DRI Services Agreement
This DRI Services Agreement (this "Agreement") is entered into as of the
____ day of __________, 1999, by and between [insert name of subsidiary], a
__________ corporation (the "Company"), DOMINION RESOURCES SERVICES, INC., a
Virginia corporation, ("DRI Services"), and CONSOLIDATED NATURAL GAS SERVICE
COMPANY, INC., a Delaware corporation ("CNG Services"). DRI Services and CNG
Services are sometimes referred to herein as a "Service Company" and,
collectively, as the "Service Companies".
WHEREAS, each of the Company, DRI Services and CNG Services is a direct or
indirect wholly owned subsidiary of Dominion Resources, Inc. ("DRI");
WHEREAS, each of the Service Companies has been formed for the purpose of
providing administrative, management and other services to DRI and its
subsidiaries ("System Companies"); and
WHEREAS, the Company believes that it is in the interest of the Company to
provide for an arrangement whereby the Company may, from time to time and at the
option of the Company, agree to purchase such administrative, management and
other services from either one or both of the Service Companies;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. SERVICES OFFERED. Exhibit I hereto lists and describes all of the
services that are available from either of the Service Companies. Each of the
Service Companies hereby offers to supply those services to Company and to other
subsidiaries of DRI. Such services are and will be provided to the Company only
at the request of the Company.
II. SERVICES SELECTED.
A. Initial Selection of Services. Exhibit II lists the services Company
hereby agrees to receive from DRI Services. Exhibit III lists the services
Company hereby agrees to receive from CNG Services.
B. Annual Selection of Services. Each Service Company shall send an annual
service proposal form to the Company on or about December 1 listing services
proposed for the coming calendar year. By December 31, the Company shall notify
each Service Company of the services it has elected to receive from that Service
Company during the following calendar year.
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III. PERSONNEL. The Service Companies will provide services by utilizing
the services of such executives, accountants, financial advisers, technical
advisers, attorneys, engineers, geologists and other persons as have the
necessary qualifications.
If necessary, the Service Companies, after consultation with the Company,
may also arrange for the services of nonaffiliated experts, consultants and
attorneys in connection with the performance of any of the services supplied
under this Agreement.
IV. COMPENSATION AND ALLOCATION. As and to the extent required by law, the
Service Companies will provide such services at cost. Exhibit IV hereof contains
rules for determining and allocating costs for DRI Services and CNG Services.
V. TERMINATION AND MODIFICATION.
A. Modification of Services. The Company may modify its selection of
services at any time during the calendar year by giving the relevant Service
Company written notice of the additional services it wishes to receive, and/or
the services it no longer wishes to receive, from the Service Company. The
requested modification in services shall take effect on the first day of the
first calendar month beginning at least thirty (30) days after the Company sent
written notice to the Service Company.
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 Company may terminate this Agreement
as to either or both of the Service Companies by providing sixty (60) days
advance written notice of such termination to the applicable Service Company or
Companies. Either Service Company may terminate this Agreement as to the Company
by providing sixty (60) days advance written notice of such termination to the
Company. The parties expressly agree that termination of this Agreement by the
Company as to one of the Service Companies shall not constitute a termination of
this Agreement with respect to the other Service Company and that termination of
this Agreement by either Service Company shall not affect the obligations of the
other Service Company hereunder to the Company.
This Agreement is 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 ("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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VI. NOTICE. 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:
a. To the Company:
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b. To DRI Services:
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c. To CNG Services:
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VII. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the respective states of incorporation of the
Service Companies, without regard to their respective conflict of laws
provisions.
VIII. 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 (except
for completion of obligations of CNG Services and Consolidated Natural Gas
Company ("CNG") and its subsidiaries arising before the merger of DRI and CNG
became effective) are hereby terminated and canceled in their entirety and are
of no further force or effect.
IX. 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.
X. 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
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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.
XI. 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.
XII. EFFECTIVE DATE. This Agreement is effective as to DRI and its
subsidiaries, including DRI Services, as of January 1, 2000 and is effective as
to Consolidated Natural Gas Company ("CNG") and its subsidiaries, including CNG
Services, as of the closing of the proposed merger between DRI and CNG.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above mentioned.
Attest: By Company:
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Attest: By DRI Services:
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Attest: By CNG Services:
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EXHIBIT I
DESCRIPTION OF SERVICES OFFERED BY EACH
SERVICE COMPANY UNDER THIS AND SIMILAR SERVICE CONTRACTS
1. Accounting. Provide advice and assistance to System Companies in
accounting matters, including the development of accounting practices,
procedures and controls, the maintenance of the general ledger and related
subsidiary systems, the preparation and analysis of financial reports, and the
processing of certain accounts such as accounts payable, payroll, customer and
cash management.
