EXHIBIT 99.B-2
EXHIBIT B-2
FORM OF UTILITY SERVICE AGREEMENT
This Service Agreement (this "Agreement") is entered into as of the ___
day of _______, by and between [insert name of subsidiary], a __________________
Corporation (the "Company") and LG&E Energy Services, Inc., a Kentucky
corporation ("LG&E Services").
WHEREAS, LG&E Services is a direct or indirect wholly owned subsidiary of
LG&E Energy Corp.;
WHEREAS, LG&E Services has been formed for the purpose of providing
administrative, management and other services to subsidiaries and affiliates of
LG&E Energy Corp.; 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 LG&E Services;
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:
1. SERVICES. LG&E Services supplies, or will supply, certain administrative,
management or other services to Company similar to those supplied to other
subsidiaries or affiliates of LG&E Energy Corp. Such services are and will
be provided to the Company only at the request of the Company. Exhibit A
hereto lists and describes all of the services that are available from LG&E
Services.
2. PERSONNEL. LG&E Services provides and will provide such services by
utilizing the services of their executives, accountants, financial advisers,
technical advisers, attorneys and other persons with the necessary
qualifications.
If necessary, LG&E Services, 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.
3. COMPENSATION AND ALLOCATION. As and to the extent required by law, LG&E
Services provides and will provide such services at fully allocated cost.
Exhibit A hereof contains rules for determining and allocating such costs.
4. COMPLIANCE. All contracts, agreements, or arrangements of any kind,
hereafter required to be filed with and/or approved by the Securities and
Exchange Commission ("SEC")
pursuant to the Public Utility Holding Company Act of 1935, as subsequently
amended, between Louisville Gas and Electric Company or Kentucky Utilities
Company, and any affiliate, associate, holding, mutual service or subsidiary
company, within the same holding company system, as these terms are defined
in 15 U.S.C. (S)79b as it presently exists or as subsequently amended, shall
contain and be conditioned upon the following without modification or
alteration:
Louisville Gas and Electric Company ("LG&E") and Kentucky Utilities
Company ("KU") will not seek to overturn, reverse, set aside, change or
enjoin, whether through appeal or the initiation or maintenance of any
action in any forum, a decision or order of the Kentucky Public Service
Commission, or the Virginia State Corporation Commission which pertain to
recovery, disallowance, allowance, deferral or ratemaking treatment of
any expense, charge, cost or allocation incurred or accrued by LG&E or KU
in or as a result of a contract, agreement, arrangement, or transaction
with any affiliate, associate, holding, mutual service or subsidiary
company on the basis that such expense, charge, cost or allocation: (1)
has itself been filed with or approved by the SEC or (2) was incurred
pursuant to a contract, agreement, or allocation method which was filed
with or approved by the SEC.
5. TERMINATION AND MODIFICATION. The Company may terminate this Agreement by
providing 60 days written notice of such termination to LG&E Services. LG&E
Services may terminate this Agreement by providing 60 days written notice of
such termination 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, or with any rule, regulation or
order of the Securities and Exchange Commission 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.
6. SERVICE REQUESTS. The Company and LG&E Services will prepare a Service
Request on or before ________________ of each year listing services to be
provided to the Company by LG&E Services and any special arrangements
related to the provision of such services for the coming year, based on
services provided during the past year. The Company and LG&E Services may
supplement the Service Request during the year to reflect any additional or
special services that the Company wishes to obtain from LG&E Services, and
the arrangements relating thereto.
7. BILLING AND PAYMENT. Unless otherwise set forth in a Service Request,
payment for services provided by LG&E Services shall be by making remittance
of the amount billed or by making appropriate accounting entries on the
books of the Company and LG&E Services. Billing will be made on a monthly
basis, with the xxxx to be rendered by the 25/th/ of the month,
and remittance or accounting entries completed within 30 days of billing.
