Exhibit 10.2
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 North Baja Pipeline, LLC, a
Delaware Limited Liability Company ("Pipeline").
WHEREAS, Pipeline is
in the process of developing, and will own and operate, a
FERC-regulated interstate natural gas pipeline extending from an
interconnection with El Paso Natural Gas near Ehrenberg, Arizona to
an interconnection with Gasoducto Bajanorte near the U.S.-Mexico
border between Yuma, Arizona and Mexicali, Baja California,
Mexico;
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:
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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.
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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.
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Manager's Specific Duties .
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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:
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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.
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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.
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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.
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Review from time to time the services offered
by Pipeline, and recommend and implement improvements or additions
to such service.
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Prepare financing plans for Pipeline and
negotiate financing commitments, if any, to be entered into by
Pipeline, subject to final approval by Pipeline.
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Negotiate and execute contracts for the
purchase of services, materials, equipment and supplies necessary
for the operation of Pipeline.
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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 construction, operation and maintenance of the
Facilities, and resist the perfection of any involuntary liens
against Pipeline property.
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Construct and install, or cause to be
constructed and installed, facilities necessary for the safe and
efficient operation of Pipeline, including expansions thereto.
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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.
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Maintain accurate and itemized accounting
records for the operation of the Pipeline, together with any
information reasonably required by Pipeline relating to such
records.
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Prepare financial reports.
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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.
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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.
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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.
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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 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.
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Receive requests for service from shippers and
potential shippers and issue confirmations for service in
accordance with Pipeline's FERC Gas Tariff.
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Recommend and establish guidelines for sale of
capacity, including sales at discount and/or negotiated rates on a
non-discriminatory basis.
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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.
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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.
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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.
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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.
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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.
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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 Manager's responsibilities under this Management
Services Agreement.
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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.
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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).
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Employees, Consultants and
Subcontractors .
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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 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.
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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.
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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.
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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 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.
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Financial and Accounting.
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Accounting and Compensation
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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.
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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.
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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.
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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 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.
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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.
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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.
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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.
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Indemnification Notices
. Whenever a party entitled to indemnification under
Section 8.1 or 8.2 of this Management Services Agreement (an
"Indemnitee") shall learn
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