Exhibit B-2
SECOND AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
This Second Amended and Restated Agreement, dated as
of August , 2004, is made by and among Northeast
Utilities (the "Parent Company") and The Connecticut
Light and Power Company, Western Massachusetts
Electric Company, Holyoke Water Power Company,
Northeast Utilities Service Company, Northeast
Nuclear Energy Company, Holyoke Power and Electric
Company, The Rocky River Realty Company, The
Quinnehtuk Company, Charter Oak Energy, Inc., Public
Service Company of New Hampshire, Properties, Inc.,
North Atlantic Energy Corporation, North Atlantic
Energy Service Corporation, Select Energy
Contracting, Inc., CL&P Receivables Corporation,
Select Energy Services, Inc., Reeds Ferry Supply Co.,
Inc., HEC/Tobyhanna Energy Project, Inc., NU
Enterprises, Inc., Northeast Generation Services
Company, Northeast Generation Company, XX Xxxxxx
Company, NGS Mechanical, Inc., Xxxxx Network
Services, Inc., Xxxxx Electrical Co., Inc., Mode 1
Communications, Inc., Select Energy, Inc., Select
Energy New York, Inc., Yankee Energy System, Inc.,
Yankee Gas Services Company, Yankee Energy Financial
Services Company, Yankee Energy Services Company and
Norconn Properties, Inc., and any other corporations
that become a member of the Parent Company's
affiliated group and execute a duplicate copy of this
Agreement or consent to be included in the Parent
Company's consolidated federal income tax return
(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. References to rule 45 are to rule 45
of the Public Utility Holding Company Act of 1935.
For purposes of this Agreement, the following
terms shall have the meanings specified below:
"Acquisition indebtedness" means indebtedness
incurred by NU to finance the acquisition (including
related costs) by NU of all of the issued and
outstanding stock of the Yankee Energy System, Inc.
and any renewals or extensions thereof. Acquisition
Indebtedness also includes indebtedness incurred by
NU for the purpose of refinancing the indebtedness
relating to the acquisition (including related costs)
of all of the issued and outstanding stock of Yankee
Energy System.
"Consolidated tax" means the aggregate tax
liability for a tax year, being the tax shown on the
consolidated return and any adjustments thereto
thereafter determined. The consolidated tax will be
the refund if the consolidated return shows a
negative tax.
"Corporate tax credit" is a negative separate
return tax of an associate company for a tax year,
equal to the amount by which the consolidated tax is
reduced by including a net corporate taxable loss or
other net tax benefit of such associate company in
the consolidated tax return.
"Corporate taxable income" is the income or loss
of an associate company for a tax year, computed as
though such company had filed a separate return on
the same basis as used in the consolidated return,
except that dividend income from associate companies
shall be disregarded, and other intercompany
transactions eliminated in the consolidated return
shall be given appropriate effect. It shall be
further adjusted to allow for applicable rights
accrued to the associate company under paragraphs (c)
(4) and (5) of Rule 45 or under prior rules or
orders, on the basis of other tax years, but
carryovers or carrybacks shall not be taken into
account if the associate company has been paid a
corporate tax credit therefor. If an associate
company is a member of the registered system's
consolidated tax group for only part of a tax year,
that period will be deemed to be its tax year for all
purposes under paragraph (c) of Rule 45.
"Separate return tax" is the tax on the
corporate taxable income of an associate company
computed as though such company were not a member of
a consolidated group.
In consideration of the mutual benefits and
obligations provided for herein, the Parties to this
Agreement hereby agree that the consolidated tax, of
the Parent Company and the subsidiaries shall be
allocated as follows:
1. APPORTIONMENT OF PARENT COMPANY LOSS. The
taxable income or loss of the Parent Company shall be
computed on a separate return basis. The Parent
Company may not avail itself of net operating losses
since Rule 45(c)(4) and (5) are applicable to only
subsidiaries. In apportioning the Parent Company
taxable income or loss, it will exclude the interest
associated with Acquisition indebtedness. If the
net effect remaining is a loss, such loss will be
apportioned to the
profitable subsidiaries based on paragraph 2. If the
net effect remaining
is taxable income, the Parent Company will pay its
own tax liability without regard for any prior or
future net operating losses.
