EXHIBIT 10.5
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement is made and entered into as of the 1st
day of January, 2002, by and between PG&E Gas Transmission Service Company, LLC,
a Delaware limited liability company ("ServiceCo"), and PG&E Gas Transmission,
Northwest Corporation, a California corporation ("Pipeline").
WHEREAS, Pipeline owns and operates a FERC-regulated interstate natural gas
pipeline extending from the U.S./Canada border near Kingsgate, British Columbia
to an interconnection with the facilities of Pacific Gas & Electric Company near
the California/Oregon border near Malin, Oregon,
WHEREAS, ServiceCo is an entity engaged in managing and operating natural
gas pipeline facilities; and
WHEREAS, Pipeline and ServiceCo desire to enter into this Management
Services Agreement pursuant to which ServiceCo shall manage the day-to-day
affairs of Pipeline;
NOW, THEREFORE, in consideration of the promises and mutual covenants and
provisions contained in this Agreement and subject to all terms and conditions
set forth below, Pipeline and ServiceCo hereby agree as follows:
1. Appointment as Manager. Subject to the terms and conditions of this
Management Services Agreement, Pipeline hereby appoints ServiceCo to act as
Manager hereunder, and ServiceCo hereby accepts such appointment and agrees
to act pursuant to the provisions of this Management Services Agreement.
The Manager shall function as an independent contractor under this
Management Services Agreement, and shall in no event ever act as, or be
considered to be, an employee of Pipeline.
2. Manager's General Authority. The Manager is authorized to conduct the
business and affairs of Pipeline in accordance with the Annual Business
Plan (as defined in Section 4 herein) and other provisions of this
Agreement. Except as otherwise expressly provided in this Management
Services Agreement, the Manager shall have full and complete authority,
power and discretion to execute contracts and manage and control the
business, affairs and properties of Pipeline, to make all decisions
regarding those matters and to perform any and all other acts or activities
customary or incident to the management of Pipeline's business. Without
limiting the foregoing, the Manager shall have the authority to make
decisions with respect to the engineering, design, construction, regulatory
approvals for, and operation (including physical operation, scheduling and
dispatch of gas inventory) of Pipeline. The Manager shall not exceed the
authority granted to the Manager by this Management Services Agreement.
GTN MANAGEMENT SERVICES AGREEMENT
Page 1 of 17
3. Manager's Specific Duties.
The Manager shall be responsible for the operation of Pipeline's interstate
pipeline facilities in accordance with sound, workmanlike and prudent
practices of the natural gas pipeline industry and in compliance with
Pipeline's FERC Gas Tariff and with all applicable laws, statutes,
ordinances, safety codes, regulations, rules and authorizations and
requirements of governmental authorities having jurisdiction. Accordingly,
subject to the provisions of this Management Services Agreement, the
Manager shall:
3.1.1 Provide or cause to be provided the day-to-day operating and
maintenance services, administrative liaison and related
services to Pipeline, including, but not limited to, customer
support, legal, accounting, human resources, procurement,
electronic bulletin board, engineering, construction, repair,
replacement, inspection, operational planning, budgeting, tax
and technical services, and insurance and regulatory
administration.
3.1.2 Upon prior approval by Pipeline, file, execute and prosecute
applications for the authorizations required by Pipeline for
the acquisition, construction, ownership and operation of
facilities and the provision of the transportation services on
the facilities. The Manager also shall make routine and
periodic filings required of Pipeline by governmental
authorities having jurisdiction.
3.1.3 Review from time to time the rates and fees charged for the
transportation services, recommend appropriate rate revisions
to Pipeline, prepare, and upon prior approval by Pipeline,
file, execute and prosecute rate change filings.
3.1.4 Review from time to time the services offered by Pipeline, and
recommend and implement improvements or additions to such
service.
3.1.5 Prepare financing plans for Pipeline and negotiate financing
commitments, if any, to be entered into by Pipeline, subject to
final approval by Pipeline.
3.1.6 Negotiate and execute contracts for the purchase of services,
materials, equipment and supplies necessary for the operation
of Pipeline.
3.1.7 Prepare, negotiate and execute in the name of company rights-
of-way, land in fee, permits and contracts, and, unless
otherwise directed by Pipeline, initiate, prosecute and settle
(if applicable) eminent domain condemnation proceedings,
necessary for
GTN MANAGEMENT SERVICES AGREEMENT
Page 2 of 17
construction, operation and maintenance of the Facilities, and
resist the perfection of any involuntary liens against Pipeline
property.
3.1.8 Construct and install, or cause to be constructed and
installed, facilities necessary for the safe and efficient
operation of Pipeline, including expansions thereto.
3.1.9 Make reports to and consult with Pipeline regarding all duties,
responsibilities and actions of the Manager under this
Management Services Agreement in the form and at the times
reasonably requested by Pipeline.
3.1.10 Maintain accurate and itemized accounting records for the
operation of the Pipeline, together with any information
reasonably required by Pipeline relating to such records.
3.1.11 Prepare financial reports.
3.1.12 Cause the operation of the Pipeline to be in accordance with
all applicable laws, statutes, ordinances, safety codes,
regulations, rules and authorizations and requirements of all
governmental authorities having jurisdiction, including, but
not limited to, local, state and federal environmental laws and
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, workmanlike and prudent practices of the
natural gas industry and Pipeline's FERC Gas Tariff, 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 Pipeline.
3.1.13 Prepare and file all necessary federal and state income tax
returns and all other tax returns and filings for Pipeline. The
Pipeline shall furnish to the Manager all pertinent information
in its possession relating to Pipeline operations that is
necessary to enable such returns to be prepared and filed.
3.1.14 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.
3.1.15 Negotiate, execute and administer the gas transportation
contracts in accordance with Pipeline's FERC Gas Tariff,
including, but not limited to, the preparation and collection
of all bills to the shippers for services rendered thereunder;
provided that the Manager shall
GTN MANAGEMENT SERVICES AGREEMENT
Page 3 of 17
execute gas transportation contracts for discounted firm or
interruptible transportation services only to the extent the
discounts are in accordance with Pipeline's discounting policy
in effect from time to time, and provided further that any gas
transportation contracts which require the construction of
additional facilities for the performance thereof shall be
subject to the prior approval of Pipeline.
3.1.16 Receive requests for service from shippers and potential
shippers and issue confirmations for service in accordance with
Pipeline's FERC Gas Tariff.
3.1.17 Recommend and establish guidelines for sale of capacity,
including sales at discount and/or negotiated rates on a
non-discriminatory basis.
3.1.18 Propose to Pipeline such procedures as may be reasonable and
appropriate to comply with or to obtain an exemption from the
marketing affiliate rules set forth in Part 161 of the FERC's
regulations (as the same may be amended or superseded), and
seek to implement such procedures as are approved by Pipeline.
3.1.19 Dispatch and allocate daily scheduled nominations for, and
effectuate the physical receipt and delivery of, the natural
gas quantities to be received, transported and/or delivered on
behalf of the shippers in accordance with Pipeline's FERC Gas
Tariff.
3.1.20 Utilize electronic flow measurement equipment for volume
determinations and natural gas chromatographs as deemed
appropriate by the Manager for heating value determinations at
applicable metering points, as further described in Pipeline's
FERC Gas Tariff.
3.1.21 Except as otherwise provided by applicable laws or governmental
regulations or as otherwise directed by Pipeline, retain all
books of account and Pipeline tax returns for three (3) years
from the date of completion of the activity to which such
records relate.
3.1.22 Procure and furnish on behalf of Pipeline all materials,
equipment, supplies, services and labor necessary for, and
perform, repairs to Pipeline's facilities that Manager
determines to be appropriate and prudent.
3.1.23 Perform such other duties as are reasonably necessary or
appropriate in the Manager's discretion and enter into such
other arrangements as reasonably requested by Pipeline to
discharge the
GTN MANAGEMENT SERVICES AGREEMENT
Page 4 of 17
Manager's responsibilities under this Management Services
Agreement.
4. Manager's Budget and Annual Business Plan. Manager shall prepare an annual
operating plan and budget for each year ("Annual Business Plan"), as it may
be adjusted from time to time, setting forth estimates of management costs
and other costs and expenses anticipated by Manager in connection with
operating Pipeline. The approval by Pipeline of such Annual Business Plan
shall constitute authorization for the Manager to incur the costs, expenses
and expenditures set forth in such budget.
5. Claims. Any and all claims against Pipeline instituted by anyone other than
the Manager arising out of the operation of the Facilities that are not
covered by insurance in accordance with Section 9 of this Management
Services Agreement shall be settled or litigated and defended by the
Manager in accordance with its reasonable judgment and discretion except
when (a) the amount involved is stated to be (or estimated to, as the case
may be) greater than $1,000,000, or (b) criminal sanction is sought. The
settlement or defense of any claim described in (a) or (b) above shall be
decided by Pipeline. The Manager shall provide notice to Pipeline as soon
as practicable of any claims instituted against Pipeline (regardless of the
amount or nature of the claim).
6. Employees, Consultants and Subcontractors.
6.1 Initial Adoption by Manager of Pipeline Employees and Employee
Obligations. Upon the Effective Date of this Management Services
Agreement, Pipeline shall transfer to Manager all employees and
employment-related agreements, and Manager shall employ all such
employees and shall adopt, honor and continue all obligations and
commitments related to such employees, specifically including, without
limitation, salary and benefit agreements and elective deferral
agreements under Internal Revenue Code Section 401k and employee
elections under a cafeteria plan under Internal Revenue Code Section
125. Notwithstanding the foregoing, Pipeline shall remain responsible
for, either primarily or as a successor employer, any assets or
liabilities of any employee benefit plans, arrangements, commitments
or policies provided by the Manager or any affiliate of the Manager;
and if and to the extent that Pipeline is deemed by law or otherwise
to be liable as a successor employer for such purposes, the Manager
shall indemnify Pipeline for the full and complete costs, fees and
other liabilities which result. In particular, but without limiting
the generality of the foregoing, Pipeline shall not assume liability
for any group health continuation coverage or coverage rights under
Internal Revenue Code Section 4980B and ERISA Section 601 and related
provisions which exist as of the Effective Date or which arise as a
result of the Manager's dissolution and/or termination of its or any
of its affiliate's group health plan or plans, and if and to the
GTN MANAGEMENT SERVICES AGREEMENT
Page 5 of 17
extent that Pipeline is deemed by law or otherwise to be liable as a
successor employer for such group health continuation coverage
purposes, the Manager shall indemnify Pipeline for the full and
complete amount of any resulting costs, fees and other liabilities.
6.2 Manager's Employees, Consultants, Subcontractors and Independent
Contractors. The Manager shall employ or retain and have supervision
over the persons (including Manager's affiliates, consultants and
professional service or other organizations) required or deemed
advisable by the Manager to perform its duties and responsibilities
hereunder in an efficient and economically prudent manner. The
compensation for the Manager's employees shall be determined by the
Manager, provided that the amount and terms of such compensation
billed to Pipeline shall be comparable to those prevailing in the
natural gas industry for similar work.
6.3 Standards for Manager and its Employees. The Manager shall perform its
services and carry out its responsibilities hereunder, and shall
require all of its employees and consultants, and contractors,
subcontractors and materialmen furnishing labor, material or services
for the operation of Pipeline to carry out their respective
responsibilities in accordance with sound, workmanlike and prudent
practices of the natural gas pipeline industry and in compliance with
Pipeline's FERC Gas Tariff and with all applicable laws, statutes,
ordinances, safety codes, regulations, rules, authorizations and
requirements of governmental authorities having jurisdiction
applicable to Pipeline's facilities. The Manager shall take reasonable
measures to monitor the compliance of such employees and consultants,
and contractors, subcontractors and materialmen, to these standards.
6.4 Non-Discrimination and Drugs. In performing under this Management
Services Agreement, the Manager shall not discriminate against any
employee or applicant for employment because of race, creed, color,
religion, sex, national origin, age or disability, 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 Manager or Pipeline. Neither Pipeline nor the
Manager shall condone in any way the use of illegal drugs or
controlled substances. Any person known by the Manager to be in
possession of any illegal drug or controlled substance will be
disciplined by the Manager and/or removed in accordance with the
Manager's policies and procedures. In addition, the Manager shall meet
all the applicable requirements imposed by the Department of
Transportation as specified in 49 C.F.R., Parts 40 and 199 (as the
same may be amended or superseded). Furthermore, upon request and to
the extent permitted by law, the Manager will furnish Pipeline 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
GTN MANAGEMENT SERVICES AGREEMENT
Page 6 of 17
Section 6.4 shall be applicable to any employees, contractors,
consultants and subcontractors retained in connection herewith, and
the Manager shall cause the agreements with any contractor, consultant
or subcontractor to contain similar language.
7. Financial and Accounting.
7.1 Accounting and Compensation.
7.1.1 The Manager 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 attached hereto as Exhibit A, and shall
otherwise keep a full and complete account of all accounts that
Pipeline is required to maintain.
7.1.2 The Manager shall be reimbursed by Pipeline at the rate and in
the manner set forth in the Accounting Procedure for all costs
and expenses of the Manager incurred in accordance with this
Management Services Agreement and in connection with the
operation of Pipeline or otherwise to fulfill the Manager's
duties under this Management Services Agreement.
7.1.3 Disputed Charges. Pipeline may, within the audit period
referred to in Section 7.1.4 hereof, take written exception to
any bill or statement rendered by the Manager for any
expenditure or any part thereof on the ground that the same was
not appropriate for reimbursement under the terms of Section
7.1.2 above. Pipeline shall nevertheless pay in full when due
the amount of all statements submitted by the Manager. Such
payment shall not be deemed a waiver of the right of Pipeline
to recoup any contested portion of any bill or statement. If
the amount as to which such written exception is taken or any
part thereof is ultimately determined not to be appropriate for
reimbursement under the terms of Section 7.1.2 of this
Management Services Agreement, such amount or portion thereof
(as the case may be) shall be refunded by the Manager to
Pipeline, together with interest thereon at a rate (which in no
event shall be higher than the maximum rate permitted by
applicable law) equal to two percent (2%) per annum over the
prime rate of Citibank, N.A. (or its successor) from time to
time publicly announced and in effect, during the period from
the date of payment by Pipeline to the date of refund by the
Manager.
7.1.4 Audit and Examination. Pipeline shall have the right during
normal business hours to audit or examine all books and records
maintained by the Manager, including support for costs charged
by
GTN MANAGEMENT SERVICES AGREEMENT
Page 7 of 17
the Manager's contractors, relating to the operation of
Pipeline. The right to conduct an audit or examination shall
include the right to meet with the Manager's internal and
independent auditors to discuss matters relevant to the audit
or examination. Pipeline shall have the right to conduct one
(1) audit of the Manager's records for any twelve (12) month
period.
