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EXHIBIT B-2
UTILITY SERVICE AGREEMENT
This Service Agreement (this "Agreement") is entered into as of the ___ day
of _______, by and between Kentucky Utilities Company ("KU/ODP"), a public
service company organized under Virginia and Kentucky law and doing business in
Virginia as "Old Dominion Power Company", Louisville Gas and Electric Company
("LG&E"), a public utility organized under Kentucky law; and LG&E Energy
Services, Inc., a Kentucky corporation ("LG&E Energy Services").
WHEREAS, LG&E Energy Services is a direct or indirect wholly owned
subsidiary of LG&E Energy Corp.;
WHEREAS, LG&E Energy Services has been formed for the purpose of providing
administrative, management and other services to subsidiaries and affiliates of
LG&E Energy Corp.;
WHEREAS, KU/ODP believes that it is in the interest of KU/ODP to provide
for an arrangement whereby KU/ODP may, from time to time and at the option of
KU/ODP, agree to purchase such administrative, management and other services
from LG&E Energy Services; and
WHEREAS, it is in the public interest for KU/ODP and LG&E to establish an
arrangement whereby KU/ODP and LG&E may from time to time and at their option,
agree to provide or receive services, construction or goods on an emergency
basis or otherwise to or from each other at cost less depreciation;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. SERVICES. LG&E Energy Services supplies, or will supply, certain
administrative, management or other services to KU/ODP similar to those supplied
to other subsidiaries or affiliates of LG&E Energy Corp. Such services are and
will be provided to KU/ODP only at the request of KU/ODP. Exhibit A hereto
lists and describes all of the services that are available from LG&E Energy
Services.
2. PERSONNEL. LG&E Energy Services provides and will provide such services
by utilizing the services of their executives, accountants, financial advisers,
technical advisers, attorneys and other persons with the necessary
qualifications.
If necessary, LG&E Energy Services, after consultation with KU/ODP, may
also arrange for the services of nonaffiliated experts, consultants and
attorneys in connection with the performance of any of the services supplied
under this Agreement.
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3. BREAK DOWN OR OTHER EMERGENCY. KU/ODP and LG&E may, from time to time,
provide or receive such services, construction, or goods to or from each other,
at cost, as are reasonably required to meet a break down or other emergency,
when KU/ODP and LG&E believe in good faith that, under the conditions then
existing, such transaction will be to the advantage of KU/ODP and/or LG&E.
4. GOODS. KU/ODP and LG&E may, from time to time, provide or receive, at
not more than cost less depreciation, goods purchased by either KU/ODP or LG&E
for their own use.
5. COMPENSATION AND ALLOCATION. As and to the extent required by law,
LG&E Energy Services provides and will provide such services at fully allocated
cost. Exhibit A hereof contains rules for determining and allocating such
costs.
6. COMPLIANCE. All contracts, agreements, or arrangements of any kind,
hereafter required to be filed with and/or approved by the Securities and
Exchange Commission ("SEC") pursuant to the Public Utility Holding Company Act
of 1935, as subsequently amended, between Louisville Gas and Electric Company or
Kentucky Utilities Company, and any affiliate, associate, holding, mutual
service or subsidiary company, within the same holding company system, as these
terms are defined in 15 U.S.C. (S)79b as it presently exists or as subsequently
amended, shall contain and be conditioned upon the following without
modification or alteration:
Louisville Gas and Electric Company ("LG&E") and Kentucky Utilities Company
("KU") will not seek to overturn, reverse, set aside, change or enjoin,
whether through appeal or the initiation or maintenance of any action in
any forum, a decision or order of the Kentucky Public Service Commission,
or the Virginia State Corporation Commission which pertain to recovery,
disallowance, allowance, deferral or ratemaking treatment of any expense,
charge, cost or allocation incurred or accrued by LG&E or KU in or as a
result of a contract, agreement, arrangement, or transaction with any
affiliate, associate, holding, mutual service or subsidiary company on the
basis that such expense, charge, cost or allocation: (1) has itself been
filed with or approved by the SEC or (2) was incurred pursuant to a
contract, agreement, or allocation method which was filed with or approved
by the SEC.
7. TERMINATION AND MODIFICATION. Any party to this Agreement may
terminate this Agreement by providing 60 days written notice of such termination
to the remaining parties.
This Agreement is subject to termination or modification at any time to the
extent its performance may conflict with the provisions of the Public Utility
Holding Company Act of 1935, as amended, or with any rule, regulation or order
of the Securities and Exchange Commission adopted before or after the making of
this Agreement. This Agreement shall be subject to the approval of any state
commission or other state regulatory body whose approval is, by the laws of said
state, a legal prerequisite to the execution and delivery or the performance of
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this Agreement.
