EXHIBIT 2
NONUTILITY SERVICE AGREEMENT
This Service Agreement is executed this 20th day of October, 1995,
retroactive to October 25, 1994, by and among Cinergy Corp. ("Cinergy"); Cinergy
Services, Inc., a service company (the "Service Company"); and the other
companies listed on the signature pages hereto (each such other company, a
"Client Company", and collectively, the "Client Companies").
WITNESSETH
WHEREAS, the Securities and Exchange Commission (hereinafter referred to as
the "SEC") has approved and authorized as meeting the requirements of Section
13(b) of the Public Utility Holding Company Act of 1935 (hereinafter referred to
as the "Act"), the organization and conduct of the business of the Service
Company in accordance herewith, as a wholly owned subsidiary service company of
Cinergy Corp.; and
WHEREAS, the Service Company and the Client Companies have entered into this
Service Agreement whereby the Service Company agrees to provide and the Client
Companies agree to accept and pay for various services as provided herein
determined in accordance with applicable rules and regulations under the Act,
which require the Service Company to fairly and equitably allocate costs among
all associate companies to which it renders services, including the Client
Companies and other associate companies which are not a party to this Service
Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties to this Service Agreement covenant and agree as
follows:
ARTICLE I - SERVICES
Section 1.1 The Service Company shall furnish to a Client Company, as
requested by a Client Company, upon the terms and conditions hereinafter set
forth, such of the services described in Appendix A hereto, at such times, for
such periods and in such manner as the Client Company may from time to time
request and which the Service Company concludes it is equipped to perform. The
Service Company shall also provide a Client Company with such special services,
in addition to those services described in Appendix A hereto, as may be
requested by a Client Company and which the Service Company concludes it is
equipped to perform. In supplying such services, the Service Company 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 rendition of such services.
Section 1.2 Each Client Company shall take from the Service Company such
of the services described in Section 1.1, and such additional general or special
services, whether or not now contemplated, as are requested from time to time by
such Client Company and which the Service Company concludes it is equipped to
perform.
Section 1.3 The services described herein shall be directly assigned,
distributed or allocated by activity, project, program, work order or other
appropriate basis. 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) any 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 the Service Company, (ii) the cost for the services covered by the
activity, project, program or work order shall include any expense incurred by
the Service Company 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 the Service Company pursuant to the activity,
project, program or work order, regardless of whether the services associated
with such costs have been completed.
ARTICLE II - COMPENSATION
Section 2.1. As compensation for the services to be rendered hereunder,
each Client Company (other than companies exempted in whole or in part from the
standards established by Section 13(b) of the Act pursuant to SEC Rule 83 or
otherwise ("Cinergy Foreign Associate Companies")) shall pay to the Service
Company the cost of such services, determined in accordance with Rule 90 and
other applicable rules and regulations under the Act, and each Cinergy Foreign
Associate Company shall pay to the Service Company the fair market value of such
services, but in any event no less than the cost of such services. Where more
than one Client Company is involved in or has received benefits from a service
performed, costs will be directly assigned, distributed or allocated, as set
forth in Appendix A hereto, between or among such companies on a basis
reasonably related to the service performed to the extent reasonably
practicable.
Section 2.2. The method of assignment, distribution or allocation of costs
described in Appendix A shall be subject to review annually, or more frequently
if appropriate. Such method of assignment, distribution or allocation of costs
may be modified or changed by the Service Company without the necessity of an
amendment to this Service Agreement provided that in each instance, costs of all
services rendered hereunder shall be fairly and equitably assigned, distributed
or allocated, all in accordance with the requirements of the Act and any orders
promulgated thereunder. The Service Company shall advise the Client Companies
from time to time of any material changes in such method of assignment,
distribution or allocation.
Section 2.3. The Service Company shall render a monthly statement to each
Client Company which shall reflect the billing information necessary to identify
the costs charged for that month. By the twentieth (20th) day of each month,
each Client Company shall remit to the Service Company all charges billed to it.
Section 2.4. It is the intent of this Service Agreement that the payment
for services rendered by the Service Company to the Client Companies under this
Service Agreement shall cover all the costs of its doing business (less the cost
of services provided to affiliated companies not a party to this Service
Agreement and to other non-affiliated companies, and credits for miscellaneous
income items), including, but not limited to, salaries and wages, office
supplies and expenses, outside services employed, property insurance, injuries
and damages, employee pensions and benefits, miscellaneous general expenses,
rents, maintenance of structures and equipment, depreciation and amortization,
profit and compensation for use of capital as permitted by Rule 91 of the SEC
under the Act.
ARTICLE III - TERM
Section 3.1. This Service Agreement shall become effective as of the 25th
day of October, 1994, and shall continue in force with respect to a Client
Company until terminated by the Service Company with respect to such Client
Company or until terminated by unanimous agreement of all Client Companies, in
each case upon not less than one year's prior written notice to all other
parties. This Service Agreement shall also be subject to termination or
modification at any time, without notice, if and to the extent performance under
this Service 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.
ARTICLE IV - MISCELLANEOUS
Section 4.1. All accounts and records of the Service Company 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.
Section 4.2. New direct or indirect non-utility subsidiaries of Cinergy
Corp., which may come into existence after the effective date of this Service
Agreement, may become additional Client Companies (collectively, the "New Client
Companies") subject to this Service Agreement. In addition, the parties hereto
shall make such changes in the scope and character of the services to be
rendered and the method of assigning, distributing or allocating costs of such
services among the Client Companies and the New Client Companies under this
Service Agreement as may become necessary.
Section 4.3. The Service Company shall permit a Client Company's access to
its accounts and records, including the basis and computation of allocations.
IN WITNESS WHEREOF, the parties hereto have caused this Service Agreement to
be executed as of the date and year first above written.
CINERGY CORP.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
CINERGY SERVICES, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
CINERGY INVESTMENTS, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI RECYCLING, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
CINERGY RESOURCES, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
WHOLESALE POWER SERVICES, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
POWER EQUIPMENT SUPPLY CO.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
POWER INTERNATIONAL, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
TRI-STATE IMPROVEMENT CO.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
KO TRANSMISSION CO.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
SOUTH CONSTRUCTION COMPANY, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI POWER RESOURCE DEVELOPMENT, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI POWER RESOURCE OPERATIONS, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI SUNNYSIDE, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI INTERNATIONAL, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
CINERGY TECHNOLOGY, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
COSTANERA POWER CORP.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI ARGENTINA, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI ENERGY ARGENTINA, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI T&D INTERNATIONAL, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
PSI YACYRETA, INC.
By: /s/Xxxxxxx X. Xxxxxxx
Treasurer
Appendix A to Nonutility
Service Agreement
Description of Services and Determination
of Charges for Services
I. The Service Company will maintain an accounting system for accumulating
all costs on an activity, project, program, work order or other appropriate
basis. To the extent practicable, time records of hours worked by Service
Company employees will be kept by activity, project, program or work order.
Charges for salaries will be determined from such time records and will be
computed on the basis of employees' effective hourly rates, including the cost
of fringe benefits and payroll taxes. Records of employee-related expenses and
other indirect costs will be maintained for each functional group within the
Service Company (hereinafter referred to as "Function"). Where identifiable to
a particular activity, project, program or work order, such indirect costs will
be directly assigned to such activity, project, program or work order. Where
not identifiable to a particular activity, project, program or work order, such
indirect costs within a Function will be allocated in relationship to the
directly assigned costs of the Function. For purposes of this Appendix A, any
costs not directly assigned by the Service Company will be allocated monthly.
II. Service Company costs accumulated for each activity, project, program or
work order will be directly assigned, distributed or allocated to the Client
Companies or other Functions within the Service Company as follows:
1. Costs accumulated in an activity, project, program or work order
for services specifically performed for a single Client Company or Function will
be directly assigned and charged to such Client Company or Function.
2. Costs accumulated in an activity, project, program or work order
for services specifically performed for two or more Client Companies or
Functions will be distributed among and charged to such Client Companies or
Functions. The appropriate method of distribution will be determined by the
Service Company on a case-by-case basis consistent with the nature of the work
performed. The distribution method will be provided to each such affected
Client Company or Function.
3. Costs accumulated in an activity, project, program or work order
for services of a general nature which are applicable to all Client Companies or
Functions or to a class or classes of Client Companies or Functions will be
allocated among and charged to such Client Companies or Functions by application
of one or more of the allocation ratios described in paragraphs III and IV of
this Appendix A.
III. The following ratios, determined on an annual basis or as otherwise
required, will be applied, as specified in paragraph IV of this Appendix A, to
allocate costs for services of a general nature.
1. Number of Employees Ratio
A ratio, based on the sum of the number of employees at the end of each
month for the immediately preceding twelve consecutive calendar months, the
numerator of which is for a Client Company or Service Company Function and the
denominator of which is for all Client Companies (and Cinergy Corp.'s domestic
utility affiliates, where applicable) and/or the Service Company.
2. Number of Central Processing Unit Seconds Ratio
A ratio, based on the sum of the number of central processing unit
seconds expended to execute mainframe computer software applications for the
immediately preceding twelve consecutive calendar months, the numerator of which
is for a Client Company or Service Company Function, and the denominator of
which is for all Client Companies, the Service Company (and Cinergy Corp.'s
domestic utility affiliates, where applicable).
IV. A description of each Function's activities which may be modified from
time to time by the Service Company, is set forth below in paragraph "a" under
each Function. As described in paragraph II, "1" and "2" of this Appendix A,
where identifiable, costs will be directly assigned or distributed to the Client
Companies or to other Functions of the Service Company. Costs of any of the
Functions set forth below may be directly assigned or distributed to the Client
Companies. For costs accumulated in activities, projects, programs or work
orders of the Information Systems, Transportation, Human Resources and
Facilities Functions which are for services of a general nature that cannot be
directly assigned or distributed, as described in paragraph II, "3" of this
Appendix A, the method or methods of allocation, are set forth below in
paragraph "b" under each of such Functions. To the extent that a specific
method of allocation for costs of a general nature is not set forth below, a
study will be performed, and updated annually, to determine the appropriate
proportion, if any, of such costs to be allocated. Substitution or changes may
be made in the methods of allocation hereinafter specified, as may be
appropriate, and will be provided to state regulatory agencies and to each
Client Company.
1. Information Systems
a. Description of Function
Provides communications and electronic data processing services.
The activities of the Function include:
(1) Development and support of mainframe computer software
applications.
(2) Procurement and support of personal computers and related
network and software applications.
(3) Operation of data center.
(4) Installation and operation of communications systems
b. Method of Allocation
(1) Development and support of mainframe computer software
applications - allocated to the Client Companies and other Functions of the
Service Company based on the number of Central Processing Unit Seconds Ratio.
(2) Procurement and support of personal computers and related
network and software applications - allocated to the Client Companies and to
other Functions of the Service Company based on the Number of Employees Ratio.
(3) Operation of data center - allocated to the Client Companies
and to other Functions of the Service Company based on the Number of Central
Processing Unit Seconds Ratio.
(4) Installation and operation of communications systems -
allocated to the Client Companies and to other Functions of the Service Company
based on the Number of Employees Ratio.
2. Transportation
a. Description of Function
Procures and maintains vehicles and other equipment.
b. Method of Allocation
Allocated to the Client Companies and to other Functions of the
Service Company based on the Number of Employees Ratio.
3. Human Resources
a. Description of Function
Establishes and administers policies and supervises compliance
with legal requirements in the areas of employment, compensation, benefits
and employee health and safety. Processes payroll and employee benefit
payments. Supervises contract negotiations and relations with labor unions.
b. Method of Allocation
Allocated to the Client Companies and to other Functions of the
Service Company based on the Number of Employees Ratio.
4. Facilities
a. Description of Function
Operates and maintains office and service buildings. Provides
security and housekeeping services for such buildings and procures office
furniture and equipment.
b. Method of Allocation
Allocated to other Functions of the Service Company based on the
Number of Employees Ratio.
5. Accounting
a. Description of Function
Maintains the books and records of Cinergy Corp. and its
affiliates, prepares financial and statistical reports, processes payments to
vendors, prepares tax filings and supervises compliance with tax laws and
regulations.
6. Public Affairs
a. Description of Function
Prepares and disseminates information to employees, customers,
government officials, communities and the media. Provides graphics,
reproduction lithography, photography and video services.
7. Legal
a. Description of Function
Renders services relating to labor and employment law, litigation,
contracts, rates and regulatory affairs, environmental matters, financing,
financial reporting, real estate and other legal matters.
8. Finance
a. Description of Function
Renders services to Client Companies with respect to investments,
financing, cash management, risk management, claims and fire prevention.
Prepares reports to the SEC, budgets, financial forecasts and economic analyses.
9. Internal Audit
a. Description of Function
Reviews internal controls and procedures to ensure that assets are
safeguarded and that transactions are properly authorized and recorded.
10. Investor Relations
a. Description of Function
Provides communications to investors and the financial community,
performs transfer agent and shareholder recordkeeping functions, administers
stock plans and performs stock-related regulatory reporting.
11. Planning
a. Description of Function
Facilitates preparation of strategic and operating plans, monitors
trends and evaluates business opportunities.
12. Executive
a. Description of Function
Provides general administrative and executive management services.
