AFFILIATED TRANSACTIONS AGREEMENT
This AGREEMENT is made and entered into as of the 31st day of
December, 1996, by and among American Electric Power Service
Corporation, a New York corporation; Appalachian Power Company, a
Virginia corporation; Columbus Southern Power Company, an Ohio
corporation; Indiana Michigan Power Company, an Indiana
corporation; Kentucky Power Company, a Kentucky corporation;
Kingsport Power Company, a Virginia corporation; Ohio Power
Company, an Ohio corporation; and Wheeling Power Company, a West
Virginia corporation (each, a "Company" and collectively, the
"Companies").
W I T N E S S E T H :
WHEREAS, the Companies are associate companies in the American
Electric Power Company System which comprises American Electric
Power Company, Inc. and its subsidiary companies; and
WHEREAS, the Companies have determined that significant
operational efficiencies can be achieved by realigning their
operations on a regional basis; and
WHEREAS, the Companies desire, where appropriate in certain
limited situations, to provide services, sell goods and make
facilities and vehicles available to each other;
NOW, THEREFORE, in consideration of such premises, the
Companies hereby agree as follows:
ARTICLE I
AGREEMENT TO PROVIDE SERVICES, SELL GOODS AND
MAKE FACILITIES AND VEHICLES AVAILABLE AND TO SHARE COSTS
Each Company (a "Delivering Company") agrees to provide
services, sell goods and make facilities and vehicles available to
the other Companies (a "Receiving Company"), if available, at the
Receiving Company's request, upon the terms and conditions set
forth in this Agreement. Each Receiving Company agrees to pay to
the Delivering Company the cost of services, goods, facilities or
vehicles received in accordance with Rules 90 and 91 of the Rules
and Regulations of the Securities and Exchange Commission
promulgated pursuant to the Public Utility Holding Company Act of
1935, upon the terms and conditions set forth in this Agreement.
ARTICLE II
ALLOCATION OF COSTS RELATING TO SERVICES
A. Costs relating to services which are provided by a
Delivering Company to a Receiving Company shall be accumulated and
allocated to the Receiving Company using accounts, work orders or
other billing indicators. Labor costs, to the extent practicable,
shall be allocated to the Receiving Company or Companies on the
basis of time records. Other costs which can be directly
identified with services for a Receiving Company shall be allocated
to that Company. Labor costs and other costs that cannot be
directly identified with a Receiving Company but which benefit two
or more Receiving Companies shall be allocated to the Receiving
Companies based upon the ratios set forth in Schedule A to this
Agreement or otherwise agreed to in writing between the Companies.
The costs of outside services shall be charged directly by the
vendor or supplier to the Receiving Company to the extent
practicable.
B. Labor costs include (i) the costs of salaries, computed
on the basis of each employee's hourly rate, and (ii) payroll-
related expenses, overheads and other indirect expenses, allocated
in the same proportion as the salaries are allocated.
ARTICLE III
ALLOCATION OF COSTS RELATING TO GOODS
A. Costs related to materials and supplies sold by a
Delivering Company to a Receiving Company shall include their book
value plus a stores overhead charge for direct and indirect costs
associated with purchasing and maintaining the inventory of
materials and supplies. The overhead charge will not include
investment carrying charges allocated as set forth in Paragraph B
of this Article.
B. If a Delivering Company maintains inventory for a
Receiving Company, costs associated with the Delivering Company's
investment carrying charges for the stores facilities and the
inventory will be allocated to the Receiving Company based on a
ratio the numerator of which is the total dollar value of inventory
issued from the facility to Receiving Company during the last
twelve months and the denominator of which is the sum of the total
dollar value of the inventory issued to all applicable Companies
during the same twelve months. This ratio will be revised semi-
annually. The costs also shall include an amount to compensate the
Delivering Company for income taxes and other taxes to the extent
applicable to such payments for such costs. Inventories at stores
facilities will be owned by the Delivering Company.
C. Costs related to capitalized spare parts sold by a
Delivering Company to a Receiving Company shall be their book
value, net of accumulated depreciation.
ARTICLE IV
ALLOCATION OF COST OF FACILITIES AND VEHICLES
Costs related to a facility of a Delivering Company used
directly by a Receiving Company, including depreciation, property
taxes, and investment carrying charges (or lease expense, if
applicable) will be allocated to the benefitting Company as rent
expense based on square footage occupied. Costs relating to a
vehicle of the Delivering Company used directly by a Receiving
Company will be allocated to the Receiving Company based on the
amount of time that it is used. These cost allocations also shall
include an amount to compensate for income taxes and other taxes to
the extent applicable.
ARTICLE V
INVESTMENT CARRYING CHARGES
"Investment carrying charges," as used for purposes of
Articles III and IV, shall employ the Delivering Company's
weighted cost of capital, based on capital structure ratios and
embedded costs of long-term debt and preferred stock as of the end
of the prior year and the allowed return on common equity capital
most recently authorized by a state commission having jurisdiction
over the Company's retail rates.
ARTICLE VI
TRANSFER OF EMPLOYEES
When an employee of one Company is transferred to another
Company, the Company that receives the employee shall pay directly
or indirectly all of the relocation expenses of the transferring
employee. The Receiving Company shall assume the liability for
accrued compensation owed to the transferring employee at the time
of transfer and the sending Company shall reimburse the receiving
Company for the payment of such liability.
ARTICLE VII
REPRESENTATIONS, WARRANTIES AND REMEDIES,
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
A. Unless otherwise disclosed, any Company selling goods to
another Company warrants that, at the time of transfer, the good,
if new or unused, shall be free from defects in material and
workmanship, and, if used, shall be capable of performing its
intended function. If any good fails to meet the standards set
forth above and if the manufacturer's warranty does not cover the
defect, the Delivering Company shall, at its expense, repair or
replace the good.
B. Any Company performing services for another Company
warrants that it will exercise due care to assure that the services
are performed in a workmanlike manner and comply with applicable
standards of law and regulations. However, failure to meet these
obligations shall in no event subject the Delivering Company to any
claims or liabilities other than to reperform the work.
C. Except as expressly provided in this Article, each
Receiving Company acknowledges and agrees that the Delivering
Companies have not made and do not make any representation,
warranty or covenant with respect to merchantability, condition,
quality or durability of the goods or services in any respect or in
connection with, or for the purpose or use of the Receiving
Company, or any other representation, warranty or covenant or any
kind or character expressed or implied with respect thereto.
ARTICLE VIII
BILLING OF COSTS AND PAYMENTS
Costs allocated to a Receiving Company as described in this
Agreement shall be billed to the Company within 30 days of the end
of each month. Costs may be billed based upon estimates, if (a)
such costs are reasonable estimates of expected actual costs, (b)
the estimated costs are adjusted at least once annually to the
level of actual costs, unless the difference between the estimated
and actual costs is insignificant, and (c) both the estimated costs
and actual costs are allocated as provided in this Agreement. All
amounts billed under this Agreement shall be paid by the Receiving
Companies within 15 days after the receipt of each invoice.
ARTICLE IX
EXCLUDED SERVICES, GOODS, AND FACILITIES;
TERMINATION OF AGREEMENTS
This Agreement shall not apply to: (1) services performed by
American Electric Power Service Corporation for the Companies; (2)
sales of electric power, provision of transmission services and
operation of generating facilities; (3) services, goods, or
facilities in connection with the transportation or sale of coal;
(4) services provided under the Central Machine Shop Agreement
dated January 1, 1979; (5) services, goods or facilities provided
under the Mutual Assistance Agreement dated as of July 30, 1987;
and (6) services, goods or other matters governed by the Services
Agreement between the Cincinnati Gas & Electric Company, Columbus
Southern Power Company, The Dayton Power and Light Company and
American Electric Power Service Corporation for the Wm. X. Xxxxxx
Generating Station. The Cost Sharing Agreement, dated as of July
1, 1993, between Columbus Southern Power Company and Ohio Power
Company and the Lease Agreement, dated May 1, 1995, between
American Electric Power Service Corporation and Ohio Power Company
are terminated and superseded.
ARTICLE X
AMENDMENTS
This Agreement may be amended from time to time by agreement
of the parties hereto.
ARTICLE XI
WITHDRAWAL AND TERMINATION
Any Company may withdraw from this Agreement upon not less
than 180 days' written notice to the other Companies; this
Agreement shall continue in effect after such withdrawal with
respect to all Companies that do not withdraw. This Agreement may
be terminated without notice if performance hereunder conflicts
with any rule, regulation or order of the Securities and Exchange
Commission issued pursuant to the provisions of the 1935 Act.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date and year first above
written.
AMERICAN ELECTRIC POWER SERVICE CORPORATION
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Executive Vice President
APPALACHIAN POWER COMPANY
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Vice President
COLUMBUS SOUTHERN POWER COMPANY
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Vice President
INDIANA MICHIGAN POWER COMPANY
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Vice President
KENTUCKY POWER COMPANY
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Vice President
KINGSPORT POWER COMPANY
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Vice President
OHIO POWER COMPANY
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Vice President
WHEELING POWER COMPANY
By:/s/ X. X. Xxxxxxx
X. X. Xxxxxxx, Vice President
SCHEDULE A
DESCRIPTION OF SERVICES AND DESIGNATION OF METHODS OF ALLOCATION
A general description of the services which may be performed
from time to time by one Company and the method of allocation to be
used for costs of services that benefit other Companies, but cannot
be specifically identified to a Company, are set forth below:
SERVICES COST SHARING METHOD*
Marketing
Consumer Marketing . . . . . . . . . . Number of Electric Customers
Key Accounts . . . . . . . . . . . . . Number of Electric Customers
Economic Development . . . . . . . . . Number of Electric Customers
Business Services. . . . . . . . . . . Number of Electric Customers
Marketing Support Services . . . . . . Number of Electric Customers
Distribution Regions
Managerial . . . . . . . . . . . . . . Number of Electric Customers
Customer Services. . . . . . . . . . . Number of Electric Customers
Eng. - Engineering & Planning. . . . . Number of Electric Customers
Eng. - Information & Drafting. . . . . Number of Electric Customers
Operations - Administrative. . . . . . Number of Electric Customers
Operations - Meter . . . . . . . . . . Number of Electric Customers
Operations - Line. . . . . . . . . . . Number of Electric Customers
Energy Distribution Support
Distribution Operations
Distribution Operations. . . . . . . Number of Electric Customers
Right of Way Maintenance . . . . . . Number of Electric Customers
Distribution Engineering
Engineering & Planning . . . . . . . Number of Electric Customers
Distribution Data Systems
Database Applications. . . . . . . . Number of Electric Customers
Joint Use. . . . . . . . . . . . . . Number of Electric Customers
Customer Services
Customer Call Centers. . . . . . . . Number of Electric Customers
Energy Transmission
Transmission Regions
Transmission Line. . . . . . . . . . Xxxx. & Sub-Xxxx. Pole Miles
Protection & Control . . . . . . . . Xxxx. & Sub-Xxxx. Pole Miles
Station. . . . . . . . . . . . . . . Xxxx. & Sub-Xxxx. Pole Miles
Transmission System Engineering
Line Engineering . . . . . . . . . . Xxxx. & Sub-Xxxx. Pole Miles
Line Engineering/Right of Way. . . . Xxxx. & Sub-Xxxx. Pole Miles
Line Engineering/Survey. . . . . . . Xxxx. & Sub-Xxxx. Pole Miles
Protection & Control Eng.. . . . . . Xxxx. & Sub-Xxxx. Pole Miles
Station Engineering. . . . . . . . . Xxxx. & Sub-Xxxx. Pole Miles
Station Construction, O&M Admin.
System Maint., Tools & Equip.. . . . Xxxx. & Sub-Xxxx. Pole Miles
Operations Center. . . . . . . . . . . Kwh Sales
Energy Delivery Support
Measurements & Customer Support
Measurements Eng. & Support. . . . . Kwh Sales
Meter Operations . . . . . . . . . . Kwh Sales
Telecommunications
Telecommunications Engineering . . . Number of Employees
Telecommunications Operations. . . . Number of Employees
Operations Improvement
Land Management - Forestry . . . . . Kwh Sales
Land Management - Real Estate. . . . Kwh Sales
Operations Analysis. . . . . . . . . Kwh Sales
Administrative Support
Administrative
State Pres./Envir. & Gov't. Aff. . . Kwh Sales
Corporate Communications . . . . . . Kwh Sales
Rates. . . . . . . . . . . . . . . . Kwh Sales
Accounting
Administrative . . . . . . . . . . . Kwh Sales
Accounts Payable . . . . . . . . . . Number of Invoices Processed
Cash Management. . . . . . . . . . . Kwh Sales
Centralized Cash . . . . . . . . . . Number of Electric Customers
Customer Accounting. . . . . . . . . Number of Electric Customers
Data Processing. . . . . . . . . . . Kwh Sales
Electric Plant . . . . . . . . . . . Net Plant Investment
General Records. . . . . . . . . . . Kwh Sales
Reports. . . . . . . . . . . . . . . Kwh Sales
Systems and Procedures . . . . . . . Kwh Sales
Corporate Services
Corporate Services-Admin . . . . . . Kwh Sales
State Taxes. . . . . . . . . . . . . Kwh Sales
*1.Kwh Sales Ratio
A ratio the numerator of which is the total Kwh sales of the
benefitting Company, both billed and unbilled, during the last
twelve months and the denominator of which is the sum of the Kwh
sales, both billed and unbilled, of all applicable Companies
during the same twelve months. Firm intra-System sales,
exclusive of the Interchange Power Pool, between the Companies
shall be eliminated from a Company's Kwh sales. This ratio will
be revised semi-annually, based on figures as of March 31 and
September 30.
2. Number of Electric Customers Ratio
A ratio the numerator of which is the number of firm electric
customers of the benefitting Company and the denominator of which
is the sum of the number of firm electric customers of all
applicable Companies. This ratio will be revised semi-annually,
based on figures at March 31 and September 30.
3. Number of Employees Ratio
A ratio the numerator of which is the number of employees
(exclusive of certain union employees, where applicable) of the
benefitting Company and the denominator of which is the sum of
the number of employees (exclusive of certain union employees,
where applicable) of all applicable Companies. This ratio will
be revised semi-annually, based on figures at March 31 and
September 30.
4. Net Plant Investment Ratio
A ratio the numerator of which is the investment in utility plant
of the benefitting Company (including capital leases and coal
mining assets), net of accumulated provisions for depreciation,
depletion and amortization, and the denominator of which is the
sum of such net investments of all applicable Companies. This
ratio will be revised semi-annually, based on figures at March 31
and September 30.
5. Transmission and Sub-Transmission Pole Miles Ratio
A ratio the numerator of which is the transmission and
sub-transmission pole miles of the benefitting Company and the
denominator of which is the sum of the transmission and
sub-transmission pole miles of all applicable Companies. This
ratio will be revised annually, based on figures at September 30.
6. Number of Invoices Processed Ratio
A ratio the numerator of which is the number of invoices
processed for a benefitting Company during the last twelve months
and the denominator of which is the sum of the number of invoices
processed for all applicable Companies during the same twelve
months. This ratio will be revised semi-annually, based on
figures as of March 31 and September 30.