8. SERVICE REQUESTS. KU/ODP and LG&E Energy Services will prepare a
Service Request on or before ________________ of each year listing services to
be provided to KU/ODP by LG&E Energy Services and any special arrangements
related to the provision of such services for the coming year, based on services
provided during the past year. KU/ODP and LG&E Energy Services may supplement
the Service Request during the year to reflect any additional or special
services that KU/ODP wishes to obtain from LG&E Energy Services, and the
arrangements relating thereto.
9. BILLING AND PAYMENT. Unless otherwise set forth in a Service Request,
payment for services provided by LG&E Energy Services shall be by making
remittance of the amount billed or by making appropriate accounting entries on
the books of KU/ODP and LG&E Energy Services. Billing will be made on a monthly
basis, with the bill to be rendered by the 25th of the month, and remittance or
accounting entries completed within 30 days of billing. Any amount remaining
unpaid after 30 days following receipt of the bill shall bear interest thereon
from the date of the bill at annual rate of A1/P1 30-day Commercial Paper.
10. NOTICE. Where written notice is required by this Agreement, all
notices, consents, certificates, or other communications hereunder shall be in
writing and shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
1. To KU/ODP:
______________________________
______________________________
2. To LG&E:
______________________________
______________________________
3. To LG&E Energy Services, Inc.:
______________________________
______________________________
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kentucky, without regard to their
conflict of laws provisions.
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12. MODIFICATION. No amendment, change or modification of this Agreement
shall be valid, unless made in writing and signed by all parties hereto.
13. ENTIRE AGREEMENT. This Agreement, together with its exhibits,
constitutes the entire understanding and agreement of the parties with respect
to its subject matter, and effective upon the execution of this Agreement by the
respective parties hereof and thereto, any and all prior agreements,
understandings or representations with respect to this subject matter are hereby
terminated and canceled in their entirety and are of no further force and
effect.
14. WAIVER. No waiver by any party hereto of a breach of any provision of
this Agreement shall constitute a waiver of any preceding or succeeding breach
of the same or any other provision hereof.
15. ASSIGNMENT. This Agreement shall inure to the benefit and shall be
binding upon the parties and their respective successors and assigns. No
assignment of this Agreement or any party's rights, interests or obligations
hereunder may be made without the other party's consent, which shall not be
unreasonably withheld, delayed or conditioned.
16. SEVERABILITY. If any provision or provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of this _____ day of _____, 2000.
LG&E Energy Services, Inc.
By:
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Name:
Title:
Kentucky Utilities Company
By:
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Name:
Title:
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Louisville Gas and Electric Company
By:
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Name:
Title:
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Exhibit A
Description of Services and Allocation Factors
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Cost Assignment
LG&E Services' costs accumulated for each activity, project, program, or
work order will be directly assigned, distributed or allocated as follows:
(i) Costs accumulated in an activity, project, program or work order for
services specifically performed for a single Client Entity will be
directly assigned and charged to such entity.
(ii) Costs accumulated in an activity, project, program or work order for
services specifically performed for two or more Client Entities will
be distributed among and charged to such Client Entities using
methods determined on a case-by-case basis consistent with the nature
of the work performed and based on one of the allocation methods
described below.
(iii) Costs accumulated in an activity, project, program or work order for
services of a general nature which are applicable to all Client
Entities or to a class or classes of Client Entities will be
allocated among and charged to such Client Entities by application of
one or more of the allocation methods described below.
Allocation Methods
The following methods will be applied, as indicated in the Description of
Services section that follows, to allocate costs for services of a general
nature.
1. Information Systems Chargeback Rates - Rates for services, including
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but not limited to software, consulting, mainframe and personal computer
services, are based on the costs of labor, materials and information services
overheads related to the provision of each service. Such rates are applied
based on the specific equipment employed and the measured usage of services by
Client Entities. These rates will be determined annually based on actual
experience and may be adjusted for any known and reasonably quantifiable events,
or at such time as may be required due to significant changes.
2. Number of Customers Ratio - A ratio based on the number of customers.
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This ratio will be determined annually based on the actual number of customers
at the end of the previous calendar year and may be adjusted for any known and
reasonably quantifiable events, or at such time as may be required due to
significant changes.
