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Exhibit 10.7
NORTHEAST UTILITIES SERVICE COMPANY
SERVICE CONTRACT
AGREEMENT made and entered into as of the 4th day of January, 1999, by
and between NORTHEAST UTILITIES SERVICE COMPANY (hereinafter referred to as
Service Company) and NORTHEAST GENERATION COMPANY (hereinafter referred to as
Associate Company).
WHEREAS, by order in File No. 37-65, the Securities and Exchange
Commission (hereinafter referred to as SEC) approved and authorized, under the
Public Utility Holding Company Act of 1935 (hereinafter referred to as the Act),
the organization and conduct of business of Service Company in accordance
herewith, as a wholly owned subsidiary service company of Northeast Utilities
(hereinafter referred to as Northeast); and
WHEREAS, Service Company is willing to render services as provided
herein to Northeast and its associated subsidiaries (hereinafter collectively
referred to as the System) at cost, determined in accordance with applicable
rules and regulations under the Act; and
WHEREAS, economies, increased efficiencies and other benefits will
result to the System from the performance by Service Company of services as
herein provided:
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein, it is agreed as follows:
SECTION 1. AGREEMENT TO FURNISH SERVICES.
Service Company agrees to furnish to Associate Company and other System
companies, upon the terms and conditions herein provided, the services
hereinafter referred to in Section 2 hereof at such times and for such periods
as may be required, and Service Company will, as and to the extent required to
provide such services to the System, keep itself and its personnel available and
competent to render such services to the System so long as it is authorized so
to do by federal and state regulatory agencies having jurisdiction.
For the purpose of providing services as herein provided, Service
Company proposes to establish various departments, one or more of which will
participate in providing particular services hereinafter described. Service
Company reserves to itself the privilege, without amendment hereof or express
prior agreement by Associate Company or other System companies, from time to
time to establish new departments, to subdivide or otherwise reorganize any of
the departments established by it, and to reallocate services among various
departments.
Service Company will provide for Associate Company and other System
companies as required such other services not referred to in Section 2 hereof as
Service Company may conclude it may furnish with economies and increased
efficiencies to the System or such other services as Associate Company or other
System companies may require and Service Company is competent to perform.
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Services will also be furnished to other System companies under
agreements similar in all respects hereto and may also be furnished, in Service
Company's discretion, to others, provided that by so doing the cost of services
to Associate Company or other System companies will not be increased.
In supplying services hereunder, Service Company may arrange for
services of such executives, financial advisers, accountants, attorneys,
technical advisers, engineers and other persons as are required for or pertinent
to the rendition of such services.
SECTION 2. SERVICES TO BE PERFORMED.
Subject to the provisions of Section 1 hereof, Service Company will
provide to Associate Company and other System companies the following services:
(A) GENERAL SYSTEM MANAGEMENT: Executive, administrative, managerial,
coordinating and advisory services, particularly with respect to the
formulation and effectuation of policies and programs affecting or
relating to the System as a whole, including financial, accounting, and
economic policies and programs, power supply, public and employee
relations, regulation, contractual arrangements, administrative and
other proceedings, industry-wide activities and like matters.
(B) OTHER FUNCTIONS AND ACTIVITIES: Studying, planning, advise, assistance,
guidance, supervision, direction, administration, maintenance,
handling, performance and operation, as may be required, in connection
with the following functions and activities:
(i) CORPORATE AND SECRETARIAL: Policies and practices relating to
the performance of corporate secretarial functions and
activities, including the preparation and maintenance of
official corporate records, reports, minutes and
correspondence in accordance with assigned responsibilities
and duties.
(ii) FINANCIAL PLANNING: Financial structures; financial programs
to raise funds required or to effect savings through
refinancing; relations with commercial banks and negotiation
of short-term borrowings; relationships with investment
bankers, analysts, analyst societies, securities holders,
stock holders, stock exchanges and indenture trustees,
transfer agents and registrars; general treasury, banking and
financial matters.
(iii) ACCOUNTING: General accounting, customer accounting and
related records; depreciation, accounting procedures and
practices to improve efficiency; internal auditing, relations
with independent auditors and appearances before and
requirements of regulatory bodies with respect to accounting
matters; and financial and operating reports and other
statistical matters and analyses thereof.
(iv) TAXES: Consolidated and other income tax returns and other
federal, state and municipal tax returns, and all matters
related thereto, including relations with the Internal Revenue
Service and other taxing authorities, the examination and
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processing of tax returns, assessments and claims, and
developments in federal, state and municipal taxes.
(v) INSURANCE: Insurance programs and matters, including pension
and other employee benefit plans and programs; and relations
with insurance brokers and agents.
(vi) BUDGETS: Operating, construction and cash budgets, and similar
studies or documents, including estimates and other
information required therefor or related thereto.
(vii) DATA PROCESSING: Computer and other data processing
activities.