8. Indemnification.
8.1 By Manager. Manager shall indemnify, defend, save, and hold harmless
Pipeline and its affiliates, and all of their respective officers,
directors, employees, agents, partners, shareholders and
representatives, from and against any and all claims arising out of
any actions by Manager, its officers, directors or employees which are
outside the scope of Manager's authority under this Management
Services Agreement, or actions or failures to act of Manager, its
officers, directors or employees which in each case constitute gross
negligence or willful misconduct; provided, however, that Manager's
total aggregate liability hereunder during the term of this Management
Services Agreement shall in no event exceed $500,000 over and above
the amount covered by insurance.
8.2 By Pipeline. Pipeline shall indemnify, defend, save, and hold harmless
Manager, its constituent partners and their affiliates, and all of
their respective officers, directors, employees, agents, partners,
shareholders and representatives, from and against any and all claims
arising out of the acts (or failures to act), or for any obligation,
liability, or commitment incurred by or on behalf of Pipeline as a
result of any such acts (or failures to act); provided, however, that
Manager, its officers, directors and employees shall not be entitled
to indemnification hereunder for any claims resulting from their gross
negligence or willful misconduct.
8.3 Other Claims. Except as otherwise provided in Sections 8.1 and 8.2,
any and all suits or claims against Pipeline asserted by anyone other
than Manager arising out of the design, construction, supervision,
operations, maintenance or administration of Pipeline that are not
covered by insurance shall be litigated and defended by Manager on
behalf of Pipeline, in accordance with Manager's reasonable judgment
and discretion.
8.4 Indemnification Notices. Whenever a party entitled to indemnification
under Section 8.1 or 8.2 of this Management Services Agreement (an
"Indemnitee") shall learn of a claim which, if allowed (whether
voluntarily or by a judicial or quasi-judicial tribunal or agency),
would entitled such Indemnitee to indemnification under Section 8.1 or
8.2 of this Management Services Agreement, before paying the same or
agreeing thereto, the Indemnitee shall promptly notify the party
required to pay such
GTN MANAGEMENT SERVICES AGREEMENT
Page 8 of 17
indemnification (the "Indemnitor") in writing of all material facts
within the Indemnitee's knowledge with respect to such claim and the
amount thereof; provided, however, that the Indemnitee's right to
indemnification shall be diminished by the failure to give prompt
notice only to the extent that the Indemnitee's failure to give such
notice was prejudicial to the interests of the Indemnitor. If, prior
to the expiration of fifteen (15) days from the giving of such notice,
the Indemnitor shall request, in writing, that such claim not be paid,
the Indemnitee shall not pay the same, provided that the Indemnitor
proceeds promptly to settle or litigate, in good faith, such claim.
The Indemnitee shall have the right to participate in any such
negotiation, settlement or litigation. The Indemnitee shall not be
required to refrain from paying any claim which has matured by a court
judgment or decree, unless an appeal is duly taken therefrom and
execution thereof has been stayed, nor shall it be required to refrain
from paying any claim where the delay to pay such claim would result
in the foreclosure of a lien upon any of the property of the
Indemnitee, or where any delay in payment would cause the Indemnitee
an economic loss, unless the Indemnitor shall have agreed to
compensate the Indemnitee for such loss.
9. Insurance.
9.1 Required Insurance. The Manager shall carry and maintain, or cause to
be carried and maintained, for the benefit of and on behalf of
Pipeline and the Manager, with insurance companies and deductibles and
retentions selected by the Manager (unless otherwise required by
Pipeline), the insurance described below. The parties agree that they
shall cooperate reasonably with one another in an effort to reduce
insurance costs hereunder.
9.1.1 General and/or Excess Liability insurance with limits of not
less than $10,000,000 per occurrence for bodily injury and
property damage combined. Limits in excess of $10,000,000 will
only be procured with Pipeline approval. This insurance will
include coverage for personal injury, contractual liability,
broad form property damage, independent contractors,
products/completed operations, cross liability, explosion,
collapse and underground hazards.
9.1.2 At all times during the operation of the facilities and covering
all employees of the Manager, (a) Worker's Compensation
insurance complying with the laws of the state(s) having
jurisdiction over each employee, and (b) Employer's Liability
insurance with limits of not less than $1,000,000 per accident.
To the extent permitted by applicable law, the Manager may self-
insure the Worker's Compensation and Employer's Liability
Insurance required herein.
GTN MANAGEMENT SERVICES AGREEMENT
Page 9 of 17
9.1.3 At all times during the operation of the facilities, Automobile
Liability insurance with a combined single limit of $1,000,000
per occurrence for bodily injury and property damage, including
coverage for all owned, non-owned and hired vehicles, covering
all vehicles owned or used by or on behalf of the Manager.
9.1.4 Any other insurance deemed necessary or appropriate by the
Manager.
9.2 Conditions. The following conditions shall apply to the foregoing
insurance provisions:
9.2.1 For the insurance required in Sections 9.1.1 and 9.1.3 above,
(a) Pipeline and the Manager will be additional insureds under
the policies, (b) the affiliates of the Manager will be
additional insureds with respect to Pipeline and the operation
of the facilities, (c) the insurance will be primary for such
additional insureds, and (d) the Manager will provide
certificates of insurance upon request.
9.2.2 For the insurance required in Section 9.1.3 above, the policies
will provide for a waiver of all rights of subrogation in favor
of Pipeline, and the Manager and their respective affiliates.
9.2.3 For the insurance maintained pursuant to Sections 9.1.3 and
9.1.4 above, the Manager will provide a certificate of upon
request.
9.2.4 For the insurance required in Section 9.1.4 above, Pipeline and
the Manager and their affiliates will be additional insureds
under the policies with respect to Pipeline and the operation of
Pipeline. Such insurance will be primary for such additional
insureds.
9.3 Reimbursement. The costs for premiums, deductibles and retentions for
the insurance maintained by the Manager pursuant to this Management
Services Agreement shall be reimbursable costs pursuant to Section
7.1.2 of this Management Services Agreement. In addition, in the event
that the Manager self-insures the Workers' Compensation and/or
Employer's Liability insurance required above, the Manager shall be
reimbursed as provided in Section 3.09 of the Accounting Procedure.
10. Term and Termination.
10.1 Term. This Management Services Agreement shall be effective as of
January 1, 2002 (the "Effective Date") and shall continue for a Term
of thirty (30) years unless terminated sooner pursuant to Section 10.2
below.
GTN MANAGEMENT SERVICES AGREEMENT
Page 10 of 17
10.2 Termination.
10.2.1 Continuing Default by Manager. Unless caused by an event of
"force majeure" as defined in or pursuant to Pipeline's FERC
Gas Tariff, if the Manager materially defaults in the
performance of its obligations under this Management Services
Agreement and such material default continues for a period of
45 days after notice thereof by Pipeline to the Manager,
Pipeline may, by notice to the Manager, terminate this
Management Services Agreement; provided, however, that no such
termination shall occur if the Manager has initiated action to
cure such material default but, despite its good faith efforts,
has been unable to complete such cure within such 45 day
period, and the Manager's actions to complete such cure
continue in good faith beyond the end of the 45 day period
until such cure is completed. If, during the 45 day period, an
emergency or other situation requiring prompt action arises and
the Manager is not reasonably responding in a prompt fashion,
Pipeline shall have the right to take such remedial action as
it deems appropriate, provided that Pipeline shall use all
reasonable efforts to notify the Manager prior to the taking
by Pipeline of such action.
10.2.2 Continuing Default by Pipeline. Unless caused by an event of
"force majeure" as defined in or pursuant to Pipeline's FERC
Gas Tariff, if Pipeline materially defaults in the performance
of its obligations under this Management Services Agreement and
such material default continues for a period of 45 days after
notice thereof by the Manager to Pipeline, the Manager may, by
notice to Pipeline, terminate this Management Services
Agreement; provided, however, that no termination shall occur
if Pipeline has initiated action to cure such material default
but, despite its good faith efforts, has been unable to
complete such cure within such 45 day period, and the actions
of Pipeline to complete such cure continue in good faith beyond
the end of the 45 day period until such cure is completed.
10.2.3 Additional Events of Termination. In addition to termination in
accordance with Sections 10.2.1 and 10.2.2, this Management
Services Agreement shall terminate if (a) Pipeline and the
Manager mutually agree to terminate this Management Services
Agreement, or (b) either party, upon six (6) months prior
written notice to the other party, terminates this Management
Services Agreement.
GTN MANAGEMENT SERVICES AGREEMENT
Page 11 of 17
11. Rights upon Termination and Survival of Obligations.
11.1 Rights Upon Termination. Upon Pipeline's termination of this
Management Services Agreement, ServiceCo shall deliver to Pipeline at
Pipeline's principal place of business all records, documents,
accounts, files and other materials of Pipeline or pertaining to
Pipeline's business as Pipeline may reasonably request, provided that
ServiceCo may retain copies of any such items delivered to Pipeline.
Pipeline shall assume and become liable for any contracts or
obligations that ServiceCo may have undertaken with third parties in
connection with its obligations hereunder, and ServiceCo shall execute
all documents and take all other reasonable steps requested by
Pipeline which may be required to assign to and vest in Pipeline all
rights, benefits, interests and titles in connection with such
contracts or obligations.
11.2 Termination Payment. In the event of a termination of this Management
Services Agreement pursuant to Section 10, ServiceCo shall be
entitled, in addition to all other amounts due hereunder as of the
date of termination, to a cancellation payment equal to all costs and
expenses reasonably incurred by ServiceCo as a direct result of such
termination, including all reasonable severance and relocation costs
incurred with respect to third parties. Such amount shall be due and
payable by Pipeline within fifteen (15) days of ServiceCo's submission
of an invoice therefore.
11.3 Survival of Obligations. Expiration or termination of this Management
Services Agreement shall not relieve any party hereto of liability
that has accrued or arisen prior to the date of such expiration or
termination. The obligations of confidentiality and indemnification
set forth herein shall survive expiration or termination of this
Management Services Agreement.
