Exhibit D-8.1
STATE OF NORTH CAROLINA
UTILITIES COMMISSION
RALEIGH
DOCKET NO. E-22, SUB 385
BEFORE THE NORTH CAROLINA UTILITIES COMMISSION
In the Matter of
Petition By Virginia Electric and
Power Company, dba North
Carolina Power, for Approval of
Certain Exemptions and/or
Contracts with Affiliates
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PETITION FOR APPROVAL
OF CONTRACTS WITH
AFFILIATE AND FOR
TRANSFERS OF ASSETS
AND LIABILITIES TO
AFFILIATE AND
EXEMPTION OF FUTURE
SIMILAR TRANSFERS
FROM
G. S. 62-153
By Order
of the North Carolina Utilities Commission (the "Commission") dated
July 27, 2000 in the instant proceeding, the Commission approved under
G. S 62-
153: (1)
that certain agreement between Dominion Resources Services, Inc.
("DRS"),
Consolidated Natural Gas Service Company, Inc. ("CNG Service") and
Virginia
Electric
and Power Company, dba North Carolina Power ("NC Power"), (the
"Original
Services
Agreement") and (2) that certain agreement between NC Power and DRS
("Original
Support Agreement"), both filed with and made part of such proceeding.
The
Commission imposed, as a condition to the Order approving the Original
Services
Agreement and Original Support Agreement, a requirement that no changes
be made
to
the terms and conditions of the Original Services Agreement or the
Original
Support
Agreement without prior Commission approval in this docket.
The
parties to the Original Services Agreement now wish to replace that
agreement with a new service agreement that reflects the proposed
merger of DRS
and
CNG Service and the adoption of certain modified allocation
methodologies which
will
more accurately reflect the operations of the companies to whom
services are
provided.
Accordingly, NC Power hereby requests Commission approval of the new
service
agreement between DRS and NC Power, a true copy of which is attached
hereto as
Exhibit 1 (the "New Services Agreement") and NC Power requests
Commission
authorization to terminate the Original Services Agreement. The
parties to the
Original
Support Agreement wish to make certain revisions to that agreement in
order to
reduce
the number of services covered by the agreement and to clarify certain
aspects
of the
agreement's cost allocation methodologies. Accordingly, NC Power
hereby
requests
Commission approval of a new support agreement, a true copy of which is
attached
hereto as Exhibit 2 ("New Support Agreement") and authorization to
terminate the
Original Support Agreement.
The
reduction in NC Power services to DRS reflects successful efforts to
transfer
those services from NC Power to DRS and to staff DRS with employees
associated
with
those services. It is necessary also to transfer to DRS certain NC
Power
general plant
assets and equipment under capital leases associated with those
services and
employees
and certain employee benefit-related assets and liabilities.
Accordingly, NC
Power and
DRS hereby request the Commission to approve the transfer of those
assets and
liabilities. Finally, NC Power requests the Commission to exempt
similar future
transfers
from the requirements of G. S. 62-153.
In
support of this Petition, NC Power respectfully states as follows:
Petitioners
1. NC Power
is a Virginia public service corporation providing electric
service to customers in its service territory in Virginia and North
Carolina.
NC Power is
a wholly-owned subsidiary of Dominion Resources, Inc. ("Dominion").
Dominion is
a
"holding company" as defined in the Public Utility Holding Company Act
of 1935
("1935 Act") and is subject to regulation as such by the Securities and
Exchange
Commission ("SEC"). DRS and CNG Service also are subsidiaries of
Dominion. The
attorneys of record for NC Power are:
Edward L. Flippen
Stephen H. Watts, II
Kodwo Ghartey-Tagoe
McGuireWoods, LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
(804) 775-1000 (Phone)
Pamela Johnson
Sharon L. Burr
Jill Hayek
Dominion Resources Services, Inc.
P.O. Box 26666
Richmond, Virginia 23261-6666
(804) 771-3549 (Phone)
NC Power's address is:
Virginia Electric and Power Company
701 East Cary Street
Richmond, Virginia 23219
New Services Agreement
2.Under the 1935 Act, registered holding companies are prohibited from
performing services for or selling goods to their subsidiaries. One of
the
benefits of a
holding company structure, however, is that the members can operate
more
efficiently by
sharing the cost of centralized services. In order to allow registered
holding
companies to
take advantage of such efficiencies, the SEC has authorized registered
holding
companies
to establish a service company subsidiary to provide centralized
services to the
registered
holding company and its subsidiaries. 1935 Act, Section 13(b)
and Rule 88.
3.Consolidated Natural Gas Company ("CNG") established such a
subsidiary, CNG Service, to perform centralized services for CNG
subsidiaries at
their
election. Additionally, in anticipation of becoming a registered
holding
company in
connection with its acquisition of CNG, Dominion established a service
company
subsidiary, DRS, to offer centralized services for Dominion and its
subsidiaries
("Dominion Companies"). When DRS became operational, it had no
experience with
operations of a centralized service company under the 1935 Act.
Additionally,
at such
time CNG Service had no experience with the provision of services to
the types
of
business operations, including major electric generation, transmission
and
distribution
businesses, owned by Dominion. Under these circumstances it was not
realistic
for either
such service company to be the exclusive provider of centralized
services for
all of the
Dominion Companies. Accordingly, the Commission and the SEC each
granted
authority for DRS and CNG Service to operate in tandem under the
Original
Services
Agreement, so that all of the Dominion Companies would be able to
obtain from
DRS
and CNG Service those services necessary to meet their needs.
4.On December 15, 1999, the SEC issued an Order Authorizing Acquisition
of Public Utility Companies and Related Transactions; Approving Service
Company
Arrangements; and Reserving Jurisdiction in which it, in part, approved
the
formation of
DRS and the participation of DRS, CNG Service and NC Power in the
Original
Services
Agreement and the participation by DRS and NC Power in the Original
Support
Agreement (Dominion Resources, Inc and Consolidated Natural Gas
Company, Release
No. 35-27113; 70-9477) (the "SEC Order"). The SEC Order provides, in
part, for
Dominion to submit a revised centralized services agreement to the SEC
for a
supplemental order on or before February 1, 2001. Pursuant to the SEC
Order,
the
revised service agreement is to reflect the consolidation of most
services into
a single
service provider, together with any requested amendments and
modifications
designed to
reflect the efficiencies and administrative synergies of the combined
operations
of
Dominion and CNG. In order to comply with the SEC Order, DRS and CNG
Service
propose to merge effective January 1, 2001, with DRS being the
surviving entity.
DRS
would then be the sole subsidiary service company for the Dominion
Companies.
5.In order to reflect the merger of DRS and CNG Service described
above,
NC Power proposes to terminate the Original Services Agreement, which
would be
replaced by the New Services Agreement. In addition to changes
reflecting the
consolidation of DRS and CNG Service, certain of the allocation
provisions have
been
modified to better align the allocation bases with the cost drivers of
the
services. A
detailed description and explanation of these modifications is
contained in
Exhibit 3. A
blacklined version of the New Services Agreement compared to the
Original
Services
Agreement is contained in Exhibit 4.
New Support Agreement
6.The Original Support Agreement was established to enable DRS to
obtain
from NC Power certain services necessary for DRS to provide centralized
services
to the
Dominion Companies. The SEC Order also provided that any revisions to
the
Original
Support Agreement were to be reflected in the Dominion filing to be
made with
the SEC
by February 1, 2001. DRS has determined that, although it no longer
needs, or
will not
need as of January, 2001, all of the services contemplated by the
Original
Support
Agreement, it will continue to need certain services from NC Power
covered by
that
agreement. DRS and NC Power have identified a number of services that
should be
removed from the agreement (Auditing, Legal, Employee/Benefits/Pension
Investment,
Executive and Administration, Environmental Compliance, Exploration and
Development, Risk Management, Tax and Treasury/Finance), as well as
certain
other
revisions that should be made to clarify the agreement's cost
allocation
methodologies.
In order to make these revisions, DRS and NC Power propose to terminate
the
Original
Support Agreement and replace it with the New Support Agreement between
DRS and
NC Power. A blacklined version of the New Support Agreement compared
to the
Original Support Agreement is contained in Exhibit 5.
7.As proposed, immediately upon the merger of DRS and CNG Service, (a)
the Original Services Agreement would be terminated, and NC Power and
DRS would
replace it by executing the New Services Agreement in the form of
Exhibit 1; and
(b) the
Original Support Agreement would be terminated and NC Power and DRS
would
replace
it by executing the New Support Agreement in the form of Exhibit 2.
Therefore,
NC
Power and DRS request this Commission to approve the New Services
Agreement and
New Support Agreement under the Affiliates Act, such that NC Power and
DRS may
enter into the New Services Agreement and New Support Agreement without
the need
to
file for further approval from the Commission.
Transfer of NC Power Assets and Liabilities to DRS
8.Since the Original Services Agreement became effective, NC Power and
DRS have worked to reduce the number and types of services that DRS
needs from
NC
Power. As a result of this effort, a number of services have been
transferred
(or will be
transferred as of January 1, 2001) from NC Power to DRS, such that DRS
is able
to
reduce the list of services covered by the Original Support Agreement,
as stated
above.
As this effort has progressed, DRS has become, or will become by
January 1,
2001,
staffed with employees to perform the transferred services. It is
necessary
also for certain
NC Power assets associated with the transferred services to be
transferred to
DRS, as
well.
9.NC Power proposes to transfer three primary classes of assets to DRS:
(a)
general plant; (b) equipment covered under capital leases and (c)
certain
employee
benefit-related assets and liabilities. General plant to be
transferred
includes office
furniture and fixtures, data processing equipment hardware,
communications
equipment
and miscellaneous equipment. The data processing equipment includes
personal
computers owned by NC Power, as well as printers, fax machines and
other
peripheral-
type equipment. The communications equipment includes telephone
system, voice
mail
system, microwave radio and fiber optic transceiver assets. The
equipment
covered by
capital leases is primarily personal computers. The general plant
assets are
currently
accounted for by using mass asset accounting. As a result, the assets
to be
transferred
have been determined based on an allocation as described below. The
asset
amounts to
be transferred to DRS were determined by first identifying those NC
Power
locations that
house DRS employees. Calculations of the total gross amounts of
general plant
were
made for each location. These costs were allocated to DRS based on
head counts.
A
proportionate share of the depreciation was allocated to the assets to
be
transferred.
Assets held under capital leases were assigned to DRS based on a head
count of
the total
number of DRS employees. An estimated summary of these assets to be
transferred
is
contained in Exhibit 6. A schedule showing the estimated journal
entries
accounting for
the transfer of these NC Power assets to DRS is contained in Exhibit 7.
Finally, certain
employee benefit-related accounts relating to benefits of employees and
executives of NC
Power that are now employees of DRS need to be transferred to DRS.
Beginning on
the
date of employee transfer, the accruals for such benefits have been
recorded at
DRS.
However, amounts previously accrued for these employees/executives are
still
reflected
on the books of NC Power. As ultimate payment of such benefits will be
made
from
DRS, assets and liabilities associated with these employee benefits
which have
been
accumulated at NC Power should be transferred to DRS. A schedule
showing the
estimated journal entries accounting for the transfer of these employee
benefit-
related
assets and liabilities is contained in Exhibit 8. In the future, DRS
expects to
continue its
efforts to develop its own capacity to perform services covered by the
New
Support
Agreement. As that occurs, and as DRS staffs accordingly, the need
will
continue to
arise for additional general plant assets, assets under capital leases
and
employee benefit-
related assets and liabilities to be transferred from NC Power to DRS.
NC Power
and
DRS respectfully request the Commission to exempt such future transfers
of
assets and
liabilities from the approval requirements of G. S. 62 153 so long as
such
transfers are
conducted in accordance with the procedures approved by the Commission
in this
proceeding, timely reports of such transfers are submitted to the
Commission,
and subject
to such other limitations as the Commission determines are appropriate.
10.In order for DRS to be able to perform the services that will no
longer be
performed by NC Power beginning January 1, 2001, DRS needs to acquire
the assets
and
liabilities proposed to be transferred from NC Power described above.
NC Power
and
DRS request the Commission to approve the transfer of assets and
liabilities, as
proposed.
WHEREFORE, NC Power respectfully requests the Commission to issue an
order; (a) approving the New Services Agreement and the New Support
Agreement,
(b)
terminating the Original Services Agreement and the Original Support
Agreement,
(c)
approving the proposed transfer of NC Power assets and liabilities to
DRS, all
effective
on the later of January 1, 2001 or the closing of the merger between
DRS and CNG
Service; and (d) exempting future similar transfers of assets and
liabilities
from NC
Power to DRS from the prior approval requirements of G. S. 62-153.
Respectfully submitted this 22nd day of September, 2000.
VIRGINIA ELECTRIC AND POWER
COMPANY, dba NORTH CAROLINA
POWER
By: Stephen H. Watts, II
Counsel for North Carolina Power
Edward L. Flippen
Kodwo Ghartey-Tagoe
Stephen H. Watts, II
McGuireWoods, LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
Pamela Johnson
Sharon L. Burr
Jill Hayek
Dominion Resources Services, Inc.
P.O. Box 26666
Richmond, Virginia 23261-6666
VERIFICATION
I am attorney representing VIRGINIA ELECTRIC AND POWER COMPANY,
dba North Carolina Power ("NC Power"), in connection with its Petition
for
Approval of
Contracts with Affiliate and Transfers of Assets and Liabilities to
Affiliate in
Docket No.
E-22, Sub 385; I am authorized on behalf of NC Power to submit this
Petition on
its
behalf; I am familiar with the contents of said petition; and the
statements of
fact
contained therein are true and correct to the best of my knowledge.
Stephen H. Watts, II
Subscribed and sworn to me this 22nd day of September, 2000.
Carol A. Rifenberrick
Notary Public
My Commission Expires:December 31, 2000