2. ALLOCATION OF CONSOLIDATED TAX. The consolidated
tax, 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
corporate taxable income or loss, computed without
regard to net capital gains or losses, and after the
application of paragraph (1). Subject to the
limitation provided in paragraph (10), such
consolidated tax allocated to a subsidiary, which may
be either positive or negative, shall be equal to the
corporate taxable income of the subsidiary (after
elimination of capital gains and losses) multiplied
times the highest effective corporate federal income
tax rate set forth in Section 11 of the Code.
However, no company shall receive a negative
allocation greater (in absolute value) than the
amount by which its loss has reduced the consolidated
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 tax liability. If
the consolidated tax liability is greater than the
aggregate tax on the corporate 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. General
business credits arising in a particular year shall
be allocated among the subsidiaries giving rise to
such credits by multiplying the amount of
consolidated general business credits for such year
utilized by a fraction, the numerator of which is the
amount of general business credit of the subsidiary
for such year and the denominator of which is the
total amount of general business credit of all such
subsidiaries for such year. 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 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).
6. ALLOCATION OF A NET OPERATING LOSS. Should the
Parent Company's affiliated group generate a net
operating loss for a tax year, each company shall
first receive an allocation of consolidated tax,
which may be either positive or negative, as provided
in paragraph (2); provided, however, a negative
allocation of the consolidated tax shall be made only
to the extent that corporate taxable income reduces
consolidated tax for such tax 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). For purposes of the consolidated return,
the utilization of net operating losses carried back
or carried over is determined on a first-in first-out
basis with all net operating losses generated by all
subsidiaries in the earliest year utilized first
before net operating losses generated in a subsequent
year can be utilized. For purposes of allocating the
net operating losses pursuant to this Agreement, and
in accordance with the separate return limitation of
Paragraph (10), the net operating losses utilized
shall be determined on a first-in first-out basis
with the net operating losses generated by
subsidiaries allocated positive taxes in Paragraphs
(2) and (3) utilized first, for all available
vintages, before net operating losses generated by
subsidiaries allocated negative taxes in Paragraphs
(2) and (3) are utilized. If the vintages of net
operating losses utilized pursuant to this Agreement
differ from those utilized according to the
consolidated return for a subsidiary, then the
vintages of net operating losses utilized pursuant to
this Agreement shall be exchanged among the affected
subsidiaries. Net operating loss carryovers 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. See Rule 45(c)(5).
7. ALLOCATION OF ALTERNATIVE MINIMUM TAX OR CREDIT.
Any portion of the consolidated tax that is
attributable to alternative minimum tax
("Consolidated AMT") shall be allocated in a positive
amount to each subsidiary with "tentative minimum
tax," as defined in Section 55(b)(1) of the Code
(determined following the principles used to compute
each subsidiary's separate return tax), which for
purposes of this Agreement can be positive or
negative, ("Separate Return Tentative Minimum Tax"),
in excess of the "regular tax," as defined in Section
55(c) of the Code (determined following the
principles used to compute each subsidiary's separate
return tax), allocated to such subsidiary in
accordance with this Agreement (except paragraph
(10)), which for purposes of this Agreement can be
positive or negative ("Separate Return Regular Tax").
