Exhibit D
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARY COMPANIES
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Federal and State Income Tax Allocation Agreement
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Pursuant to Rule 45(c),
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Public Utility Holding Company Act of 1935
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This Agreement originally dated as of January 1, 1981, and revised as of
January 1, 1982, January 1, 1991, January 1, 1992, January 1, 1993, and
January 1, 1996 by and between NEW ENGLAND ELECTRIC SYSTEM, a registered
holding company, and its subsidiary or affiliated companies which participate
together in the filing of a consolidated U.S. Corporation Income Tax Return
and/or consolidated, combined or unitary state income tax returns, provides
for the allocation of consolidated federal income taxes and consolidated,
combined or unitary state income taxes for 1981 and subsequent years pursuant
to Rule 45 (c) of the Securities and Exchange Commission promulgated under the
Public Utility Holding Company Act of 1935.
It is agreed by the companies that have executed this Agreement to
allocate the consolidated, combined and unitary income tax liabilities, for
1981 and subsequent years in accordance with the following provisions.
1. Definitions
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A. Corporate Tax Credit - The negative separate return tax of an
associate company for a tax year equal to the amount by which the
consolidated or combined tax is reduced by including a net
corporate tax loss or other net tax benefit in the consolidated or
combined return.
B. Separate Return Tax - The tax on the corporate taxable income of an
associate company computed as though such company were not a member
of the consolidated or combined return group.
C. Excess Tax Credits - The investment tax credit, or other credit
that would be allowable were it not for a limitation provided by
law in excess of the amount of such credits computed on a separate
return basis with regard to such limitations.
D. Consolidated Alternative Minimum Tax - The tax imposed by Internal
Revenue Code Section 55(a) equal to the excess of the tentative
minimum tax for the taxable year over the regular tax for the
taxable year, computed on a consolidated basis.
E. Minimum Tax Credit Carryforward - The sum of the annual amounts of
alternative minimum tax (AMT) allocated to a company less the sum
of the minimum tax credits utilized in prior years.
F. Hydro-Quebec Phase I and II Companies - The Phase I company is New
England Electric Transmission Corporation (NEET). The Phase II
companies are New England Hydro-Transmission Corporation, New
England Hydro-Transmission Electric Co., Inc. And New England Hydro
Finance Company, Inc.
2. Allocation Procedures for Federal Income Tax Liability
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A. General Rule - The consolidated tax on ordinary taxable income
shall be allocated among the companies participating in the
consolidated return in proportion to the corporate ordinary taxable
income, whether positive or negative, of each company. The
consolidated capital gains tax, if any, shall be allocated among
the companies in proportion to corporate capital gains or losses of
each company. Investment tax credits (net of recapture of prior
years credits), jobs credits, research and experimental credits,
motor fuels credits, and other similar credits allowable in the
computation of the consolidated tax shall be allocated to the
companies generating such credits. The consolidated AMT, if any,
shall be allocated among the companies in proportion to the excess
of each company's separate AMT over its allocated regular tax to
the combined total of such excess amounts. The consolidated
minimum tax credit shall be allocated as provided in paragraph E.
Those associate companies with a positive allocation shall pay the
amount allocated and those subsidiary companies with a negative
allocation shall receive payment of their corporate tax credits.
Any remaining funds shall be allocated among the companies in the
ratio by which the positive corporate ordinary taxable income of
each company having such income bears to the total positive
corporate ordinary taxable incomes of all companies.
In no event shall the tax allocated to any subsidiary company
exceed the separate return tax of such company.
B. Special Rule - If the total of the corporate tax credits of those
companies having negative taxable incomes and/or excess tax credits
is greater than the total reduction in the consolidated tax because
of the inclusion of such losses and/or credits, then corporate tax
credits arising from inclusion of negative taxable incomes in the
consolidated return shall be recognized and paid prior to corporate
tax credits arising from excess tax credits. If the total negative
taxable income of those subsidiary companies with negative taxable
incomes is not fully applied in the consolidated return, then the
corporate tax credit of each company shall be in proportion to the
total reduction in consolidated tax liability from such negative
income as the negative taxable income of each company bears to the
total negative taxable incomes of all companies. Similarly, if the
total excess tax credits of those subsidiary companies with excess
tax credits is not fully applied in the consolidated return, the
corporate tax credit arising from excess tax credits of each
company shall be in proportion to the total reduction in
consolidated tax liability from such excess tax credits as the
excess tax credit of each company bears to the total excess tax
credits of all companies.
C. Unused Corporate Tax Credits - A subsidiary company that is
entitled to a corporate tax credit but does not receive such
payment because of the special rule in paragraph B shall retain
such right for the future as long as and to the extent that such
credit can be applied against the consolidated tax liability.
Uncompensated corporate tax credits arising from negative taxable
incomes shall have priority over excess tax credits.
D. New England Electric Transmission Corporation Rule -
Notwithstanding any other provisions herein, NEW ENGLAND ELECTRIC
TRANSMISSION CORPORATION (NEET) shall be paid, in lieu of any
payments for its corporate tax credits, the amount, if any, by
which the consolidated tax liability determined without the
inclusion of NEET in the consolidated return exceeds the actual
consolidated tax liability, all in accordance with the Phase I
Terminal Facility Support Agreement, dated as of December 1, 1981,
and amended as of June 1, 1982, November 1, 1982 and January 1,
1986.
E. Minimum Tax Credit - The minimum tax credit, in a year of
consolidated credit utilization, shall be tentatively allocated
among the companies participating in the consolidated return in an
amount equal to the lesser of (1) each company's separate minimum
tax credit carryforward or (2) the excess of its allocated regular
tax over its separate AMT. If the total of such tentative minimum
tax allocations exceeds the available consolidated credit for the
taxable year, then the minimum tax credit allocation is made in
proportion to the separate company positive excess amount to the
combined total of all such amounts. If the tentative allocation is
less than the consolidated minimum tax credit utilized, the
difference between the consolidated credit utilization and the
total of the tentative allocations shall be allocated to those
companies in proportion to each company's remaining minimum tax
credit carryforward to the combined total of such carryforwards.
The total minimum tax credit utilized for a tax year will equal the
sum of the amounts allocated in the two step computation.
3. Allocation Procedures for State Income Tax Liabilities
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A. Massachusetts Combined Returns - The combined state tax liability
shall be allocated to each company participating in the combined
return in proportion to the state taxable income, whether positive
or negative, of each such company. For this purpose, state taxable
income is determined after application of each company's separate
apportionment percentage and net operating loss deduction. Those
companies with a positive allocation shall pay the amount allocated
and those companies with a negative allocation shall receive
payment of their corporate tax credits. If the total positive tax
allocation is less than the total corporate tax credits, the
positive allocation shall be paid on a pro rata basis to those
companies with corporate tax credits. No company is to be
allocated a state tax which is greater than its state tax liability
had it filed a separate return.
B. New Hampshire Unitary Business Profits Returns - The combined
unitary business profits tax liability shall be allocated to each
company included in the unitary return in accordance with the
following principles:
i. The Hydro-Quebec Phase I and II companies will be allocated a
total business profits tax liability equal to the difference
in the combined business profits taxes, before reduction for
any franchise tax credit or other tax credits, computed with
and without the inclusion of such companies as a group. The
business profits tax of the Hydro group shall be allocated
first to NEW ENGLAND ELECTRIC TRANSMISSION CORPORATION in an
amount equal to the difference in the combined unitary tax
computed with and without its inclusion, with the balance of
the Hydro group tax, if any, assigned to NEW ENGLAND HYDRO
TRANSMISSION CORPORATION.
ii. The balance of the combined unitary tax, before reduction for
any franchise tax credit or other tax credits, shall be
allocated to the remaining companies in proportion to each
company's separate company business profits tax to the
combined total of such separate company taxes. Any franchise
tax credit or other tax credits available, on a separate
company basis, to a particular company in the combined group
shall be applied to reduce the combined unitary tax allocated
to that particular company.
iii. The excess of any unitary tax credit allowed in the combined
return over the amount applied to reduce a particular
company's liability, shall be used to reduce the allocated
unitary tax liability of the other members in the combined
group on a pro rata basis. To the extent a company's
allocated unitary tax liability is reduced by application of
the franchise tax credit or other tax credits attributable to
another member of the group, the amount so reduced shall be
paid to such other member.
iv. For purposes of this paragraph 3B, the separate company
business profits tax is to be determined only for those
companies with tax nexus in New Hampshire and is to be
computed by multiplying each such company's separately
apportioned state taxable income by the applicable state tax
rate. The separate company business profits tax cannot be
less than zero.
C. Other State Consolidated, Combined or Unitary Returns - The
consolidated, combined or unitary tax liability shall be allocated
to each company included in a consolidated, combined or unitary
income tax return in accordance with the procedures set forth in
paragraph 2A above (Allocation Procedures for Federal Income Tax
Liability, General Rule). Only companies with tax nexus in a
particular state shall be allocated a portion of such state's
income tax liability.
In witness whereof, this Agreement has been duly executed in the name of
and on behalf of the following companies and their corporate or common seals
have been affixed hereto.
NEW ENGLAND ELECTRIC SYSTEM
s/Xxxxxxx X. Xxxxxxx
By
M.E. Jesanis - Treasurer
GRANITE STATE ELECTRIC COMPANY
s/Xxxxxx X. XxXxxxxx
By
X.X. XxXxxxxx - Treasurer
GRANITE STATE ENERGY, INC.
s/Xxxxxx X. XxXxxxxx
By
X.X. XxXxxxxx - Treasurer
MASSACHUSETTS ELECTRIC COMPANY
s/Xxxxxxx X. Xxxxxxx
By
M.E. Jesanis - Treasurer
NANTUCKET ELECTRIC COMPANY
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
THE NARRAGANSETT ELECTRIC COMPANY
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx
Assistant Treasurer
NARRAGANSETT ENERGY RESOURCES COMPANY
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
XXXX COMMUNICATIONS, INC.
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
XXXX ENERGY, INC.
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND ELECTRIC RESOURCES, INC.
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND ELECTRIC TRANSMISSION CORP.
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND ENERGY INCORPORATED
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND HYDRO FINANCE COMPANY, INC.
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND HYDRO-TRANSMISSION CORPORATION
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND HYDRO-TRANSMISSION
ELECTRIC COMPANY, INC.
s/Xxxx X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND POWER COMPANY
s/Xxxxxxx X. Xxxxxxx
By
M.E. Jesanis - Treasurer
NEW ENGLAND POWER SERVICE COMPANY
s/M.E. Jesanis
By
M.E. Jesanis - Treasurer
The name "NEW ENGLAND ELECTRIC SYSTEM" means the trustee or trustees for
the time being (as trustee or trustees but not personally) under an agreement
and declaration of trust dated January 2, 1926, as amended, which is hereby
referred to, and a copy of which as amended has been filed with the Secretary
of The Commonwealth of Massachusetts. Any agreement, obligation or liability
made, entered into or incurred by or on behalf of New England Electric System
binds only its trust estate, and no shareholder, director, trustee officer, or
agent thereof assumes or shall be held to any liability therefor.
