Exhibit 10.4-b
AMENDMENT
Dated as of March 29, 2002
to
MANAGEMENT SERVICES AGREEMENT
between
LONG ISLAND LIGHTING COMPANY d/b/a LIPA
and
KEYSPAN ELECTRIC SERVICES LLC
Dated as of
June 26, 1997
This AMENDMENT (the "Amendment") is made and entered into as of March 29,
2002, by and between LONG ISLAND LIGHTING COMPANY d/b/a LIPA, a New York
corporation ("LIPA"), as assignee of Long Island Power Authority, and KEYSPAN
ELECTRIC SERVICES LLC, a New York limited liability company formerly known as
MarketSpan Electric Services LLC (the "Manager"), as assignee of the Long Island
Lighting Company, to the Management Services Agreement, by and between LIPA and
the Manager, dated as of June 26, 1997 (the "MSA").
RECITALS
WHEREAS, LIPA and the Manager have determined to (i) extend the term of the
MSA in part to assure LIPA the benefit of additional synergy savings associated
with the establishment of KeySpan Corporation ("KeySpan") and (ii) amend certain
other provisions of the MSA as herein provided; and
WHEREAS, LIPA and KeySpan are contemporaneously entering into certain
amendments to the Generation Purchase Right Agreement, entered into between them
dated as of June 26, 1997.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1. Definitions. All capitalized terms used in this Amendment and
not otherwise defined shall have the meanings assigned to them in the MSA.
ARTICLE 2
AMENDMENTS TO MSA
Section 2.1. Amendment to Section 6.1 of the MSA regarding the final year
of Management Services Agreement. Notwithstanding the Service Fee formula
contained in Section 6.1 to the MSA, the parties agree that for the seven (7)
month period ending December 31, 2008 (the "Stub Year"), Manager's fee will be
determined as follows:
In lieu of the Fixed Direct Fee determined in accordance with Section 6.1,
the Manager shall receive a monthly amount equal to 1/7th of Stub Year Direct
Cost Budget. The Stub Year Direct Cost Budget shall equal the sum of (a) the
Stub Year Fixed Direct Fee, (b) the Management Fee, (c) Manager Asset
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Compensation and (d) Estimated Incremental Direct Costs. The Stub Year Fixed
Direct Fee shall be 7/12ths of 90% of the Direct Cost Budget for the year ending
December 31, 2007, (less the Management Fee for such year and less the Manager
Asset Compensation for such year), escalated in a manner consistent with the
escalation for the Direct Cost Budget provided for in Section 2(a) of Exhibit A
to the letter agreement (the "MSA Side Letter") dated May 27, 1998 between LIPA
and the Manager evidencing agreement as to certain matters under the MSA. The
Management Fee for the Stub Year shall be $5,833,333.33. Manager Asset
Compensation for the Stub Year shall be $17,500,000.00. Estimated Incremental
Direct Cost shall be 7/12ths of 10% of the Direct Cost Budget for the year
ending December 31, 2007, (less the Management Fee for such year and less the
Manager Asset Compensation for such year), escalated in a manner consistent with
the escalation for the Direct Cost Budget provided for in Section 2(a) of
Exhibit A to the MSA Side Letter. Incremental Direct Costs means an amount (but
not less than zero) equal to the difference between the actual total Direct
Costs (including the actual Manager Asset Compensation as trued up in Section
2.4 hereof) incurred by the Manager in the Stub Year and the Stub Year Fixed
Direct Fee, provided that for purposes of such calculation, such difference,
adjusted by the Non-Cost Performance Incentives/Disincentives described in the
next sentence, may in no event be greater than 25% of the Stub Year Fixed Direct
Fee. Subject to the limitation contained in the prior sentence, the Manager
shall also receive the Non-Cost Performance Incentives/Disincentives determined
in accordance with the MSA pro-rated for the Stub Year based upon performance in
the Stub Year. The Manager will also be reimbursed for actual Third Party Costs
and the actual Other Costs incurred by the Manager in the Stub Year. Payments to
provide for Third Party Costs will be made in a manner consistent with the
budget for the year ending December 31, 2007. The Stub Year payments of the Stub
Year Fixed Direct Fee, Estimated Incremental Direct Costs and Third Party Costs
are subject to true up. KeySpan will provide within 45 days of December 31,
2008, a true up of the funding to the actual total Direct Costs and actual Third
Party Costs incurred. The final true up payment will be made within 60 days of
December 31, 2008.
