Draft December 22, 2000
Exhibit M-1
FORM OF
CONSOLIDATED EDISON SERVICE COMPANY
SERVICE CONTRACT
AGREEMENT made and entered into as of the day of , , by
and between [NAME OF SERVICE COMPANY] (hereinafter referred to as Service
Company) and , (hereinafter referred to as Associate
Company).
WHEREAS, by order in File No. 37-65 or File No. 70-9711, as the case may
be, the Securities and Exchange Commission (hereinafter referred to as SEC)
approved and authorized in connection with the merger of Northeast Utilities
and Consolidated Edison, Inc. (hereinafter referred to as CEI), under the
Public Utility Holding Company Act of 1935 (hereinafter referred to as the
Act), the conduct of business of Service Company in accordance herewith, as a
wholly owned subsidiary service company of CEI; and
WHEREAS, Service Company is willing to render services as provided
herein to CEI and its associated subsidiaries (hereinafter collectively
referred to as the System) at cost, determined in accordance with applicable
rules and regulations under the Act or by such other method as may be
permissible under the Act; and
WHEREAS, economies, increased efficiencies and other benefits will
result to the System from the performance by Service Company of services as
herein provided:
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein, it is agreed as follows:
Section 1. Agreement to Furnish Services.
Service Company agrees to furnish to Associate Company and other System
companies, upon the terms and conditions herein provided, the services
hereinafter referred to in Section 2 hereof at such times and for such
periods as may be required, and Service Company will, as and to the extent
required to provide such services to the System, keep itself and its
personnel available and competent to render such services to the System so
long as it is authorized so to do by federal and state regulatory agencies
having jurisdiction.
For the purpose of providing services as herein provided, Service
Company proposes to establish various departments, one or more of which will
participate in providing particular services hereinafter described. Service
Company reserves to itself the privilege, without amendment hereof or express
prior agreement by Associate Company or other System companies, from time to
time to establish new departments, to subdivide or otherwise reorganize any
of the departments established by it, and to reallocate services among
various departments.
Service Company will provide for Associate Company and other System
companies as required such other services not referred to in Section 2 hereof
as Service Company may conclude it may furnish with economies and increased
efficiencies to the System or such other services as Associate Company or
other System companies may require and Service Company is competent to
perform.
Services will also be furnished to other System companies under
agreements similar in all respects hereto and may also be furnished, in
Service Company's discretion, to others, provided that by so doing the cost
of services to Associate Company or other System companies will not be
increased.
In supplying services hereunder, Service Company may arrange for
services of such executives, financial advisers, accountants, attorneys,
technical advisers, engineers and other persons as are required for or
pertinent to the rendition of such services.
Section 2. Services to be Performed.
Subject to the provisions of Section 1 hereof, Service Company may
provide to Associate Company and other System companies services including,
but not limited to the following:
(A) General System Management: Executive, administrative, managerial,
coordinating and advisory services, particularly with respect to the
formulation and effectuation of policies and programs affecting or
relating to the System as a whole, including financial, corporate
strategy, accounting, and economic policies and programs, power supply,
public and employee relations, regulation, contractual arrangements,
administrative and other proceedings, industry-wide activities and like
matters.
(B) Other Functions and Activities: Studying, planning, advice, assistance,
guidance, supervision, direction, administration, maintenance, handling,
performance and operation, as may be required, in connection with the
following functions and activities:
(i) Corporate and Secretarial: Policies and practices relating to the
performance of corporate secretarial functions and activities,
including the preparation and maintenance of official corporate
records, reports, minutes and correspondence in accordance with
assigned responsibilities and duties.
(ii) Financial Planning: Financial structures; financial programs to
raise funds required or to effect savings through refinancing;
relations with commercial banks and negotiation of short-term
borrowings; relationships with investment bankers, analysts,
analyst societies, securities holders, stock holders, stock
exchanges and indenture trustees, transfer agents and registrars;
general treasury, banking and financial matters.
(iii) Accounting: General accounting, customer accounting and related
records; depreciation, accounting procedures and practices to
improve efficiency; auditing, relations with independent auditors
and appearances before and requirements of regulatory bodies with
respect to accounting matters; and financial and operating reports
and other statistical matters and analyses thereof.
(iv) Taxes: Consolidated and other income tax returns and other
federal, state and municipal tax returns, and all matters related
thereto, including relations with the Internal Revenue Service and
other taxing authorities, the examination and processing of tax
returns, assessments and claims, and developments in federal, state
and municipal taxes.
(v) Insurance: Insurance programs and matters, including pension and
other employee benefit plans and programs; and relations with
insurance brokers and agents.
(vi) Budgets: Operating, construction and cash budgets, and similar
studies or documents, including estimates and other information
required therefor or related thereto.
(vii) Data Processing: Computer and other data processing activities.