Any amount remaining unpaid after 30 days following receipt of the xxxx
shall bear interest thereon from the date of the xxxx at annual rate of
A1/P1 30-day Commercial Paper.
8. NOTICE. Where written notice is required by this Agreement, all notices,
consents, certificates, or other communications hereunder shall be in
writing and shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:
1. To the Company:
______________________________
______________________________
2. To LG&E Energy Services, Inc.:
______________________________
______________________________
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kentucky, without regard to their
conflict of laws provisions.
10. MODIFICATION. No amendment, change or modification of this Agreement shall
be valid, unless made in writing and signed by all parties hereto.
11. 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 are
hereby terminated and canceled in their entirety and are of no further force
and effect.
12. 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 of the same or any other provision hereof.
13. ASSIGNMENT. This Agreement shall inure to the benefit and shall be binding
upon the parties and their respective successors and assigns. No assignment
of this Agreement 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.
14. SEVERABILITY. If any provision or provisions of this Agreement shall be held
by a court of competent jurisdiction to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of this _____ day of _____.
LG&E Energy Services, Inc.
By:________________________________
Name:
Title:
[Subsidiary]
By:________________________________
Name:
Title:
Exhibit A
Description of Services and Allocation Factors
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Cost Assignment
LG&E Services' costs accumulated for each activity, project, program, or work
order will be directly assigned, distributed or allocated as follows:
(i) Costs accumulated in an activity, project, program or work
order for services specifically performed for a single Client Entity
will be directly assigned and charged to such entity.
(ii) Costs accumulated in an activity, project, program or work
order for services specifically performed for two or more Client
Entities will be distributed among and charged to such Client
Entities using methods determined on a case-by-case basis consistent
with the nature of the work performed and based on one of the
allocation methods described below.
(iii) Costs accumulated in an activity, project, program or work
order for services of a general nature which are applicable to all
Client Entities or to a class or classes of Client Entities will be
allocated among and charged to such Client Entities by application of
one or more of the allocation methods described below.
Allocation Methods
The following methods will be applied, as indicated in the Description of
Services section that follows, to allocate costs for services of a general
nature.
1. Information Systems Chargeback Rates - Rates for services,
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including but not limited to software, consulting, mainframe
and personal computer services, are based on the costs of
labor, materials and information services overheads related to
the provision of each service. Such rates are applied based on
the specific equipment employed and the measured usage of
services by Client Entities. These rates will be determined
annually based on actual experience and may be adjusted for any
known and reasonably quantifiable events, or at such time as
may be required due to significant changes.
2. Number of Customers Ratio - A ratio based on the number of
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customers. This ratio will be determined annually based on the
actual number of customers at the end of the previous calendar
year and may
be adjusted for any known and reasonably quantifiable events,
or at such time as may be required due to significant
changes.
3. Payroll Ratio - Based on the sum of the payroll at the end of
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each month for the immediately preceding twelve consecutive
calendar months, the numerator of which is for an operating
company or an affected affiliate company and the denominator
of which is for all operating companies and affected
affiliate companies. This ratio will be determined annually,
or at such time as may be required due to significant
changes.
4. Three-Factor Formula - This formula will be determined
--------------------
annually based on the average of gross property (original
cost of plant in service, excluding depreciation), payroll
charges (salaries and wages, including overtime, shift
premium and holiday pay, but not including pension, benefit
and company-paid payroll taxes) and gross revenues during the
previous calendar year and may be adjusted for any known and
reasonably quantifiable events, or at such time as may be
required due to significant changes.
5. Telecommunications Chargeback Rates - Rates for use of
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telecommunications services other than those encompassed by
Information Systems Chargeback Rates are based on the costs
of labor, materials, outside services and telecommunications
overheads. Such rates are applied based on the specific
equipment employment and the measured usage of services by
Client Entities. These rates will be determined annually
based on actual experience and may be adjusted for any known
and reasonably quantifiable events, or at such time as may be
required due to significant changes.
6. Gas Sales Ratio - A ratio based on the actual number of Mcf
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of natural gas sold by the applicable gas distribution or
marketing operations. This ratio will be determined annually
based on actual results of operations for the previous
calendar year and may be adjusted for any known and
reasonably quantifiable events, or at such time, based on
results of operations for a subsequent twelve-month period,
as may be required due to significant changes.
7. Transmission Construction Expenditures Ratio - A ratio based
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on transmission construction or capital expenditures, net of
reimbursements, for the immediately preceding twelve
consecutive calendar months. The numerator is equal to such
expenditures for a specific Client Entity and the denominator
is equal to such
expenditures for all applicable Client Entities. This ratio
will be determined annually, or at such time as may be
required due to a significant change.
8. Distribution Construction Expenditures Ratio - A ratio based
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on distribution construction or capital expenditures, net of
reimbursements, for the immediately preceding twelve
consecutive calendar months. The numerator is equal to such
expenditures for a specific Client Entity and the denominator
is equal to such expenditures for all applicable Client
Entities. This ratio will be determined annually, or at such
time as may be required due to a significant change.
9. Substation Construction Expenditures Ratio - A ratio based on
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substation construction or capital expenditures, net of
reimbursements, for the immediately preceding twelve
consecutive calendar months. The numerator is equal to such
expenditures for a specific Client Entity and the denominator
is equal to such expenditures for all applicable Client
Entities. This ratio will be determined annually, or at such
time as may be required due to a significant change.
10. Electric MWh Generation Ratio - A ratio based on the sum of
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electric MWh generated during each month for the immediately
preceding twelve consecutive calendar months. The numerator
is equal to the electric MWh generated by a specific Client
Entity and the denominator is equal to all electric MWh
generated by all applicable Client Entities. This ratio will
be determined annually, or at such time as may be required
due to significant changes.
11. Electric Sales Ratio - Based on firm kilowatt-hour electric
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sales for the immediately preceding twelve consecutive
-------------------------
calendar months, the numerator of which is for an operating
company or an affiliate and the denominator of which is for
all operating companies and affected affiliate companies.
This ratio will be determined annually, or at such time as
may be required due to a significant change.
12. Transportation Ratio - Based on the actual usage of vehicles
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in the fleet for the immediately preceding twelve consecutive
--------------------------------
calendar months, the numerator of which is for an operating
company or an affiliate and the denominator of which is for
all operating companies
and affected affiliate companies. This ratio will be
determined annually, or at such time as may be required due
to a significant change.
Description of Services
A description of each of the services performed by LG&E Energy Services,
Inc., which may be modified from time to time, is presented below. As discussed
above, where identifiable, costs will be directly assigned or distributed to
Client Entities. For costs accumulated in an activity, project, program or work
order which are for services of a general nature that cannot be directly
assigned or distributed, the method or methods of allocation are also set forth.
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 affected Client Entity.
1. Information Systems Services - Provides electronic data processing
services. Costs of a general nature are allocated using the Information Systems
Chargeback Rates.
2. Customer Services - Provides billing, mailing, remittance processing,
call center and customer communication services for customers. Costs of a
general nature are allocated using the Number of Customers Ratio.
3. Marketing and Sales - Establishes strategies, provides oversight for
marketing, sales and branding of utility and related services, conducts
marketing and sales programs, and economic development. Costs of a general
nature are allocated using the Number of Customers Ratio.
4. Employee Services - Includes Human Resources which establishes and
administers policies and oversees compliance with regulations in the areas of
employment, compensation and benefits, processes payroll and administers
corporate training. Also includes employee communications, facilities
management and mail services. Costs of a general nature are allocated using the
Payroll Ratio.
5. Corporate Compliance - Oversees compliance with all laws, regulations
and policies applicable to all of LG&E Energy Corp.'s businesses and directs
compliance training. Costs of general nature are allocated using the Payroll
Ratio.