The parties recognize that any synergy savings or productivity savings
achieved by Manager for the Stub Year are reflected in the total payments
provided above.
Section 2.2 Amendment to Section 8.1 of the MSA. The first sentence of
Section 8.1 is amended to read as follows:
This Agreement shall become effective on the Contract Date,
and shall continue in effect until December 31, 2008 (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.
Section 2.3. Amendment to Section 8.2 of the MSA. The first sentence of
Section 8.2 is amended by deleting "following the fifth anniversary...." and
inserting "following December 31, 2005...."
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Section 2.4. Amendment to Section 3 of Exhibit A to the MSA Side Letter.
Notwithstanding anything to the contrary in Section 3 of Exhibit A to the MSA
Side Letter, in accordance with Section 6.2(A)(1) of the MSA, the parties agree
that commencing May 29, 2006, the component of the Direct Cost Budget
representing compensation for the utilization of Manager-owned assets in
providing the services required under the MSA ("Manager Asset Compensation")
shall be $30,000,000 (such amount being referred to as the "Fixed Manager Asset
Compensation"). The net book value of common plant as of May 28, 2006 shall be
supported by KeySpan's books and records, prepared in accordance with GAAP. The
Manager shall provide an analysis, by common plant asset class and related
accumulated depreciation consisting of the balance of the common plant asset, by
class, as of May 28, 1998, capital additions and retirements for such asset
classes, as well as any other adjustments to these common plant asset classes
for the period May 28, 1998 through May 31, 2006. In addition to this analysis,
Manager shall also provide a forecast of common plant additions and retirements,
by year, for the remaining term of the MSA. Based upon the actual common plant
net book value at May 28, 2006 and forecast, the parties may consider adjusting
the Fixed Manager Asset Compensation. As part of the Annual Settlement process
conducted in accordance with Section 6.8 of the MSA for 2007 and 2008, and as
part of the actual Direct Costs for the Stub Year, LIPA and KeySpan will
calculate the actual cost for these assets. Such actual costs will be the annual
recovery of (a) the depreciation and amortization expense of the original cost
of the common plant as of May 28, 2006, calculated in accordance with GAAP, such
depreciation and amortization expense adjusted to reflect net capital additions
and retirements made during the remaining term of the MSA, and (b) a pre-tax
return on the undepreciated amount of such common plant during the remaining
term of the MSA. For purposes of such calculation, the parties shall use the
same capital structure (debt/equity ratio of 60%/40%), return on equity (10.35%)
and allowed return on rate base (8.52%) as was utilized in the calculation of
the original Manager Asset Compensation. Any difference between the actual cost
of these assets and the Fixed Management Asset Compensation will be known as the
True-Up Amount. If the True-Up Amount is positive, i.e., the actual costs are
greater than Fixed Manager Asset Compensation, the Manager will receive
additional compensation (the "Incremental Manager Asset Compensation"), equal to
the True Up Amount, provided that in no event shall the total of all variable
compensation (including any Incremental Manager Asset Compensation and any
Incremental Direct Costs) payable under the MSA in any year exceed twenty
percent (20%) of the sum of the total of the Fixed Direct Fee and such variable
compensation. If the True-Up Amount is negative, then the variable compensation
that would otherwise be payable to the Manager under the MSA will be reduced by
the True Up Amount, provided that in no event shall such variable compensation
be reduced below zero.
Section 2.5. Amendment to Attachment C to Exhibit A to the MSA Side Letter.
Attachment C to Exhibit A to the MSA Side Letter is amended to read as follows:
Synergy savings shall be equal to monthly amounts set forth in the
table below for the applicable contract months. Contract month shall
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mean the number of the month from 1 to 120, in consecutive order
starting with the month in which the closing date occurs.