12. Law of the Contract and Dispute Resolution.
12.1 Law of the Contract. THIS MANAGEMENT SERVICES AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
12.2 Dispute Resolution. Resolution of any and all controversies, disputes
or claims, arising out of, relating to, in connection with or
resulting from this Agreement (or any written amendment hereto or any
transaction contemplated hereby), including as to its interpretation,
performance, non-performance, validity, breach or termination,
including any claim based on contract, tort, regulation, rule, statute
or constitution and any claim raising questions of law, whether
arising before or after termination of this Agreement (collectively,
"Disputes"), shall be exclusively governed by and
GTN MANAGEMENT SERVICES AGREEMENT
Page 12 of 17
settled in accordance with the provisions of this Section 12. Unless
otherwise agreed in writing, the parties will continue to honor their
obligations not subject to Dispute under this Management Services
Agreement during the course of dispute resolution pursuant to the
provisions of this Section 12 with respect to all matters not subject
to such dispute, controversy or claim.
12.3 Negotiation. The parties shall make a good faith attempt to resolve
any Dispute through negotiation. Within thirty (30) days after notice
of a Dispute is given by one party to another party or parties, each
such party shall select one or more representatives of such party,
which representatives shall meet and make a good faith attempt to
resolve such Dispute and shall continue to negotiate in good faith in
an effort to resolve the Dispute. If a settlement is mutually agreed
upon as a result of the negotiation, then such settlement shall be
recorded in writing, signed by the affected parties, and shall be
binding on them. If such representatives fail to resolve a Dispute
within thirty (30) days after the first meeting of the
representatives, such Dispute shall be referred to the chief executive
officers of the applicable parties for resolution. During the course
of negotiations under this Section 12.3, all reasonable requests made
by one party to any other party for information, including requests
for copies of relevant documents, shall be promptly honored. The
requesting party shall compensate the providing party for the
reasonable costs, if any, of creating, gathering and copying such
requested information. The specific format for such negotiations shall
be left to the discretion of the designated representatives but may
include the preparation of agreed upon statements of fact or written
statements of position furnished by a party to another party or
parties.
12.4 Alternative Dispute Resolution.
a. Alternative Dispute Resolution. In the event that any Dispute is
not settled by the parties within fifteen (15) days after the
first meeting of the chief executive officers under Section 12.3,
the parties may attempt to resolve such Dispute by mediation
and/or arbitration and in accordance with the terms and
conditions (including allocation costs and expenses) established
by the parties. If the parties elect to mediate the Dispute, once
mediation has commenced, no litigation for the resolution of such
Dispute may be commenced until the parties have completed in good
faith the mediation. If a settlement is mutually agreed upon as a
result of the mediation, then such settlement shall be recorded
in writing, signed by the parties, and shall be binding on them
and their respective successors and assigns. If the Parties elect
to arbitrate the Dispute (either in lieu of or after mediation),
the parties shall be deemed to have waived their right to
litigate such Dispute in court and may not commence a court
action pursuant to
GTN MANAGEMENT SERVICES AGREEMENT
Page 13 of 17
Section 12.4(b) of this Agreement. Any arbitration shall be
governed by the Commercial Arbitration Rules of the American
Arbitration Association.
b. Court Actions. In the event that a party, after complying with
the provisions set forth in Section 12.3 and, if applicable, the
mediation provisions of Section 12.4(a), desires to commence a
court action, suit or other proceeding (an "Action") in respect
to a Dispute, such party may, subject to the other provisions of
this Management Services Agreement, submit the Dispute to any
court of competent jurisdiction. If there is any court Action
between any parties pursuant to this Section 12.4(b), the
unsuccessful party to such court Action shall pay the prevailing
party all costs and expenses, including reasonable attorneys'
fees and disbursements, incurred by such prevailing party in such
court Action and in any appeal in connection therewith. If such
prevailing party recovers a judgment in any such court Action or
appeal, such costs, expenses and attorneys' fees and
disbursements shall be included in and as part of such judgment.
c. Specific Performance. Notwithstanding Sections 12.2 and 12.3 and
paragraphs (a) and (b) of this Section 12.4, Manager and Pipeline
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that Manager and Pipeline shall be
entitled to injunctive relief to prevent breaches of this
Agreement and to enforce specifically the terms and provisions
hereof.
13. Special and Consequential Damages. Except as provided in Section 8 of this
Management Services Agreement, neither party shall have any liability
hereunder to the other party for any special, indirect, consequential or
punitive damages.
14. Manager's Obligations Not Exclusive. The Parties agree that Manager's
obligations under this Agreement are not exclusive, and nothing in this
Agreement shall be deemed to limit Manager's right to offer or provide
management services to any other entity (a "Third-Party Customer").
15. General.
15.1 Effect of Agreement; Amendments. This Management Services 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, between the parties
with respect to the subject matter hereof. This Management Services
GTN MANAGEMENT SERVICES AGREEMENT
Page 14 of 17
Agreement can be amended, restated or supplemented only by the written
agreement of the Manager and Pipeline.
15.2 Notices. Unless otherwise specifically provided in this Management
Services 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 15.2) 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 15.2):
If to the Manager:
PG&E Gas Transmission Service Company, LLC
1400 SW Fifth Avenue, Suite 900
Portland, OR 97201
Attention: Robert T. Howard
Telecopy number: 503-833-4927
If to Pipeline:
PG&E Gas Transmission, Northwest Corporation
1400 SW Fifth Avenue, Suite 900
Portland, OR 97201
Attention: Legal Department
Telecopy number: 503-402-4004
Notices shall be deemed given upon receipt. Either party may change
its address and/or telephone numbers for notice purposes by providing
notice of such change to the other party.
15.3 Counterparts. This Management Services 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.
15.4 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
hereafter.
GTN MANAGEMENT SERVICES AGREEMENT
Page 15 of 17
15.5 Assignability; Successors. This Management Services Agreement, and
the rights, duties, and obligations hereunder, may not be assigned or
delegated by either party without the written consent of the other
party, except with respect to delegation by either party of all or a
portion of its rights and obligations hereunder to its affiliates so
long as such party remains responsible for all obligations (including
any liability resulting from any defaults) of said affiliates;
provided, however, that such consent shall not be unreasonably
delayed or withheld. This Management Services 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 consent to the assignment has been obtained, any assignment of
this Management Services Agreement shall not relieve the assigning
party of any of its obligations hereunder.
15.6 Third Persons. Except as otherwise provided in this Management
Services 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
Management Services Agreement.
15.7 Laws and Regulatory Bodies. This Management Services 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 regulation of governmental authorities having
jurisdiction shall control.
15.8 Section Numbers; Headings. Unless otherwise indicated, references to
Section numbers are to Sections of this Management Services
Agreement. Headings and captions are for reference purposes only and
shall not affect the meaning or interpretation of this Management
Services Agreement.
15.9 Severability. Any provision of this Management Services 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.
15.10 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 Management Services
Agreement.
GTN MANAGEMENT SERVICES AGREEMENT
Page 16 of 17
IN WITNESS WHEREOF, the parties have caused this Management Services
Agreement to be executed by their duly authorized representatives as of the date
first above written.
MANAGER:
PG&E Gas Transmission Services Company, LLC
By: /s/ ROBERT T. HOWARD
--------------------
Name: Robert T. Howard
Title: Vice President
PIPELINE:
PG&E Gas Transmission, Northwest Corporation
By: /s/ THOMAS B. KING
------------------
Name: Thomas B. King
Title: President and Chief Operating Officer
GTN MANAGEMENT SERVICES AGREEMENT
Page 17 of 17
EXHIBIT A
TO
MANAGEMENT SERVICES AGREEMENT
-----------------------------
ACCOUNTING PROCEDURE
ARTICLE I
General Provisions
------------------
1.01 Statements and Billings. The Manager shall bill Pipeline on or before the
tenth (10th) Day of each Month or as soon as reasonably possible thereafter
for the costs and expenses for the prior Month, including any adjustment
that may be necessary to correct prior billings. Bills will be summarized
by appropriate classifications indicative of the nature thereof and will be
accompanied by such detail and supporting documentation as Pipeline may
reasonably request.
1.02 Payment by Pipeline. Pipeline shall pay all bills presented by the Manager
as provided in this Management Services Agreement on or before the
fifteenth (15th) Day after the bill 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 two percent (2%) per annum over 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 Pipeline shall not be deemed a waiver
of the right to recoup any amount in question
1.03 Financial Records. The Manager shall maintain accurate books and records in
accordance with FERC and FASB accounting procedures covering all of the
Manager's actions under this Management Services Agreement.
ARTICLE II
Capital Items, Non-Capital Items, and Contribution of Inventory and Facilities
------------------------------------------------------------------------------
2.01 Capital Items
2.01.01 Definition of Capital Items. The term "Capital Items" as used
herein shall mean any item of real and/or personal property that,
if owned by and utilized for a FERC-regulated interstate pipeline
company, would qualify for treatment as a capital expense under
standard FERC accounting practices.
2.01.02 Certain Capital Items Owned by Manager. To the extent the Manager
or any of its affiliates own any Capital Items necessary or
desirable for the operation of the Pipeline ("Manager's Capital
Items"), that Manager or such affiliates in its sole discretion
(subject to Section 2.01.03 below) is willing to transfer for
consideration to Pipeline, the Manager or such affiliates may, if
approved by Pipeline, transfer such property to Pipeline. In the
event of such a transfer, the Manager may charge Pipeline the net
book value thereof (as reflected on the books of the Manager or
such affiliates on the date of transfer). To the extent the
Manager or any of its affiliates own Manager's Capital Items, and
the Manager or such affiliates in its sole discretion chooses not
to transfer such property to Pipeline, Manager may include as
part of its costs to be reimbursed by Pipeline carrying costs and
overhead expense related to such property, provided, however,
Manager shall not charge carrying costs and overhead expense
related to such property above the total costs (including return
on equity) to which Pipeline would be entitled to collect from
ratepayers if such property were owned by Pipeline.
2.01.03 Purchase of Additional Capital Items. Capital Items intended
for the sole use of Pipeline shall be purchased by Manager on
behalf of Pipeline and be owned by Pipeline. Capital Items
intended to be utilized by Manager on behalf of Pipeline as well
as Third-Party Customers (as defined in the Management Services
Agreement) shall, at Manager's discretion, (i) be owned by
Manager, subject to reimbursement by Pipeline of an allocated
share of purchase costs, including carrying costs and overhead
expense, as specified in Section 2.01.02 above or (ii) be owned
by Pipeline in proportionate share with Third Party Customers.
2.02 Non-Capital Items
2.02.01 Contribution by Pipeline. Pipeline owns or holds rights to certain
non-capital inventory and assets, such as office equipment and
office
Exhibit A to Management Services Agreement, Page 2 of 5
space ("Expense Items"), that Manager may desire to use from
time to time in providing service to Pipeline and/or Manager's
other activities. Manager shall credit Pipeline for utilization
of such Expense Items at fair market value.
ARTICLE III
Costs and Expenses
------------------
Subject to the limitations hereafter prescribed and provisions of this
Management Services Agreement, the Manager shall charge Pipeline for all
reasonable costs and expenses in providing services to Pipeline under this
Management Services Agreement, including, but not limited to, the following
items, to the extent reasonable and actually incurred or allocated to Pipeline:
3.01 Rentals. All rentals paid by the Manager.
3.02 Labor Costs.
3.02.01 Salaries and wages of employees of the Manager and its
affiliates engaged in connection with the management of Pipeline
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 Manager'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 3.02.01.
3.02.02 Expenditures or contributions made pursuant to assessments
imposed by Governmental Authority that are applicable to
salaries, wages and costs chargeable under Section 3.02.01 above,
including, but not limited to, FICA taxes and federal and state
unemployment taxes. Such costs shall be charged on the basis of a
percentage assessment on the amount of salaries and wages
chargeable under Section 3.02.01 above or on an actual cost
basis.
3.02.03 The costs of plans incurred by or on behalf of the Manager for
workers' compensation, employers' group life insurance,
hospitalization, disability, pension, retirement, savings and
other benefit plans, that are applicable to salaries and wages
chargeable under Section 3.02.01 above. Such costs shall be
charged on the basis of a percentage assessment on the amount of
salaries and wages chargeable under Section 3.02.01 above, or on
an actual cost basis.
3.03 Programming and Information Processing. All costs incurred relating to
programming and information processing actually and reasonably incurred or
Exhibit A to Management Services Agreement, Page 3 of 5
allocated on behalf of Pipeline in compliance with, and in
furtherance of, the terms of this Management Services Agreement.
3.04 Reimbursable Expenses of Employees. Reasonable personal expenses of
employees whose salaries and wages are chargeable under Section 3.02.01
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 Manager shall
maintain documentation for such expenses in accordance with the standards
of the Internal Revenue Service.
3.05 Transportation. Transportation of employees, equipment and material and
supplies necessary for management of the Pipeline.
3.06 Services. The cost of contract services and utilities procured from outside
sources.
3.07 Legal Expenses and Claims. All costs and expenses of handling,
investigating and settling litigation or claims arising by reason of the
management of Pipeline or necessary to protect or recover any assets or
property, including, but not limited to, attorneys' 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 Pipeline shall
be for the benefit of and shall be remitted to Pipeline.
3.08 Taxes. All taxes (except those measured by income) of every kind and nature
assessed or levied upon or incurred in connection with the management of
Pipeline or on Pipeline's facilities or other property of Pipeline and
which taxes have been paid by the Manager for the benefit of Pipeline,
including charges for late payment arising from extensions of the time for
filing that are caused by Pipeline, or that result from the Manager's good
faith efforts to contest the amount of 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 carried under the Management Services Agreement. In the
event that the Manager self-insures any of the insurance required or
permitted under this Management Services Agreement, the Manager 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 Manager
shall not be reimbursed for the costs associated with any claims paid by
the Manager as an insurer under such self-insurance.
Exhibit A to Management Services Agreement, Page 4 of 5
3.10 Permits, Licenses and Bond. Cost of permits, licenses and bond premiums
necessary in the performance of the Manager's duties on behalf of Pipeline
as herein contemplated.
3.12 Administrative and General and Overhead Costs. Administrative and general
and overhead costs, including salaries and wages, bonuses and expenses of
personnel of the Manager and/or the Manager's affiliates (excluding the
personnel referred to in Section 3.02 of this Article III) who render
services for the benefit of the Manager (in the performance of its
obligations hereunder) or Pipeline, office supplies and expenses, office
rentals and other space costs, less the value of such costs made available
to Manager by Pipeline
3.11 Changes in Cost Determination and Allocation. The Manager may request a
change in the cost components or the determination of the cost components
set forth in this Exhibit A. Any requested change in a cost component or in
the determination of a cost component must be reviewed and approved by
Pipeline prior to the implementation of such change by the Manager.
End of Exhibit A
Exhibit A to Management Services Agreement, Page 5 of 5