2. Auditing. Periodically audit the accounting records and other records
maintained by System Companies and coordinating their examination, where
applicable, with that of independent public accountants. The audit staff will
report on their examination and submit recommendations, as appropriate, on
improving methods of internal control and accounting procedures.
3. Legal and Regulatory. Provide advice and assistance with respect to
legal and regulatory issues as well as regulatory compliance, including 1935 Act
authorizations and compliance and regulatory matters under other Federal and
State laws.
4. Information Technology, Electronic Transmission and Computer Services.
Provide the organization and resources for the operation of an information
technology function including the development, implementation and operation of a
centralized data processing facility and the management of a telecommunications
network. This function includes the central processing of computerized
applications and support of individual applications in System Companies.
Develop, implement, and process those computerized applications for System
Companies that can be economically best accomplished on a centralized basis.
5. Software Pooling. Accept from System Companies ownership of and rights
to use, assign, license or sub-license all software owned, acquired or developed
by or for System Companies which System Companies can and do transfer or assign
to it. Preserve and protect the rights to all such software to the extent
reasonable and appropriate under the circumstances; license System Companies, on
a non-exclusive, no-charge or at-cost basis, to use all software which the
relevant Service Company has the right to sell, license or sub-license; and, at
the relevant System Companies' expense, permit System Companies to enhance any
such software and license others to use all such software and enhancements to
the extent that the relevant Service Companies shall have the legal right to so
permit.
6. Employee Benefits/Pension Investment. Provide central accounting for
employee benefit and pension plans of System Companies. Advise and assist System
Companies in the administration of such plans and prepare and maintain records
of employee and company accounts under the said plans, together with such
statistical data and reports as are pertinent to the plans.
7. Employee Relations. Advise and assist System Companies in the
formulation and administration of employee relations policies and programs
relating to the relevant System Companies' labor relations, personnel
administration, training, wage and salary administration and safety.
8. Operations. Advise and assist System Companies in the study, planning,
engineering and construction of energy plant facilities of each System Company
and of the System as a whole, and advise, assist and manage the planning,
engineering (including maps and records) and construction operations of System
Companies. Develop long-range operational programs for all the System Companies
and advise and assist each such System Company in the coordination of such
programs with the programs of the other System Companies.
9. Executive and Administrative. Advise and assist System Companies in the
solution of major problems and in the formulation and execution of the general
plans and policies of System Companies. Advise and assist System Companies as to
operations, the issuance of securities, the preparation of filings arising out
of or required by the various Federal and State securities, business, public
utilities and corporation laws, the selection of executive and administrative
personnel, the representation of System Companies before regulatory bodies,
proposals for capital expenditures, budgets, financing, acquisition and
disposition of properties, expansion of business, rate structures, public
relationships and other related matters.
10. Business and Operations Services. Advise and assist System Companies in
all matters relating to operational capacity and the preparation and
coordination of operating studies. Manage System Companies' purchase, sale,
movement, transfer and accounting of volumes to ensure continued recovery of all
prudently incurred energy purchase costs through local jurisdictional cost
recovery mechanisms. Compile and communicate information relevant to system
operation. Perform general business and operations support services, including
business, plant and facilities operation, maintenance and management, travel,
aviation, fleet and mail services.
11. Exploration and Development. Advise and assist System Companies in all
geological and exploration matters including the acquisition and surrender of
acreage and the development of underground storage facilities.
12. Risk Management. Advise and assist System Companies in securing
requisite insurance, in the purchase and administration of all property,
casualty and marine insurance, in the settlement of insured claims and in
providing risk prevention advice.
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13. Marketing. Plan, formulate and implement marketing programs, as well as
provide associated marketing services to assist System Companies with improving
customer satisfaction, load retention and shaping, growth of energy sales and
deliveries, energy conservation and efficiency. Assist System Companies in
carrying out policies and programs for the development of plant locations and of
industrial, commercial and wholesale markets and assist with community
redevelopment and rehabilitation programs.
14. Medical. Direct and administer all medical and health activities of
System Companies. Provide systems of physical examination for employment and
other purposes and direct and administer programs for the prevention of
sickness.
15. Corporate Planning. Advise and assist System Companies in studying and
planning in connection with operations, budgets, economic forecasts, capital
expenditures and special projects.
16. Procurement. Advise and assist System Companies in the procurement of
real and personal property, materials, supplies and services, conduct purchase
negotiations, prepare procurement agreements and administer programs of material
control.