Period Monthly Amount
------ --------------
($000's)
1-12 338.7
13-24 1,468.4
25-36 2,053.8
37-48 2,639.8
49-60 3,214.7
61-72 3,774.3
73-84 4,048.8
85-96 4,233.3
97-108 4,197.3
109-120 2,927.3
ARTICLE 3
MISCELLANEOUS
Section 3.1. Effective Date. This Amendment shall be effective on the date
on which all approvals, consents or orders (collectively, the "Approvals")
listed on the schedule referred to in Section 3.2 of this Amendment and the
schedule referred to in Section 3.2 of the Amendment dated as of March 29, 2002
(the "EMA Amendment") to the Energy Management Agreement, dated as of June 26,
1997, by and between KeySpan Energy Trading Services LLC and LIPA, have been
obtained and are in full force and effect. Upon receipt of all the Approvals ,
LIPA shall evidence such receipt by delivery of a notice to the Manager that all
Approvals have been obtained, together with a copy of such Approvals.
Section 3.2. Affirmation of Representations. Except as set forth on the
schedule attached hereto, all representations and warranties of the Manager set
forth in Section 2.2 of the MSA are (or will be, as the case may be) true and
correct as of the date hereof. Except as set forth on the schedule attached
hereto, all representations and warranties of LIPA set forth in Section 2.1 of
the MSA are (or will be, as the case may be) true and correct as of the date
hereof. Each such schedule will include a list of statutory or governmental
approvals required to be obtained in connection with the execution and delivery
of this Amendment.
Section 3.3. Termination of this Amendment. This Amendment may be
terminated by either party at any time if a final and non-appealable order,
ruling or injunction of any court of a competent jurisdiction shall have been
issued and the effect of such order, ruling or injunction is to render (i) this
Amendment or the EMA Amendment invalid or unenforceable by such party, or (ii)
the approval by the Long Island Power Authority of the Amendment dated as of
March 29, 2002 (the "GPRA Amendment") to the Generation Purchase Right
Agreement, dated as of June 26, 1997, by and between KeySpan and LIPA, invalid
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and thereby causing the GPRA Amendment to be invalid and unenforceable by LIPA.
Such termination shall be effective immediately upon the giving of a notice of
such termination to the other party. This Amendment may not be terminated by
either party if a final and non-appealable order, ruling or injunction of any
court of a competent jurisdiction shall have been issued and the effect of such
order, ruling or injunction is to render the approval of the GPRA Amendment
invalid for reason that the Long Island Power Authority did not seek requisite
governmental approvals.
Section 3.4. Miscellaneous. Except as amended hereby, the MSA shall remain
in full force and effect. This Amendment shall be governed, including, without
limitation, as to validity, interpretation and effect, by the Laws of the State
of New York. This Amendment may be executed in two or more counterparts which
together shall constitute a single agreement.
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IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed and delivered by their duly authorized officers or representatives
as of the date first above written.
LONG ISLAND LIGHTING COMPANY
d/b/a LIPA
By /s/
-------------------
Name: Xxxxxxx X. Xxxxxx
Title:Chairman and Chief
Executive Officer
KEYSPAN ELECTRIC SERVICES LLC
By /s/
-------------------
Name: Xxxxxxx X. Xxxx, Xx.
Title:Vice President and
Secretary
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Schedule of Manager pursuant to Section 3.2
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Schedule of LIPA pursuant to Section 3.2
The representations and warranties in subsection (D) of Section 2.1 of
the MSA are true and correct as of the date hereof. Except for the
representations and warranties in subsection (D) of Section 2.1 of the MSA, none
of the other representations and warranties in Section 2.1 of the MSA are true
and correct as of the date hereof, but all of such representations and
warranties will be true and correct on the date on which all of the Approvals
listed below have been obtained.
The obligations of LIPA hereunder are subject to the receipt of the
following Approvals:
1. Approval of the Public Authorities Control Board required pursuant
to Section 51 and subsection (aa) of Section 1020-f of the Public
Authorities Law; and
2. Approval of the Comptroller of the State of New York required
pursuant to Section 1020-cc of the Public Authorities Law.
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