Exhibit D
EASTERN UTILITIES ASSOCIATES AND
AFFILIATED CORPORATIONS
Federal Income Tax Allocation Agreement
Pursuant to Rule 45(c). Public Utility Holding
Company Act of 1935 and I.R.C. Regulation Section
1.1552-1(a) (1) and Section 1.1502-33(d)(3)
This agreement made as of April 30, 1997, among Eastern Utilities
Associates (the designation of the trustees for the time being under a
Declaration of Trust dated April 2, 1928, as amended) (EUA); Eastern Edison
Company, a Massachusetts corporation (Eastern); Blackstone Valley Electric
Company, a Rhode Island corporation (Blackstone); Newport Electric Corporation,
a Rhode Island corporation (Newport); Montaup Electric Company, a Massachusetts
corporation (Montaup); EUA Service Corporation, a Massachusetts corporation
(EUA Service); EUA Cogenex Corporation, a Massachusetts corporation (Cogenex);
EUA Energy Investment Corporation, a Massachusetts corporation (EUA Energy);
EUA Ocean State Corporation, a Rhode Island corporation (Ocean State); Eastern
Unicord Corporation, a Massachusetts corporation (Unicord); Northeast Energy
Management, Inc., a Massachusetts corporation (NEM); EUA TransCapacity, Inc., a
Massachusetts corporation (TransCapacity); EUA Cogenex-Canada, Inc., a Canadian
corporation (Cogenex-Canada); EUA Bioten, Inc., a Massachusetts corporation
(Bioten); EUA Highland Corporation, a Massachusetts corporation (Highland); EUA
Citizens Conservation Services, Inc., a Massachusetts Corporation (CCS); and
EUA Energy Services, Inc., a Massachusetts corporation (EUA ESI).
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
Eastern, Blackstone, Newport, Montaup, EUA Service, Cogenex, EUA Energy, Ocean
State, Unicord, NEM, TransCapacity, EUA Cogenex-Canada, Bioten, Highland, CCS
and EUA ESI, the AFFILIATES together with EUA, and the CONSOLIDATED AFFILIATES
as a collective taxpaying unit is sometimes referred to as the "GROUP" and
WHEREAS, EUA 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; each of the CONSOLIDATED AFFILIATES is a member of an affiliated
group within the meaning of Section 1504 of the Internal Revenue Code of 1954,
as mended (the "Code"), of which EUA is the common parent; and the GROUP
presently participates in the filing of a consolidated income tax return.
Definitions
A. Corporate Tax Benefit - The amount by which the consolidated tax is
reduced by including a net corporate tax loss or other net tax benefit in the
consolidated return. The value of the benefit of the operating loss shall be
determined by applying the then current corporate income tax rate to the amount
of the loss. The value of a credit is the actual tax savings (100%). The
value of capital losses used to offset capital gains shall be computed at the
then current tax rate applicable to capital gains for corporations. The value
of any corporate tax benefit to be reimbursed to a member shall be reduced by
the amount of any alternate minimum tax attributable to such member.
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 group.
C. Excess Tax Credits - The investment tax credit, alternate minimum tax
credit, research and development credit, energy tax credit or other similar
credit that would be allowable in the consolidation (were it not for a
limitation provided by law) in excess of the amount of such credits which could
be utilized on a separate return basis with regard to such limitations.
EUA and the AFFILIATES agree as follows:
Allocation Procedures in Accordance with I.R.C. Regulation
Sections 1.1552-1(a)(1) and 1.1502-33(d)(3)
A. General Rule
Step 1 - The consolidated tax liability shall be apportioned among the
companies 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 amount will be allocated to the members at 100% of
the excess of the member's separate tax liability over the consolidated tax
liability allocated to the member under Step 1. Under no circumstances shall
the tax allocated to a member exceed its separate tax liability.
Step 3 - The total of the amounts allocated under Step 2 is credited to
those members who had "corporate tax benefits" as follows:
(a) Those members having a negative allocation under Step 2;
(b) If the total of the "corporate tax benefits" is greater than the total
reduction in the consolidated tax, 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 excess tax
credits.
(c) If the total benefits attributable to the negative taxable incomes of
the members are not absorbed in the consolidated return, the benefit
allocated to each company shall be in proportion to their respective
negative taxable incomes.
