EXHIBIT K-2
INTERIM INCOME TAX ALLOCATION AGREEMENT
THIS AGREEMENT, made as of the 31st day of December, 1999, by and between
SCANA Corporation ("SCANA") and each of its wholly owned subsidiaries, namely
SCANA Service Company, South Carolina Electric & Gas Company, South Carolina
Pipeline Corporation, South Carolina Fuel Company, Inc., S.C. Generating
Company, Inc., SCANA Communications, Inc. and its wholly owned subsidiary SCANA
Communications Holdings, Inc. (Holdings being a Delaware corporation),
Primesouth, Inc. and its wholly owned subsidiary Palmark, Inc., SCANA
Development Corporation, SCANA Energy Marketing, Inc., SCANA Petroleum
Resources, Inc. and its wholly owned subsidiary SPR Gas Services, Inc., SCANA
Propane Gas, Inc. and its wholly owned subsidiaries USA Cylinder Exchange, Inc.
and SCANA Propane Supply, Inc., SCANA Propane Storage, Inc., ServiceCare, Inc.,
and SCANA Resources, Inc. and its wholly owned subsidiary Company 19A (formerly
Instel, Inc.), all of the forementioned corporations hereinafter referred to
individually as the "Company" and collectively referred to as the "Companies",
each Company being a South Carolina corporation, except SCANA Communications
Holdings, Inc. as above indicated, is effective for the Consolidated Tax
reflected on the Consolidated Tax Return for calendar year end 1999 and
subsequent years.
In the event that the merger between SCANA and Public Service Company of
North Carolina, Inc. ("PSNC") is approved by all required governmental
authorities -- which is fully anticipated, the shareholders of both SCANA and
PSNC having on July 1st, 1999 approved of said merger -- PSNC will become a
wholly owned subsidiary of SCANA and will likewise participate in this Agreement
beginning with the first calendar year end Consolidate Tax Return for which it
is able. Subject to this condition precedent, PSNC, which although presently a
North Carolina corporation will at the conclusion of the merger be incorporated
instead in South Carolina, is also a signatory to this Agreement. PSNC shall
also be referred to as "Company" in accordance with the preceding paragraph.
WITNESSETH:
WHEREAS, the Companies file a consolidated federal income tax return and
the consolidated federal income tax liability has been allocated among the
Companies included in the consolidated return in accordance with the provisions
of subparagraph (a)(1) of Section 1552 of the Internal Revenue Code of 1986 and
other applicable requirements of Rule 45(c) under the Public Utility Holding
Company Act of 1935.
WHEREAS, Rule 45(c) sets forth the method by which Companies filing a
consolidated federal income tax return (hereinafter referred to as the
"consolidated tax return") may use to allocate the consolidated federal income
tax liability among the members of the group; however, in order to utilize such
method, a written agreement must be executed by the Company setting forth the
allocation method for each taxable year.
WHEREAS, the Companies desire to allocate their federal income tax
liability in accordance with the following procedures; NOW THEREFORE, the
Companies do agree as follows:
ARTICLE I
Definitions
1.1 "Consolidated Tax" is 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. 1.2 "Corporate Tax Credit" is a negative separate return
tax of a 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 Company in the consolidated tax return.
1.3 "Corporate Taxable Income" is the income or loss of a 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 the
Companies shall be disregarded, and other intercompany transactions eliminated
in the consolidated return shall be given appropriate effect. It shall further
be adjusted to allow for applicable rights accrued to a Company for the
recognition of negative corporate taxable income consistent with the provisions
of Article II herein, but carryovers and carrybacks shall not be taken into
account as loss Companies are to receive current payment of their Corporate Tax
Credits. If a 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 for that year under this Agreement. 1.4 "Separate Return Tax"
is the tax on the Corporate Taxable Income of a Company computed as though such
Company was not a member of a consolidated group.
ARTICLE II
Tax Allocation Procedures
2.1 The Consolidated Tax shall be apportioned among the Companies in
proportion to the Corporate Taxable Income of each member of the affiliated
group. Each Company which incurs a tax loss for the year shall be included in
the allocation of Consolidated Tax and shall receive a Corporate Tax Credit, the
amount of which shall be currently paid to the Company by SCANA increased by any
amounts previously assessed by SCANA and remitted by the Company to SCANA for
estimated tax payment purposes attributable to the subject taxable year.
Companies with a positive allocation of the Consolidated Tax shall currently pay
the amount so allocated, decreased by any amounts previously assessed by SCANA
and remitted by the Company to SCANA for estimated tax payment purposes
attributable to the subject taxable year.
