EXHIBIT G-2
KeySpan Utility Services LLC
Form of
SERVICE AGREEMENT (KUS)
This Service Agreement ("Agreement") dated as of _________,___
by and between KeySpan Utility Services LLC ("KUS"), a New York limited
liability company and _____________[list companies} (individually a "Client
Company" and collectively, the "Client Companies"). KUS and the Client Companies
may each be referred to herein as a "Party," and collectively referred to herein
as the "Parties."
WITNESSETH:
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WHEREAS, KUS is a wholly owned subsidiary of KeySpan Corporation
("KeySpan") which is a registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the "Act");
WHEREAS, the Securities and Exchange Commission (the "SEC") has
approved and authorized KUS as a service company pursuant to Section 13(b) of
the Act and the SEC regulations promulgated thereunder to provide services to
KeySpan and its subsidiaries; and
WHEREAS, KUS and the Client Companies desire for KUS to provide,
and the Client Company to accept, the services provided for hereunder in
accordance with the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual representations,
covenants and agreements hereinafter set forth, and intending to be legally
bound hereby, the Parties hereto agree as follows:
ARTICLE 1
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SERVICES
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1.1 Services Offered. Exhibit I to this Agreement describes the services
that KUS offers to furnish to a Client Company (in accordance with the terms and
conditions set forth herein) upon written request of such Client Company. In
addition to the services described in Exhibit I hereto, KUS may also provide a
Client Company with such special services, as may be requested by such Client
Company in writing, which the Service Company concludes it is able to perform.
In supplying services hereunder to a Client Company, KUS may arrange, where it
deems appropriate, for the services of such experts,
consultants, advisers and other persons with necessary qualifications as are
required for, or pertinent to, the performance of such services.
1.2 Services Selected.
(a) Each Client Company shall make its initial selection of the
services set forth in Section 1.1 above that it agrees to receive from KUS
by providing KUS an executed service request in the form set forth in
Exhibit II.
(b) By December 1 of calendar year, KUS shall send an annual service
proposal to each Client Company listing the services proposed for the next
calendar year. By December 31, each Client Company shall notify KUS in
writing of the services it elects to receive from KUS during the next
calendar year.
1.3 Modification of Services. A Client Company shall have the right
from time to time to amend, alter or rescind any activity, project, program
or work order provided that (i) such amendment or alteration which results
in a material change in the scope of the services to be performed or
equipment to be provided is agreed to by KUS, (ii) the cost for the
services covered by the activity, project, program or work order shall
include any expense incurred by KUS as a direct result of such amendment,
alteration or rescission of the activity, project, program or work order,
and (iii) no amendment, alteration or rescission of an activity, project,
program or work order shall release a Client Company from liability for all
costs already incurred by or contracted for by KUS pursuant to the
activity, project, program or work order, regardless of whether the
services associated with such costs have been completed. Any request made
by a Client Company pursuant to this Section 1.3 shall be in writing to KUS
and shall take effect on the first day of the first calendar month which is
at least thirty (30) days after the day that the Client Company sent the
written notice to KUS.
1.4 Service Receipt Limitations.
(a) __________[INSERT UTILITY NAME] agrees that:
(i) it will not incur a charge hereunder except in accordance
with ________________ [INSERT APPLICABLE STATE] and the rules,
regulations and orders of the _________________[INSERT NAME OF
APPLICABLE STATE PUBLIC SERVICE COMMISSION] promulgated thereunder;
and
(ii) it will not seek to reflect in rates any cost incurred
hereunder to the extent disallowed by the ___________ Public Service
Commission.
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(b) Notwithstanding anything in this Agreement to the contrary,
KUS and ________ agree that because of the agreements set forth in
Section 1.4(a) above, ______________ will not accept services from KUS
hereunder if the cost to be charged for such services differs from the
amount of the charges ___________is permitted to incur under
_______________ [INSERT APPLICABLE STATE] and the rules, regulations
and orders of the _________________[INSERT NAME OF APPLICABLE STATE
PUBLIC SERVICE COMMISSION] promulgated thereunder.
