Exhibit B
SECOND AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
This Second Amended and Restated Agreement, dated as of
March , 2003, is made by and among Northeast Utilities (the
"Parent Company") and The Connecticut Light and Power
Company and its subsidiary CL&P Receivables Corporation,
Western Massachusetts Electric Company, Public Service
Company of New Hampshire and it subsidiary Properties, Inc.,
Holyoke Water Power Company and its subsidiary Holyoke Power
and Electric Company, North Atlantic Energy Corporation,
North Atlantic Energy Service Corporation, Northeast Nuclear
Energy Company, The Rocky River Realty Company, The
Quinnehtuk Company, Charter Oak Energy, Inc., Northeast
Utilities Service Company, Yankee Energy System, Inc., and
its wholly-owned subsidiaries, Yankee Gas Services Company,
Yankee Energy Financial Services Company, Yankee Energy
Services Company and NorConn Properties, Inc.; and NU
Enterprises, Inc., and its direct and indirect wholly-owned
subsidiaries, Northeast Generation Company, Northeast
Generation Services Company and its subsidiaries, NGS
Mechanical, Inc., X. X. Xxxxxx Company, and Xxxxx Electrical
Company, Inc., Select Energy, Inc. and its subsidiary Select
Energy New York, Inc., Select Energy Services, Inc., and its
subsidiaries Reeds Ferry Supply, Co., Inc., HEC/Tobyhanna
Energy Project, Inc. and Select Energy Contracting, Inc.,
Mode 1 Communications, Inc. and Xxxxx Network Services, Inc.
(hereinafter collectively "subsidiaries" and singly
"subsidiary") in accordance with rule 45(c)(1) . The
subsidiaries join in the annual filing of a consolidated
federal income tax return with the Parent Company.
In consideration of the mutual benefits and obligations
provided for herein, the Parties to this Agreement hereby
agree that the consolidated federal income tax, as defined
by rule 45(c)(1), of the Parent Company and the
subsidiaries shall be allocated as follows:
1. APPORTIONMENT OF PARENT COMPANY INCOME OR LOSS. The net
taxable income or loss of the Parent Company attributable to
the operations of the subsidiaries or to dividends received
from the subsidiaries, computed on a separate return basis
("separate taxable income"), shall be apportioned among such
subsidiaries in proportion to the dividends paid by each
subsidiary to the Parent Company. The separate taxable
income of the Parent Company or a subsidiary is the income
or loss of such company for a tax year, computed as though
such company had always filed a separate return on the same
basis as used in the consolidated return, with the following
adjustments:
(a) Gains and losses on intercompany transactions
shall be taken into account as provided in Treas. Reg. Section
1.1502-13 and 13T.
(b) Gains and losses relating to inventory adjustments
shall be taken into account as provided in Treas. Reg.
Section 1.1502-18.
(c) Dividends and other transactions with respect to
stock, bonds, or other obligations of members shall be
reflected as provided in Treas. Reg. Section 1.1502-14 and -
14T.
(d) Excess losses shall be included in income as
provided in Reg. Section 1.1502-19.
(e) In the computations of tax credits and recapture,
Treas. Reg. Section 1.1502-3(f)(2) shall apply.
(f) Basis shall be determined under Treas. Reg. Section
1.1502-31T or Section 1.1502-32, and earnings and profits shall
be determined under Treas. Reg. Section 1.1502-33T.
(g) Payments made or received under this Agreement
shall be eliminated.
(h) Items attributable to a consolidated return year
but not allowable on a separate company basis (such as
deductions for percentage depletion or net operating loss
carryovers or carrybacks), to the extent such items were
previously taken into account to reduce the consolidated
taxable income shall be excluded.
2. ALLOCATION OF CONSOLIDATED TAX. The consolidated
federal income tax, as defined by rule 45(c)(1), exclusive
of capital gains taxes (see paragraph (3)), and the
alternative minimum tax (see paragraph (7)), and before the
application or recapture of any credits (see paragraph (4))
and the results of any special benefits (see paragraph (5)),
shall be allocated among the subsidiaries based on their
separate taxable income or loss, computed without regard to
net capital gains or losses, and after the application of
paragraph (1). The tax allocated to a company under this
procedure, which may be either positive or negative, shall
be equal to the consolidated federal income tax multiplied
by a fraction, the numerator of which is the separate
taxable income or loss of the company and the denominator of
which is the consolidated taxable income. However, no
company shall receive a negative allocation greater (in
absolute value) than the amount by which its loss has
reduced the consolidated federal income tax liability.
Conversely, a company shall receive a negative allocation
for any loss or deduction it cannot use currently to the
extent such loss or deduction reduces the consolidated
federal income tax liability. If the consolidated tax
liability is greater than the aggregate tax on the separate
taxable income of the Parent Company and each subsidiary
("separate return tax"), then no subsidiary shall receive an
allocation greater than its separate return tax, and the
Parent Company shall be liable for the excess of the
consolidated tax over the sum of the separate return taxes
of the subsidiaries, subject to recovery in later years from
subsequent consolidated tax benefits.
3. ALLOCATION OF CAPITAL GAINS TAXES. The portion of the
consolidated tax attributable to net capital gains and
losses shall be allocated directly to the subsidiaries
giving rise to such items. The effects of netting capital
gains and losses in the current year shall follow the
principles of paragraph (2). The effects of capital loss
carrybacks or carryforwards shall follow the principles of
paragraph (6). See rules 45(c)(3) and 45(c)(5).
4. ALLOCATION OF GENERAL BUSINESS CREDITS. The general
business credit utilized on the consolidated return
allocated to a subsidiary, which can be positive or
negative, shall be equal to the consolidated general
business credit utilized multiplied by a fraction, the
numerator of which is that subsidiary's total taxes
allocated under paragraphs (2) and (3) and the denominator
of which is the total taxes of all subsidiaries under
paragraphs (2) and (3). If the consolidated group is in a
credit carryforward situation, the utilized credit shall be
allocated based on the vintages that comprise the utilized
credit. For purposes of the consolidated return, the credits
utilized are determined on a first-in first-out basis with
all credits generated by all subsidiaries in the earliest
year utilized first before credits generated in a subsequent
year can be utilized. For purposes of allocating the credits
pursuant to this agreement, and in accordance with the
separate return limitation of paragraph (10), the credits
utilized shall be determined on a first-in first-out basis
with the credits generated by subsidiaries allocated
positive taxes in paragraphs (2) and (3) utilized first, for
all available vintages, before credits generated by
subsidiaries allocated negative taxes in paragraphs (2) and
(3) are utilized. If the vintages of credits utilized
pursuant to this agreement differ from those utilized
according to the consolidated return for a subsidiary, then
the vintages of credits utilized pursuant to this agreement
shall be exchanged among the affected subsidiaries. General
business credits that are lost due to reductions,
limitations and expirations imposed by the Code or the
regulations thereunder shall be allocated in an appropriate
and reasonable manner.
5. Allocation of Special Benefits and Tax Benefits on Certain
Debt.
(a) Any special benefits, such as the effects of
Section 1341 of the Code, shall be allocated directly to the
subsidiaries giving rise to them. See Rule 45(c)(3).
(b) In addition, any tax benefits of the Parent
Company attributable to losses incurred in connection with
any indebtedness incurred by the Parent Company to finance
its acquisition of Yankee Energy System, Inc., and any
renewals, refinancings or extensions thereof, shall be
allocated directly to the Parent Company.
6. ALLOCATION OF A NET OPERATING LOSS. Should the
consolidated group generate a net operating loss for a
calendar year, each company shall first receive a positive
allocation to the extent of its separate return tax, or a
negative allocation to the extent that its corporate taxable
loss reduces the consolidated taxable income for the
calendar year. The current consolidated net operating loss
shall then be apportioned to each subsidiary with a taxable
loss and carried back or forward to year(s) when the
consolidated net operating loss can be utilized. The
consolidated reduction in tax resulting from the carryback
or carryforward of the net operating loss shall be
apportioned to loss subsidiaries in accordance with
paragraphs (2) through (5). See rule 45(c)(5).
7. ALLOCATION OF ALTERNATIVE MINIMUM TAX OR CREDIT. If a
current consolidated alternative minimum tax liability
exists, such liability will be allocated to those
subsidiaries with a separate company alternative minimum tax
liability. This allocation shall be accomplished by first
allocating the consolidated regular tax liability to each
subsidiary in accordance with paragraph (2) and then
allocating the alternative minimum tax to each subsidiary
based on the excess of each subsidiary's tentative minimum
tax, as defined in Section 55(b)(1) of the Code, over the
regular tax allocated to it. The alternative minimum tax
allocated to a subsidiary pursuant to this procedure, shall
thus be equal to the consolidated alternative minimum tax
liability multiplied by a fraction, the numerator of which
is the amount by which that subsidiary's separate Company
tentative minimum tax exceeds the regular tax allocated to
it under paragraph (2) and the denominator of which is the
total of the alternative minimum tax liabilities of those
subsidiaries with a separate company alternative minimum tax
liability. If the regular tax in the consolidated tax return
is reduced by reason of the alternative minimum tax credit
(as defined in Section 53 of the Code), the benefit of such
credit shall be allocated to those subsidiaries who (by
having an alternative minimum tax liability allocated to
them in a prior year) generated the credit, with the
earliest liabilities being used first. See rules 45(c)(3)
and 45(c)(5).
8. ALLOCATION OF SUPERFUND TAX LIABILITY. If a
consolidated current superfund tax liability exists, such
liability shall be allocated to each subsidiary based on a
fraction, the numerator of which is that subsidiary's
alternative minimum taxable income or loss (as defined in
Section 59A of the Code) after reflecting paragraph (1) and
the denominator of which is consolidated alternative minimum
taxable income after reflecting paragraph (1). Subsidiaries
with alternative minimum taxable income will be allocated a
superfund tax liability while subsidiaries with an
alternative minimum taxable loss will be allocated a tax
benefit. See rule 45(c)(3).
9. PAYMENTS FOR ALLOCATIONS. A subsidiary with a net
positive allocation shall pay the Parent Company the net
amount allocated in the amounts and on the dates indicated
by the Parent Company, while a subsidiary with a net
negative allocation shall receive payment from the Parent
Company in the amount of its negative allocation. The
payment made to a subsidiary with a negative allocation
should equal the amount by which the consolidated tax is
reduced by including the subsidiary's net corporate tax loss
in the consolidated tax return. The Parent Company shall pay
to the Internal Revenue Service the consolidated group's net
current federal income tax liability from the net of the
receipts and payments. See rule 45(c)(5).
10. SEPARATE RETURN LIMITATION. No subsidiary shall be
allocated a federal income tax which is greater than the
federal income tax computed as if such subsidiary had always
filed a separate return. See rule 45(c)(2).
11. STATE TAX LIABILITIES. Any current state income tax
liability or benefit associated with a state income tax
return involving more than one subsidiary shall be allocated
to such subsidiaries doing business in such state following
the principles set forth herein for current federal income
taxes, except that solely for purposes of allocating the New
Hampshire business profits tax for any tax year ending on or
before December 31, 1997, all of the New Hampshire business
profits tax benefits available to a New Hampshire subsidiary
(regardless of whether such benefits are used in the
computation of the actual unitary tax liability of the
group) shall be used in determining the allocation of such
tax among the subsidiaries according to the following
priority: (a) tax credits, (b) tax losses, and (c) other
benefits, provided, however, that no New Hampshire
subsidiary shall be reimbursed for any credit against the
New Hampshire business profits tax used by another
subsidiary until such time as the New Hampshire subsidiary
that generated such tax credit could have utilized such
credit to offfset its New Hampshire business profits tax
liability and provided further that in no event shall the
New Hampshire business profits tax liability allocated to
any subsidiary exceed the separate return tax liability of
such subsidiary. (See rule 45(c).
12. FILING TAX RETURNS. The Parent Company shall prepare
and file the consolidated federal income tax return for the
subsidiaries that are parties to this Agreement. The Parent
Company shall act as the sole agent for each subsidiary with
respect to the payment of any liability shown on the federal
income tax return and for all other purposes required by
Treas. Reg. ss. 1.1502-77(a).
13. ADJUSTMENT OF TAX LIABILITY. In the event that the
consolidated federal or state income tax liability for any
year is redetermined subsequent to the allocation of the
consolidated tax liability reported for that tax year, the
redetermined tax liability shall be allocated pursuant to
this Agreement as if the adjustments and modifications
related to the redetermination had been a part of the
original return. In the case of a negotiated adjustment not
involving an item-by-item modification of the consolidated
return, the amount of the adjustment shall be distributed in
an appropriate and reasonable manner. Any interest or
penalties associated with the underpayment or overpayment of
tax shall be allocated based on the allocation of the
underlying underpayment or overpayment of tax.
14. EXAMPLES. The parties hereto agree that they shall be
guided in the interpretation of this Agreement by the
examples that will be prepared from time to time by the
Parent Company.
15. EFFECTIVE DATE. This Agreement amends and restates the
prior Amended and Restated Tax Allocation Agreement relating
to the allocation of federal and state income tax liability
dated June 3, 1992by replacing in full such prior agreement.
This Agreement shall be effective for allocation of the
current federal and state income tax liabilities of the
consolidated group for the calendar year 2003 and all
subsequent years until this Agreement is further amended in
writing by each such Company which is or becomes a party to
this Agreement. For any party to this Agreement that became
a member of the Parent Company's affiliated group after
January 1, 2003, this Agreement shall be effective as of
the date such subsidiary became a member of the affiliated
group. If at any time any other company becomes a member of
the Parent Company's affiliated group, the parties hereto
agree that such new member may become a party to this
Agreement by executing a duplicate copy of this Agreement.
See rule 45(c).
16. FILING WITH SECURITIES AND EXCHANGE COMMISSION. In
accordance with rule 45(c)(6), this Agreement shall be filed
as an Amendment to the Parent Company's Annual Report to the
Securities and Exchange Commission on Form U5S.
17. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of
Connecticut.
18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts all of which taken together shall
constitute one and the same instrument.
19. MISCELLANEOUS. This Agreement contains the complete
agreement among the parties and supersedes any prior
understandings, agreements or representations by or among
the parties, written or oral, which may have related to the
subject matter hereof in any way. No term or provision of
this Agreement shall be construed to confer a benefit upon,
or grant a privilege or right to, any person other than the
parties hereto.
The above procedures for apportioning the consolidated
annual net current federal and state income tax liability
and expense of Northeast Utilities and its subsidiaries have
been duly authorized and agreed to by each of the below
listed members of the consolidated group as evidenced by the
signature of a duly authorized officer of each company:
NORTHEAST UTILITIES
By: /s/
THE CONNECTICUT LIGHT AND POWER COMPANY
By: /s/
CL&P RECEIVABLES CORPORATION
By: /s/
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By: /s/
HOLYOKE WATER POWER COMPANY
By: /s/
HOLYOKE POWER AND ELECTRIC COMPANY
By: /s/
NORTHEAST UTILITIES SERVICE COMPANY
By: /s/
NORTHEAST NUCLEAR ENERGY COMPANY
By: /s/
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By: /s/
PROPERTIES, INC.
By: /s/
NORTH ATLANTIC ENERGY CORPORATION
By: /s/
NORTH ATLANTIC ENERGY SERVICES CORPORATION
By: /s/
THE ROCKY RIVER REALTY COMPANY
By: /s/
THE QUINNEHTUK COMPANY
By: /s/
CHARTER OAK ENERGY, INC.
By: /s/
NU ENTERPRISES, INC.
By: /s/
NORTHEAST GENERATION SERVICES COMPANY
By: /s/
NORTHEAST GENERATION COMPANY
By: /s/
NGS MECHANICAL, INC.
By: /s/
X. X. XXXXXX COMPANY
By: /s/
XXXXX ELECTRICAL CO., INC.
By: /s/
XXXXX NETWORK SERVICES, INC.
By: /s/
MODE 1 COMMUNICATIONS, INC.
By: /s/
SELECT ENERGY, INC.
By: /s/
SELECT ENERGY NEW YORK, INC.
By: /s/
YANKEE ENERGY SYSTEM, INC.
By: /s/
YANKEE GAS SERVICES COMPANY
By: /s/
YANKEE ENERGY FINANCIAL SERVICES COMPANY
By: /s/
YANKEE ENERGY SERVICES COMPANY
By: /s/
NORCONN PROPERTIES, INC.
By: /s/
SELECT ENERGY SERVICES, INC.
By: /s/
REEDS FERRY SUPPLY CO., INC.
By: /s/
HEC/TOBYHANNA ENERGY PROJECT, INC.
By: /s/
SELECT ENERGY CONTRACTING, INC.
By: /s/
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References to rule 45 are to rule 45 of the Public
Utility Holding Company Act of 1935.
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