(viii) Bulk Power Supply: The bulk power supply system from sources of
supply through to bulk substations, to achieve reliable service at
minimum cost, including forecasts of electric loads; power supply
arrangements among System companies; power supply relations with
other utilities; forecasts of gas requirements and the procurement
of gas supplies; design, engineering and scheduling of electric and
gas production and transmission facilities; the design, engineering
and scheduling of major and unusual distribution facilities; and
System electric load dispatching operations and related matters.
(ix) Engineering Research and Standardization: Engineering activities
in the fields of research, design, construction and
standardization; technical specifications and standard designs for
and procedures and methods of utilizing materials, equipment and
associated services; technical support and engineering as required
in all areas of the System's operations.
(x) System Operations: Electric and gas operations, including
production, transmission and distribution of electricity and gas;
the construction, operation and maintenance of electric and gas
facilities; and in general all electric and gas construction,
maintenance and operating activities.
(xi) Other Administrative Services: Management-union and all other
employee relation activities, including the definition of major
organizational responsibilities and the translation of those
responsibilities into effective organization structures; employee
welfare and other programs and problems; business methods and
procedures; and transportation activities and matters.
(xii) Purchasing and Stores: The purchasing and handling of materials
and supplies, fuel and equipment, including such activities as
buying, traffic, expediting and stock control, and scrap and
salvage sales; major and long-term purchase contracts pertaining to
the foregoing; and contacts with market conditions and principal
suppliers.
(xiii) Commercial Activities: Electric, gas and other sales; customer
service facilities; rate matters and rate structures; and area
development plans and activities.
(xiv) Marketing and Sales Activities: Marketing, sales and pricing
strategies and plans; market research and support activities;
technical services; new business and product development; trade
ally and strategic alliance services; and marketing and sales
training and support.
(C) Officers and other employees of Service Company will, on request of
Associate Company, serve, without charge other than as herein provided,
as officers or representatives of such Company.
Section 3. Agreement to Take and Pay for Services
Associate Company agrees to take from Service Company such of the
services to be performed by Service Company as may be required and to pay to
Service Company the cost of such services determined as herein provided. It
is the intent of this Agreement that the payment for services rendered by the
Service Company to the System shall cover all the costs of its doing business
(less credits for services to others and any other miscellaneous income
items), including reasonable compensation for necessary capital as permitted
by Rule 91 of the SEC under the Act. The methods and procedure for
determining the cost of services performed for Associate Company are set
forth in Appendix A hereto.
Bills will be rendered for each calendar month on or before the
twentieth day of the succeeding month and will be payable on presentation and
not later than the last day of that month. Monthly charges may be made in
whole or in part for particular expenses on an estimated basis, subject to
adjustment, so that all charges for services during a calendar year will be
made on an actual basis.
Section 4. Effective Date; Term; and Cancellation.
This Agreement shall become and be effective as of the date hereof and
it shall continue in effect, unless sooner terminated as herein provided, for
a period of one year. It may be renewed from time to time for similar one-
year periods by mutual agreement. This Agreement shall also be subject to
termination and shall terminate, without any action by either of the parties,
to the extent and from the time that performance may conflict with the Act or
with any rule, regulation or order of the SEC adopted before or after the
making hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, by their respective officers thereunto duly authorized, all as
of the day and year first above written.
CONSOLIDATED EDISON SERVICE COMPANY
By:
Its President
Attest:
Assistant Secretary
ASSOCIATE COMPANY
BY:
Its President
Attest:
Assistant Secretary
APPENDIX A
DESCRIPTION OF METHODS AND PROCEDURE
FOR ALLOCATING COST OF SERVICES
JOB OR WORK ORDERS FOR SERVICE
There shall be job or work orders covering services to be performed for
Associate Company or other System companies. These orders may be either
general or specific. Services of a continuing nature, such as accounting,
financial planning and dispatching, will be covered by general job or work
orders; specific job or work orders will cover such things as issues of
securities, special studies or construction projects. General orders, as
well as specific orders, will specify the nature of the services to be
performed thereunder in sufficient detail that charges therefor may be
determined as herein provided and properly accounted for by the Associate
Company under its prescribed Uniform System of Accounts.
CHARGES FOR SERVICES
General
Charges for services rendered to Associate Company and other System
companies will be made on the bases of benefits conferred and of actual cost
(including reasonable compensation for necessary capital as permitted by Rule
91 of the SEC under the Act), fairly and equitably allocated.
Specific Services
Charges for specific services performed will be made to the appropriate
specific job or work order number assigned to accumulate the charges
applicable to the particular activity. These charges will include both
direct and indirect costs involved in providing the specific services.
General Services
Charges for general services performed will be made to the appropriate
general job or work order number assigned to accumulate the charges
applicable to the particular activity. These charges will include both
direct and indirect costs involved in providing the general services.
NATURE OF CHARGES AND METHOD OF ALLOCATION
Direct Charges
Direct charges consist of those costs which can practicably be recorded
separately and identified not only by job or work order number and department
but also as to source, such as time reports for each employee, vehicle
reports, invoices and other source documents. Time reports will be
maintained for each employee, including officers, in such detail as may be
appropriate for such employee and the nature of the services performed.
Employees (other than stenographic, secretarial, clerical, and other workers
engaged in rendering support services) will record on their time reports
hours chargeable to the appropriate job or work order numbers and the nature
of the work performed.
CEI will be charged with 25% of the costs chargeable to job or work
orders for general services not of an operating or functional nature related
primarily to the System subsidiary companies but primarily of benefit to and
performed for CEI and the System as a whole. The balance of the charges to
such job or work orders will be allocated to among System subsidiary
companies as provided hereafter under "Charges to System Companies - General
Services."
Indirect Charges or Overhead Expenses
Indirect charges or overhead expenses consist of all costs of the
Service Company, other than direct charges described above. These charges
may be classified into the following two general categories:
1. General Service Company Overheads - These charges include costs which
cannot be identified as applicable to either a particular job or work
order number or department and which must be allocated to the various
Service Company departments on a fair and equitable basis. The
following items are illustrative, and not all-inclusive, of the types of
costs which may be so-allocated to the extent above provided: rents;
office supplies and expenses; depreciation; building operation and
maintenance; insurance; reasonable compensation for necessary capital;
general services, such as stenographic, files, mail, etc., including
salaries, employee benefits, and expenses of related employees; and
other general overheads.
These overhead costs will be allocated to each department on the basis
of functional relationship, such as number of personnel, space occupied,
use, etc.
2. Department Overheads - These charges include costs which can be
identified as applicable to a particular department but which cannot be
directly associated with a particular job or work order number. These
costs will consist of the following:
(a) Wages and salaries of stenographic, secretarial, clerical and other
workers in the department engaged in rendering support services.
(b) Lost or nonproductive time for vacations, personal time off,
sickness, holidays, etc., of all employees in department.
(c) Payroll-related Federal and State taxes and group benefit plans for
pension, life insurance, hospitalization and medical, etc., of all
employees in department.
(d) Miscellaneous supplies and expense.
(e) General Service Company overheads allocated to the particular
department as set forth in item 1 above.
The indirect charges of a particular department, as outlined in
this item 2, will be distributed to the active specific or general job
or work orders for which work is being performed by that department on
the same proportionate basis as the actual direct payroll charges of
that department.
CHARGES TO OTHER THAN SYSTEM COMPANIES
Services performed for other than System companies will be billed and
paid for by them on an appropriate basis. All amounts so billed will be
credited to the appropriate job or work orders before any charges are made
therefrom to System companies.
CHARGES TO SYSTEM COMPANIES
Specific Services
Charges for specific services recorded in the appropriate job or work
order numbers including overhead items, will be billed to the company or
companies for whom the services are performed.
General Services
Charges for general services recorded in the appropriate job or work
order numbers, including overhead items, will be allocated among System
subsidiary companies on one of the following bases determined on the basis of
functional relationship to be the most fair and equitable:
1. Revenues - The relation of each company's gross operating revenues
(electric, gas or total, as may be appropriate) to the sum of the
operating revenues of all System companies (electric, gas or total, as
may be appropriate) for the preceding calendar year.
2. Electric Peak Load - The relation of each company's annual electric peak
load to the combined electric peak load of all System companies for the
preceding calendar year.
3. Peak Day Sendout - The relation of each company's gas peak day sendout
to the combined gas peak day sendout of all System companies for the
preceding calendar year.
4. Customers Billed - The relation of each company's total customers billed
to the combined total customers billed of all System companies for the
preceding calendar year.
5. Other - Such other basis or bases as experience may show will provide,
on a functional relationship, a more fair and equitable allocation of
particular charges than any of the foregoing.
DEPARTMENT COST CONTROLS
Annual operating budgets, on a departmental basis, will be used and
costs will be controlled independently for each department so as to maintain
a periodic check on the balances, if any, over or underbilled to insure that
services rendered are being billed at cost. Each department will be charged
with all of its expenses, including overhead items allocated to it, and will
be credited with amounts billed from the department for services rendered.
The accounts of each department will be maintained so as to be substantially
in balance at all times. Accordingly, semiannual reviews will be made of
balances to determine to what extent the xxxxxxxx should be adjusted to
reflect actual cost.
BILLING
Bills will be provided Associate Company in sufficient detail so as to
identify the services rendered and permit proper accounting distribution of
the charges under the Associate Company's prescribed Uniform System of
Accounts. Detail on the xxxx will include: (1) Department; (2) Function or
type of service; (3) Nature of charges, whether direct or indirect
(overhead); and (4) Source of charges, if direct.