Service Level Agreement

Exhibit 10.28


Service Level Agreement Construction and Maintenance/Engineering/System Operations


This Service Level Agreement (the " Agreement" ) is made and entered into this 28th day of February, 2003, by and between The Detroit Edison Company, a Michigan corporation (" Detroit Edison" ) and International Transmission Company, LLC, a Michigan limited liability company (" ITC" ). Detroit Edison and ITC are each referred to herein as a " Party" and collectively as, the " Parties."


RECITALS


WHEREAS , ITC owns certain assets and properties located within the service territory of Detroit Edison in southeastern Michigan (the " Transmission Assets" ) and performs certain functions constituting or used primarily in the provision of non-discriminatory, open-access electric transmission service (the " Transmission Business" ); and


WHEREAS , ITC desires to purchase and Detroit Edison is willing to furnish certain construction and maintenance, engineering and planning and system operations services upon the terms and conditions hereinafter set forth; and


NOW, THEREFORE , in consideration of the mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, Detroit Edison and ITC agree as follows:


1. Services .


(a) ITC hereby engages Detroit Edison, and Detroit Edison hereby accepts such engagement, to provide certain construction and maintenance services (the " C&M Services" ), engineering services (the " Engineering Services" ) and system operations services (the " SO Services," and collectively with the C&M Services, and the Engineering Services, the " Services" ) for ITC with respect to the Transmission Assets and the Transmission Business, in accordance with the terms and conditions set forth in this Agreement. In addition, as and when requested by ITC, ITC hereby engages Detroit Edison, and Detroit Edison hereby accepts such engagement and agrees to use commercially reasonable efforts (provided that such efforts shall not require any material system modification), to the extent permitted by applicable law or regulation and consistent with Detroit Edison' s existing resources, to provide any transition design, planning and implementation services relating to the Services provided hereunder reasonably requested by ITC to ITC in accordance with the terms and conditions and for the consideration set forth in this Agreement.


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(b) A description of the C&M Services to be provided is set forth on Schedule A attached hereto, a description of the Engineering Services to be provided is set forth on Schedule B attached hereto, and a description of the SO Services to be provided is set forth on Schedule C attached hereto. Schedule A , Schedule B and Schedule C may be amended from time to time by mutual agreement of the Parties, and/or additional schedules which document the specific C&M Services, Engineering Services or SO Services which Detroit Edison will provide for ITC may be added to this Agreement from time to time by mutual agreement of the Parties. Schedule A , Schedule B and Schedule C , and such additional schedules, if any, are collectively referred to herein as the " Schedules." Upon the amendment and/or addition of any such Schedules, the term " C&M Services," " Engineering Services" or " SO Services," as applicable, and the term " Services" shall be amended and modified to reflect such amendment and/or addition. The Schedules are hereby incorporated by reference into this Agreement, provided however, that in the event of a conflict between any Schedule and the terms of this Agreement, this Agreement shall govern. Detroit Edison (i) shall, except as otherwise provided in this Agreement (including the Schedules hereto), perform all Services with respect to any Transmission Assets or any portion of the ITC transmission system located within the geographical boundaries of the ITC transmission system existing as of the date of this Agreement, as indicated by a map of such territory provided to ITC prior to the date of this Agreement and appended hereto in Attachment No. 1(b) (the " Territory" ), and (ii) unless otherwise mutually agreed in writing, shall not be obligated to perform any Services with respect to any Transmission Assets or any portion of the ITC transmission system located outside of such Territory.


(c) Except as otherwise provided in this Agreement (including the Schedules hereto), ITC shall obtain its requirements for the Services within the Territory from Detroit Edison, and shall not obtain such Services within the Territory from any person or entity other than Detroit Edison, during the term of this Agreement.


(d) Each of the Parties and their affiliates, employees and Subcontractors providing Services pursuant to this Agreement, shall comply with the requirements of the Open-Access Same-Time Information System (" OASIS" ) standard of conduct procedures developed by ITC and Detroit Edison, and accepted by FERC pursuant to 18 C.F.R. Part 37.4 (2000).


2. Manner and Time of Performance of Services .


(a) Detroit Edison shall perform, or cause to be performed, the Services in accordance with the terms of this Agreement.


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(b) Detroit Edison may subcontract some or all of the Services to any subcontractor set forth on Exhibit 1 attached hereto and incorporated herein by reference or to any other subcontractor approved in writing by ITC (any such subcontractor being referred to herein as a " Subcontractor" ), or, to the extent required by any law, regulation or licensing requirement, cause some or all of the Services to be provided through an affiliate of Detroit Edison duly licensed to perform such Services. For purposes of this Agreement, no contractual relationship will exist between ITC and any such Subcontractor or any affiliate of Detroit Edison. In all cases under this subsection (b), Detroit Edison will remain responsible for the performance of its obligations hereunder.


(c) Detroit Edison will require all persons performing the Services to comply with all generally applicable policies, procedures and directives of Detroit Edison, including security, environmental protection, employee health and safety, sexual harassment, access, use of alcohol and controlled substances, and similar activities.


3. ITC Responsibilities .


(a) ITC agrees to cooperate with, and to assist and support, Detroit Edison in connection with the performance of the Services.


(b) To the extent that access to the Transmission Assets or other property or facilities of ITC, or to the personnel of ITC, is at any time reasonably necessary or appropriate in connection with the performance of the Services, ITC agrees to grant such access to Detroit Edison and its Subcontractors and representatives. Detroit Edison shall not be responsible for any loss, damage, fine, penalty, cost, expense, delay, interruption, breach, non-performance or other failure of any of the Services to the extent resulting from or arising out of or in connection with any failure by ITC to provide access to its property, facilities or personnel in connection with the performance of the Services.


4. Compensation .


(a) As consideration for the Services, ITC shall pay to Detroit Edison the following amounts:


(i) for all Services performed by personnel of Detroit Edison and its affiliates, all verifiable direct and indirect costs (including but not limited to all such costs of labor, benefits, materials, storage and transportation) allocated in accordance with the same methodology employed historically by Detroit Edison in connection with the


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provision of services to affiliated entities and business units, prior to the allocation of overhead costs in the manner described in subsection (iii) below, incurred in performing the Services, subject to subsection (v), below;


(ii) for all Services performed by Subcontractors not affiliated with Detroit Edison, an amount equal to all costs invoiced to and paid by Detroit Edison arising under such subcontracts, subject to subsection (v), below;


(iii) an additional overhead cost fee equal to 25% of the amount determined pursuant to subsections (i) and (ii) above, subject to subsection (v), below; and


(iv) an additional fee equal to 9.5% of the amounts determined pursuant to subsections (i), (ii) and (iii) above (the " Fee" ), subject to subsection (v), below.


(b) On a monthly basis, Detroit Edison shall submit to ITC a detailed, itemized invoice (an " Invoice" ) setting forth the Services provided to ITC during the previous month and any outstanding reimbursable expenses or charges incurred by Detroit Edison hereunder and the amount payable by ITC for such Services and expenses or charges pursuant to this Agreement.


(c) Subject to subsections (e) and (f) below, ITC shall pay any amount payable to Detroit Edison hereunder in full within thirty (30) days of receipt of the applicable Invoice.


(d) Any applicable federal, state and local sales, excise, ad valorem, use or similar taxes, if any, imposed in connection with the Services, except for federal, state and local income taxes payable by Detroit Edison based on net income, will be reimbursed by ITC.


(e) To the extent that amounts charged by Detroit Edison, in the aggregate, for all Services other than capital projects and Services incidental thereto (such Services being referred to herein as " O&M Services" ) performed during any calendar year during the term of this Agreement, at a volume and frequency up to the " Baseline Service Level" (as defined below), exceed $15.9 million in 2003 or $16.3 million in 2004 (the " Baseline Charges" ) (the amount by which actual charges for O&M Services performed up to the Baseline Service Level during an applicable calendar year exceed the Baseline Charges for such calendar year being referred to herein as " Excess Annual Charges" ), then, at ITC' s option, payment of any such Excess Annual Charges shall be deferred until June 1, 2006, without interest or return thereupon. One-fifth of the total Excess Annual Charges


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so deferred shall be paid on June 1 of each of 2006, 2007, 2008, 2009 and 2010. Amounts due with respect to such deferred Excess Annual Charges after June 1, 2006 shall bear simple interest from June 2, 2006 to, but not including, the date of payment at the LIBOR rate for one-year deposits quoted on the date of payment through customary sources identified by ITC. Notwithstanding the foregoing, ITC shall not be entitled to defer payment of any charges arising from the performance by Detroit Edison of O&M Services requested by ITC at a volume or frequency in excess of the Baseline Service Level, whether or not reflected in the applicable budgets for all Services to be performed during such calendar year established by the Parties in accordance with the Schedules (collectively, the " Budgets" ), including, without limitation, any charges arising from the performance by Detroit Edison of O&M Services necessitated by catastrophic storms or other catastrophic events. The applicable Baseline Service Level and corresponding amount of Baseline Charges shall be prorated, as appropriate, to reflect any partial calendar year occurring during the term of this Agreement. The term " Baseline Service Level," as used herein, shall refer to a volume and frequency of O&M Services comparable or equivalent in the aggregate to the volume and frequency of all such O&M Services provided by Detroit Edison to ITC in the Budgets for the 2002 calendar year.


(f) To the extent that ITC requests that Detroit Edison perform O&M Services during any calendar year during the term of this Agreement, at a volume or frequency in excess of the Baseline Service Level, and the amount charged by Detroit Edison, in the aggregate, for all O&M Services performed during such calendar year above the Baseline Service Level and up to the " Budgeted Service Level" (as defined below), exceeds the total amount of charges forecasted in the Budgets to be charged for all O&M Services to be performed during such calendar year above the Baseline Service Level and up to the Budgeted Service Level (the " Budgeted Charges" ) (the amount by which actual charges for O&M Services performed above the Baseline Service Level and up to the Budgeted Service Level during an applicable calendar year exceed the Budgeted Charges for such calendar year being referred to herein as " Budget Excess Charges" ), then, at ITC' s option, payment of all such Budget Excess Charges shall be deferred until June 1, 2006, without interest or return thereupon. One-fifth of the total Budget Excess Charges so deferred shall be paid on June 1 of each of 2006, 2007, 2008, 2009 and 2010. Amounts due with respect to such deferred Budget Excess Charges after June 1, 2006 shall bear simple interest from June 2, 2006 to, but not including, the date of payment at the LIBOR rate for one-year deposits quoted on the date of payment through customary sources identified by ITC. Notwithstanding the foregoing, ITC shall not be entitled to defer payment of any charges arising from the performance by Detroit Edison of O&M Services requested by ITC at a


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volume or frequency in excess of the Budgeted Service Level or any O&M Services not set forth in the applicable Budget, including without limitation, any charges arising from the performance by Detroit Edison of O&M Services necessitated by catastrophic storms or other catastrophic events. The term " Budgeted Service Level," as used herein, shall refer to a volume and frequency of O&M Services comparable or equivalent in the aggregate to the volume and frequency of all such O&M Services forecasted in the applicable Budgets.


(g) Any amount not paid by ITC when due hereunder shall bear interest at a rate equal to the prime rate, as reported in the Wall Street Journal on the last business day of the month in which the applicable Invoice was received, plus two (2) percent per annum (or, if lower, the highest rate permitted by applicable law) accrued from the due date of such payment until such payment is actually received by Detroit Edison. Such interest charges shall not be applied to any amounts deferred by ITC pursuant to subsections 4(e) and 4(f) above until after June 1, 2006.


5. Books and Records . Detroit Edison shall keep records and books of account showing all charges, disbursements or expenses made or incurred by it in performing the Services and shall preserve such records and books of account for a period of three (3) years following incurrence of such expenses, or longer if required by applicable law.


6. Access to Records . ITC, directly or through authorized representatives, shall at all times during reasonable business hours have access to and the right to audit, inspect and make copies of any and all books, records and accounts, invoices, contracts, canceled checks, payrolls and other documents and papers of every kind held by Detroit Edison pertaining to the performance of the Services and all charges, disbursements and expenses made or incurred by Detroit Edison in performing the Services and all information related to the calculation of overhead costs by Detroit Edison.


7. Term .


(a) The term of this Agreement shall commence as of March 1, 2003 and shall continue for a period of twelve (12) months thereafter, unless earlier terminated pursuant to the terms of this Agreement.


(b) This Agreement, or the provision of any portion of the Services by Detroit Edison hereunder, may be terminated at any time upon the mutual written consent of Detroit Edison and ITC.


(c) Notwithstanding anything else set forth herein, ITC may, at any time, for any reason or no reason, terminate the provision by Detroit Edison of any


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portion of the Engineering Services that ITC elects to perform through its own employees upon not less than thirty (30) days' prior written notice to Detroit Edison; provided that the Parties shall cooperate in good faith (i) if applicable, to implement a mutually agreeable plan for the transition to ITC of such services, and (ii) to amend the Schedules as necessary or appropriate to reflect the termination of the provision by Detroit Edison of such Services.


(d) Upon expiration or termination of this Agreement (or any applicable portion thereof) for any reason, ITC shall promptly pay to Detroit Edison all amounts owing to Detroit Edison for Services performed or reimbursable expenses incurred as provided herein prior to such expiration or termination.


(e) Sections 4, 7(d), 8, 9, 10, and 12 shall survive any expiration or termination of this Agreement with respect to the provision of any of the Services.


8. Confidentiality .


(a) In recognition of the other Party' s need to protect its legitimate business interests, each Party hereby covenants and agrees that it shall regard and treat each item of information or data constituting " Confidential Information" (as defined below) of the other Party as strictly confidential and wholly owned by such other Party and that it will not (i) distribute, disclose, reproduce or otherwise communicate any such item of information or data to any person or entity or (ii) use any such item of information or data for any purpose other than in accordance with the terms of this Agreement or other agreements between the Parties and in connection with its performance thereof. For purposes of this Agreement, " Confidential Information" shall mean the proprietary and confidential data or information of a Party which is of tangible or intangible value to such Party and is not generally known by or available to the competitors of such Party. Notwithstanding the foregoing, Confidential Information shall not include information which: (i) at the time of disclosure to the receiving Party is in the public domain or thereafter enters the public domain through no wrongful act or omission of the receiving Party; (ii) is already known by the receiving Party at the time of disclosure by the disclosing Party and such information is not otherwise subject to confidentiality obligations of the receiving Party; (iii) is available to the receiving Party at the time of disclosure by the disclosing Party from a third party who, to the receiving Party' s knowledge, may disclose such information without violation of any confidentiality obligation or (iv) is required to be made public by " posting" or other procedure by law or regulation.


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(b) Notwithstanding the foregoing, each Party may disclose Confidential Information of the other Party to those of its officers, directors, employees, agents, independent contractors and advisors who need to know such Confidential Information in order to carry out the purposes and intent of this Agreement; provided, however, that any such disclosure shall be consistent and compliant with all rules, requirements and procedures of the FERC and any other applicable regulatory authority, including without limitation the OASIS standard of conduct procedures developed by ITC and accepted by FERC pursuant to 18 C.F.R. Part 37.4 (2000), as amended from time to time. Each Party shall be responsible for ensuring the continued confidentiality of all Confidential Information of the other Party known by, disclosed or made available to such of its officers, directors, employees, agents, independent contractors and advisors in connection with this Agreement, including, without limitation, instructing its officers, employees, independent contractors, agents and advisors to maintain the confidentiality of such Confidential Information.


(c) If a Party becomes legally compelled to disclose any Confidential Information of the other Party (whether by judicial or administrative order, applicable law, rule or regulation, or otherwise), or to the extent disclosure of Confidential Information directly related to the rates, terms or conditions of the performance of the Services is required in the context of any regulatory proceeding, including without limitation any rate case before the Federal Energy Regulatory Commission under Sections 205 or 206 of the Federal Power Act, such Party will use all reasonable efforts to provide the other Party with prior notice thereof so that the other Party may seek a protective order or other appropriate remedy to prevent such disclosure. If such protective order or other remedy is not obtained prior to the time such disclosure is required, such Party will only disclose that portion of such Confidential Information which it is legally required to disclose.


(d) Upon termination or expiration of this Agreement, or promptly upon receipt of written notice from the other Party, each Party shall return to the other Party all copies, versions or abstracts of written or descriptive materials of any kind that contain or discuss any Confidential Information of such other Party, and the confidentiality obligations of this Agreement shall continue in full force and effect for a period of three years.


(e) Each Party expressly understands and agrees that the covenants and agreements set forth in this Section 8 are special, unique, and of an extraordinary character, and in the event of any default, breach or threatened breach hereof by such Party, the other Party shall be entitled, if it so elects, to institute and prosecute proceedings in any court of


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competent jurisdiction, either at law or in equity, and shall be entitled to such relief as may be available to it pursuant hereto, at law or in equity. All such rights and remedies shall be cumulative, and none of them shall limit any other rights or remedies of either Party.


9. Limitation of Liability .


(a) NEITHER ITC NOR DETROIT EDISON SHALL BE LIABLE HEREUNDER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING LOSS OF BUSINESS OR PROFITS, WHETHER BASED UPON BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY, TORT OR ANY OTHER LEGAL THEORY, AND WHETHER OR NOT DETROIT EDISON OR ITC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.


(b) IN NO EVENT (OTHER THAN ONE INVOLVING DETROIT EDISON' S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) WILL DETROIT EDISON' S LIABILITY TO ITC FOR ANY AND ALL CLAIMS RELATED TO OR ARISING OUT OF THIS AGREEMENT OR THE PERFORMANCE OF THE SERVICES EXCEED THE FEE (AS DEFINED IN SECTION 4(a)(iii)) ASSOCIATED WITH THE PORTION OF THE SERVICES OUT OF WHICH THE CLAIM AROSE.


10. Limited Warranty, Exclusions of Warranties and Limited Remedy .


(a) Detroit Edison will perform the Services (i) in accordance with all performance standards set forth in the Schedules, and (ii) with at least the same degree of care, skill and diligence with which it currently performs or has in the past performed similar services for or with respect to the Transmission Assets.


(b) If any of the Services fails to comply with the warranty set forth in Section 10(a), ITC shall give notice of such failure to Detroit Edison not later that one year after such Services were performed. Detroit Edison shall have the right, within thirty (30) days after receipt of any such notice, to dispute any assertion by ITC that Detroit Edison' s performance of the Services fails to comply with such warranty, and such dispute shall be submitted to the dispute resolution procedures set forth in Section 12. In the event that it is ultimately determined (by mutual agreement, arbitration, or a final, non-appealable judgment of a court of competent jurisdiction) that any of the Services fail to comply with the warranty set forth in Section 10(a), then at ITC' s sole option, Detroit Edison will re-perform such Services at no additional cost to ITC or will fully compensate ITC for all reasonable


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and verifiable costs of remedial work performed by third party contractors necessary to correct such failure. All liabilities and obligations of Detroit Edison arising out of or related to any of the Services shall cease one year after which such Services were performed; provided, however, that in the event any claim on the part of ITC for a breach of the warranty set forth in Section 10(a) is time barred as a result of this sentence, Detroit Edison shall, if permissible, assign to ITC its rights, and if such assignment is impermissible, shall itself pursue any warranty claims against any applicable Subcontractor(s) to the extent, and only to the extent, that such rights arise solely out of such Subcontractors' performance of the applicable Services giving rise to ITC' s claim.


(c) THE ONLY WARRANTY CONCERNING THE SERVICES IS SET FORTH IN SECTION 10(a). ALL OTHER WARRANTIES WITH RESPECT TO THE SERVICES OR ANY LABOR, PARTS OR MATERIALS PROVIDED IN CONNECTION THEREWITH, EXPRESS OR IMPLIED, ARE EXCLUDED, INCLUDING THE IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FO ...