Special Rule Regarding SCANA: In making the tax allocations provided for in
this Agreement, notwithstanding any of the foregoing, no corporate tax benefits
shall be allocated to SCANA. Although the separate corporate taxable income or
taxable loss of SCANA and any tax credits attributable to SCANA will be included
in the consolidated return, only the tax savings attributable to such items
shall be allocated to the other Companies as if SCANA was not a member of the
Companies in the consolidated return group. In making this allocation, the tax
savings of SCANA shall be allocated only to the other member Companies in the
consolidated return group having taxable income. SCANA will remit, from its
separate resources, funds for the payment of tax liabilities owed by SCANA. 2.2
SCANA shall pay to the Internal Revenue Service the group's Consolidated Tax
liability from the net of the receipts and payments. 2.3 No Company shall be
allocated any income tax greater than the Separate Return Tax of such Company
2.4 To the extent that the Consolidated and Corporate Taxable Incomes include
material items taxed at rates other than the statutory rate (such as capital
gains and preference items), the portion of the Consolidated Tax attributable to
these items shall be apportioned directly to the members of the group giving
rise to such items.
2.5 Should the Companies generate a net consolidated tax loss for a tax
year that is too large to be used in full for that year, with result that there
are uncompensated Corporate Tax Credit benefits for that year, the carryover of
uncompensated benefits related to the carryforward of tax losses applied to
reduce Consolidated Taxable Income in future tax years shall be apportioned in
accordance with the respective Companies' contributions to such loss. The tax
benefits of any resultant carryback shall be allocated proportionally to the
Companies that generated corporate tax losses in the year the consolidated net
operating tax loss was generated. Any related loss of credits, including
investment tax credit reversals, shall be allocated to the member Company that
utilized the credits in the prior year in the same proportion that the credit
lost is to the total credit utilized in the prior year. Investment tax credit
reversals allocated to a member Company will be added to that Company's
available corporate investment tax credit for future allocations. A prior year
consolidated net operating tax loss carryforward applied to reduce current year
Consolidated Taxable Income shall be allocated proportionally to member
Companies that generated a corporate tax loss in the year the consolidated net
operating loss was generated. 2.6 Adjustments to or revisions of the
Consolidated Tax as a result of subsequent events such as amended returns,
revenue agents' reports, litigation or negotiated settlements shall be allocated
in accordance with the principles established in this Agreement.
ARTICLE III
Amendment
This Agreement is subject to revision as a result of changes in income tax
law and changes in relevant facts and circumstances.
IN WITNESS WHEREOF, this Agreement has been executed by an officer of each
company as of the day and year first above written by the Companies.
ATTEST: SCANA Corporation
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X. X. Xxxxxxxx, Secretary X. X. Xxxxxxxxx
President and C.E.O
ATTEST: SCANA Service Company
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X. X. Xxxxxxxx, Secretary X.X. Xxxxxxxxx, C.E.O and C.O.O.
ATTEST: South Carolina Electric & Gas Company
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X. X. Xxxxxxxx, Secretary Xxxx X. Xxxxxx, President
ATTEST: South Carolina Pipeline Corporation
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X. X. Xxxxxxxx, Secretary Xxxxxx X. Xxxxxx, President
ATTEST: South Carolina Fuel Company, Inc.
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X. X. Xxxxxxxx, Secretary Xxxx X. Xxxxxx, President
ATTEST: South Carolina Generating Company, Inc.
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X. X. Xxxxxxxx, Secretary Xxxx X. Xxxxxx, President
ATTEST: SCANA Communications, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxxx X. Xxxxxxxxxx, Xx., President
ATTEST: SCANA Communications Holdings, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxx X. Xxxxx, C.F.O.
ATTEST: Primesouth, Inc.
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X. X. Xxxxxxxx, Secretary Xxxx X. Xxxxxx, President
ATTEST: Palmark, Inc.
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X. X. Xxxxxxxx, Secretary Xxxx X. Xxxxxx, President
ATTEST: SCANA Development Corporation
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X. X. Xxxxxxxx, Secretary Xxxxxx X. Xxxxxx, President
ATTEST: SCANA Energy Marketing, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxxx X. Xxxxxx, President
ATTEST: SCANA Petroleum Resources, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxxx X. Xxxxxx, President
ATTEST: SPR Gas Services, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxxx X. Xxxxxx, President
ATTEST: SCANA Propane Gas, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxx X. Xxxxx, C.F.O.
ATTEST: USA Cylinder Exchange, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxx X. Xxxxx, C.F.O.
ATTEST: SCANA Propane Supply, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxx X. Xxxxx, C.F.O.
ATTEST: SCANA Propane Storage, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxx X. Xxxxx, C.F.O.
ATTEST: Service Care, Inc.
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X. X. Xxxxxxxx, Secretary Xxx X. Xxxxxxxx, President
ATTEST: SCANA Resources, Inc.
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X. X. Xxxxxxxx, Secretary Xxxxx X. Xxxxx, C.F.O.
ATTEST: Company 19A
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X. X. Xxxxxxxx, Secretary Xxxxx X. Xxxxx, C.F.O.
ATTEST: Public Service Company of North Carolina,
Inc.
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X. X. Xxxxxxxx, Secretary X. X. Xxxxxxx, Xx., President