(d) If the total benefits attributable to the excess tax credits are not
applied in the consolidated return, the benefit allocated to each
company shall be in proportion to their respective excess tax credits.
Step 4 - If the total consolidated tax liability shall result in an
"Alternative Minimum Tax" liability position then an additional amount will be
added to Steps 1 and 2. This additional amount will be allocated to the
members based upon their proportionate amounts of alternate minimum taxable
income.
Step 5 - Reimbursement - Benefiting members will reimburse the others no
later than 90 days after the filing of the consolidated tax return.
B. Unused Corporate Tax Benefits
A member that is entitled to payment for a 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.
C. Tax Adjustments
In the event of any adjustments to the tax returns of any of the
CONSOLIDATED AFFILIATES 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 AFFILIATES 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 EUA and the appropriate AFFILIATES 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 AFFILIATE to EUA in
proportion to the increase in such AFFILIATE'S separate return tax liability
computed under Section A of this Agreement that is required to be paid to EUA.
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.
D. 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.
E. Successors
This Agreement shall be binding on and insure 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 EUA 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.
F. Special Rule
In making the tax allocations provided for in this agreement,
notwithstanding any of the foregoing, no corporate tax benefits shall be
allocated to EUA. Although the separate corporate taxable income or taxable
loss of EUA and any tax credits attributable to EUA will be included in
the consolidated return, only the tax savings attributable to such items shall
be allocated to the other AFFILIATES as if EUA were not a member of the Group.
In making this allocation, the tax savings of EUA shall be allocated only to
members of the Group having taxable income.
Also, in making the tax allocations, only those tax consequences
attributable to non-affiliated transactions shall remain with EUA Service
Corporation in accordance with Section A of this Agreement. All others will be
allocated to the other AFFILIATES.
G. Termination Clause
This Agreement shall apply to the taxable year ending December 31, 1997,
unless all of the members of the Group agree in writing to terminate the
Agreement prior to the end of the taxable year. The Agreement shall be
renewable on a year to year basis for subsequent taxable years, provided all of
the members of the Group agree in writing, prior to the end of the immediately
preceding taxable year, to extend the Agreement one additional 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 30th day of April, 1997.
EASTERN UTILITIES ASSOCIATES
By /s/ Xxxxxx X. Xxxxxx
Title: Chairman of the Board
EUA SERVICE CORPORATION EUA COGENEX-CANADA
By /s/ Xxxxxx X. Xxxxxxxx By /s/ Xxxxxx X. Xxxxxx
Title: Executive Vice President Title: President
BLACKSTONE VALLEY ELECTRIC COMPANY EUA ENERGY INVESTMENT CORPORATION
By /s/ Xxxx X. Xxxxxx By /s/ Xxxx X. Xxxxxxx
Title: President Title: President
EASTERN EDISON COMPANY EASTERN UNICORD CORPORATION
By /s/ Xxxxxxx X. Xxxxx By /s/ Xxxx X. Xxxxxxx
Title: Vice President Title: President
MONTAUP ELECTRIC COMPANY EUA TRANSCAPACITY, INC.
By /s/ Xxxxxxx X. Xxxxx By /s/ Xxxx X. Xxxxxxx
Title: Vice President Title: President
EUA COGENEX CORPORATION EUA BIOTEN, INC.
By /s/ Xxxxxx X. Xxxxxx By /s/ Xxxx X. Xxxxxxx
Title: President Title: President
NORTHEAST ENERGY MANAGEMENT, INC. EUA OCEAN STATE CORPORATION
By /s/ Xxxxxx X. Xxxxxx By /s/ Xxxxxxxx X. Xxxxxx
Title: President Title: Treasurer
EUA HIGHLAND CORPORATION NEWPORT ELECTRIC CORPORATION
By /s/ Xxxxxx X. Xxxxxx By /s/ Xxxxxxx X. Xxxxxx
Title: Executive Vice President Title: Vice President
EUA CITIZENS CONSERVATION SERVICES, INC. EUA ENERGY SERVICES, INC.
By /s/ Xxxxxx X. Xxxxxx By /s/ Xxxxx X. Xxxxx
Title: Executive Vice President Title: Vice President
