EXHIBIT C-1
FORM OF TAX ALLOCATION AGREEMENT, REVISED
NATIONAL GRID GENERAL PARTNERSHIP AND
AFFILIATED U.S. CORPORATIONS
FORM OF
FEDERAL AND STATE INCOME TAX ALLOCATION AGREEMENT
This agreement made as of ___________, among National Grid General
Partnership, a Delaware general partnership ("GP"); NGG Holdings, Inc, a
Delaware corporation ("NGG Holdings"); New England Power Company, a
Massachusetts corporation ("NEP"); Massachusetts Electric Company, a
Massachusetts corporation ("Mass Electric"), The Narragansett Electric Company,
a Rhode Island corporation ("Narragansett"); Granite State Electric Company, a
New Hampshire corporation ("Granite"); Nantucket Electric Company, a
Massachusetts corporation ("Nantucket"); New England Electric Transmission
Corporation, a New Hampshire corporation ("NEET"); New England
Hydro-Transmission Corporation, a New Hampshire corporation ("NEHTC"); New
England Hydro-Transmission Electric Company, Inc., a Massachusetts corporation
("NEHTEC"); New England Hydro Finance Company, a Massachusetts corporation
("XXXX"); AllEnergy Fuels Corporation, a Delaware corporation ("AllEnergy");
XXXX Global, Inc., a Massachusetts corporation ("XXXX Global"); XXXX Energy,
Inc., a Massachusetts corporation ("XXXX Energy"); Granite State Energy, Inc., a
New Hampshire corporation ("Granite State Energy"); New England Water Heating
Company, a Massachusetts corporation ("NEWH"); New England Power Services
Company, a Massachusetts corporation ("NEPS"), XXXX Communications, Inc., a
Massachusetts corporation ("NEESCom"); XXXX Telecommunications Corp., a
Massachusetts corporation ("XXXX Telecom") and New England Energy, Incorporated,
a Massachusetts corporation ("NEEI") (each, a "Member").
W I T N E S S E T H T H A T:
WHEREAS, the term "Affiliates" as used herein shall be deemed to refer to
NGG Holdings, NEP, Mass Electric, Narragansett, Granite, Nantucket, NEET, XXXX
Global, XXXX Energy, ALLEnergy, Granite State Energy, NEWH, NEPS, NEESCom, XXXX
Telecom and NEEI. The Affiliates together with GP, as a collective taxpaying
unit, is sometimes referred to as the "Group" and
WHEREAS, GP owns directly or indirectly at least 80 percent of the issued
and outstanding shares of each class of voting common stock of each of the
Affiliates and at least 80 percent of the total value of the stock of each of
the Affiliates; each of GP and the Affiliates is a member of an affiliated group
within the meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), of which GP is the common parent; and the Group presently
participates in the filing of a consolidated income tax return.
WHEREAS, GP owns directly or indirectly less than 80 percent of the total
voting power of each of NEHTC, NEHTEC and XXXX (the "Hydro Group") or less than
80 percent of the total value of the stock of each of NEHTC, NEHTEC and XXXX,
but files certain unitary state tax returns with the Hydro Group,
GP, the Affiliates and the Hydro Group agree to allocate tax liability as
follows:
I. Allocation shall be made in accordance with Treasury Regulation Sections
1.1552-1(a)(1) and 1.1502-33(d)(3).
A. General Rule
Step 1 - The federal consolidated tax liability of the Group (not including
any liability for alternative minimum tax) shall be apportioned among the
Members of the Group in the ratio that each Member's separate taxable income
bears to the sum of the separate taxable incomes of all Members having taxable
income.
Step 2 - An additional liability amount will be allocated to Members of the
Group equal to 100% of the excess of the Member's separate tax liability over
the consolidated tax liability of the Group allocated to the Member under Step
1.
Step 3 - The total of the amounts allocated under Step 2 is credited
pursuant to a consistent method to those Members of the Group who had losses,
credits or other net tax benefits included in the consolidated return, (referred
to as "corporate tax benefits") as follows, except that for the purposes of this
Step 3, GP shall be deemed to have corporate tax benefits only with regard to
that portion of its losses, credits or other tax benefits that arise from taking
into account items attributable to acquisition related debt.
(a) If all corporate tax benefits reduce the amount of tax due in the
consolidated return of the Group, each Member of the Group having corporate tax
benefits will be allocated the value thereof. The value of net operating losses
shall generally be determined by applying the then current corporate income tax
rate to the amount of the loss, and the value of a credit shall generally equal
100% of the credit utilized.
(b) If the total of the corporate tax benefits is greater than the total
reduction in the consolidated tax of the Group, then the benefits arising from
the inclusion of negative taxable incomes in the consolidated return shall be
recognized and paid prior to the benefits arising from credits or other
benefits.
(c) If the corporate tax benefits attributable to Members of the Group with
negative taxable incomes are not absorbed in the consolidated return, the
benefit allocated to each such Member of the Group shall be in proportion to
their respective negative taxable incomes.
(d) If the corporate tax benefits attributable to credits or other net tax
benefits are not fully applied in the consolidated return of the Group, the
benefits arising from credits shall be recognized and paid prior to the benefits
arising from other benefits.
(e) If the corporate tax benefits attributable to Members of the Group with
credits are not absorbed in the consolidated return of the Group, the benefit
allocated to each Member company shall be in proportion to their respective
credits.
(f) If the corporate tax benefits attributable to Members of the Group with
other benefits are not absorbed in the consolidated return of the Group, the
benefit allocated to each Member company shall be in proportion to their
respective other benefits.
Step 4 - If the total consolidated tax liability results in an alternative
minimum tax ("AMT") liability, as imposed by Internal Revenue Code section
55(a), then any consolidated AMT will be allocated to the Members of the Group
based upon their proportionate amounts of separate alternative minimum tax.
Step 5 - If the total consolidated return liability results in consolidated
minimum tax credit utilization, the consolidated minimum tax credit shall be
tentatively allocated to each company 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 such company's allocated regular tax
over its separate alternative minimum tax ("AMT"). Minimum Tax Credit
Carryforward for this purpose is the sum of the annual amounts of consolidated
AMT allocated to a company in prior years less the sum of the consolidated
minimum tax credits allocated to that company in prior years. If the total of
such tentative allocations exceeds the consolidated minimum tax credit utilized
in the current taxable year, then the difference between the total of the
tentative allocations and the consolidated minimum tax credit utilized for the
taxable year shall be allocated as a negative amount to each company in
proportion to that company's tentative allocation to the combined total of all
such amounts. If the total of the tentative allocations is less than the
consolidated minimum tax credit utilized, the difference between the
consolidated minimum tax credit utilization and the total of the tentative
allocations shall be allocated to each company in proportion to that company's
remaining Minimum Tax Credit Carryforward to the combined total of such
carryforwards. The consolidated minimum tax credit allocated to each company for
the taxable year will equal the sum of the amounts allocated in the two step
computation.
Step 6 - Under no circumstances shall the amount of tax or other liability
allocated to a Member under this Agreement exceed its separate tax liability.
Step 7 - Reimbursement - Each Member of the Group shall pay its apportioned
share of the consolidated tax liability (including its apportioned share of
consolidated alternative minimum tax) along with any additional amount
determined under Step 2 to GP no later than 90 days after the filing of the
consolidated tax return. GP shall thereafter distribute any amounts determined
under Step 3 to the appropriate Member of the Group. Within 30 days of each
quarterly payment date for estimated taxes, each Member of the Group shall pay
to GP an
estimate of the amounts due to GP under Steps 1 and 2 above. GP will thereafter
distribute an estimate of the amounts due under Step 3 to appropriate members of
the Group. These amounts shall be paid within a reasonable period after request
by GP. Any amounts so paid in any year shall reduce the final amounts payable as
set forth above, and any balance due resulting from the reduction shall be
promptly refunded.
B. Unused Corporate Tax Benefits
A Member of the Group that is entitled to payment for a corporate tax
benefit, but does not receive such payment because of the rules in Step 3 shall
retain such right for the future to the extent that such benefit can be applied
against the consolidated tax liability. Uncompensated corporate tax benefits
arising from negative taxable income shall have priority over the benefits
attributable to excess tax credits.
X. XXXX Rule
Notwithstanding any other provisions herein, 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.
D. Tax Adjustments
In the event of any adjustments to the tax returns of any of the Members of
the Group filed (by reason of an amended return, a claim for refund or an audit
by the Internal Revenue Service), the liability, if any, of each of the Members
of the Group under Section A shall be redetermined to give effect to any such
adjustment as if it had been made as part of the original computation of tax
liability, and payments between GP and the appropriate Members of the Group
shall be made within 120 days after any such payments are made or refunds are
received, or, in the case of contested proceedings, within 120 days after a
final determination of the contest. Interest and penalties, if any, attributable
to such an adjustment shall be paid by each Member of the Group to GP in
proportion to the increase in such Member's separate return tax liability
computed under Section A of this Agreement that is required to be paid to GP. In
any situation in which the Group's tax liability is adjusted by a revenue
agent's report or a court settlement and an item-by-item modification is not
made, the Group shall consult its accountants for assistance in determining a
fair allocation of the adjusted liability.
II. Allocation Procedures for State Income Tax Liabilities
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 shall 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:
1. NEET and the Hydro Group 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 NEET and the Hydro Group shall be
allocated first to NEET in an amount equal to the difference in the
combined unitary tax computed with and without its inclusion, with the
balance, if any, assigned to NEHTC.
2. 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.
3. 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.
4. For purposes of this section IIB, 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. Vermont Consolidated Income Tax Returns
The consolidated corporate income tax liability shall be allocated to each
company included in the consolidated return in proportion to the Vermont net
taxable income before apportionment, whether positive or negative, of each such
company. 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 shall
be allocated a state tax which is greater than its state tax liability had it
filed a separate return.
D. Connecticut Combined Business Tax Returns
The tax on combined net income shall be allocated to each company
participating in the combined return in proportion to the Connecticut net income
after apportionment, whether positive or negative, of each such company. The tax
on combined minimum tax base shall be allocated to each company in proportion to
such company's separate minimum tax base. The tax on the number of companies
included in the combined return and the combined return preference tax shall be
allocated equally among the companies participating in the return. 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. No company shall be allocated a state tax which is greater than its
state tax liability had it filed a separate return.
E. 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 IA above. Only
companies with tax nexus in a particular state shall be allocated a portion of
such state's income tax liability.
III. Subsidiaries of Affiliates
If at any time, any of the Affiliates acquires or creates one or more
subsidiary corporations that are includible corporations of the Group, they
shall be subject to this Agreement and all references to the Affiliates herein
shall be interpreted to include such subsidiaries as a group.
IV. Successors
This Agreement shall be binding on and inure to the benefit of any
successor, by merger, acquisition of assets or otherwise, to any of the parties
hereto (including but not limited to any successor of GP or any of the
Affiliates succeeding to the tax attributes of such
corporation under Section 381 of the Code) to the same extent as if such
successor had been an original party to this agreement.
V. Termination Clause
This Agreement shall apply to the taxable year ending ________, and
subsequent taxable years, unless all of the members of the Group agree in
writing to terminate the Agreement prior to the end of the taxable year.
Notwithstanding any termination, this Agreement shall continue in effect with
respect to any payment or refunds due for all taxable periods prior to
termination.
IN WITNESS WHEREOF, the duly authorized representatives of the parties have
set their hands this ____ day of _______________.
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