Exhibit 10.15
Service Agreement
This Service Agreement (this "Agreement") is entered into as of the 1st
day of April, 2002, by and between South Carolina Electric & Gas Company, a
South Carolina corporation (the "Company") and SCANA Services, Inc., a South
Carolina corporation ("SCANA Services").
WHEREAS, SCANA Services is a direct or indirect wholly owned subsidiary of
SCANA Corporation;
WHEREAS, SCANA Services has been formed for the purpose of providing
administrative, management and other services to subsidiaries of SCANA
Corporation; and
WHEREAS, the Company believes that it is in the interest of the Company to
provide for an arrangement whereby the Company may, from time to time and at the
option of the Company, agree to purchase such administrative, management and
other services from SCANA Services;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. SERVICES. SCANA Services supplies, or will supply, certain
administrative, management or other services to Company similar to those
supplied to other subsidiaries of SCANA Corporation. Such services are and will
be provided to the Company only at the request of the Company. Exhibit I hereto
lists and describes all of the services that are available from SCANA Services.
II. PERSONNEL. SCANA 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, SCANA Services, after consultation with the Company, may
also arrange for the services of nonaffiliated experts, consultants and
attorneys in connection with the performance of any of the services supplied
under this Agreement.
III. COMPENSATION AND ALLOCATION. As and to the extent required by law,
SCANA Services provides and will provide such services at cost. Exhibit I hereof
contains rules for determining and allocating such costs.
IV. TERMINATION AND MODIFICATION. The Company may terminate this
Agreement by providing 60 days written notice of such termination to SCANA
Services. SCANA Services may terminate this Agreement by providing 60 days
written notice of such termination to the Company.
This Agreement is subject to termination or modification at any time to
the extent its performance may conflict with the provisions of the Public
Utility Holding Company Act of 1935, as amended, or with any rule, regulation or
order of the Securities and Exchange Commission adopted before or after the
making of this Agreement. This Agreement shall be subject to the approval of any
state commission or other state regulatory body whose approval is, by the laws
of said state, a legal prerequisite to the execution and delivery or the
performance of this Agreement.
V. SERVICE REQUESTS. The Company and SCANA Services will prepare a
Service Request on or before April 1, 2002 listing services to be provided to
the Company by SCANA Services and any special arrangements related to the
provision of such services for the period April 1, 2002 through December 31,
2003. On or before November 1, 2003 and on or before November 1, of each year
thereafter, SCANA Services will prepare a revised Service Request listing
services to be provided to the Company by SCANA Services and any special
arrangements related to the provision of such services for the following
calendar year, based on services provided during the past calendar year. The
Company and SCANA Services may supplement any Service Request during the year to
reflect any additional or special services that the Company wishes to obtain
from SCANA Services, and the arrangements relating thereto.
VI. BILLING AND PAYMENT. Unless otherwise set forth in a Service
Request, payment for services provided by SCANA Services shall be by making
remittance of the amount billed or by making appropriate accounting entries on
the books of the Company and SCANA 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.
VII. NOTICE. Where written notice is required by this Agreement, all
notices, consents, certificates, or other communications hereunder shall be in
writing and shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
1. To the Company:
Neville O. Lorick
President
South Carolina Electric & Gas Company
1426 Main Street
Columbia, SC 29201
2. To SCANA Services:
H. Thomas Arthur
General Counsel
SCANA Corporation
1426 Main Street
Columbia, SC 29201
VIII. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of South Carolina, without regard to
their conflict of laws provisions.
IX. MODIFICATION. No amendment, change or modification of this
Agreement shall be valid, unless made in writing and signed by all parties
hereto.
X. 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 or effect.
XI. 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.
XII. 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.
XIII. 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 3rd day of October 2002.
SCANA SERVICES, INC.
By: s/Sarena D.Burch
Name: Sarena D. Burch
Title: Deputy General Counsel
SOUTH CAROLINA ELECTRIC & GAS COMPANY
By: s/Neville O. Lorick
Name: Neville O. Lorick
Title: President
EXHIBIT I
Description of Services, Cost Accumulation, Assignment and
Allocation Methodologies for
SCANA Services, Inc.
This document sets forth the methodologies used to accumulate the costs
of services performed by SCANA Services, Inc. ("SCANA Services") and to assign
or allocate such costs to other subsidiaries and business units within SCANA
Corporation ("Client Entities").
Cost of Services Performed
SCANA Services maintains an accounting system that enables costs to be
identified by Cost Center, Account Number or Project, Activity, Resource, and
Event ("Account Codes"). The primary inputs to the accounting system are time
records of hours worked by SCANA Services employees, accounts payable
transactions and journal entries. Charges for labor are made at the employees'
effective hourly rate, including the cost of pensions, other employee benefits
and payroll taxes. To the extent practicable, costs of services are directly
assigned to the applicable Account Codes. The full cost of providing services
also includes certain indirect costs, e.g., departmental overheads,
administrative and general costs, and taxes. Indirect costs are associated with
the services performed in proportion to the directly assigned costs of the
services or other relevant cost allocators.
Cost Assignment and Allocation
SCANA Services costs will be directly assigned, distributed or
allocated to Client Entities in the manner prescribed below.
1. Costs accumulated in Account Codes for services specifically
performed for a single Client Entity will be directly assigned or charged
to such Client Entity.
2. Costs accumulated in Account Codes 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.
3. Costs accumulated in Account Codes 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.
Page 9 of 9
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 Charge-back Rates - Rates for services,
including but not limited to Software, Consulting, Mainframe, Midtier and
Network Connectivity 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. Margin Revenue Ratio - "Margin" is equal to the excess of sales
revenues over the applicable cost of sales, i.e., cost of fuel for
generation and gas for resale. The numerator is equal to margin revenues
for a specific Client Entity and the denominator is equal to the combined
margin revenues of all the applicable Client Entities. This ratio will be
evaluated 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.
3. Number of Customers Ratio - A ratio based on the number of
retail electric, gas and/or other customers. This ratio will be determined
annually based on the actual number of customers at the end of the previous
calendar year and may be adjusted for any known and reasonably quantifiable
events, or at such time as may be required due to significant changes.
4. Number of Employees Ratio - A ratio based on the number of
employees benefiting from the performance of a service. This ratio will be
determined annually based on actual counts of applicable employees 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.
5. Three-Factor Formula - This formula will be determined annually
based on the average of gross property (original cost of plant in service,
excluding depreciation), payroll charges (salaries and wages, including
overtime, shift premium and holiday pay, but not including pension, benefit
and company-paid payroll taxes) and gross revenues during the previous
calendar year and may be adjusted for any known and reasonably quantifiable
events, or at such time as may be required due to significant changes.
6. Modified Three-Factor Method - a ratio for the allocation of
non-directly assigned corporate governance costs. The Modified Three-Factor
Method provides for an allocation of cost to the parent company; the
Three-Factor Method does not. The formula will be determined annually based
on the average of gross property (original cost of plant in service,
excluding depreciation), payroll charges (salaries and wages, including
overtime, shift premium and holiday pay, but not including pension, benefit
and company paid payroll taxes) and gross revenues during the previous
calendar year. For the purpose of the Modified Three-Factor Method, the
dividends resulting from operations of the subsidiaries are used as a proxy
for revenues for the parent company.
7. Telecommunications Charge-back Rates - Rates for use of
telecommunications services other than those encompassed by Information
Systems Charge-back 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.
8. Gas Sales Ratio - A ratio based on the actual number of
dekatherms of natural gas sold by the applicable gas distribution or
marketing operations. This ratio will be determined annually based on
actual results of operations for the previous calendar year and may be
adjusted for any known and reasonably quantifiable events, or at such time,
based on results of operations for a subsequent twelve-month period, as may
be required due to significant changes.
Description of Services
A description of each of the services performed by SCANA Services,
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 Account Codes 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 and
appropriate notice (through 60-day letter or otherwise) will be given to the
SEC.
1. Information Systems Services - Provides electronic data
processing services. Costs of a general nature are allocated using the
Information Systems Charge-back Rates.
2. Customer Services - Provides billing, mailing, remittance
processing, call center and customer communication services for electric
and gas customers. Costs of a general nature are allocated using the Margin
Revenue Ratio.
3. Marketing and Sales - Establishing strategies, provides
oversight for marketing, sales and branding of utility and related services
and conducts marketing and sales programs. 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 Number of Employees Ratio or the Modified Three-Factor
Method as appropriate.
5. Corporate Compliance - Oversees compliance with all laws,
regulations and policies applicable to all of SCANA Corporation's
businesses and directs compliance training. Costs of general nature are
allocated using the Modified Three-Factor Method.
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, rate and auditing services. Costs of a general nature
are allocated using the Three-Factor Formula or the Modified Three-Factor
Method as appropriate.
8. Risk Management - Provides services related to the
identification and mitigation of risk, and the development and
implementation of risk management strategy. Encompasses credit and
collections, risk analyses, insurance, claims, security, environmental and
safety services. Costs of a general nature are allocated using the
Three-Factor Method or the Modified Three-Factor Method as appropriate.
9. Public Affairs - Maintains relationships with government policy
makers, conducts lobbying activities and provides community relations
functions. Costs of a general nature are allocated using the Three-Factor
Formula or the Modified Three-Factor Method as appropriate.
10. Legal Services - Provides various legal services and general
legal oversight; handles claims. Costs of a general nature are allocated
using the Modified 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 Modified Three-Factor Formula.
12. Telecommunications - Provides telecommunications services,
primarily the use of telephone equipment. Costs are allocated using the
Telecommunications Charge-back 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. Strategic Planning - Develops corporate strategies and
business plans. Costs of a general nature are allocated using the Modified
Three-Factor Formula.
15. Executive - Provides executive and general administrative
services. Costs of a general nature are allocated using the Modified
Three-Factor Formula.
EXHIBIT II
FORM OF INITIAL SERVICE REQUEST
The undersigned requests all of the services listed in Exhibit
I from SCANA Services Company. The services requested hereunder shall commence
on April 1, 2002 and be provided through December 31, 2003.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
By: s/Neville O. Lorick
-----------------------------------
Name: Neville O. Lorick
Title: President