ARTICLE 2
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COMPENSATION AND BILLING
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2.1 Compensation. As and to the extent required by law, KUS shall
provide the services hereunder at cost. Exhibit I hereto sets forth
the rules KUS shall use for determining and allocating costs to the
Client Companies. KUS shall advise the Client Companies from time to
time of any material change in the method of assignment or allocation
of costs hereunder, and no such material change shall be made unless
and until KUS shall have first given written notice to the SEC not
less than sixty (60) days prior to the proposed effective date
thereof.
2.2 Invoices. By the 20th day of each month, KUS shall render a
monthly xxxx to each Client Company which shall reflect the billing
information necessary to identify the costs charged for the services
KUS provided in the preceding month. A Client Company shall pay its
invoice by check or through wire transfer to KUS (at the account
designated by KUS) within 30 days after receiving the invoice. If an
invoice is not paid by the 30th day after the invoice is received (the
"Due Date"), the Client Company shall pay interest on any amount
outstanding after the Due Date at the rate of two (2) percentage
points over the then current prime interest rate as reported in the
Wall Street Journal.
ARTICLE 3
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TERM AND TERMINATION
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3.1 Effective Date. This Agreement shall become effective on the
date hereof, subject to receipt of all required federal or state
regulatory approvals.
3.2 Termination. This Agreement shall continue in full force and
effect with respect to KUS and a Client Company until (a) terminated
by the Client Company upon sixty (60) days advance written notice to
KUS, or (b) terminated by KUS upon sixty (60) days advance written
notice to a Client Company. This Agreement shall also be subject to
termination or modification at any time, without notice, if and to the
extent performance under this Agreement may conflict with the Act or
with any rule, regulation or order of the SEC adopted before or after
the date of this Service Agreement.
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ARTICLE 4
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MISCELLANEOUS
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4.1 Modification. Except as set forth in Article 2 and Sections
1.3, 3.2 and 4.4, no amendment or other modification of this Agreement
shall be effective unless made in writing and executed by all of the
Parties to this Agreement.
4.2 Notices. Where written notice is required by this Agreement,
said notice shall be deemed given when mailed by United States
registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
To KUS:
[INSERT NAME AND ADDRESS]
To Client Company: The name and address of the person
designated in writing to KUS on the date the Client Company
executes this Agreement.
4.3 Accounts. All accounts and records of KUS shall be kept
in accordance with the General Rules and Regulations promulgated
by the SEC pursuant to the Act, in particular, the Uniform System
of Accounts for Mutual Service Companies and Subsidiary Service
Companies in effect from and after the date hereof. Upon request,
KUS shall permit a Client Company reasonable access to the
accounts and records of KUS relating to the services performed
for such Client Company hereunder.
4.4 Additional Client Companies. After the effective date of
this Agreement, any new or existing direct or indirect subsidiary
of KeySpan may become an additional Client Company under this
Agreement by becoming a signatory to this Agreement.
4.5 Waiver. Except as otherwise provided in this Agreement,
any failure of a Party to comply with any obligation, covenant,
agreement, or condition herein may be waived by the Party
entitled to the benefits thereof only by a written instrument
signed by the Party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation,
covenant, agreement, or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
4.6 No Third Party Beneficiaries. Nothing in this Agreement
is intended to confer upon any other person except the Parties
any rights or remedies hereunder or shall create any third party
beneficiary rights in any person. No provision of this Agreement
shall create any rights in any such persons in respect of any
benefits that may be provided,
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directly or indirectly, under any employee benefit plan or
arrangement except as expressly provided for thereunder.
4.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
(regardless of the laws that might otherwise govern under
applicable principles of conflicts of law).
4.8 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
4.9 Entire Agreement. This Agreement including the exhibits
referred to herein or therein, constitute the entire agreement
and understanding of the Parties in respect of the transactions
contemplated by this Agreement. KUS and each Client Company may
enter into non-binding service level agreements (as described
more fully in KUS' policies and procedures manual), the purpose
of which will be to set forth in general terms the shared service
expectations between KCS and the Client Company as a managerial
tool to facilitate matching the Client Companies needs to the
capabilities of KUS. There are no restrictions, promises,
representations, warranties, covenants or undertakings other than
those expressly set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings
between the Parties with respect to the transactions contemplated
by this Agreement.
