advise CenterPoint of any such error or omission of which it
becomes aware after having used reasonable efforts to detect any such errors or
omissions. In no event shall CenterPoint have any liability under this Agreement
or otherwise arising out of or resulting from the performance of, or the failure
to perform, services for loss of anticipated profits by reason of any business
interruption, facility shutdown or non-operation, loss of data or otherwise or
for any incidental, indirect, special or consequential damages, whether or not
caused by or resulting from negligence, including gross negligence, or breach of
obligations hereunder and whether or not Recipient was informed of the
possibility of the existence of such damages.
CenterPoint may contract for the services of certain employees of the
CenterPoint System Companies for the purpose of staffing its service operations.
These arrangements will comply with the applicable provisions under the 1935
Act, including the provisions of Rule 90 thereunder requiring the performance of
services on the basis of cost.
IV. COMPENSATION AND ALLOCATION
As and to the extent required by law, CenterPoint will provide such
services at cost allocated on a fair nondiscriminatory basis. The CenterPoint
Policies and Procedures Manual contains rules for determining and allocating
costs. The parties shall use good faith efforts to discuss any situation in
which the actual charge for a service is reasonably expected to exceed the
estimated charge, if any, set forth in a Service Level Agreement, provided,
however, that charges incurred in excess of any such estimate shall not justify
stopping the provision of, or payment for, services under this Agreement.
V. TAXES.
Recipient shall bear all taxes, duties and other similar charges (and any
related interest and penalties), imposed as a result of its receipt of services
under this Agreement, including any tax which Recipient is required to withhold
or deduct from payments to CenterPoint. CenterPoint may collect from Recipient
any sales, use and similar taxes imposed
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on the provision of services and shall pay such tax to the appropriate
governmental or taxing authority.
VI. BILLING
Charges will be rendered during the first week of each month covering
amounts incurred during the prior month. Charges will be based on actual amounts
paid. If allocations are required, they may be based on estimated values based
on estimates in budget plans for the relevant values. Estimated amounts will be
adjusted on subsequent charges either in a subsequent month or at the end of the
year. Any amount remaining unpaid after fifteen days following receipt of the
xxxx shall bear interest thereon from the date of the xxxx at the lesser of the
prime rate announced by JPMorgan Bank and in effect from time to time plus 2%
per annum or the maximum non-usurious rate of interest permitted by applicable
law.
CenterPoint will support its charges with reasonable documentation (which
may be maintained in electronic form). CenterPoint will make adjustments to
charges as required to reflect the discovery of errors or omissions in the
charges.
VII. TERMINATION AND MODIFICATION.
A. Modification of Services.
The Recipient may modify its selection of services at any time during the
fiscal year by giving CenterPoint written notice sixty (60) days in advance for
the additional services it wishes to receive, and/or the services it no longer
wishes to receive, from CenterPoint.
B. Modification of Other Terms and Conditions.
No other amendment, change or modification of this Agreement shall be
valid, unless made in writing and signed by all parties hereto.
C. Termination of this Agreement.
The Recipient may terminate this Agreement with CenterPoint by providing
sixty (60) days advance written notice of such termination to CenterPoint.
CenterPoint may terminate this Agreement as to the Recipient by providing sixty
(60) days advance written notice of such termination to the Recipient.
This Agreement is subject to termination or modification at any time to the
extent its performance may conflict with the provisions of the 1935 Act, or with
any rule, regulation or order of the Securities and Exchange Commission ("SEC")
adopted before or after the making of this Agreement. This Agreement shall be
subject to the approval of any state commission or other state regulatory body
whose approval is, by the laws of said state, a legal prerequisite to the
execution and delivery or the performance of this Agreement.
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VIII. NOTICE.
Where written notice is required by this Agreement, said notice shall be
deemed given when delivered in person, by electronic mail, or when mailed by
United States registered or certified mail, postage prepaid, return receipt
requested, addressed, if to CenterPoint, to the Chief Financial Officer and, if
to Recipient, to its President at the address listed on the most recent Exhibit
II received by CenterPoint.
IX. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas, without regard to its conflict of laws provisions.
X. ENTIRE AGREEMENT
This Agreement, together with its exhibits, constitutes the entire
understanding and agreement of the parties with respect to its subject matter,
and effective upon the execution of this Agreement by the respective parties
hereof and thereto, any and all prior agreements, understandings or
representations with respect to this subject matter are hereby terminated and
cancelled in their entirety and of no further force or effect.
XI. WAIVER
No waiver by any party hereto of a breach of any provision of this
Agreement shall constitute a waiver of any preceding or succeeding breach of the
same or any other provision hereof.
XII. ASSIGNMENT
This Agreement shall inure to the benefit of and shall be binding upon the
parties and their respective successors and assigns. No assignment of this
Agreement or any party's rights, interests or obligations hereunder may be made
without the other party's consent, which shall not be unreasonably withheld,
delayed or conditioned.
XIII. SEVERABILITY
If any provision or provisions of this Agreement shall be held to be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall in no way be affected or impaired thereby.
XIV. EFFECTIVE DATE
This Agreement is effective as of the date of the Financing Order.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as of the date first above mentioned.
By Recipient:
By CenterPoint:
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EXHIBIT I
Cost Accumulation and Assignment, Allocation Methods, and Description of
Services Offered by CenterPoint to Recipient
This document sets forth the methodologies used to accumulate the costs of
services that may be performed by CenterPoint and to assign or allocate such
costs to other subsidiaries and business units within the CenterPoint registered
holding company system that receive services from CenterPoint.
Cost of Services Performed
CenterPoint shall maintain an accounting system that enables costs to be
identified by Cost Center, Account Number or Capital Project ("Account Codes").
The primary inputs to the accounting system shall be payroll records for
CenterPoint's employees, accounts payable transactions and journal entries.
Charges for labor shall be made at the employees' effective hourly rate,
including the cost of pensions, other employee benefits and payroll taxes. To
the extent practicable, costs of services shall be directly assigned to the
applicable Account Codes. The full cost of providing services shall also include
certain indirect costs, e.g., departmental overheads, administrative and general
costs, and taxes. Indirect costs shall be associated with the services performed
in proportion to the directly assigned costs of the services or other relevant
cost allocators.
Cost Assignment and Allocation
CenterPoint's costs shall be directly assigned, distributed or allocated to
Recipients in the manner described below:
1. Costs accumulated in Cost Centers for services specifically performed
for a single Recipient shall be directly assigned or charged to such Recipient;
2. Costs accumulated in Cost Centers for services specifically performed
for two or more Recipients shall be distributed among and charged to such
Recipients using methods determined on a case-by-case basis consistent with the
nature of the work performed and based on one of the allocation methods
described below; and
3. Costs accumulated in Cost Centers for services of a general nature which
are applicable to all Recipients or to a class or classes of Recipients shall be
allocated among or charged to such Recipients by application of one or more of
the allocation methods described below.
Allocation Methods
The following methods shall be applied, as indicated in the Description of
Services section that follows, to allocate costs for services of a general
nature.
1. Operating Expense - A ratio based on operating expense minus fuel and
purchase power. This ratio will be determined annually based on annual plan
operating expense and will be adjusted for any known and reasonably quantifiable
events and will be trued-up at the end of the fiscal year based on actual
operating expense.
2. Total Assets Ratio - A ratio based on the total assets minus investments
in subsidiaries and goodwill. This ratio will be determined annually based on
annual plan assets and will be adjusted for any known and reasonably
quantifiable events and will be trued-up at the end of the fiscal year based on
twelve month average of actual assets.
3. Cash Flow- A ratio based on operating expense including fuel, purchase
power, capital expenditures; less depreciation expense. This ratio will be
determined annually based on annual plan cash flow and will be adjusted for any
known and reasonably quantifiable events and will be trued-up at the end of the
fiscal year based on actual cash flow.
4. Head Count - A ratio based on active and retiree headcount. This ratio
will be determined annually based on annual plan head count and will be adjusted
for any known and reasonably quantifiable events and will be trued-up at the end
of the fiscal year based on actual head count.
5. Direct Labor - A ratio based on billable hours. This ratio will be
determined monthly based monthly billable hours.
6. Client Unit Usage - This factor is determined based on the actual unit
/usage that is utilized by the applicable Recipients. This factor will be
determined annually based on units/ usage utilized at the end of the previous
fiscal year and may be adjusted for any known and reasonably quantifiable
events, or at such time as may be required due to significant changes.
7. Square Footage - This factor will be determined based on actual square
footage used by the applicable Recipients. This factor will be determined
annually based on square footage utilized at the end of the previous fiscal year
and may be adjusted for any known and reasonably quantifiable events, or at such
time as may be required due to significant changes.
Description of Services
A description of each of the services performed by CenterPoint, which may
be modified from time to time, is presented below. As discussed above, where
identifiable, costs will be directly assigned or distributed to Recipients. For
costs accumulated in Cost Centers which are for services of a general nature
that cannot be directly assigned or distributed, the method or methods of
allocation are also set forth. Substitution or changes may be made in the
methods of allocation hereinafter specified, as may be appropriate and to the
extent permitted under the SEC 60-day letter procedure, and will be provided to
state regulatory agencies and to each affected Recipient.
1. Accounting Services
CenterPoint may provide various services to the Recipients including
corporate tax, treasury, strategic planning, planning, corporate accounting and
reporting, general ledger maintenance and all accounting record keeping,
processing certain accounts such as accounts payable, cash management, and
others as may be deemed necessary, hedging policy and oversight, financial
planning and rates. Each Recipient may also maintain its own corporate and
accounting group and engage CenterPoint to provide advice and assistance on
accounting matters, including the development of accounting practices,
procedures and controls, the preparation and analysis of financial reports and
the filing of financial reports with regulatory bodies, on a system-wide basis.
Costs of a general nature may be allocated using the Operating Expense or Cash
Flow Ratio.
2. Internal Auditing
CenterPoint may conduct periodic audits of administration and accounting
processes. Audits would include examinations of Recipients' service agreements,
accounting systems, source documents, allocation methods and xxxxxxxx to assure
proper authorization and accounting for services. Costs of a general nature may
be allocated using the Direct Labor Ratio.
3. Communications
CenterPoint may assist the Recipients to develop and support branding and
corporate promotions, advertising and brand equity. Individually, the Recipients
may maintain independent marketing personnel to handle the day-to-day details of
marketing campaigns. Costs of a general nature may be allocated using the Total
Assets Ratio.
4. Legal Services
CenterPoint may provide various legal services and general legal oversight,
as well as corporate secretarial functions and filing of reports under
securities laws and the 1935 Act for the benefit of the Recipients. Costs of a
general nature may be allocated using the Operating Expense Ratio.
5. Human Resources
CenterPoint may assist the Recipients in developing policy and planning for
total compensation plans, workforce planning and training, employee relations
policies and programs, and in training personnel in a coordinated manner
throughout the CenterPoint System Companies. Each Recipient may maintain a human
resources group to handle the individualized application of policies and
programs. Costs of a general nature may be allocated using the Head Count Ratio.
Costs of providing employee and executive benefits will be allocated directly to
the Recipient based on costs incurred for its employees and retirees, and any
costs of a general nature which are not otherwise recovered, such as through
payroll burden charges, will be allocated using the Head Count Ratio.
6. Executive
CenterPoint may use the executive staff of CenterPoint in order to assist
the Recipients in formulating and executing general plans and policies,
including operations, issuance of securities, appointment of executive
personnel, budgets and financing plans, expansion of services, acquisitions and
dispositions of property, public relations and other related matters. Costs of a
general nature may be allocated using the Total Asset Ratio.
7. Regulatory and Governmental Affairs
CenterPoint may assist the Recipients in developing policy for regulatory
strategy, Senate Xxxx 7 Implementation, and support litigation and regulatory
proceedings. Costs of a general nature may be allocated using the Total Asset
Ratio.
8. Information Systems and Technology
CenterPoint may provide the Recipients with the following services:
Mainframe Operations, Enterprise Document Management, Data Circuit Management,
Voice Services, IT Solutions Delivery, and Desktop Data Device services. Costs
are billed to Recipients based on various metrics and cost allocations.
Mainframe Operations
METHODOLOGY METRIC
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Legacy Mainframe CPU Utilization Client Unit Usage CPU Second
Legacy Mainframe Data Storage Client Unit Usage Megabyte
SAP Mainframe Data Storage Client Unit Usage Megabyte
SAP Mainframe CPU Utilization Client Unit Usage CPU Second
Enterprise Client Specific Client Unit Usage Direct Billed
Enterprise Document Management
Methodology: Client Unit Usage
Metric: Hour
Data Circuit Management
Methodology: Client Unit Usage
Metric: Hour
Voice Services
METHODOLOGY METRIC
----------- ------
Telephone Basic Line Client Unit Usage telephone line
Moves/Adds/Change (MAC) Client Unit Usage hour
Call Center Basic Line Client Unit Usage telephone line
Video Conferencing Client Unit Usage conference + long distance
IT Solutions Delivery
Methodology: Client Unit Usage
Metric: Hour
SAP Production Support
Allocation Methodology: Headcount and Operating Expense
Desktop Data Device Services
METHODOLOGY METRIC
----------- ------
Equipment Client Unit Usage login ID
Lotus Notes Messaging Client Unit Usage login ID
LAN and Security Account Creation Client Unit Usage login ID
Network WAN/LAN Client Unit Usage login ID
Client Support Center Help Desk Client Unit Usage login ID
9. Business Support
FACILITY MANAGEMENT - Provide clients with general operating maintenance,
administrative and management duties for building operations. This service also
include project management and security for managed properties. Costs for
Facility Management are allocated based on the Square Footage utilized.
OFFICE SUPPORT SERVICES - Provide clients with copying, inserting, mailing, call
center, and graphic design functionality. This service also includes records
management and managing office supplies. Costs for Office Support Services are
generally allocated based on client unit usage.
FINANCIAL SERVICES - Provides payroll, bank reconciliation, check disbursements,
and escheat processing/reporting. This service also provides clients with
assistance in Corporate Travel. Costs for FS are generally allocated based on
client unit usage.
PURCHASING & LOGISTICS - Provides clients with procurement and Accounts Payable
services. Costs for purchasing and logistics are generally allocated based on
client unit usage.
EXHIBIT II
AGREED UPON SERVICES TO BE RECEIVED FROM CENTERPOINT
SERVICES YES NO
1. Regulatory and Govt. Affairs _____ _____
2. Internal Auditing _____ _____
3. Accounting Services _____ _____
4. Communications _____ _____
5. Human Resources _____ _____
6. Legal Services _____ _____
7. Financial Services _____ _____
8. Information Systems and Technology _____ _____
9. Executive _____ _____
10. Customer Services _____ _____
11. Employee Services _____ _____
12. Engineering _____ _____
13. Business Support _____ _____
i. Purchasing _____ _____
ii. Facilities Management _____ _____
14. Other _____ _____
[Signature Blocks]
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(Company Name)
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(President)
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(Address)
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(Date)