17. Rates. Advise and assist System Companies in the analysis of their rate
structure in the formulation of rate policies and in the negotiation of large
contracts. Advise and assist System Companies in proceedings before regulatory
bodies involving the rates and operations of System Companies and of other
competitors where such rates and operations directly or indirectly affect System
Companies.
18. Research. Investigate and conduct research into problems relating to
production, utilization, testing, manufacture, transmission, storage and
distribution of energy. Keep abreast of and evaluate for System Companies all
research developments and programs of significance affecting System Companies
and the energy industry, conduct research and development in promising areas and
advise and assist in the solution of technical problems arising out of System
Companies' operations.
19. Tax. Advise and assist System Companies in the preparation of Federal
and other tax returns, and generally advise System Companies as to any problems
involving taxes including the provision of due diligence in connection with
acquisitions.
20. Corporate Secretary. Provide all necessary functions required of a
publicly held corporation; coordinating information and activities among
shareholders, the transfer agent, and Board of Directors; providing direct
services to security holders; preparing and filing required annual and interim
reports to shareholders and the SEC; conducting the annual meeting of
shareholders and ensuring proper maintenance of corporate records.
21. Investor Relations. Provide fair and accurate analysis of DRI and its
operating subsidiaries and its outlook within the financial community, enhancing
DRI's
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position in the energy industry; balancing and diversifying shareholder
investment in DRI through a wide range of activities; providing feedback to DRI
and its operating subsidiaries regarding investor concerns, trading and
ownerships; holding periodic analysts meetings; and providing various operating
data as requested or required by investors.
22. Environmental Compliance. Provide consulting, cleanup, and other
activities as required by System Companies to ensure full compliance with
applicable environmental statutes and regulations.
23. Customer Services. Provide services and systems dedicated to customer
service, including billing, remittance, credit, collections, customer relations,
call centers, energy conservation support and metering.
24. Energy Marketing. Provide services and systems dedicated to energy
marketing, including marketing and trading of gas and electric power, and energy
price risk management and development of marketing and sales programs in
physical and financial markets.
25. Treasury/Finance. Provide services related to managing all
administrative activities associated with financing, including management of
capital structure; cash, credit and risk management activities; investment and
commercial banking relationships; oversight of decommissioning trust funds and
general financing activities.
26. External Affairs. Provide services in support of corporation strategies
for managing relationships with federal, state and local governments, agencies
and legislative bodies. Formulate and assist with public relations and
communications programs and administration of corporate contribution and
community affairs programs.
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EXHIBIT II
SERVICES THE COMPANY AGREES TO RECEIVE FROM DRI SERVICES
SERVICE YES NO
1. Accounting _____ _____
2. Auditing _____ _____
3. Legal and Regulatory _____ _____
4. Information Technology, Electronic Transmission
and Computer Services _____ _____
5. Software Pooling _____ _____
6. Employee Benefits/Pension Investment _____ _____
7. Employee Relations _____ _____
8. Operations _____ _____
9. Executive and Administrative _____ _____
10. Business and Operations Services _____ _____
11. Exploration and Development _____ _____
12. Risk Management _____ _____
13. Marketing _____ _____
14. Medical _____ _____
15. Corporate Planning _____ _____
16. Procurement _____ _____
17. Rates _____ _____
18. Research _____ _____
19. Tax _____ _____
20. Corporate Secretary _____ _____
21. Investor Relations _____ _____
22. Environmental Compliance _____ _____
23. Customer Services _____ _____
24. Energy Marketing _____ _____
25. Treasury/Finance _____ _____
26. External Affairs _____ _____
EXHIBIT III
SERVICES THE COMPANY AGREES TO RECEIVE FROM CNG SERVICES
SERVICE YES NO
1. Accounting _____ _____
2. Auditing _____ _____
3. Legal and Regulatory _____ _____
4. Information Technology, Electronic Transmission
and Computer Services _____ _____
5. Software Pooling _____ _____
6. Employee Benefits/Pension Investment _____ _____
7. Employee Relations _____ _____
8. Operations _____ _____
9. Executive and Administrative _____ _____
10. Business and Operations Services _____ _____
11. Exploration and Development _____ _____
12. Risk Management _____ _____
13. Marketing _____ _____
14. Medical _____ _____
15. Corporate Planning _____ _____
16. Procurement _____ _____
17. Rates _____ _____
18. Research _____ _____
19. Tax _____ _____
20. Corporate Secretary _____ _____
21. Investor Relations _____ _____
22. Environmental Compliance _____ _____
23. Customer Services _____ _____
24. Energy Marketing _____ _____
25. Treasury/Finance _____ _____
26. Public Affairs _____ _____
EXHIBIT IV
METHODS OF ALLOCATION FOR CNG SERVICES AND DRI SERVICES
CNG Services and DRI Services shall allocate costs independently. Each Service
Company shall allocate costs among companies receiving service from it under
this and similar service contracts using the following methods:
I. The costs of rendering service by the Service Company will include all
costs of doing business including interest on debt but excluding a return
for the use of equity capital for which no charge will be made to System
Companies.
II. A. The Service Company will maintain a separate record of the expenses of
each department. The expenses of each department will include:
1. those expenses that are directly attributable to such department,
and
2. an appropriate portion of those office and housekeeping expenses
that are not directly attributable to a department but which are
necessary to the operation of such department.
B. Expenses of the department will include salaries and wages of
employees, rent and utilities, materials and supplies, depreciation,
and all other expenses attributable to the department. The expenses of
a department will not include:
1. those incremental out-of-pocket expenses that are incurred for
the direct benefit and convenience of an individual company or
group of companies,
2. Service Company overhead expenses, including expenses of the
corporate secretary's department that are attributable to
maintaining the corporate existence of the Service Company, and
all other incidental overhead expenses including those auditing
fees, internal auditing department expenses and accounting
department expenses attributable to the Service Company.
C. The Service Company will establish annual budgets for controlling the
expenses of each department and for determining estimated costs to be
included in interim monthly billing.
III. A. Employees in each department will be divided into two groups:
1. Group A will include those employees rendering service to System
Companies, and
2. Group B will include those office and general service employees,
such as secretaries, file clerks and administrative assistants,
who generally assist employees in Group A or render other
housekeeping services and who are not engaged directly in
rendering service to each Company or a group of companies.
B. Expenses set forth in Section II. above will be separated to show:
1. salaries and wages of Group A employees, and
2. all other expenses of the department.
C. There will be attributed to each dollar of a Group A employee's salary
or wage, that percentage of all other expenses of his department (as
defined in B above), that his salary or wage is to the total Group A
salaries and wages of that department.
D. Group A employees in each department will maintain a record of the
time they are employed in rendering service to each company or group
of companies. An hourly rate will be determined by dividing the total
expense attributable to a Group A employee as determined under
subsection C above by the productive hours reported by such employee.
IV. The charge to the Company for a particular service will be determined by
multiplying the hours reported by Group A employees in rendering such
service to each Company by the hourly rates applicable to such employees.
When such employees render service to a group of companies, the charge to
each Company will be determined by multiplying the hours attributable to
the Company under the allocation formulas set forth in Section IX of this
Exhibit by the hourly rates applicable to such employees.
V. To the extent appropriate and practical, the foregoing computations of
hourly rates and charges may be determined for groups of employees within
reasonable salary range limits.
VI. Those expenses of the Service Company that are not included in the annual
expense of a department under Section II. above will be charged to System
Companies receiving service as follows:
A. Incremental out-of-pocket costs incurred for the direct benefit and
convenience of a company or group of companies will be charged
directly to such company or group of companies. Such costs incurred
for a group of companies will be allocated on the basis of an
appropriate formula.
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B. Service Company overhead expenses referred to in Section II. above
will be charged to the Company in the proportion that the charges made
to the Company for costs, other than those set forth in this Section
VI., are to the total of such charges to all companies receiving
service.
VII. Notwithstanding the foregoing basis of determining cost allocations for
billing purposes, cost allocations for certain services involving machine
operations and production units will be determined on an appropriate basis
established by the Service Company relating to the direct use of machine
equipment or production units.
VIII.Monthly bills will be issued for the services rendered to the Company on
an actual or estimated basis. Estimates will normally be predicated on
service department budgets and estimated productive hours of employees for
the year. At the end of each year, estimated figures will be revised to
reflect actual experience during such year and adjustments will be made in
amounts billed to give effect to such revision.
IX. When Group A employees render services to a group of companies, the
following formulas shall be used to allocate the time of such employees to
the individual companies receiving such service:
A. The Service Department or Function formulas to be used when employees
render services to all companies participating in such service, for
the services indicated are set forth below. When necessary during the
period 1999-2002, the allocation formulas described below will be
calculated (in part or in whole) using data based on services
performed for System Companies by Dominion Resources, Inc., prior to
the merger of Dominion Resources, Inc. and Consolidated Natural Gas
Company.
Service Department Basis of Allocation
or Function
Employee Benefits/ The number of employee and annuitant accounts
as of the Pension Investments preceding
December 31st.
Human Resources The number of employees as of the preceding
December 31st.
Corporate Planning:
- Capital Budgets Total investment in plant recorded at
preceding December 31st.