4.10 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by
any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full
force and effect.
4.11 Independent Contractor Status. Nothing in this
Agreement shall be construed as creating any relationship between
KUS and the Client Companies other than that of independent
contractors.
4.12 Assignment. KUS shall not assign this Agreement, or any
of its rights or obligations hereunder without the prior written
consent of the Client Companies, such consent not to be
unreasonably withheld. A Client Company shall not assign this
Agreement, or any of its rights or obligations hereunder without
the prior written consent of KUS. This Agreement shall inure to
the benefit and shall be binding upon the Parties and their
permitted successors and assigns.
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IN WITNESS WHEREOF, KUS and the Client Companies have caused
this Service Agreement to be signed by their respective duly authorized officers
as of the date first above written.
KEYSPAN UTILITY SERVICES LLC
By:____________________________
Name:
Title:
[LIST CLIENT COMPANIES]
By:____________________________
Name:
Title:
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EXHIBIT I
Description of Services, Cost Accumulation, Assignment
and Allocation Methodologies for KUS
A. Description of Services Offered by KeySpan Utility Services
1. Fuel Management
Manage Client Companies' purchase, sale, movement, transfer and accounting of
gas quantities to ensure continued recovery of all prudently incurred energy
purchase costs through local jurisdictional cost recovery mechanisms.
Provide services and systems dedicated to energy marketing, including marketing
and trading of gas and energy price risk management. Develop marketing and sales
programs in physical and financial markets for regulatory and specific
contractual requirements. Activities include short-term planning, billing and
reconciliations.
2. Marketing and Sales
Plan, formulate and implement marketing and sales programs, as well as provide
associated marketing services to assist Client Companies with improving customer
satisfaction, load retention and shaping, growth of residential,
commercial/industrial energy sales and deliveries, energy conservation and
efficiency. Assist Client Companies in carrying out policies and programs for
the development of plant locations and of industrial, commercial and wholesale
markets. Develop and administer Marketing research and planning programs as well
as advertising/telemarketing programs. Perform load research, econometric
modeling, and sales and revenue forecasting for jurisdictional gas subsidiaries.
3. Meter Operations
Purchase, repair and refurbish meters for Client Companies.
4. Research and Development
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Investigate and conduct research relating to production, utilization, testing,
manufacture, transmission, storage and distribution of energy. Keep abreast of
and evaluate for Client Companies all research developments and programs of
significance affecting Client Companies and the energy industry. Advise and
assist in the solution of technical problems arising out of Client Companies'
operations.
5. Gas and Electric Transmission and Distribution Planning
Provide gas and electric transmission and distribution planning services as
related to system and safety reliability, expansion and load handling
capabilities.
B. Methods of Allocation
Cost of service will be determined in accordance with the Act and the rules and
regulations and orders thereunder, and will include all costs of doing business
incurred by KUS, including a reasonable return on capital which will reflect a
capitalization of KUS of no more than equity of ten percent (10%), and all
associated taxes.
KUS will maintain an accounting system for accumulating all costs on a project,
activity or other appropriate basis. The accounting system will use codes to
assign charges to the applicable costs center, project, activity and account.
Records will be kept by each cost center of KUS in order to accumulate all costs
of doing business. Expenses of the department will include salaries and wages of
employees, materials and supplies and all other expenses attributable to the
department. Labor cost will be loaded for fringe benefits and payroll taxes. To
the extent practicable, time records of hours worked by all service company
employees, including all officers of such company (i.e., Chief Executive
Officer, President and Vice Presidents), will be kept by project and activity.
In supplying services, KUS may arrange where it deems appropriate, for the
services of experts, consultants, advisors and other persons with necessary
qualifications as are required to perform such services. KUS will establish
annual budgets for controlling the expenses of each department.
Monthly KUS costs will be directly assigned to Client Companies where possible.