(viii) BULK POWER SUPPLY: The bulk power supply system from sources
of supply through to bulk substations, to achieve reliable
service at minimum cost, including forecasts of electric
loads; power supply arrangements among System companies; power
supply relations with other utilities; forecasts of gas
requirements and the procurement of gas supplies; design,
engineering and scheduling of electric and gas production and
transmission facilities; the design, engineering and
scheduling of major and unusual distribution facilities; and
System electric load dispatching operations and related
matters.
(ix) ENGINEERING RESEARCH AND STANDARDIZATION: Engineering
activities in the fields of research, design, construction and
standardization; technical specifications and standard designs
for and procedures and methods of utilizing materials,
equipment and associated services; technical support and
engineering as required in all areas of the System's
operations.
(x) SYSTEM OPERATIONS: Electric and gas operations, including
production, transmission and distribution of electricity and
gas; the construction, operation and maintenance of electric
and gas facilities; and in general all electric and gas
construction, maintenance and operating activities.
(xi) OTHER ADMINISTRATIVE SERVICES: Management-union and all other
employee relation activities, including the definition of
major organizational responsibilities and the translation of
those responsibilities into effective organization structures;
employee welfare and other programs and problems; business
methods and procedures; and transportation activities and
matters.
(xii) PURCHASING AND STORES: The purchasing and handling of
materials and supplies, fuel and equipment, including such
activities as buying, traffic, expediting and stock control,
and scrap and salvage sales; major and long-term purchase
contracts pertaining to the foregoing; and contacts with
market conditions and principal suppliers.
(xiii) COMMERCIAL ACTIVITIES: Electric, gas and other sales; customer
service facilities; rate matters and rate structures; and area
development plans and activities.
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(xiv) MARKETING AND SALES ACTIVITIES: Marketing, sales and pricing
strategies and plans; market research and support activities;
technical services; new business and product development;
trade ally and strategic alliance services; and marketing and
sales training and support.
(C) Officers and other employees of Service Company will, on request of
Associate Company, serve, without charge other than as herein provided,
as officers or representatives of such Company.
SECTION 3. AGREEMENT TO TAKE AND PAY FOR SERVICES
Associate Company agrees to take from Service Company such of the
services to be performed by Service Company as may be required and to pay to
Service Company the cost of such services determined as herein provided. It is
the intent of this Agreement that the payment for services rendered by the
Service Company to the System shall cover all the costs of its doing business
(less credits for services to others and any other miscellaneous income items),
including reasonable compensation for necessary capital as permitted by Rule 91
of the SEC under the Act. The methods and procedure for determining the cost of
services performed for Associate Company are set forth in Appendix A hereto.
Bills will be rendered for each calendar month on or before the
twentieth day of the succeeding month and will be payable on presentation and
not later than the last day of that month. Monthly charges may be made in whole
or in part for particular expenses on an estimated basis, subject to adjustment,
so that all charges for services during a calendar year will be made on an
actual basis.
SECTION 4. EFFECTIVE DATE; TERM; AND CANCELLATION.
This Agreement shall become and be effective as of the date hereof and
it shall continue in effect, unless sooner terminated as herein provided, for a
period of one year. It may be renewed from time to time for similar one-year
periods by mutual agreement. This Agreement shall also be subject to termination
and shall terminate, without any action by either of the parties, to the extent
and from the time that performance may conflict with the Act or with any rule,
regulation or order of the SEC adopted before or after the making hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, by their respective officers thereunto duly authorized, all as of
the day and year first above written.
NORTHEAST UTILITIES SERVICE COMPANY
By: /s/ Michael G. Morris
Michael G. Morris
Chairman, President and
and Executive Officer
Attest:
/s/ O. Kay Comendul
Assistant Secretary
NORTHEAST GENERATION COMPANY
By: /s/ B. D. Kenyon
Bruce D. Kenyon
President
Attest:
/s/ O. Kay Comendul
Assistant Secretary
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APPENDIX A
DESCRIPTION OF METHODS AND PROCEDURE
FOR ALLOCATING COST OF SERVICES
JOB OR WORK ORDERS FOR SERVICE
There shall be job or work orders covering services to be performed for
Associate Company or other System companies. These orders may be either general
or specific. Services of a continuing nature, such as accounting, financial
planning and dispatching, will be covered by general job or work orders;
specific job or work orders will cover such things as issues of securities,
special studies or construction projects. General orders, as well as specific
orders, will specify the nature of the services to be performed thereunder in
sufficient detail that charges therefor may be determined as herein provided and
properly accounted for by the Associate Company under its prescribed Uniform
System of Accounts.
CHARGES FOR SERVICES
General
Charges for services rendered to Associate Company and other System
companies will be made on the bases of benefits conferred and of actual cost
(including reasonable compensation for necessary capital as permitted by Rule 91
of the SEC under the Act), fairly and equitably allocated.
Specific Services
Charges for specific services performed will be made to the appropriate
specific job or work order number assigned to accumulate the charges applicable
to the particular activity. These charges will include both direct and indirect
costs involved in providing the specific services.
General Services
Charges for general services performed will be made to the appropriate
general job or work order number assigned to accumulate the charges applicable
to the particular activity. These charges will include both direct and indirect
costs involved in providing the general services.