- Operating &
Maintenance Budgets Total operating expenses, excluding purchased
gas expense, purchased power expense
(including fuel expenses), other purchased
products and royalties, for the preceding
year ended December 31st.
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Service Department Basis of Allocation
or Function
Business and Operations Energy sale and deliveries for the preceding
Services year ended December 31st.
Risk Management Insurance premiums for the preceding year
ended December 31st.
Rates Total regulated company operating expenses,
excluding purchased gas expense, purchased
power expense (including fuel expense), other
purchased products and royalties, for the
preceding year ended December 31st.
Research Gross revenues from the sale of natural gas
(including intercompany sales) and
electricity, recorded during the preceding
year ended December 31st.
Tax The sum of the total income and total
deductions as reported for Federal Income Tax
purposes on the last return filed.
Corporate Secretary/ The weighted average of the previous three
Investor Relations years of total Service Company xxxxxxxx for
the prior years ended December 31st.
Customer Services For metering, the number of gas or electric
meters for the preceding year ended December
31st; otherwise the number of customers for
the preceding year ended December 31st.
System Services Group:
Information Technology:
LDC/EDC Computer Applications Number of residential and commercial
customers at the end of the preceding year
ended December 31st.
Other Computer Applications Number of users or usage of specific computer
systems at the end of the preceding year
ended December 31st.
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Service Department Basis of Allocation
or Function
Network Computer Applications Number of network devices at the end of the
preceding year ended December 31st.
Telecommunications Applications Number of telecommunications units
at the end of the preceding year ended
December 31st.
Facility Services:
Building Services Square footage of office space as of the
preceding year ended December 31st.
Processing Services:
Payroll Number of employees on the previous December
31st or the number of payroll payments
generated during the previous year ending
December 31st.
Cash Management & Number of customer payments processed during
Customer Payment Processing the preceding year ended December 31st.
Accounts Payable Processing Number of accounts payable documents
processed during the preceding year ended
December 31st.
Fleet Administration Number of vehicles at December 31st.
Purchasing Dollar value of contract purchases for the
preceding year ended December 31st.
Regulated Business Support Group:
Engineering Services:
General Services Gas pipeline and/or electric supply line
footage as of the preceding year ended
December 31st.
Transmission and Storage
Services Total investment in storage and transmission
plant as of the preceding year ended
December 31st.
Gas Supply: Gas volumes purchased for each affiliate
for the preceding year ended December 31st.
Electricity Supply: Electricity load purchased for each affiliate
for the preceding year ended December 31st.
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Service Department Basis of Allocation
or Function
Marketing
Shared Projects Annual marketing plan budget for the current
year of allocation.
Other Indirect Costs Total marketing direct and shared project
costs billed to each System Company for the
preceding year ended December 31st.
Material Management Material inventory assets as of the
preceding year ended December 31st.
System Accounting:
Financial Accounting and
Reporting Number of financial related transactions,
records and reports generated, and account
code combinations for the preceding year
ended December 31st.
Regulated Fixed Assets Regulated companies fixed assets added,
retired or transferred during the preceding
year ended December 31st.
B. Company Group Formulas to be used in the absence of a service
department or function formula or when service rendered by employees
is for a different group of companies than those companies regularly
participating in such service:
Company Group Basis of Allocation
All companies (includes all Total operating expenses, excluding purchased
System Companies except gas expense, purchased power expense
Service Company) (including fuel expense), other purchased
products and royalties, for the preceding
year ended December 31st.
All retail companies Volume of gas and quantity of electricity
sold at retail during the preceding year
ended December 31st (converted to dollar
value).
All wholesale companies Gross revenues from sales for resale recorded
during the preceding year ended December
31st.
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All companies having Gross investment in transmission plant
transmission lines recorded at preceding December 31st.
All production companies Production plant budget for the current year
of allocation.
Appalachian production Gross investment in Appalachian production
companies plant recorded at preceding December 31st.
All storage companies Gross investment in storage plant, excluding
non-current inventory, recorded at preceding
December 31st.
All Companies/ The weighted average of the previous three
Shareholder Activities years of Service Company xxxxxxxx.
All unregulated companies Total unregulated companies' operating
expenses, excluding purchased gas expense,
purchased power expense (including fuel
expense), other purchased products and
royalties, for the preceding year ending
December 31st.
All regulated companies Total regulated companies' operating
expenses, excluding purchased gas expense,
purchased power expense (including fuel
expense), other purchased products and
royalties, for the preceding year ended
December 31st.
C. If the use of a basis of allocation would result in an inequity
because of a change in operations or organization, then the Service
Company may adjust the basis to effect an equitable distribution.
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