PROPOSED
SERVICE AGREEMENT
BETWEEN THE
ALLEGHENY POWER SERVICE CORPORATION
AND
DUQUESNE LIGHT COMPANY
THE SERVICE AGREEMENT, effective upon the consummation of the merger
between DQE, Inc., and AYP Sub, Inc., between Allegheny Power Service
Corporation, a corporation formed under the laws of the State of Maryland (the
"Service Company") and Duquesne Light Company, a corporation formed under the
laws of the Commonwealth of Pennsylvania (the "Company").
WITNESSETH:
WHEREAS, pursuant to a service agreement dated November 22, 1963, the
Service Company was created to perform certain management duties on behalf of
Allegheny Power System, Inc. (the "System") and its utility subsidiary companies
(the "Subsidiaries"); and
WHEREAS, by merger agreement dated April 5, 1997, DQE, Inc., the parent
of Company, agreed to merge with AYP Sub, Inc., a special purpose subsidiary of
the System; and
WHEREAS, the Service Company offers to provide a central organization
to furnish to the System and the Subsidiaries, including Company, certain
advisory, supervisory and other services in accordance with said current
practices and procedures; and
WHEREAS, the Company wishes to accept the offer proposed by the Service
Company;
-1-
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be reasonably
bound, hereby agree as follows:
1. The Service Company hereby offers to furnish to the Company the
services detailed on Exhibit I attached hereto and made a part hereof.
2. For all services rendered for the Company by the Service Company,
the Company agrees to pay the cost thereof. When a service is rendered to two or
more Subsidiaries, the cost thereof shall be shared by such Subsidiaries in
proportion to the average electric operating revenues of each (exclusive of
sales to the Subsidiaries), operating and maintenance expenses (exclusive of
those costs for fuel, deferred fuel, and purchased power and exchanges),
kilowatt hours sold to regular customers (other than the Subsidiaries) and total
electric plant in service (less reserves for depreciation and amortization) over
the three preceding calendar years. For services rendered to one or more
Subsidiaries and the System, the allocation will be based on the average of the
prior three years' direct costs charged by the Service Company to each
Subsidiary and the System.
3. The payment for services rendered by the Service Company to the
System and Subsidiaries shall cover all the costs and expenses of its doing
business, excluding only a return for the use of equity capital, and that each
Subsidiary and the System shall pay its direct or fair proportionate share.
4. Payment shall be made by the Company to the Service Company on a
monthly basis on or before the 20th day of the succeeding month, upon receipt of
a statement showing the amount due. Certain charges billed by the Service
Company to the Company may not be due immediately and will be so indicated on
the statement of billing. Monthly charges may be made on an estimated basis, but
adjustments will be made at the end of each calendar year so that all charges
for the calendar year will be in accordance with the foregoing.
5. Nothing herein shall be construed to release the officers and
directors of the Company from the performance of their respective duties or
limit the exercise of their powers as prescribed by law or otherwise.
6. The offer set forth herein shall become a contract effective upon
the consummation of the merger between DQE, Inc., and AYP Sub, Inc. Such Service
Agreement shall continue in full force and effect from year to year but may be
terminated by either party upon 60 days' prior notice, and the Company may
terminate such contract at any time with or without notice for any cause deemed
by it to be sufficient.
-2-
7. The Service Agreement will be subject to termination or modification
at any time to the extent its performance may conflict with the provisions of
the Public Utility Holding Company Act of 1935, as amended, or with any rule,
regulation or order of the Securities and Exchange Commission adopted before or
after the making of this Service Agreement and shall be subject to the approval
of any state commission or other regulatory body whose approval is a legal
prerequisite to its execution and delivery or performance.
If your Company desires to accept this offer, please cause it to be
executed in the space provided below by your duly authorized officers.
Very truly yours,
ALLEGHENY POWER SERVICE CORPORATION
By_________________________________
President
Attest:
________________________
Secretary
Pursuant to authorization of the Board of Directors of this Company, we hereby
accept the above offer this _____ day of _____,1997.
DUQUESNE LIGHT COMPANY
By___________________________________
President
_________________________
Assistant Secretary
-3-
EXHIBIT I
(As Amended, effective July 1, 1996)
Allegheny Power Service Corporation Principal Functions
The following is a description of the principal functions of Allegheny
Power Service Corporation ("APSC"). In accordance with the terms and conditions
of the Service Agreement dated __________, 1997, APSC may perform the services
described herein for Duquesne Light Company.
1. Corporate Services
1. Accounting
(a) Payroll - Processes and verifies timesheets and paychecks for
Duquesne Light Company employees. Ensures compliance with payroll tax laws and
regulations.
(b) Asset Accounting - Maintains corporate accounting records for
Duquesne Light Company's fixed assets in accordance with regulatory
requirements, corporate capital budget management, and fixed asset return
objectives.
(c) Taxes - Ensures compliance with all federal, state and local
tax laws (except payroll and benefits matters). Prepares and files applicable
returns, gives instructions for timely payment of tax liabilities, and
coordinates the issuance of tax accounting instructions to Duquesne Light
Company. Also provides tax planning services.
(d) Corporate Accounting - Gathers, reports, and analyzes
accounting and management information. Reviews and corrects accounting data.
(e) Payment Processing - Processes invoices from, and issues
payment to, vendors for goods and services provided to Duquesne Light Company.
(f) Fuel Accounting - Initiates payment for fuel receipts and
compiles fuel data for report preparation on fuel purchases and generation
statistics to meet various regulatory requirements.
-1-
2. Information Services
Provides electronic data processing services:
(a) Machine related computer activity - services such as data
processing for customer accounting, payroll and general accounting, engineering
planning, purchasing and stores studies, forecasts and various other
administrative and engineering applications.
(b) Computer applications activity - services such as feasibility
studies for new applications, development and/or acquisition of new
applications, enhancement of existing applications and other related activity.
3. Financial Management
Oversees annual budgeting and capital management, long-term
forecasting, and financial planning.
4. Treasury
(a) Cash Processing - Maintains relationship with banking
institutions for lines of credit. Handles customer xxxx processing, money pool
(internal funding among certain Allegheny Power System, Inc. companies, external
short-term borrowing and investing), and long-term financing and cash
forecasting.
(b) Risk Management - provides risk financing through insurance
purchases and other funding mechanisms. Provides transfer of risk via contracts
and insurance certification for all contractors, lessees, cogenerators, and
PURPA projects. Provides risk control to protect Duquesne Light Company's
properties from loss, and provides advice to Legal, Claims, and Human Resources
relative to liability and worker's compensation issues, including litigation.
(c) Electronic Commerce - Provides guidance, implementation, and
oversight of Electronic Commerce (EC) activities. EC is defined as any binding
business transaction conducted or consummated over an electronic network between
Duquesne Light Company and its customers, suppliers, financial institutions, or
other entities.
-2-
5. Audit Services
Performs independent appraisals of significant activities
carried out within, and/or related to, Duquesne Light Company through
application of financial, contract, operational and compliance audit techniques.
Provide consulting services upon management request.
6. Legal
(a) Legal Services - Renders services relating to financings,
financial reporting, shareholders' meetings, rates and other regulatory
proceedings, environmental matters, litigation, marketing, human resources,
contracts, real estate, leasing, corporate and other legal matters.
(b) Corporate Secretary - Responsible for creation, maintenance,
and retention of corporate records; liaison with Board of Directors;
administration of indentures (performed by Assistant Secretaries); support for
long-term financing, regulatory filings; handles shareholder/bondholder
relations and relationship with stock transfer agent and bond trustee (records
kept, checks sent, etc., by outside agents.)
(c) Claims - Responsible for investigating and taking other
appropriate actions concerning claims made against Duquesne Light Company by
third parties. Also responsible for activities involved with collecting monies
owed to Duquesne Light Company by third parties for property damage.
7. Regulation & Pricing
(a) Costing & Pricing - Provides cost of service analysis.
Identifies usage pattern trends to assist marketing effort. Performs special
studies requesting internally or by regulatory agencies. Provides analyses such
as separation, cost of service and loss studies.
(b) Financial Analysis - Assembles and provides primary support
for regulatory filings. Maintains contacts with state commission staff members.
Performs special financial studies.
(c) Fuel & Capital Recovery - Assembles and provides primary
support for fuel and depreciation regulatory filings.
-3-
8. Human Resources
Initiates, maintains, supervises and administers the human
resources policies of Duquesne Light Company. Assists Duquesne Light Company's
management in maximizing the results from their employees. This is accomplished
by developing and administering programs and policies, and consulting in five
primary functions. They are:
(a) Employee Relations - labor relations, litigation/regulatory
compliance, employee communications, and employee policies.
(b) Employee Development - training program development and
delivery, performance evaluation and management development.
(c) Medical Services - workers' compensation, employee assistance
program, and employee wellness/awareness programs.
(d) Rewards - design and administration of compensation, benefits,
and recognition programs.
(e) Staffing - employment/placement, succession planning and
EEO/affirmative action.
In addition, Business Practices is a group within HR which
coordinates and participates in the development and/or documentation of new and
revised policies, business practices, procedures, references and forms.
9. Governmental Affairs
Analyzes and provides views and recommendations on state and
federal legislation to assure fair and equitable treatment of Duquesne Light
Company. Provides information to assist management decision-making on company
strategy and policy.
10. System Security
Originates, establishes, and administers security standards,
procedures and policies. Provides investigative and loss prevention services in
reference to the protection of assets and its employees. Acts as liaison with
federal, state and local law enforcement agencies.
-4-
11. Procurement
Provides services and gives functional direction in connection
with the procurement of goods and services, including market research,
preparation of commitments, requests for quotations, preparation of bid
summaries, and materials management.
12. Corporate Communications
Responsible for media relations, including the financial and
trade press, production of stockholder publications, advertising, and numerous
internal and customer communications.
13. AYP Capital
Oversees the business development and operations of and
investments in products, services and ventures that are not regulated as public
utility services. Included are unregulated power generators, power marketing and
relating activities.
2. Business Xxxxx
0. Xxxxxxxxx Xxxxxxxx Xxxx (XXX)
(a) Customer Service Center - Answers all incoming calls to
Duquesne Light Company via one toll-free number, responds to customer inquiries,
initiates new service, dispatches service and line crews in response to power
outages, handles credit and collection activities, responds to customer and
public service/utility commission complaints, and manages the meter reading and
billing activities.
(b) Operations Services - Operations Services provides the
following services in the indicated areas: Stores - Centralizes materials supply
and distribution; Technical Services - Provides electrical equipment repair and
testing; Transportation - Handles fleet management and repair services; Safety,
Quality and Training - Develops safety and training programs; Building Services
- Provides building maintenance and management, and offices services;
Substations - Builds, operates, and maintains substations and equipment; T & D
Operation - Performs switching functions for all facilities above distribution
voltage; Forestry - Provides maintenance services for electrical facilities
rights-of-way; Planning - Provides planning services for all non-network
electrical facilities; Lines Services - Provides lines support for lines teams
in service centers; and Telecommunications - Provides support and maintenance
for the telecommunications systems.
-5-
(c) Various Regions - Each region supports the processes for
responding to electric service requests, ensuring reliable service, and
restoration of service.
2. Retail Marketing
Executes the marketing and sales of the products and services
of Duquesne Light Company. Also performs economic development activities which
affect areas served by the Duquesne Light Company.
3. Corporate Affairs
Maintains relationships with state regulatory commissions,
municipal and county governments and is responsible for identifying state-level
regulatory issues.
4. Transmission Business Unit (TBU)
Responsible for ensuring that adequate high-voltage network
facilities are available and on-line to convey power produced from the power
production operations run by, or procured by, the Generation Business Unit (GBU)
to serve native load and to engage in wholesale transmission sales to
nonaffiliates. Will engage in marketing efforts for sales of bundled and
unbundled transmission services to nonaffiliates and will be responsible for
accommodating requests for transmission service submitted by nonaffiliates who
qualify as customers for that service under federal regulations. Finally, is
responsible for maintaining the optimal economic balance on a real-time basis
between native customer load and the output of the generation resources supplied
by the GBU.
5. Generation Business Unit (GBU)
Responsible for ensuring that adequate generation is available
to serve the native load customers of Duquesne Light Company by using its own
generating facilities and the third-party generation obtained through its
marketing efforts. Primary responsibilities include ensuring the cost-effective
operation and maintenance of our generating units, and providing the most
economic mix of generation by available generating units and off-system
purchases and sales. It also provides advisory and supervisory services as
needed. The GBU will also broker energy services.
6. Planning and Compliance Business Unit (P&CBU)
Forecasts electric demand and energy requirements for Duquesne
Light Company and develops plans to provide and integrate the production and
transmission
-6-
facilities needed to serve the electricity requirements of customers of the
Duquesne Light Company. Oversees compliance with state and federal regulatory
and legal requirements.
3. Additional Services
Certain other services in addition to the above as APSC may be
able to provide to the Duquesne Light Company.
-7-