6. Purchasing - Provides procurement services. Costs of a general nature
are allocated using the Three-Factor Formula.
7. Financial Services - Provides treasury, accounting, tax, financial
planning, regulatory and auditing services. Costs of a general nature are
allocated using the Three-Factor Formula.
8. Risk Management - Provides insurance, claims, security, and safety
services. Costs of a general nature allocated using the Three-Factor Formula.
9. Public Affairs - Maintains relationships with government policy
makers, conducts lobbying activities and provides community relations functions.
Costs of a general nature are allocated using the Three-Factor Formula.
10. Legal Services - Provides various legal services and general legal
oversight; handles claims. Costs of a general nature are allocated using the
Three-Factor Formula.
11. Investor Relations - Maintains relationships with the financial
community and provides shareholder services. Costs of a general nature are
allocated using the Three-Factor Formula.
12. Telecommunications - Provides telecommunications services, primarily
the use of telephone equipment. Costs are allocated using the Telecommunications
Chargeback Rates.
13. Gas Supply and Capacity Management - Provides gas supply and capacity
management services. Costs of a general nature are allocated using the Gas
Sales Ratio.
14. Transmission, Substation Construction, Maintenance & Operations -
Provides management services for transmission and substation construction,
maintenance and operations areas. Costs of a general nature are allocated using
the Transmission Construction Expenditures Ratio.
15. Meter Reading, Repair and Maintenance - Provides services related to
meter reading and the repair and maintenance of meters. Costs of a general
nature are allocated using the Number of Customers Ratio.
16. Design Engineering - Designs and monitors construction of electric
transmission and distribution lines and substations. Costs of a general nature
are allocated using the Transmission Construction Expenditures Ratio or the
Distribution Construction Expenditures Ratio, whichever is appropriate.
17. Substation Engineering and Support - Provides management support
services to the Substation Engineering and Support organizations of the
Operating Companies. Costs of a general nature are allocated using the
Substation Construction Expenditures Ratio.
18. Resource Acquisition and Analysis - Procures coal, natural gas and oil
for the generation facilities of Client Entities. Also ensures compliance with
price and quality provisions of fuel contracts and arranges for transportation
of fuel to the desired location, and completes analyses as required on all fuel
used for generation. Costs of a general nature are allocated using the Electric
MWh Generation Ratio.
19. Purchased Power and Electric Trading - Purchases power and provides
electric trading services to the operating companies electric generation systems
and all other trading functions. Costs of a general nature are allocated using
the Electric Sales Ratio.
20. Strategic Planning - Develops corporate strategies and business plans.
Costs of a general nature are allocated using the Three-Factor Formula.
21. Executive - Provides executive and general administrative services.
Costs of a general nature are allocated using the Three-Factor Formula.
22. Environmental Affairs - Performs analyses and advocacy of regulatory
and legislative issues in the areas of environment. Communicates final
regulatory requirements to operating groups. Provides assistance, support and
compliance review in meeting those requirements. Oversees hazardous substance
site investigations and remediation activities. Costs of a general nature are
allocated using the Three-Factor Formula.
23. Energy Supply - Coordinates the use of the generating, transmission
and interconnection facilities to provide economical and reliable energy. Costs
of a general nature are allocated using the Electric MWh Generation Ratio.
24. Transportation - Operates transportation fleet for the operating
companies and affiliates. Provides engineering, support, mechanical servicing of
vehicles, and procurement of vehicles. Costs of a general nature are allocated
using the Transportation Ratio.
25. Media Relations - Performs all media relations with local and national
media organizations according to established policies and procedures. Costs of
a general nature are allocated using the Three Factor Formula.
FORM OF INITIAL SERVICE REQUEST
The undersigned request all of the services listed in Exhibit A from LG&E
Energy Services, Inc., except for _______________________________. The services
requested hereunder shall commence on _________________________ and be provided
through ______________________.
[Subsidiary]
By:_____________________________________
Name:
Title:
