Exhibit B
CONSTRUCTION, OPERATION AND MAINTENANCE AGREEMENT
BY AND BETWEEN
CAROLINA POWER & LIGHT COMPANY
AND
EASTERN NORTH CAROLINA NATURAL GAS COMPANY
DATED JANUARY 5, 2001
TABLE OF CONTENTS
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Page
1. Definitions 1
2. Relationship of the Parties...............................................2
2.1 Independent Contractor........................................2
2.2 Operator's Authority to Execute Contracts.....................2
3. Operator's Responsibilities; Claims.......................................3
3.1 Operator's Responsibilities...................................3
3.2 Claims........................................................5
4. Employees, Consultants and Subcontractors.................................5
4.1 Operator's Employees, Consultants and Subcontractors..........5
4.2 Use of Affiliated Entities or Independent Contractors.........5
4.3 Standards for Operator and its Employees......................5
4.4 Non-Discrimination and Drugs..................................6
5. Financial and Accounting..................................................6
5.1 Accounting and Compensation...................................6
5.2 Budgets and Reports...........................................6
5.3 Disputed Charges..............................................7
5.4 Rate Reviews..................................................7
5.5 Audit and Examination.........................................7
6. Intellectual Property; License to Operator................................7
7. Indemnification...........................................................8
8. Insurance ..............................................................8
9. Term ..................................................................10
10. Survival of Obligations..................................................10
11. Dispute Resolution.......................................................10
11.1 Binding Arbitration.........................................10
11.2 Sole and Exclusive Remedy...................................12
11.3 Applicability...............................................12
12. Special and Consequential Damages........................................12
13. General. .............................................................12
13.1 Effect of Agreement; Amendments.............................12
13.2 Notices.....................................................12
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13.3 Counterparts.................................................13
13.4 Waiver.......................................................13
13.5 Assignability; Successors....................................13
13.6 Third Persons................................................13
13.7 Governing Law; Regulatory Bodies.............................14
13.8 Section Numbers; Headings....................................14
13.9 Severability.................................................14
13.10 Further Assurances..........................................14
EXHIBITS
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Exhibit A -- Accounting Procedure
Exhibit B -- Map of the Facilities
Exhibit C -- Rate Guidelines
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CONSTRUCTION, OPERATION AND MAINTENANCE AGREEMENT
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This Construction, Operation and Maintenance Agreement (this "CO&M
Agreement") is made and entered into as of the 5th day of January, 2001, is by
and between Carolina Power & Light Company, a North Carolina corporation
("Operator" or "CP&L"), and Eastern North Carolina Natural Gas Company, a North
Carolina corporation ("Company").
1. Definitions.
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Any term defined in the Shareholders' Agreement (as defined below) that
appears in this CO&M Agreement shall, except as otherwise specifically provided
herein, have the same meaning in this CO&M Agreement as in the Shareholders'
Agreement.
1.1 Accounting Procedure. The accounting procedure set forth in
Exhibit A attached hereto.
1.2 APEC. Albemarle Pamlico Economic Development Corporation, a North
Carolina corporation.
1.3 CP&L. Carolina Power & Light Company, a North Carolina corporation.
1.4 Progress Energy. Progress Energy, Inc., a North Carolina
corporation.
1.5 Company. Eastern North Carolina Natural Gas Company, a North
Carolina corporation.
1.6 Day. A period of twenty-four (24) consecutive hours commencing
at 8:00 a.m., Eastern Standard Time.
1.7 Damages. See Section 8.7.
1.8 Facilities. The approximately 850 miles of pipeline, various meter
stations and related facilities as generally reflected per the map attached
hereto as Exhibit B; but whose ultimate determination shall be per any
applicable NCUC order(s).
1.9 Formation Date. The effective date of the Articles.
1.10 Liabilities. Actions, claims, settlements, judgments, demands,
costs, expenses (including, without limitation, expenses attributable to the
defense of any actions or claims), attorneys' fees and liabilities related to
the Operation of the Facilities.
1.11 Month. A period of time beginning on the first Day of a calendar
month and ending at the same time on the first Day of the next succeeding
calendar month.
1.12 NCUC. The North Carolina Utilities Commission
1.13 NCUC Application. The filing, as amended, by Progress Energy or one
of its affiliates and APEC, as Eastern North Carolina Natural Gas Company of an
Application for Bond Funds, a Certificate of Public Convenience and Necessity
and request for the Exclusive Franchise of the Service Territory.
1.14 Operation of the Facilities. The planning, design, construction,
testing, maintenance, repair, replacement, improvement, expansion and operation
of the Facilities, and billing and collection for the Facilities, including
performance of the responsibilities of the Operator as set forth in Section 3.1
of this Agreement.
1.15 Shareholders' Agreement. The Shareholders' Agreement, dated January
5, 2001, by and among APEC, CP&L Energy and the Company.
1.1.6 Operator. CP&L.
1.17 Party. The Company or the Operator.
1.18 Pre-Completion Period. The period between the Formation Date and
the date that the Facilities are placed into service, which latter date shall be
certified in writing by the Operator.
1.19 Prohibited Conduct. Any action by the Operator that constitutes bad
faith, gross negligence or willful misconduct.
1.20 Required Accounting Practice. The accounting rules and
regulations, if any, at the time prescribed by the regulatory bodies under the
jurisdiction of which the Company is at the time operating and, to the extent of
matters not covered by such rules and regulations, generally accepted accounting
principles on a consistent basis as practiced in the United States at the time
prevailing for companies engaged in a business similar to that of the Company.
1.21 Year. Each twelve (12) Month period beginning on the first Day of
a calendar year and ending at the beginning of the first Day of the next
calendar year, provided that the first year hereunder shall begin on the date
hereof, and shall end at the beginning of the first Day of the following
calendar year, and further provided that the last contract year shall end at the
expiration of the term of this CO&M Agreement pursuant to Section 9 hereof.
2. Relationship of the Parties.
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2.1 Independent Contractor. The Operator shall at all times be, and have
the responsibilities and status of, an independent contractor in the fulfillment
of its duties under this CO&M Agreement.
2.2 Operator's Authority to Execute Contracts. Copies of all contracts
entered into by the Operator on behalf of the Company shall be provided to the
Company. All contracts and permits, if any, relating to Company business and
executed by the Operator prior to the Formation Date shall be assigned by the
Operator to the Company as soon as practicable after the Formation Date.
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Operator may, in its discretion, enter into such contracts with third
party suppliers of materials, supplies and/or equipment as it deems necessary in
order to fulfill its obligations under this CO&M Agreement. All payments
associated with such contracts shall be payable by the Company directly to such
third party.
3. Operator's Responsibilities; Claims.
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3.1 Operator's Responsibilities. The Operator shall be responsible for
the Operation of the Facilities, which includes, but is not limited to,
performance of the following responsibilities:
(a) Prepare, file, execute and prosecute applications for the
Necessary Regulatory Approvals required by the Company and make periodic filings
required of the Company by Governmental Authorities having jurisdiction,
including, without limitation, the preparation, filing, execution and
prosecution of the NCUC Application (and any amendments thereto), the Company's
tariffs, and any rate case filings.
(b) Provide or cause to be provided day-to-day operating and
maintenance services, administrative liaison and related services to the
Company, including, but not limited to public safety requirements and
compliance, customer support (including customer service functions and billing
and collections services), rates (including rate cases), legal, accounting,
engineering, construction, repair, replacement, inspection, operational
planning, marketing, budgeting, tax and technical services, and insurance and
regulatory administration.
(c) Prepare (i) engineering design and specification of the
Facilities, which design shall be made in accordance with the requirements of
all applicable Governmental Authorities having jurisdiction, (ii) a plan of
construction, (iii) a schedule of projected expenditures, (iv) a schedule of
construction, and (v) the estimated costs of construction.
(d) Secure appropriate and qualified contractors for the design,
engineering, construction, installation and Operation of the Facilities.
(e) Negotiate and execute contracts for the purchase of materials,
equipment and supplies necessary for the Operation of the Facilities.
(f) Prepare, negotiate and execute in the name of the Company
rights-of-way, land in fee, permits and contracts, initiate and prosecute
eminent domain proceedings necessary for the Operation of the Facilities, and
resist the perfection of any involuntary liens against Company property.
(g) Construct and install, or cause to be constructed and installed,
the Facilities.
(h) Provide construction reports every thirty (30) days (or less
frequently as required by the Company) that includes the status of construction
and the estimated completion date for different phases of construction
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(i) In consultation with APEC, determine the route and location of
the Facilities, and any additions to the Facilities, consistent with any and all
orders of the NCUC, and consistent with Sections 4.5(e) and (f) of the
Shareholders' Agreement.
(j) Maintain accurate and itemized accounting records for the
Operation of the Facilities, together with any information reasonably required
by the Company relating to such records, consistent with the applicable
provisions of Section 4.2 of the Shareholders' Agreement.
(k) Prepare the financial reports set forth in Section 4.2 of the
Shareholders' Agreement.
(l) Cause the Operation of the Facilities to be in accordance with
the requirements of all Governmental Authorities having jurisdiction, including,
but not limited to, the requirements of the United States Department of
Transportation set forth in 49 C.F.R. Parts 192 and 199 and in accordance with
sound and prudent natural gas pipeline industry practices, and provide or cause
to be provided such appropriate supervisory, audit, administrative, technical
and other services as may be required for the Operation of the Facilities.
(m) Prepare and file all necessary federal and state income tax
returns and all other tax returns and filings for the Company. Each Shareholder
shall furnish to the Operator all pertinent information in its possession
relating to Company operations that is necessary to enable such returns to be
prepared and filed.
(n) On behalf of the Company, maintain and administer bank and
investment accounts and arrangements for Company funds, draw checks and other
orders for the payment of money, and designate individuals with authority to
sign or give instructions with respect to those accounts and arrangements. The
Company's funds shall not be commingled with funds belonging to the Operator.
(o) Negotiate, execute and administer customer service agreements in
accordance with the Company's tariffs and applicable regulatory requirements,
including, but not limited to, the preparation and collection of all bills to
customers for services rendered thereunder.
(p) Utilize an appropriate industry customer satisfaction measurement
instrument to gauge Operator performance, and provide results to the Company
upon request by the Company.
(q) Dispatch and allocate daily scheduled nominations for natural gas
quantities to be received, transported and redelivered by means of the
Facilities in accordance with the Company's tariffs and any applicable
regulatory requirements.
(r) Plan for, procure, manage and dispatch adequate supplies of
natural gas to serve all of the Company's needs during the term of this CO&M
Agreement. Utilize flow measurement equipment for volume determinations and
natural gas chromatographs for energy determinations, as deemed appropriate by
the Operator.
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(s) Except as otherwise provided by applicable laws or governmental
regulations or as otherwise directed by the Company, retain all records, books
of account, Company tax returns, plans, designs, studies, reports and other
documents related to the Operation of the Facilities for three (3) years from
the date of completion of the activity to which such records relate (or such
longer period as may be required by law).
(t) Report to the Company as soon as practicable all non-routine
occurrences that the Operator determines may have a significant adverse impact
upon the Operation of the Facilities, make any necessary repairs as a result of
such occurrences as the Operator deems necessary, and make a follow-up report at
an appropriate time on the Operator's response to each non-routine occurrence.
(u) Perform such other duties as are reasonably necessary or
appropriate in the Operator's discretion and enter into such other arrangements
as reasonably requested by the Company to discharge the Operator's
responsibilities under this CO&M Agreement.
3.2 Claims. Any and all claims against the Company instituted by anyone
other than the Operator arising out of the Operation of the Facilities shall be
settled or litigated and defended by the Operator in accordance with its best
judgment and discretion after consultation and concurrence with the Company.
4. Employees, Consultants and Subcontractors.
-----------------------------------------
4.1 Operator's Employees, Consultants and Subcontractors. The Operator
shall employ or retain and have supervision over the Persons (including
consultants and professional service or other organizations) required or deemed
advisable by the Operator to perform its duties and responsibilities hereunder
in an efficient and economically prudent manner. The Operator will use its best
efforts to use local, qualified employees, consultants and contractors when
possible. The Operator shall pay all reasonable expenses in connection
therewith, including compensation, salaries, wages, overhead and administrative
expenses incurred by the Operator, and if applicable, social security taxes,
workers' compensation insurance, retirement and insurance benefits and other
such expenses. The compensation for the Operator's employees shall be determined
by the Operator, provided that the amount and terms of such compensation shall
be comparable to those prevailing in the natural gas industry where Operator's
employees are located for similar work. Subject to the other provisions of this
CO&M Agreement, all authorized expenses pursuant to this Section 4.1 shall be
reimbursed to the Operator by the Company as provided in the Accounting
Procedure.
4.2 Use of Affiliated Entities or Independent Contractors. The Operator
may utilize, as it deems necessary or appropriate, the services of any
independent contractors or of its or any Shareholder's Affiliate; provided,
however, that such services of the Operator's or any Shareholder's Affiliate
must be utilized on terms no less favorable to the Company than those prevailing
at the time for comparable services of nonaffiliated independent parties.
4.3 Standards for Operator and its Employees. The Operator shall perform
its services and carry out its responsibilities hereunder, and shall require all
of its employees and contractors, subcontractors and materialmen furnishing
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labor, material or services for the Operation of the Facilities to carry out
their respective responsibilities in accordance with sound, workmanlike and
prudent practices of the natural gas pipeline industry and in compliance with
the Company's approved tariffs and all relevant laws, statutes, ordinances,
safety codes, regulations, rules and authorizations of Governmental Authorities
having jurisdiction applicable to the Facilities.
4.4 Non-Discrimination and Drugs. In performing under this CO&M
Agreement, the Operator shall not discriminate against any employee or applicant
for employment because of race, creed, color, religion, sex, national origin,
age, disability, sexual orientation or pregnancy, and will comply with all
provisions of Executive Order 11246 of September 24, 1965 and any successor
order thereto, to the extent that such provisions are applicable to the Operator
or the Company. The Company and the Operator do not condone in any way the use
of illegal drugs or controlled substances. Any person known by the Operator to
be in possession of any illegal drag or controlled substance will be removed by
the Operator and not permitted to work on or with respect to the Facilities. In
addition, the Operator shall meet all the applicable requirements imposed by the
Department of Transportation as specified in 49 C.F.R. Parts 40 and 199.
Furthermore, upon request and to the extent permitted by law, the Operator will
furnish the Company copies of the records of employee drug test results required
to be kept under the provisions of 49 C.F.R. Part 199. The provisions of this
Section 4.4 shall be applicable to any contractors, consultants and
subcontractors retained in connection herewith, and the Operator shall cause the
agreements with any contractor, consultant or subcontractor to contain similar
language.
5. Financial and Accounting.
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5.1 Accounting and Compensation.
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(a) The Operator shall keep a full and complete account of all costs,
expenses and expenditures incurred by it in connection with its obligations
hereunder in the manner set forth in the Accounting Procedure.
(b) The Operator shall be reimbursed by the Company at the rate and
in the manner set forth in the Accounting Procedure for all costs and expenses
of the Operator in connection with the Operation of the Facilities or otherwise
to fulfill the Operator's duties under this CO&M Agreement; provided, however,
that the Company shall not be required to reimburse the Operator for costs and
expenses arising out of Prohibited Conduct or claims for non-payment of any and
all contributions, withholding deductions or taxes measured by the wages,
salaries or compensation paid to Persons employed by the Operator or any of its
Affiliates in connection herewith.
5.2 Budgets and Reports. The Operator shall prepare and deliver to the
Company for approval, on an annual basis, an Annual Budget reflecting the
estimated costs to be incurred for Operation of the Facilities during the
ensuing twelve (12) month period. For each Fiscal Year, the Annual Budget shall
be submitted by November 30 of the preceding year. The Operator shall also
prepare and deliver to each Shareholder such forecasts, cash flow projections
and financial and operating reports with respect to the Company as from time to
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time may be reasonably requested by the Company, including fiscal year reports
for Shareholders who report financial results on a basis other than the calendar
year.
5.3 Disputed Charges. The Company may, within the audit period referred
to in Section 5.5 hereof, take written exception to any xxxx or statement
rendered by the Operator for any expenditure or any part thereof on the ground
that the same was not appropriate for reimbursement under the terms of Section
5.1(b) above. The Company shall pay the disputed amount into escrow with a third
party escrow agent to be selected by the Company. Such payment shall not be
deemed a waiver of the right of the Company to recoup any contested portion of
any xxxx or statement; provided, however, that if the amount as to which such
written exception is taken or any part thereof is ultimately determined in
accordance with Section 11 of this CO&M Agreement not to be appropriate for
reimbursement under the terms of Section 5.1(b) of this CO&M Agreement, such
amount or portion thereof (as the case may be) shall be refunded by the escrow
agent to the Company.
5.4 Rate Reviews. Subject to NCUC approval and in accordance with the
guidelines set forth on Exhibit C attached hereto, the Operator shall review
from time to time the rates and fees charged for natural gas, natural gas
transmission and/or distribution services, and subject to the receipt of any
required regulatory approvals, revise such rates and fees as the Operator may
deem appropriate for the Company; provided, however, the Operator may not revise
such rates and fees if the Board of Directors of the Company, with the vote of
at least one (1) Progress Energy Director, disapproves such change in rates and
fees.
5.5 Audit and Examination. The Company or any Shareholder, after thirty
(30) Days notice in writing to the Operator, shall have the right during normal
business hours to audit or examine, at the expense of the requesting party, all
books and records maintained by the Operator, as well as the relevant books of
account of the Operator's contractors, relating to the Operation of the
Facilities; provided, however, that the total number of full audits commenced in
any Year pursuant to this Section 5.5 shall not exceed one (1). Such right shall
include the right to meet with the Operator's internal and independent auditors
to discuss matters relevant to the audit or examination. The Company shall have
two (2) Years after the close of a Year in which to make an audit of the
Operator's records for such Year; provided, however, that any audits relating to
construction costs may be made up to twenty-four (24) Months after the
in-service date of the Facilities (not including any modifications) or after the
date that construction of the modification in question was completed, as
certified in writing by the Operator, in the case of a modification.
6. Intellectual Property; License to Operator.
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Each Shareholder hereby grants to the Operator an irrevocable,
royalty-free, non-exclusive and non-assignable license to use, during the term
of this CO&M Agreement, any Confidential Information provided to the Company or
the Operator by said Shareholder and designated as such by said Shareholder. For
purposes of this Section 6, Confidential Information shall include, but shall
not be limited to, inventions (whether patented or not) and copyrighted or
copyrightable material. As a condition precedent to the effectiveness of such
license to use, the Operator hereby expressly agrees that it will utilize such
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Confidential Information solely in connection with the performance of its duties
hereunder and as a Shareholder of the Company pursuant to the terms of the
Shareholders' Agreement. Upon termination of this CO&M Agreement or CP&L's
removal as Operator, such license shall terminate and the Operator shall return
all Confidential Information that has been provided to it together with all
reproductions thereof in the Operator's possession, pursuant to such license to
use, to the Shareholder from whom it obtained such Confidential Information.
7. Indemnification.
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Each Party (the "Indemnifying Party") will indemnify and save harmless the
other Party (the "Indemnified Party") from any loss or damages (including
reasonable attorney's fees) incurred by the Indemnified Party because of claims,
suits, or demands of third parties arising out of or resulting from any alleged
act or omission on the part of the Indemnifying Party, its employees, or agents
in the performance of, or failure to perform the activities contemplated by this
Agreement, or otherwise arising under this Agreement, to the extent that such
loss or damage is caused by or results from the acts of the Indemnifying Party
or its employees or agents, provided that (i) the Indemnified Party promptly
notified the Indemnifying Party in writing of any suits, claims or demands
against the Indemnified Party for which the Indemnifying Party is responsible
under this indemnity; (ii) the Indemnified Party gives the Indemnifying Party
full opportunity and authority to assume the sole defense of and settle such
suits; and (iii) the Indemnified Party furnishes to the Indemnifying Party upon
request all information and assistance available to the Indemnified Party for
defense against any such suit, claim or demand. This indemnity is in lieu of all
other obligations of the Indemnifying Party, express or implied, in law or in
equity, to indemnify the Indemnified Party for such claims.
8. Insurance.
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8.1 During the initial construction of the Facilities, the Operator
shall cause insurance to be carried and maintained, either directly or through
the contractor building the Facilities, with the limits directed by the Company,
to cover liability for personal injury or death, physical loss and damage to
property during construction, with a deductible amount selected by the Operator.
The insurance shall name the Operator and the Company as insureds.
8.2 At all times during the Operation of the Facilities, the Operator
shall provide (a) workers' compensation insurance granting full compensation
under the worker's compensation law of any state in which operations are
conducted, and (b) employer's liability insurance with limits of not less than
$1,000,000.00 per occurrence for all of the Operator's employees engaged in work
on the Facilities, and (c) automobile liability insurance for all vehicles owned
or used by the Operator, covering injuries to or death of persons and damage to
property, with a combined single limit of not less than $1,000,000.00 per
occurrence, and (d) general liability insurance with limits of not less than
$5,000,000.00 per occurrence for all of the Operator's employees engaged in work
on the Facilities.
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8.3 If permitted by applicable law, the Operator may self-insure the
workers' compensation, employer's liability, automobile liability, and general
liability insurance required above.
8.4 The Operator shall procure and maintain for the benefit of Company
and Operator during the Operation of the Facilities a general liability or
excess liability insurance policy in an amount not less than $5,000,000.00 per
occurrence for bodily injury and property damage, covering blanket contractual
liability, broad form property damage, independent contractors,
products/completed operations, cross liability and explosion, collapse and
underground exposures. The Operator and the Company shall be named insureds
under this policy. The Shareholders and their respective Parent and Affiliates
and the Operator's Parent and Affiliates shall be named as additional insureds
under this policy, but only for the Operation of the Facilities. This insurance
shall be endorsed to provide primary insurance over any other insurance
maintained by or on behalf of the Operator or the Shareholders or their
respective Parent and Affiliates, and to waive all rights of subrogation in
favor of the Operator and the Shareholders and their respective Parent and
Affiliates. The Operator will have a certificate of insurance issued evidencing
this insurance upon the specific request of the Company or any of its
Shareholders.
8.5 The costs for premiums, deductibles and retentions for the insurance
maintained by the Operator pursuant to this CO&M Agreement shall be reimbursable
costs pursuant to Section 5 of this CO&M Agreement. In addition, in the event
that the Operator self-insures the workers' compensation and employer's
liability insurance required above, the Operator shall be reimbursed as provided
in Section 3.09 of the Accounting Procedure.
8.6 After completion of construction of the Facilities, the Company shall
at all times be responsible for insuring against liability exposures with regard
to the Facilities and the operation, maintenance and construction thereof,
except as described in Section 8.2 of this CO&M Agreement.
8.7 The Operator, the Company and the Shareholders hereby waive, and
obligate themselves hereby to cause their respective insurers to waive, all
rights of recovery against one another, the Affiliates of each and the insurers
of any of them with respect to damage to or loss of property that is a part of
the Facilities (collectively referred to as "Damages"). Such waiver of recovery
shall be effective regardless of the cause of the Damages, including any Damages
attributable to the sole, joint or concurrent negligence of the Party causing
the Damages, but excluding any Damages attributable to the gross negligence or
willful misconduct of the Party causing the Damages. All such policies of
insurance purchased to cover the Facilities or any part thereof, or the
Operation of the Facilities or any part thereof, or any natural gas received,
transported or delivered using the Facilities, shall be endorsed properly to
effectuate this waiver of recovery. In addition, each Shareholder and the
Operator shall cause their respective general liability insurance (including
excess insurance) policies to be worded to provide a waiver of all subrogation
rights in favor of the Operator, the Company and the other Shareholders.
9. Term.
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This CO&M Agreement shall be effective as of the date hereof and shall
continue for the term of the Company; provided, however, that this CO&M
Agreement may be terminated by Company upon the earlier of the first to occur of
the following: (a) the Operator or its Affiliate which is a Shareholder ceases
to be a Shareholder; or (b) the Operator commits a material default under this
CO&M Agreement and such material default continues for a period of one hundred
eighty (180) Days after notice thereof by the Company to the Operator (provided,
however, that no termination shall occur if the Operator has initiated action to
cure such material default but, despite its good faith efforts, it has been
unable to complete such cure within such one hundred eighty (180) Day period).
10. Survival of Obligations.
-----------------------
The termination of this CO&M Agreement shall not discharge any Party from
any obligation which it owes to any other Party by reason of any transaction,
commitment or agreement entered into, or any Liabilities that shall occur or
arise (or the circumstances, events or basis of which shall occur or arise)
prior to such termination. It is the intent of the Parties that any obligation
owed by a Party to the other Party (whether the same shall be known or unknown
at the time of termination hereof, or whether the circumstances, events or basis
of the same shall be known or unknown at the termination hereof) shall survive
the time of termination of this CO&M Agreement.
11. Dispute Resolution.
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11.1 Binding Arbitration. Any dispute, controversy or claim arising under
this CO&M Agreement that has not otherwise been resolved by discussions between
the Parties (a "Claim") shall be resolved by binding arbitration as provided
herein, and judgment on an award rendered therein may be entered in any court
having jurisdiction.
(a) Arbitration shall be initiated by the delivery of a written
demand for arbitration by the demanding Party to the other Party. The demand
shall set out the nature of the dispute and the resolution sought by the
demanding Party.
(b) The respondent Party shall have thirty (30) days (the "Response
Period") to respond to the demand, in writing, setting out its answer and/or
counterclaims.
(c) After the arbitration demand and response have been exchanged, an
arbitrator shall be selected as follows:
(i) The parties shall request that the American Arbitration
Association provide them with a list of names of arbitrators with substantial
experience in the substantive matter at issue. No person may be selected or
serve as an arbitrator who at the outset is employed by, or under the control or
management of, either Party;
(ii) Each Party shall, within ten (10) days after the list of
names is provided, select five names from that list in the order of preference.
If either Party fails or refuses to select during the period for doing so, only
the selections of the other Party shall be considered.
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(iii) The arbitrator jointly selected by both Parties shall be
appointed. If more than one arbitrator is jointly selected, order of preference
of both parties, using five points for the first preference and one point for
the fifth preference shall determine the selection. If the Parties did not
jointly select an arbitrator, the selection shall be made by the American
Arbitration Association.
(d) In addition to its authority to hear the dispute presented by the
Parties, the arbitrator may, subject to the terms of this Section 11.1, make
rulings in connection with the procedures and timetable to be followed by the
Parties hereunder.
(e) Within thirty (30) days after the appointment of arbitrator, the
arbitration hearing shall proceed, subject to the following requirements and
procedures:
(i) The arbitration hearing shall be held at a location
mutually agreed by the Parties, or failing such agreement, at a location
determined by the arbitration panel;
(ii) Strict rules of evidence shall not be applied in the
arbitration hearing. The parties may offer such evidence as they desire and the
arbitrators shall accept such evidence and accord it such weight as the
arbitrators deem appropriate. Cross-examination of witnesses and rebuttal
testimony shall be permitted; and
(iii) Each Party may, but is not required to, submit one (1)
prearbitration hearing brief (of not more than ten (10) pages (excluding
exhibits)) no later than five (5) days prior to commencement of the arbitration
hearing, and may also submit one (1) postarbitration hearing brief (of not more
than ten (10) pages (excluding exhibits)) no later than ten (10) days after the
close of the arbitration hearing. The prearbitration hearing brief shall contain
each Shareholder's detailed proposal for resolution of the claim. A copy of any
brief submitted to the arbitration panel shall also be served on the other
Party.
(f) After submission of any postarbitration hearing briefs and within
thirty (30) days after the close of the arbitration hearing, the arbitrator
shall select one of the proposals submitted by the Parties as a full and final
resolution of the Claim subject to the following requirements and procedures.
(i) The arbitrator shall weigh evidence and make its award,
taking into account, to the extent it deems applicable, custom and usage of the
industry;
(ii) The arbitrator award shall be issued in writing and shall
state the factual bases and reasoning of the award; and,
(iii) The arbitrators may award costs of the arbitration
proceeding, excluding attorneys' fees and also excluding the costs apportioned
pursuant to clause (g) below.
(g) Each Party shall pay the reasonable expense of the arbitrator of
its selection. The amount or rate to be paid by the selecting Party shall be
disclosed to the other Party upon engagement of the arbitrator. The Parties
shall jointly and equally pay the expense of the arbitrators' selected
arbitrator.
11
(h) Neither Party may disclose the progress, content, findings or
award of any arbitration commenced or completed hereunder without the prior
written consent of the other Party. Nor may the arbitrators disclose such
information without the written consent of both Parties.
(i) All time limits stated in this Section 11.1 are for the
convenience of the Parties and may be altered upon mutual agreement of the
parties.
11.2 Sole and Exclusive Remedy. The procedures specified in this Section
11 shall be the sole and exclusive procedures for the resolution of any claim
between the parties arising out of or relating to this CO&M Agreement; provided,
however, that a Party may seek a preliminary injunction or other preliminary
judicial relief if in its judgment such action is necessary to avoid irreparable
damage. Despite such action the Parties will continue to participate in good
faith in the procedures specified in this Section 11. All applicable statutes of
limitation shall be tolled while the procedures specified in this Section 11 are
pending. The Parties will take such action, if any, required to effectuate such
tolling.
11.3 Applicability. Notwithstanding anything to the contrary contained
herein, the provisions of this Section 11 shall not apply to any business
decisions to be made by the Operator in connection with this CO&M Agreement.
12. Special and Consequential Damages.
---------------------------------
The indemnification provided in Section 7 of this CO&M Agreement shall
include without limitation claims made by any Person for special, indirect,
consequential or punitive damages; otherwise, neither Party shall have any
liability hereunder to the other Party for any special, indirect, consequential
or punitive damages.
13. General.
-------
13.1 Effect of Agreement; Amendments. This CO&M Agreement, together
with the Shareholders' Agreement, reflects the whole and entire agreement
between the Parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral and written, among the Parties with
respect to the subject matter hereof. This CO&M Agreement can be amended,
restated or supplemented only by the written agreement of the Operator and the
Company.
13.2 Notices. Unless otherwise specifically provided in this CO&M
Agreement, any notice or other communication shall be in writing and may be sent
by (a) personal delivery (including delivery by a courier service), (b) telecopy
to the following telecopy numbers (until changed in accordance with this Section
13.2) or (c) registered or certified mail, postage prepaid, addressed as set
forth below (or at such other address as may be designated in accordance with
this Section 13.2):
12
(a) If to the Operator:
Carolina Power & Light Company
Xxxx Xxxxxx Xxx 0000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
(411 Fayetteville Street Mall, 27601)
Attention: Xxx Xxxxx
(b) If to the Company, to Progress Energy at the address
shown in (a) above and to APEC:
Xxxxxx X. Xxxx, XX,
Trimpi & Xxxx & Xxxxxx, LLP
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxx Xxxx, XX 00000
Notices shall be deemed given upon receipt, and a notice to the Company shall be
deemed given when received by the last Party to receive the same. Any Party may
change its address or telecopy number for notices hereunder by providing notice
of any such change to each of the other Parties.
13.3 Counterparts. This CO&M Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
13.4 Waiver. No waiver by either Party of any default by the other Party
in the performance of any provision, condition or requirement herein shall be
deemed to be a waiver of, or in any manner release the other Party from,
performance of any other provision, condition or requirement herein, nor shall
such waiver be deemed to be a waiver of, or in any manner a release of, the
other Party from future performance of the same provision, condition or
requirement. Any delay or omission of either Party to exercise any right
hereunder shall not impair the exercise of any such right, or any like right,
accruing to it thereafter.
13.5 Assignability; Successors. This CO&M Agreement may not be assigned by
either Party without the written consent of the other Party; provided, however,
that such consent shall not be withheld unreasonably. This CO&M Agreement and
all of the obligations and rights herein established shall extend to and be
binding upon and shall inure to the benefit of the respective successors and
permitted assigns of the respective Parties hereto. Unless otherwise agreed, any
assignment of this CO&M Agreement shall not relieve the assigning Party of any
of its obligations hereunder.
13.6 Third Persons. Except as expressly provided in this CO&M Agreement,
nothing herein expressed or implied is intended or shall be construed to confer
upon or to give any Person not a Party hereto any rights, remedies or
obligations under or by reason of this CO&M Agreement.
13
13.7 Governing Law; Regulatory Bodies. This CO&M Agreement shall be
governed by and interpreted in accordance with the laws of the State of North
Carolina, excluding any conflict-of-laws rule or principle that might refer the
governance or the construction of this CO&M Agreement to the law of another
jurisdiction. Additionally, this CO&M Agreement and the obligations of the
Parties hereunder are subject to all applicable laws, rules, orders and
regulations of Governmental Authorities having jurisdiction, and to the extent
of conflict, such laws, rules, orders and regulations of governmental
authorities having jurisdiction shall control.
13.8 Section Numbers; Headings. Unless otherwise indicated, references to
Section numbers are to Sections of this CO&M Agreement. Headings and captions
are for reference purposes only and shall not affect the meaning or
interpretation of this CO&M Agreement.
13.9 Severability. Any provision of this CO&M Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of that prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of that provision in any other jurisdiction.
13.10 Further Assurances. Each Party agrees to execute and deliver all such
other and additional instruments and documents and to do such other acts and
things as may be reasonably necessary more fully to effectuate the terms and
provisions of this CO&M Agreement.
[The remainder of this page has been intentionally left blank.]
14
IN WITNESS WHEREOF, the Parties have caused this CO&M Agreement to be
executed by their duly authorized representatives as of the date first above
written.
OPERATOR:
--------
CAROLINA POWER & LIGHT COMPANY
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
COMPANY:
-------
EASTERN NORTH CAROLINA NATURAL GAS COMPANY
By each of its Shareholders:
PROGRESS ENERGY, INC.
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
ALBEMARLE PAMLICO ECONOMIC DEVELOPMENT CORPORATION
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
15
EXHIBIT A
---------
ACCOUNTING PROCEDURE
ARTICLE I
General Provisions
1.01 Statements and Xxxxxxxx. The Operator shall xxxx the Company on the
first Day of each Month or as soon as possible thereafter for the estimated
costs and expenses for the Month, including any adjustment that may be necessary
to correct prior estimated xxxxxxxx to actual costs. If requested by the
Company, the Operator will promptly provide reasonably sufficient support for
the estimated costs and expenses to be incurred for the Month. Actual bills will
be summarized by appropriate classifications indicative of the nature thereof
and will be accompanied by such detail and supporting documentation as the
Company may reasonably request.
1.02 Payment by Company. The Company shall pay all bills presented by the
Operator as provided in this CO&M Agreement on or before the fifteenth (15th)
Day after the xxxx is received. If payment is not made within such time, the
unpaid balance shall bear interest until paid at a rate (which shall in no event
be higher than the maximum rate permitted by applicable law) equal to the prime
rate of Citibank, N.A. (or its successor) from time to time publicly announced
and in effect. Payment by or on behalf of the Company shall not be deemed a
waiver of the right to recoup any amount in question.
1.03 Financial Records. The Operator shall maintain accurate books and
records in accordance with Required Accounting Practice covering all of the
Operator's actions under this CO&M Agreement.
1.04 Purchase of Materials. It is contemplated that all material,
equipment and supplies will be owned by the Company and purchased or furnished
for its account. So far as is reasonably practical, and consistent with
efficient, safe and economical operation as determined by the Operator, only
such material shall be obtained for the Facilities as may be required for
immediate use, and the accumulation of surplus stock shall be avoided. To the
extent reasonably possible, the Operator shall take advantage of discounts
available by early payments and pass such benefits on to the Company.
1.05 Interest-Bearing Account. To the extent practicable, the funds of the
Company will be held in one or more interest-bearing accounts.
ARTICLE II
Capital Items
-------------
2.01 To the extent the Operator or any of its Affiliates owns real and/or
personal property necessary or desirable for the Operation of the Facilities
that (a) under Required Accounting Practice, might be capitalized, and (b) the
Operator or such Affiliate in its sole discretion is willing to transfer such
property for consideration to the Company, the Operator or such Affiliate may,
if approved by the Company, so transfer such property to the Company. In the
event of such a transfer, the Operator may charge the Company the net book value
thereof (as reflected on the books of the Operator or such Affiliate on the date
of transfer).
2.02 The cost of natural gas utilized for installation, purging, testing
and line pack of the Facilities shall be a capital item. Any major modification
to information systems requiring information processing and/or programming
services shall be a capital item.
ARTICLE III
Costs and Expenses
------------------
Subject to the limitations hereafter prescribed and the provisions of this
CO&M Agreement, the Operator shall charge the Company for all costs and expenses
provided for in Section 5.1(b) of this CO&M Agreement, including, but not
limited to, the following items:
3.01 Rentals. All rentals paid by the Operator.
3.02 Labor Costs. All applicable personnel generating the following labor
costs shall keep time sheets so that the portion of their salaries and wages
chargeable under this CO&M Agreement may be supported and calculated, and only
such proportionate part of such labor costs shall be charged pursuant to this
Section 3.02:
(a) Salaries and wages of employees of the Operator and its
Affiliates engaged in connection with the construction, operation, maintenance
and administration of the Facilities and, in addition, amounts paid as salaries
and wages of others temporarily employed in connection therewith. Such salaries
and wages shall be loaded to include the Operator's actual costs of bonuses,
holiday, vacation, sickness and jury service benefits and other customary
allowances for time not worked paid to persons whose salaries and wages are
chargeable under this Section 3.02(a). Direct labor charges may be billed from
the following areas: Operations, Engineering, Customer Services, Legal-Assigned,
Accounting, Tax, Rates and Planning.
(b) Expenditures or contributions made pursuant to assessments
imposed by Governmental Authority that are applicable to salaries, wages and
costs chargeable under Section 3.02(a) above, including, but not limited to,
FICA taxes and federal and state unemployment taxes.
(c) The costs of plans incurred by or on behalf of the Operator for
workers' compensation, employers' group life insurance, hospitalization,
disability, pension, retirement, savings and other benefit plans, that are
2
applicable to salaries and wages chargeable under Section 3.02(a) above. Such
costs shall be charged on the basis of a percentage assessment on the amount of
salaries and wages chargeable under Section 3.02(a) above.
(d) Occupancy costs, including office space, furniture usage, desktop
computing, telephone and other miscellaneous office-related expenses.
(e) The overhead costs associated with procuring and scheduling gas
and all other gas-related functions.
(f) All other administrative and general expenditures, including
salaries and wages, bonuses, related benefits and expenses of personnel of the
Operator and/or the Operator's Affiliates (excluding the personnel referred to
elsewhere in this Section 3.02 who render services for the benefit of the
Operator (in the performance of its obligations hereunder) or the Company,
including but not limited to, administrative, public relations, personnel,
purchasing, legal and treasury, shall be charged as follows: 3.1% of direct
labor costs.
3.03 Reimbursable Expenses of Employees. Reasonable personal expenses of
employees whose salaries and wages are chargeable under Section 3.02(a) above.
As used herein, the term "personal expenses" shall mean out-of-pocket
expenditures incurred by employees in the performance of their duties and for
which such employees are reimbursed. The Operator shall maintain documentation
for such expenses in accordance with the standards of the Internal Revenue
Service.
3.04 Material, Equipment and Supplies. Material, equipment and supplies
purchased or furnished from the warehouse or other properties of the Operator's
or its Affiliates, priced at cost plus the Operator's or its Affiliate's
appropriate purchasing and stores overhead ordinarily in use by the Operator or
its Affiliate.
3.05 Transportation. Transportation of employees, equipment and material
and supplies necessary for the Operation of the Facilities.
3.06 Services. The cost of contract services and utilities procured from
outside sources.
3.07 Legal Expenses and Claims. All reasonable legal expenses, including
but not limited to, costs and expenses of handling, investigating and settling
litigation or claims arising by reason of the Operation of the Facilities or
necessary to protect or recover any Facilities or property, including, but not
limited to, attorney's fees, court costs, costs of investigation or procuring
evidence and any judgments paid or amounts paid in settlement or satisfaction of
any such litigation or claims. All judgments received or amounts received in
settlement of litigation with respect to any claim asserted on behalf of the
Company shall be for the benefit of and shall be remitted to the Company.
3.08 Taxes. All taxes of every kind and nature assessed or levied upon or
incurred in connection with the Operation of the Facilities or on the Facilities
or other property of the Company and which taxes have been paid by the Operator
for the benefit of the Company, including charges for late payment arising from
3
extensions of the time for filing that are caused by the Company, or that result
from the Operator's good faith efforts to contest the amount or application of
any tax.
3.09 Insurance. Net of any returns, refunds or dividends, all premiums,
deductibles and retentions paid and expenses incurred for insurance required to
be carded under this CO&M Agreement. In the event that the Operator self-insures
the workers' compensation and employer's liability insurance as provided in
Section 8 of the CO&M Agreement, the Operator shall be reimbursed only for the
amount equivalent to the standard premium(s) which would have been paid had such
insurance been acquired, and the Operator shall not be reimbursed for the costs
associated with any claims paid by the Operator as an insurer under such
self-insurance.
3.10 Permits, Licenses and Bond. Cost of permits, licenses and bond
premiums necessary in the performance of the Operator's duties.
4
EXHIBIT B
---------
MAP OF THE FACILITIES
EXHIBIT C
---------
RATE GUIDELINES
1. Rate Increase. The Operator may apply to the NCUC for a rate increase
including but not limited to adjustment to the Purchase Gas Adjustment Clause
and General Rate Increase at any time it becomes necessary to do so. For
purposes of this Paragraph 1, the following definitions are provided:
(a) Purchase Gas Adjustment Clause: The procedures identified in
Rider A of the Tariff.
(b) General Rate Increase: An application made to the NCUC to
increase gas margin rates.
2. Competitive Rates. The Operator and the Company agree that it is
necessary to maintain competitive rates and that this is a key ingredient to
successfully attract new businesses to the Service Territory. Therefore, except
as provided in Paragraph 4 below, during the term of the CO&M Agreement, the
Operator will not seek to increase the Company's Rate Margin for any customer
class above the Average Comparable Rate Margin of such customer class contained
in Gas Rates charged by Other Local Distribution Companies. For purposes of this
Paragraph 2, the following definitions are provided:
(a) Other Local Distribution Companies: Public Service Company of
North Carolina (PSNC), North Carolina Natural Gas Company (NCNG), Piedmont
Natural Gas Company (PNG), Frontier Energy (Frontier), Virginia Natural Gas
(VNG) and North Carolina Gas Service, A Division of NUI Corporation (NUI).
(b) Gas Rates: For Other Local Distribution Companies, the proper
Tariff rate contained in the rate schedules shown in the table below used to
determine the Average Comparable Rate Margin:
Company Other Local Distribution Companies
--------------------------------------------------------------------------
Customer ClassGas PSNC NCNG PNG Frontier VNG NUI
Rates*
-------------------- ---------------- ------------ ----------- ------------ ------------- ---------- -----------
(approved rate schedule number)
Residential
1 105 1 101 101 1 101
Commercial 2 125 2 102 111 2 102
Industrial 3 150 6 104 161 6 105
* See Paragraph 5 below.
(c) Rate Margin: All gas costs determined by the NCUC or Virginia
State Corporation Commission ("SCC") to be properly recoverable from sales
customers, less the Benchmark Commodity Gas Cost and the Fixed Gas Cost Recovery
Rate. The Rate Margin shall exclude fees assessed by state and local government
agencies, including but not limited to: surcharges, increments, decrements, and
franchise fees, subject to adjustment pursuant to Paragraph 5 below. For
purposes of this Paragraph, the following definitions are provided:
(i) Benchmark Commodity Gas Cost: The city gate delivered gas
costs for long-term gas supplies, excluding demand charges and storage charge as
approved in the Company's last general rate case or gas cost adjustment
proceeding.
(ii) Fixed Gas Cost Recovery Rate: The NCUC or SCC approved
pipeline demand and storage charges for each rate class, expressed on a per
dekatherm basis.
(d) Average Comparable Rate Margins: The sum of the Rate Margins
charged by each Other Local Distribution Company to similarly situated customers
divided by the number of Other Local Distribution Companies. For each Other
Local Distribution Company, only one rate schedule shall apply per customer
class.
3. Notwithstanding any other provision of this Exhibit C, the Operator
may create additional rate schedules when it is necessary to meet customer
demands or requirements. If the Operator creates a new rate, the Gas Rate used
to calculate the Average Comparable Rate Margin will be determined by examining
the Gas Rates charged by Other Local Distribution Companies to similarly
situated customers.
4. Should one or more of the rates included in the NCUC Application be
increased, by the NCUC, or other regulatory entity, above the initial proposed
rates submitted on October 26, 1999, then the Rate Margin cap described in
Paragraph 2 above may be increased accordingly, except for rate increases
requested by the Operator,
2
5. The Rate Margin, as defined in Paragraph 2(c) above, for the Company
shall be reduced by any amounts paid to APEC or the Company under the
Shareholders' Agreement or any other agreement.
6. In the event of adjustment or deletions or other significant changes
to the rate schedules of the other Local Distribution Companies that results in
the Company's Rate Margin being above the Average Comparable Rate Margin, the
Company and the Operator will re-examine the Company's rates and take
appropriate action to maintain the competitiveness of the Company's rates
subject to NCUC approval.
7. For illustrative purposes, a sample calculation of the Company's
"Rate Margins" for Residential, Commercial and Industrial classes based on the
rates in the Application submitted to the NCUC on October 26, 1999, and the
assumptions contained therein are set out below:
EXAMPLE RATE MARGIN CALCULATION
--------------------------------------------------------------------------------
SMALL LARGE
RESIDENTIAL GENERAL GENERAL
SERVICE SERVICE SERVICE
--------------------------------------------------------------------------------
RATE SCHEDULE 1 2 3
TOTAL COMMODITY RATE(1) $ 7.08 $ 6.13 $ 3.90
Less: Benchmark comodity 2.50 2.50 2.50
Fixed gas demand cost 1.95 1.30 0.39
Increments and decrements -- -- --
Fuel retention 0.08 0.08 0.08
Discounts to tariff -- -- 0.51
Other -- -- --
-------------------------------------------------
RATE MARGIN $ 2.55 $ 2.25 $ 0.42
(1) Block rates are averaged for residential and commercial rate schedules
based upon usage; for residential rates, usage was estimated to be 53
dekatherms at the $7.15 winter rate and 17 dt at the $6.85 summer rate; for
commercial rates, usage was estimated to be 272 dt at the $6.20 winter rate
and 142 dt at the $5.90 summer rate
(2) Rates were based upon the March 21, 2000 amendment to the bond application