Consolidated AMT shall be allocated to each such
subsidiary by multiplying Consolidated AMT by a
fraction the numerator of which is the amount by
which the subsidiary's Separate Return Tentative
Minimum Tax exceeds such subsidiary's Separate Return
Regular Tax and the denominator of which is the sum
of the amounts by which the Separate Return Tentative
Minimum Tax of the subsidiaries to which an
allocation of Consolidated AMT is made exceeds the
Separate Return Regular Tax allocated to such
subsidiaries. If the regular tax portion of the
consolidated tax is reduced by reason of a "minimum
tax credit," as defined in Section 53 of the Code,
the benefit of such minimum tax credit shall be
allocated to the subsidiaries that (by having an
alternative minimum tax liability allocated to them
in a prior year) generated such minimum tax credit,
with the earliest liabilities being allocated such
minimum credit first. See Rules 45(c)(3) and
45(c)(5). The allocation of any "alternative tax net
operating loss deduction," as defined by Section
56(d) of the Code, shall follow the principles of
paragraph (6).
8. OTHER FEDERAL TAXES, BENEFITS AND CREDITS. Taxes,
tax benefits and credits against consolidated tax
that are not specifically addressed herein and for
which allocation under paragraph (2) is not
appropriate shall be allocated following the
principles set forth in paragraphs (3) through (7) in
order to allocate the material effects of such tax,
tax benefit or credit to the subsidiary to which it
is applicable. 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 on the same dates indicated by the Parent
Company. 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). If the federal income tax otherwise
allocated to a subsidiary under this Agreement is
greater than the federal income tax computed as if
such subsidiary had always filed a separate return,
the Parent Company shall be liable for such excess,
subject to recovery in later years from subsequent
consolidated tax benefits.
11. STATE TAX LIABILITIES. (a) Generally and New
Hampshire Business Profits Tax for Tax Years Ending
on or Before December 31, 1997. 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).
(b) States with Unitary Reporting for Tax
Years Beginning After December 31, 1997.
Notwithstanding the preceding sentence, for purposes
of allocating any current state income tax liability
that is determined on the basis of unitary reporting
and that is associated with a state income tax return
involving more than one subsidiary ("Unitary Tax
Liability"), any such current Unitary Tax Liability
shall be allocated, first, to subsidiaries with a
positive income tax liability with respect to such
state determined following the principles used to
compute the subsidiary's separate return tax
("Separate Unitary Return Tax") in an amount equal to
each such subsidiary's Separate Unitary Return Tax;
then
(i) if the current Unitary Tax Liability is
less than the aggregate Separate Unitary Return
Tax of the subsidiaries with positive Separate
Unitary Return Tax ("Unitary Tax Benefit"),
second, in a negative amount to the Parent
Company in an amount equal to the lesser of the
Unitary Tax Benefit with respect to such state or
the Unitary Tax Detriment (as hereinafter
defined) from a prior year that has not been
recovered in a prior year, third, in a negative
amount to each subsidiary with a corporate tax
credit from such state that was unavailable in
determining such subsidiaries' Separate Unitary
Return Tax ("Unavailable Credit") (provided,
however, that such corporate tax credit was
available in such state to the unitary group for
such state) in an amount equal to the lesser of
the Unitary Tax Benefit (less any amount
allocated by clause second of this paragraph
(11)(b)) or the sum of the Unavailable Credit of
all subsidiaries with Unavailable Credit
multiplied by a fraction (A) the numerator of
which is the Unavailable Credit of the subsidiary
and (B) the denominator of which is the sum of
the Unavailable Credits for all subsidiaries with
Unavailable Credit; fourth, in a negative amount
to each subsidiary having negative Separate
Unitary Return Tax in an amount equal to the
lesser of the Unitary Tax Benefit (less any
amounts allocated by clauses second and third of
this paragraph (11)(b) or the sum of the Separate
Unitary Return Tax of all subsidiaries with
negative Separate Unitary Return Tax multiplied
by a fraction (A) the numerator of which is the
Separate Unitary Return Tax of the subsidiary and
(B) the denominator of which is the sum of the
Separate Unitary Return Tax of the subsidiaries
having negative Separate Unitary Return Tax, and,
fifth, in a negative amount to each subsidiary
having positive Separate Unitary Return Tax in an
amount equal to the Unitary Tax Benefit (less any
amounts allocated by clauses second, third and
fourth of this paragraph (11)(b) multiplied by a
fraction (A) the numerator of which is the
Separate Unitary Return Tax of the subsidiary and
(B) the denominator of which is the sum of the
Separate Unitary Return Tax of the subsidiaries
having positive Separate Unitary Return Tax; or
(ii) if the current Unitary Tax Liability is
in excess of the aggregate Separate Unitary
Return Tax of the subsidiaries with positive
Separate Unitary Return Tax ("Unitary Tax
Detriment"), second, to the Parent Company in
the amount of the Unitary Tax Detriment, subject
to recovery in later years from subsequent
Unitary Tax Benefits. (See Rule 45(c)).