Amounts that cannot be directly assigned will be allocated to Client Companies
by means of equitable allocation formulae or clearing accounts. To the extent
possible, such allocations shall be based on cost-causation relationships. All
other allocations will be broad based. In some instances, KUS cost centers which
perform work for other service company cost centers may use a surrogate
allocation method that mimics the allocations of the receiver cost center. Each
formula will have an appropriate basis such as meters, square footage, etc.
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Each Client Company will take agreed upon services and such additional or
general or special services, whether or not now contemplated, as are requested
from time to time by such Client Company and which KUS concludes it is able to
perform. No amendment, alteration or rescission of an activity or project shall
release a Client Company from liability for all costs already incurred by, or
contracted for, by KUS pursuant to the project or activity regardless of whether
the services associated with such costs have been completed.
Allocation percentages will be calculated on historical data where appropriate
and updated annually. Due to the unique nature of the management services
agreement contract with the Long Island Power Authority (LIPA), the bases of the
LIPA (such as revenues, assets, etc. managed on their behalf) will be included,
with the applicable Client Company's data, in order to determine appropriate
allocations.
The method of assignment or allocation of costs shall be reviewed annually or
more frequently if appropriate. If the use of a basis of allocation would result
in an inequity because of a change in operations or organization, then KUS may
adjust the basis to effect an equitable distribution.
The applications of Service Allocations are described more fully below.
Service Department
Or Function Basis of Allocation
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Customer Services # of phone calls
# of bills
# of meters
% of Accounts Receivable
# of customers
3-point formula (1,2)
Fuel Management sendout
3-point formula (1,2)
Research and Development 3-point formula (1,2)
Meter Operations #of meters
Gas and Electric Transmission and
Distribution Planning Property
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Definition of Allocation Factors to be used by KUS
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Assets - A ratio based on total assets at the end of the year, the numerator of
which is for a specific client company and the denominator being all recipient
client companies. This ratio will be calculated annually based on actual
experience.
# of Meters - A ratio based on the number of meters at the end of the year, the
numerator of which is for a specific client company and the denominator being
all recipient client companies. This ratio will be calculated annually based on
actual experience.
Payroll - A ratio based on total wages, salaries, commissions and other forms of
compensation paid during the year which are reportable, for federal income tax
purposes, as taxable income to the employee, the numerator of which is for a
specific client company and the denominator being all recipient client
companies. This ratio will be calculated annually based on actual experience.
Property - A ratio based on gross fixed assets, valued at original acquisition
costs, and investments owned in other companies, including construction work in
progress, at the end of the year, the numerator of which is for a specific
client company and the denominator being all recipient client companies. This
ratio will be calculated annually based on actual experience.
Revenue - A ratio based on the revenue for the previous calendar year, the
numerator of which is for a specific client company and the denominator being
all recipient client companies. This ratio will be calculated annually based on
actual experience.
Sendout - A ratio based on the sendout for the previous calendar year, including
gas used by the Client entity but excluding Transportation customer volumes
delivered for another gas supplier, the numerator of which is for a specific
client company and the denominator being all recipient client companies. This
ratio will be calculated annually based on actual experience.
3-Point Formula (1,2) - This formula consists of three factors. It is designed
to be an equitable and feasible tool to act as a surrogate when direct charging
or cost causal relationships can not be established. It is a calculated ratio,
which compares each of the formula factors for the Client Company to the total
of the same factors for all recipient Client Companies. The factors for (1)
would be an equal weighting of Revenue, Property and Payroll (I.E., the
"Massachusetts" Formula). The factors
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for (2) would be an equal weighting of Revenue, Assets, and Expenses. These
ratios will be calculated annually based on actual experience.
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EXHIBIT II
Form of Initial Service Request
The undersigned requests from KeySpan Utility Services LLC all
of the services selected below. The services requested hereunder shall commence
on ______________ and be provided through _____________________.
Service Yes No
Fuel Management ___ ___
Marketing and Sales ___ ___
Meter Operations ___ ___
Research and Development ___ ___
[Client Company]
By ________________________
Name:
Title:
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