NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARY COMPANIES
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Federal and State Income Tax Allocation Agreement
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Pursuant to Rule 45(c), Public Utility Holding Company Act of 1935
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This Agreement originally dated as of January 1, 1981, and revised as of
January 1, 1982, January 1, 1991, January 1, 1992, January 1, 1993, and
January 1, 1996 and January 1, 1998 by and between NEW ENGLAND ELECTRIC
SYSTEM, a registered holding company, and its subsidiary or affiliated
companies which participate together in the filing of a consolidated U.S.
Corporation Income Tax Return and/or consolidated, combined or unitary state
income tax returns, provides for the allocation of consolidated federal income
taxes and consolidated, combined or unitary state income taxes for 1981 and
subsequent years pursuant to Rule 45 (c) of the Securities and Exchange
Commission promulgated under the Public Utility Holding Company Act of 1935.
It is agreed by the companies that have executed this Agreement to
allocate the consolidated, combined and unitary income tax liabilities, for
1981 and subsequent years in accordance with the following provisions.
1. Definitions
A. Corporate Tax Credit - The negative separate return tax of an
associate company for a tax year equal to the amount by which the
consolidated or combined tax is reduced by including a net corporate
tax loss or other net tax benefit in the consolidated or combined
return.
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 or combined return group.
C. Excess Tax Credits - The investment tax credit, or other credit that
would be allowable were it not for a limitation provided by law in
excess of the amount of such credits computed on a separate return
basis with regard to such limitations.
D. Consolidated Alternative Minimum Tax - The tax imposed by Internal
Revenue Code Section 55(a) equal to the excess of the tentative
minimum tax for the taxable year over the regular tax for the
taxable year, computed on a consolidated basis.
E. Minimum Tax Credit Carryforward - The sum of the annual amounts of
alternative minimum tax (AMT) allocated to a company less the sum of
the minimum tax credits utilized in prior years.
F. Hydro-Quebec Phase I and II Companies - The Phase I company is New
England Electric Transmission Corporation (NEET). The Phase II
companies are New England Hydro-Transmission Corporation, New
England Hydro-Transmission Electric Co., Inc. and New England Hydro
Finance Company, Inc.
2. Allocation Procedures for Federal Income Tax Liability
A. General Rule - The consolidated tax on ordinary taxable income shall
be allocated among the companies participating in the consolidated
return in proportion to the corporate ordinary taxable income,
whether positive or negative, of each company. The consolidated
capital gains tax, if any, shall be allocated among the companies
in proportion to corporate capital gains or losses of each company.
Investment tax credits (net of recapture of prior years credits),
jobs credits, research and experimental credits, motor fuels
credits, and other similar credits allowable in the computation of
the consolidated tax shall be allocated to the companies generating
such credits. The consolidated AMT, if any, shall be allocated
among the companies in proportion to the excess of each company's
separate AMT over its allocated regular tax to the combined total of
such excess amounts. The consolidated minimum tax credit shall be
allocated as provided in paragraph E. Those associate companies
with a positive allocation shall pay the amount allocated and those
subsidiary companies with a negative allocation shall receive
payment of their corporate tax credits. New England Electric System
shall not receive a payment for its corporate tax credits, if any.
Any remaining funds shall be allocated among the companies in the
ratio by which the positive corporate ordinary taxable income of
each company having such income bears to the total positive
corporate ordinary taxable incomes of all companies. In no event
shall the tax allocated to any subsidiary company exceed the
separate return tax of such company.
B. Special Rule - If the total of the corporate tax credits of those
companies having negative taxable incomes and/or excess tax credits
is greater than the total reduction in the consolidated tax because
of the inclusion of such losses and/or credits, then corporate tax
credits arising from inclusion of negative taxable incomes in the
consolidated return shall be recognized and paid prior to corporate
tax credits arising from excess tax credits. If the total negative
taxable income of those subsidiary companies with negative taxable
incomes is not fully applied in the consolidated return, then the
corporate tax credit of each company shall be in proportion to the
total reduction in consolidated tax liability from such negative
income as the negative taxable income of each company bears to the
total negative taxable incomes of all companies. Similarly, if the
total excess tax credits of those subsidiary companies with excess
tax credits is not fully applied in the consolidated return, the
corporate tax credit arising from excess tax credits of each company
shall be in proportion to the total reduction in consolidated tax
liability from such excess tax credits as the excess tax credit of
each company bears to the total excess tax credits of all companies.
C. Unused Corporate Tax Credits - A subsidiary company that is entitled
to a corporate tax credit but does not receive such payment because
of the special rule in paragraph B shall retain such right for the
future as long as and to the extent that such credit can be applied
against the consolidated tax liability. Uncompensated corporate tax
credits arising from negative taxable incomes shall have priority
over excess tax credits.
D. New England Electric Transmission Corporation Rule - Notwithstanding
any other provisions herein, NEW ENGLAND ELECTRIC TRANSMISSION
CORPORATION (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.
E. Minimum Tax Credit - The minimum tax credit, in a year of
consolidated credit utilization, shall be tentatively allocated
among the companies participating in the consolidated return in an
amount equal to the lesser of (1) each company's separate minimum
tax credit Carry forward or (2) the excess of its allocated regular
tax over its separate AMT. If the total of such tentative minimum
tax allocations exceeds the available consolidated credit for the
taxable year, then the minimum tax credit allocation is made in
proportion to the separate company positive excess amount to the
combined total of all such amounts. If the tentative allocation is
less than the consolidated minimum tax credit utilized, the
difference between the consolidated credit utilization and the total
of the tentative allocations shall be allocated to those companies
in proportion to each company's remaining minimum tax credit Carry
forward to the combined total of such carryforwards. The total
minimum tax credit utilized for a tax year will equal the sum of the
amounts allocated in the two step computation.
3. 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:
i. The Hydro-Quebec Phase I and II companies 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 the
Hydro group shall be allocated first to NEW ENGLAND
ELECTRIC TRANSMISSION CORPORATION in an amount equal to
the difference in the combined unitary tax computed with
and without its inclusion, with the balance of the Hydro
group tax, if any, assigned to NEW ENGLAND HYDRO
TRANSMISSION CORPORATION.
ii. 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.
iii. 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.
iv. For purposes of this section 3B, 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 2A above (Allocation Procedures for Federal Income Tax
Liability, General Rule). Only companies with tax nexus in a
particular state shall be allocated a portion of such state's
income tax liability.
In witness whereof, this Agreement has been duly executed in the name of
and on behalf of the following companies and their corporate or common seals
have been affixed hereto.
NEW ENGLAND ELECTRIC SYSTEM
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
ALLENERGY FUELS CORPORATION
s/Xxxxx X. Xxxx
By
Xxxxx X. Xxxx - Treasurer
GRANITE STATE ELECTRIC COMPANY
s/X.X. XxXxxxxx
By
X.X. XxXxxxxx - Treasurer
GRANITE STATE ENERGY, INC.
s/X.X. XxXxxxxx
By
X.X. XxXxxxxx - Treasurer
MASSACHUSETTS ELECTRIC COMPANY
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NANTUCKET ELECTRIC COMPANY
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
THE NARRAGANSETT ELECTRIC COMPANY
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
XXXX COMMUNICATIONS, INC.
s/X.X. XxXxxxx
By
X.X. XxXxxxx - Treasurer
XXXX ENERGY, INC.
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
XXXX GLOBAL, INC.
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
XXXX TELECOMMUNICATIONS CORP.
s/X.X. XxXxxxx
By
X.X. XxXxxxx - Treasurer
NEW ENGLAND ELECTRIC TRANSMISSION CORP.
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND ENERGY INCORPORATED
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND HYDRO FINANCE COMPANY, INC.
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND HYDRO-TRANSMISSION CORPORATION
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND HYDRO-TRANSMISSION
ELECTRIC COMPANY, INC.
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND POWER COMPANY
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND POWER SERVICE COMPANY
s/X.X. Xxxxxxxx
By
X.X. Xxxxxxxx - Treasurer
NEW ENGLAND WATER HEATER COMPANY, INC.
s/X.X. XxXxxxx
By
X.X. XxXxxxx - Treasurer
The name "NEW ENGLAND ELECTRIC SYSTEM" means the trustee or
trustees for the time being (as trustee or trustees but not personally) under
an agreement and declaration of trust dated January 2, 1926, as amended, which
is hereby referred to, and a copy of which as amended has been filed with the
Secretary of The Commonwealth of Massachusetts. Any agreement, obligation or
liability made, entered into or incurred by or on behalf of New England
Electric System binds only its trust estate, and no shareholder, director,
trustee officer, or agent thereof assumes or shall be held to any liability
therefor.