(c) Payments for Allocations of State Tax
Liabilities. Payments of positive and negative
allocations of state income tax liabilities and of
net current state income tax liabilities of the
Parent Company and the subsidiaries shall follow the
principles set forth in paragraph (9).
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). The Parent Company or
designated subsidiary may act as an agent for each
subsidiary doing business in a state with respect to
the payment of any liability shown on the state
income tax returns of such state
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. 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 January
1, 1990, as heretofore amended by the First Amendment
thereto dated October 26, 1998 and the Second
Amendment thereto dated March 1, 2000, by 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 taxable year beginning January 1, 2004 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, 2004,
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 (i) executing a duplicate copy
of this Agreement or (ii) consenting to be included
in a consolidated federal income tax return that
includes the Parent Company. If at any time any
company ceases to be a member of the Parent Company's
affiliated group, such company shall no longer be a
party to this Agreement, but such company shall
continue to be bound by this Agreement as to the
taxable year in which such company leaves the Parent
Company's affiliated group and all prior taxable
years in which such company was a member of the
Parent Company's affiliated group.
15. FILING WITH SECURITIES AND EXCHANGE COMMISSION.
In accordance with rule 45(c)(6), this Agreement
shall be filed as an Exhibit to the Parent Company's
Annual Report to the Securities and Exchange
Commission on Form U5S.
16. GOVERNING LAW. This Agreement shall be construed
and enforced in accordance with the laws of the State
of Connecticut.
17. COUNTERPARTS. This Agreement may be executed in
one or more counterparts all of which taken together
shall constitute one and the same instrument.
18. 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/
WESTERN MASSACHUSETTS ELECTRIC COMPANY
By: /s/
HOLYOKE WATER POWER COMPANY
By: /s/
NORTHEAST UTILITIES SERVICE COMPANY
By:
NORTHEAST NUCLEAR ENERGY COMPANY
By: /s/
HOLYOKE POWER AND ELECTRIC COMPANY By
By: /s/
THE ROCKY RIVER REALTY COMPANY
By: /s/
THE QUINNEHTUK COMPANY
By: /s/
CHARTER OAK ENERGY, INC.
By: /s/
SELECT ENERGY SERVICES, INC.
By: /s/
PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE
By: /s/
NORTH ATLANTIC ENERGY CORPORATION
By: /s/
NORTH ATLANTIC ENERGY SERVICE CORPORATION
By: /s/
PROPERTIES, INC.
By: /s/
SELECT ENERGY CONTRACTING, INC.
By: /s/
CL&P RECEIVABLES CORPORATION
By: /s/
REEDS FERRY SUPPLY CO., INC.
By: /s/
HEC/TOBYHANNA ENERGY PROJECT, INC.
By: /s/
NU ENTERPRISES, INC.
By: /s/
NORTHEAST GENERATION COMPANY
By: /s/
NORTHEAST GENERATION SERVICES COMPANY
By: /s/
X. X. XXXXXX COMPANY
By: /s/
NGS MECHANICAL, INC.
By: /s/
XXXXX NETWORK SERVICES, INC.
By: /s/
XXXXX ELECTRICAL CO., INC.
By: /s/
MODE 1 COMMUNICATION, 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/