NATURE OF CHARGES AND METHOD OF ALLOCATION
Direct Charges
Direct charges consist of those costs which can practicably be recorded
separately and identified not only by job or work order number and department
but also as to source, such as time reports for each employee, vehicle reports,
invoices and other source documents. Time reports will be maintained for each
employee, including officers, in such detail as may be appropriate for such
employee and the nature of the services performed. Employees (other than
stenographic, secretarial,
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Appendix A
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clerical, and other workers engaged in rendering support services) will record
on their time reports hours chargeable to the appropriate job or work order
numbers and the nature of the work performed.
Northeast will be charged with 25% of the costs chargeable to job or
work orders for general services not of an operating or functional nature
related primarily to the System subsidiary companies but primarily of benefit to
and performed for Northeast and the System as a whole. The balance of the
charges to such job or work orders will be allocated to among System subsidiary
companies as provided hereafter under "Charges to System Companies - General
Services."
Indirect Charges or Overhead Expenses
Indirect charges or overhead expenses consist of all costs of the
Service Company, other than direct charges described above. These charges may be
classified into the following two general categories:
1. GENERAL SERVICE COMPANY OVERHEADS - These charges include costs which
cannot be identified as applicable to either a particular job or work
order number or department and which must be allocated to the various
Service Company departments on a fair and equitable basis. The
following items are illustrative, and not all-inclusive, of the types
of costs which may be so-allocated to the extent above provided: rents;
office supplies and expenses; depreciation; building operation and
maintenance; insurance; reasonable compensation for necessary capital;
general services, such as stenographic, files, mail, etc., including
salaries, employee benefits, and expenses of related employees; and
other general overheads.
These overhead costs will be allocated to each department on the basis
of functional relationship, such as number of personnel, space
occupied, use, etc.
2. DEPARTMENT OVERHEADS - These charges include costs which can be
identified as applicable to a particular department but which cannot be
directly associated with a particular job or work order number. These
costs will consist of the following:
(a) Wages and salaries of stenographic, secretarial, clerical and
other workers in the department engaged in rendering support
services.
(b) Lost or nonproductive time for vacations, personal time off,
sickness, holidays, etc., of all employees in department.
(c) Payroll-related Federal and State taxes and group benefit
plans for pension, life insurance, hospitalization and
medical, etc., of all employees in department.
(d) Miscellaneous supplies and expense.
(e) General Service Company overheads allocated to the particular
department as set forth in item 1 above.
The indirect charges of a particular department, as outlined
in this item 2, will be distributed to the active specific or general
job or work orders for which work is being
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Appendix A
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performed by that department on the same proportionate basis as the
actual direct payroll charges of that department.
CHARGES TO OTHER THAN SYSTEM COMPANIES
Services performed for other than System companies will be billed and
paid for by them on an appropriate basis. All amounts so billed will be credited
to the appropriate job or work orders before any charges are made therefrom to
System companies.
CHARGES TO SYSTEM COMPANIES
Specific Services
Charges for specific services recorded in the appropriate job or work
order numbers including overhead items, will be billed to the company or
companies for whom the services are performed.
General Services
Charges for general services recorded in the appropriate job or work
order numbers, including overhead items, will be allocated among System
subsidiary companies on one of the following bases determined on the basis of
functional relationship to be the most fair and equitable:
1. REVENUES - The relation of each company's gross operating revenues
(electric, gas or total, as may be appropriate) to the sum of the
operating revenues of all System companies (electric, gas or total, as
may be appropriate) for the preceding calendar year.
2. ELECTRIC PEAK LOAD - The relation of each company's annual electric
peak load to the combined electric peak load of all System companies
for the preceding calendar year.
3. PEAK DAY SENDOUT - The relation of each company's gas peak day sendout
to the combined gas peak day sendout of all System companies for the
preceding calendar year.
4. CUSTOMERS BILLED - The relation of each company's total customers
billed to the combined total customers billed of all System companies
for the preceding calendar year.
5. OTHER - Such other basis or bases as experience may show will provide,
on a functional relationship, a more fair and equitable allocation of
particular charges than any of the foregoing.
DEPARTMENT COST CONTROLS
Annual operating budgets, on a departmental basis, will be used and
costs will be controlled independently for each department so as to maintain a
periodic check on the balances, if any, over or underbilled to insure that
services rendered are being billed at cost. Each department will be charged with
all of its expenses, including overhead items allocated to it, and will be
credited with amounts billed from the department for services rendered. The
accounts of each department will be
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Appendix A
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maintained so as to be substantially in balance at all times. Accordingly,
semiannual reviews will be made of balances to determine to what extent the
billings should be adjusted to reflect actual cost.
BILLING
Bills will be provided Associate Company in sufficient detail so as to
identify the services rendered and permit proper accounting distribution of the
charges under the Associate Company's prescribed Uniform System of Accounts.
Detail on the bill will include: (1) Department; (2) Function or type of
service; (3) Nature of charges, whether direct or indirect (overhead); and (4)
Source of charges, if direct.