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3. Payroll Ratio - Based on the sum of the payroll at the end of each
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month for the immediately preceding twelve consecutive calendar months, the
numerator of which is for an operating company or an affected affiliate company
and the denominator of which is for all operating companies and affected
affiliate companies. This ratio will be determined annually, or at such time as
may be required due to significant changes.
4. Three-Factor Formula - This formula will be determined annually based
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on the average of gross property (original cost of plant in service, excluding
depreciation), payroll charges (salaries and wages, including overtime, shift
premium and holiday pay, but not including pension, benefit and company-paid
payroll taxes) and gross revenues during the previous calendar year and may be
adjusted for any known and reasonably quantifiable events, or at such time as
may be required due to significant changes.
5. Telecommunications Chargeback Rates - Rates for use of
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telecommunications services other than those encompassed by Information Systems
Chargeback Rates are based on the costs of labor, materials, outside services
and telecommunications overheads. Such rates are applied based on the specific
equipment employment and the measured usage of services by Client Entities.
These rates will be determined annually based on actual experience and may be
adjusted for any known and reasonably quantifiable events, or at such time as
may be required due to significant changes.
6. Gas Sales Ratio - A ratio based on the actual number of Mcf of natural
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gas sold by the applicable gas distribution or marketing operations. This ratio
will be determined annually based on actual results of operations for the
previous calendar year and may be adjusted for any known and reasonably
quantifiable events, or at such time, based on results of operations for a
subsequent twelve-month period, as may be required due to significant changes.
7. Transmission Construction Expenditures Ratio - A ratio based on
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transmission construction or capital expenditures, net of reimbursements, for
the immediately preceding twelve consecutive calendar months. The numerator is
equal to such expenditures for a specific Client Entity and the denominator is
equal to such expenditures for all applicable Client Entities. This ratio will
be determined annually, or at such time as may be required due to a significant
change.
8. Distribution Construction Expenditures Ratio - A ratio based on
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distribution construction or capital expenditures, net of reimbursements, for
the immediately preceding twelve consecutive calendar months. The numerator is
equal to such expenditures for a specific Client Entity and the denominator is
equal to such expenditures for all applicable Client Entities. This ratio will
be determined annually, or at such time as may be required due to a significant
change.
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9. Substation Construction Expenditures Ratio - A ratio based on
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substation construction or capital expenditures, net of reimbursements, for the
immediately preceding twelve consecutive calendar months. The numerator is
equal to such expenditures for a specific Client Entity and the denominator is
equal to such expenditures for all applicable Client Entities. This ratio will
be determined annually, or at such time as may be required due to a significant
change.
10. Electric MWh Generation Ratio - A ratio based on the sum of electric
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MWh generated during each month for the immediately preceding twelve consecutive
calendar months. The numerator is equal to the electric MWh generated by a
specific Client Entity and the denominator is equal to all electric MWh
generated by all applicable Client Entities. This ratio will be determined
annually, or at such time as may be required due to significant changes.
11. Electric Sales Ratio - Based on firm kilowatt-hour electric sales for
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the immediately preceding twelve consecutive calendar months, the numerator of
which is for an operating company or an affiliate and the denominator of which
is for all operating companies and affected affiliate companies. This ratio
will be determined annually, or at such time as may be required due to a
significant change.
12. Transportation Ratio - Based on the actual usage of vehicles in the
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fleet for the immediately preceding twelve consecutive calendar months, the
numerator of which is for an operating company or an affiliate and the
denominator of which is for all operating companies and affected affiliate
companies. This ratio will be determined annually, or at such time as may be
required due to a significant change.
Description of Services
A description of each of the services performed by LG&E Energy Services,
Inc., which may be modified from time to time, is presented below. As discussed
above, where identifiable, costs will be directly assigned or distributed to
Client Entities. For costs accumulated in an activity, project, program or work
order which are for services of a general nature that cannot be directly
assigned or distributed, the method or methods of allocation are also set forth.
Substitution or changes may be made in the methods of allocation hereinafter
specified, as may be appropriate, and will be provided to state regulatory
agencies and to each affected Client Entity.
1. Information Systems Services - Provides electronic data processing
services. Costs of a general nature are allocated using the Information
Systems Chargeback Rates.
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2. Customer Services - Provides billing, mailing, remittance processing,
call center and customer communication services for customers. Costs of
a general nature are allocated using the Number of Customers Ratio.
3. Marketing and Sales - Establishes strategies, provides oversight for
marketing, sales and branding of utility and related services, conducts
marketing and sales programs, and economic development. Costs of a
general nature are allocated using the Number of Customers Ratio.
4. Employee Services - Includes Human Resources which establishes and
administers policies and oversees compliance with regulations in the
areas of employment, compensation and benefits, processes payroll and
administers corporate training. Also includes employee communications,
facilities management and mail services. Costs of a general nature are
allocated using the Payroll Ratio.
5. Corporate Compliance - Oversees compliance with all laws, regulations
and policies applicable to all of LG&E Energy Corp.'s businesses and
directs compliance training. Costs of general nature are allocated
using the Payroll Ratio.
6. Purchasing - Provides procurement services. Costs of a general nature
are allocated using the Three-Factor Formula.
7. Financial Services - Provides treasury, accounting, tax, financial
planning, regulatory and auditing services. Costs of a general nature
are allocated using the Three-Factor Formula.
8. Risk Management - Provides insurance, claims, security, and safety
services. Costs of a general nature allocated using the Three-Factor
Formula.
9. Public Affairs and Regulatory - Maintains relationships with government
policy makers, provides regulatory analysis and compliance filings,
conducts lobbying activities and provides community relations
functions. Costs of a general nature are allocated using the Three-
Factor Formula.
10. Legal Services - Provides various legal services and general legal
oversight; handles claims. Costs of a general nature are allocated
using the Three-Factor Formula.
11. Investor Relations - Maintains relationships with the financial
community and provides shareholder services. Costs of a general nature
are allocated using the Three-Factor Formula.
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12. Telecommunications - Provides telecommunications services, primarily
the use of telephone equipment. Costs are allocated using the
Telecommunications Chargeback Rates.
13. Gas Supply and Capacity Management - Provides gas supply and capacity
management services. Costs of a general nature are allocated using the
Gas Sales Ratio.
14. Transmission, Substation Construction, Maintenance & Operations -
Provides management services for transmission and substation
construction, maintenance and operations areas. Costs of a general
nature are allocated using the Transmission Construction Expenditures
Ratio.
15. Meter Reading, Repair and Maintenance - Provides services related to
meter reading and the repair and maintenance of meters. Costs of a
general nature are allocated using the Number of Customers Ratio.
16. Design Engineering - Designs and monitors construction of electric
transmission and distribution lines and substations. Costs of a general
nature are allocated using the Transmission Construction Expenditures
Ratio or the Distribution Construction Expenditures Ratio, whichever is
appropriate.
17. Substation Engineering and Support - Provides management support
services to the Substation Engineering and Support organizations of the
Operating Companies. Costs of a general nature are allocated using the
Substation Construction Expenditures Ratio.
18. Resource Acquisition and Analysis - Procures coal, natural gas and oil
for the generation facilities of Client Entities. Also ensures
compliance with price and quality provisions of fuel contracts and
arranges for transportation of fuel to the desired location, and
completes analyses as required on all fuel used for generation. Costs
of a general nature are allocated using the Electric MWh Generation
Ratio.
19. Purchased Power and Electric Trading - Purchases power and provides
electric trading services to the operating companies electric
generation systems and all other trading functions. Costs of a general
nature are allocated using the Electric Sales Ratio.
20. Strategic Planning - Develops corporate strategies and business plans.
Costs of a general nature are allocated using the Three-Factor Formula.
21. Executive - Provides executive and general administrative services.
Costs of a general nature are allocated using the Three-Factor Formula.
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22. Environmental Affairs - Performs analyses and advocacy of regulatory
and legislative issues in the areas of environment. Communicates final
regulatory requirements to operating groups. Provides assistance,
support and compliance review in meeting those requirements. Oversees
hazardous substance site investigations and remediation activities.
Costs of a general nature are allocated using the Three-Factor Formula.
23. Energy Supply - Coordinates the use of the generating, transmission and
interconnection facilities to provide economical and reliable energy.
Costs of a general nature are allocated using the Electric MWh
Generation Ratio.
24. Transportation - Operates transportation fleet for the operating
companies and affiliates. Provides engineering, support, mechanical
servicing of vehicles, and procurement of vehicles. Costs of a general
nature are allocated using the Transportation Ratio.
25. Media Relations - Performs all media relations with local and national
media organizations according to established policies and procedures.
Costs of a general nature are allocated using the Three Factor Formula.
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FORM OF INITIAL SERVICE REQUEST
The undersigned request all of the services listed in Exhibit A from LG&E
Energy Services, Inc., except for ____________________________________________.
The services requested hereunder shall commence on _________________________ and
be provided through ______________________.
Kentucky Utilities Company
By:
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Name:
Title:
