TAX ALLOCATION AGREEMENT
By and Between
ALLEGHENY ENERGY, INC.
and its Subsidiaries
Dated as of July 31, 2003
AGREEMENT dated as of July 31, 2003 (this "Agreement"), among ALLEGHENY
ENERGY, INC. (hereinafter called the "Parent Company") and the other undersigned
companies (hereinafter called the "Subsidiary Companies"), collectively referred
to hereinafter as "the parties."
WHEREAS, the Parent Company, by its corporate predecessor, Allegheny
Power System, Inc., and its subsidiaries were parties to an agreement dated June
13, 1963 (the "Original Agreement"), concerning the allocation of Federal income
tax liabilities among them as a consolidated group; and
WHEREAS, changes had been made in the Public Utility Holding Company
Act of 1935 ("PUHCA") and regulations promulgated thereunder since 1963 which
affected the content of the Original Agreement; and
WHEREAS, an agreement superseding the Original Agreement and dated as
of November 3, 1993 ("the 1993 Agreement"), incorporated the said changes in the
law and regulations; and
WHEREAS, the parties wish to include allocation of state and local
income tax liabilities computed on a consolidated, combined or unitary basis in
this Agreement;
NOW, THEREFORE, the parties hereto hereby mutually agree that:
1. The Parent Company shall continue to make and file on behalf of
itself and the Subsidiary Companies a consolidated Federal income tax return and
state and local income tax returns computed on a consolidated, combined or
unitary basis for each year for which such a return is required by law to be
filed. The Parent Company and the Subsidiary Companies also may elect to file
consolidated, combined or unitary income tax returns in jurisdictions where such
a return is permitted, but not required, to be filed.
2. A. (1) The allocation of the "Consolidated Tax" shall be made among
the parties hereto in compliance with the provisions of Rule 45(c)(5)
promulgated under PUHCA as follows:
(i) the amount of the Consolidated Tax before
giving effect to any credit which had been provided for in the
Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code") or in the West Virginia Corporation Net Income Tax Act, West
Virginia Code 11-24-1 et seq., or any other similar provision in any
tax jurisdiction, or any similar provision thereafter enacted shall be
allocated in accordance with the method of allocation prescribed in
subparagraph (a)(1) of Section 1552 of the Internal Revenue Code;
(ii) the amount of the Consolidated Tax allocated to
any Subsidiary Company shall not exceed the Separate Return Tax of such
company for such year computed as if such company had always filed its
returns on a separate return basis; and
(iii) any amount of the Consolidated Tax that would
be allocated to a Subsidiary Company but for subclause (ii) of this
clause shall be allocated among the other parties in direct proportion
to the difference between their Separate Return Tax and the respective
amounts allocated to them under this clause.
(2) The Consolidated Tax to be allocated to each
Subsidiary Company shall include (in addition to the amount allocated
under clause (1) of this Subsection) the excess, if any, of the
Separate Return Tax of such company for such year over the respective
amount allocated to such company under clause (1) of this Subsection.
B. Appropriate and equitable adjustment of the allocation
specified in Subsection A of this section shall be made if the sum of
the Separate Return Taxes of all of the parties hereto in any taxable
year differs from the Consolidated Tax because of intercompany
transactions excluded from the consolidated, combined or unitary income
tax return. Appropriate and equitable adjustment of the allocation
specified in Subsection A of this section shall be made to the extent
that the Consolidated Tax and the Separate Return Tax for any year
include material items taxed at different rates or involving other
special benefits or limitations. Notwithstanding the foregoing, in no
event will the amount of the Consolidated Tax allocated to any
Subsidiary Company exceed its Separate Return Tax.
C. Each Subsidiary Company that is allocated a tax liability
under Subsection A hereof in any tax year to which this Agreement
applies will pay to Parent Company the amount so allocated within 15
days following the filing of the tax return to which the allocation
relates, and each Subsidiary Company that is being compensated for the
Corporate Tax Credit under Subsection E hereof will receive current
payment from Parent Company for such Corporate Tax Credit within 15
days following the filing of the tax return on which such Corporate Tax
Credit is generated. If the consolidated, combined or unitary Corporate
Tax Credit, as the case may be, is too large to be used in full in any
tax year, payments for such Corporate Tax Credit shall be apportioned
on a pro rata basis among, and uncompensated benefits shall be carried
over by, the Subsidiary Companies contributing to such Corporate Tax
Credit, in compliance with the provisions of Rule 45(c)(5) promulgated
under PUHCA and in accordance with the principles established by the
Treasury regulations under section 1502 of the Internal Revenue Code of
1986 (including sections 1.1502-3, -4 and -21 of such Treasury
regulations).
D. Any Corporate Tax Credit of the Parent Company shall be
allocated among the parties hereto which are in a tax liability
position. Any tax liability of the Parent Company shall be paid by the
Parent Company.
E. The amount allocated to each party pursuant to Subsection A
of this Section shall be decreased (including, for the avoidance of any
doubt, below zero) by an amount equal to the Corporate Tax Credit of
such party used in computing Consolidated Tax. In the event that the
Corporate Tax Credit of any party exceeds the amount of Consolidated
Tax allocated to such party under Subsection A hereof, the excess shall
be paid to each such party for each such party's allocable share out of
the total of the amounts allocated to, and received from, other parties
pursuant to Subsection A and in accordance with the procedure set forth
in Subsection C hereof. Parent Company shall pay each Subsidiary
Company, in accordance with Subsection C hereof, for such Subsidiary
Company's allocable share of any tax savings obtained by Parent Company
from its use of the Corporate Tax Credit of such Subsidiary Company in
computing its tax liability.
F. Allocation of the Consolidated Tax hereunder shall conform
in all pertinent respects with Section 12(b) of the Public Utility
Holding Company Act of 1935 and regulations promulgated thereunder,
including particularly Reg. ss.250.45(c) thereof.
3. Capitalized terms used in this Agreement and not otherwise defined
shall have the following meaning:
"Consolidated Tax" is the aggregate tax liability of the parties hereto
for a tax year, being the tax shown on each consolidated, combined or unitary
return filed by all or some of the parties, and any adjustments thereto
thereafter determined. The Consolidated Tax will be the refund if the
consolidated, combined or unitary return, as the case may be, shows a negative
tax.
"Corporate Tax Credit" is a negative Separate Return Tax of any party
for a tax year, equal to the amount by which the Consolidated Tax is reduced by
including a net corporate tax loss, or other net tax benefit of such party on
the consolidated, combined or unitary tax return. The Corporate Tax Credit shall
include net operating, capital or other loss, investment tax credit, foreign tax
credit or other credit of such party.
"Corporate Taxable Income" is the income or loss of any party for a tax
year, computed as though such party had filed a separate return on the same
basis as used in the consolidated, combined or unitary tax return, except that
dividend income from parties hereto that is not included in the gross income of
a party receiving such income shall be disregarded, and other intercompany
transactions eliminated in the consolidated, combined or unitary return shall be
given appropriate effect. It shall be further adjusted to allow for applicable
rights accrued to such party under Rule 45(c) promulgated under PUHCA, on the
basis of other tax years, but carryovers or carrybacks shall not be taken into
account if the party has been compensated therefor. If a party is a member of
the Parent Company's consolidated, combined or unitary tax group for only part
of a tax year, that period will be deemed to be in its tax year for all purposes
of this Agreement.
"Separate Return Tax" is the tax on the Corporate Taxable Income of any
party computed as though such party were not a member of a consolidated,
combined or unitary group.
4. Parent Company shall cause its subsidiaries (including any
subsidiary acquired by Parent Company after the date hereof) to become parties
to this Agreement, and shall make (or cause to be made) all necessary elections,
filing and payments that are required for purposes of calculating income tax
liabilities on a consolidated, combined or unitary basis as contemplated by this
Agreement.
5. This Agreement cancels and supersedes as of the date hereof the
agreement dated as of January 1, 2001 and all of its amendments, and for the
avoidance of any doubt, shall apply in respect of all taxes paid and/or tax
refunds received from and after the date of this Agreement without regard to the
tax year to which such payments or refunds apply.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed.
ACADIA BAY ENERGY COMPANY, LLC
By _______________________________
Title _______________________________
AFN FINANCE COMPANY NO. 2, LLC
By _______________________________
Title _______________________________
ALLEGHENY COMMUNICATIONS CONNECT, INC.
By _______________________________
Title _______________________________
ALLEGHENY COMMUNICATIONS CONNECT
OF OHIO, LLC
By _______________________________
Title _______________________________
ALLEGHENY COMMUNICATIONS CONNECT OF PENNSYLVANIA, LLC
By _______________________________
Title _______________________________
ALLEGHENY COMMUNICATIONS CONNECT OF VIRGINIA, INC.
By _______________________________
Title _______________________________
ALLEGHENY COMMUNICATIONS CONNECT
OF WEST VIRGINIA, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY, INC.
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SERVICE
CORPORATION
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SOLUTIONS, INC.
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY CAPITAL
MIDWEST, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY CAPITAL, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY COMPANY, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY
CONEMAUGH FUELS, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY
CONEMAUGH, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY
DEVELOPMENT SERVICES, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY XXXXXXX
GENERATING FACILITY, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY HUNLOCK
CREEK, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY LINCOLN
GENERATING FACILITY, LLC
By _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY
XXXXX 0, 0 & 0, XXX
Xx _______________________________
Title _______________________________
ALLEGHENY ENERGY SUPPLY WHEATLAND
GENERATING FACILITY, LLC
By _______________________________
Title _______________________________
ALLEGHENY GENERATING COMPANY
By _______________________________
Title _______________________________
ALLEGHENY PITTSBURGH COAL COMPANY
By _______________________________
Title _______________________________
ALLEGHENY TRADING FINANCE COMPANY
By _______________________________
Title _______________________________
ALLEGHENY VENTURES, INC.
By _______________________________
Title _______________________________
AYP ENERGY, INC.
By _______________________________
Title _______________________________
XXXXXXXX ENERGY COMPANY OF
VIRGINIA, LLC
By _______________________________
Title _______________________________
ENERGY FINANCING COMPANY, L.L.C.
By _______________________________
Title _______________________________
GREEN VALLEY HYDRO, LLC
By _______________________________
Title _______________________________
LAKE ACQUISITION COMPANY, L.L.C.
By _______________________________
Title _______________________________
MONONGAHELA POWER COMPANY
By _______________________________
Title _______________________________
MOUNTAINEER GAS COMPANY
By _______________________________
Title _______________________________
MOUNTAINEER GAS SERVICES, INC.
By _______________________________
Title _______________________________
PE TRANSFERRING AGENT, LLC
By _______________________________
Title _______________________________
THE POTOMAC EDISON COMPANY
By _______________________________
Title _______________________________
WEST PENN FUNDING CORPORATION
By _______________________________
Title _______________________________
WEST PENN FUNDING LLC
By _______________________________
Title _______________________________
WEST PENN FUNDING, LLC - WEST
By _______________________________
Title _______________________________
WEST PENN POWER COMPANY
By _______________________________
Title _______________________________
WEST PENN TRANSFERRING AGENT LLC
By _______________________________
Title _______________________________
WEST PENN WEST VIRGINIA WATER AND POWER COMPANY
By _______________________________
Title _______________________________
WEST VIRGINIA POWER AND TRANSMISSION COMPANY
By _______________________________
Title _______________________________
