EXHIBIT C - 3.1
(REVISED)
TAX ALLOCATION AGREEMENT
Agreement dated __________, 2001, by and among Powergen USA and its
undersigned subsidiaries.
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group ("Affiliated
Group") as defined in Section 1504(a) of the Internal Revenue Code of 1986, as
amended ("Code"), of which Powergen USA is the common parent; and
WHEREAS, such Affiliated Group will file a U.S. consolidated income tax
return for its tax period 2000 (to be filed by September 15, 2001) and is
required to file consolidated tax returns for subsequent years; and
WHEREAS, Louisville Gas & Electric Company ("LG&E") was ordered in the
Commonwealth of Kentucky Public Service Commission Case No. 89-374 to allocate
income tax liabilities using the "stand alone" method; and
WHEREAS, Kentucky Utilities Company ("KU") was ordered in the Commonwealth
of Kentucky Public Service Commission Case No. 10296 to develop, implement, and
maintain cost allocation procedures that will prevent cross-subsidization; and
WHEREAS, it is the intent and desire of the parties hereto that a method be
established for allocating the consolidated tax liability of the Affiliated
Group among its members, for reimbursing LG&E Energy Corp. ("LG&E Energy") for
payment of such tax liability, for compensating any party for use of its losses
or tax credits, and to provide for the allocation and payment of any refund or
credit arising from a carryback, or carryforward of losses or tax credits from
other tax years.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. Definitions:
"Consolidated tax" shall mean the aggregate tax liability for a taxable
year, being the tax shown on the consolidated return of the Affiliated
Group and any adjustments thereto thereafter determined. The consolidated
tax shall mean the amount of the refund if the consolidated tax return
shows a negative tax liability.
"Corporate taxable income" shall mean the income or loss of a member,
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. Carryovers and
carrybacks shall not be taken into account to the extent that the member
has been paid a corporate tax credit therefor under paragraph 4 of this
Agreement.
"Corporate tax credit" shall mean the negative separate return tax of a
member for a taxable year, equal to the amount by which the consolidated
tax is reduced by including a net corporate taxable loss or other tax
benefit of such associate company in the consolidated return.
"Holding Company" means LG&E Energy and each member of the Affiliate Group
which is a parent company of LG&E Energy.
"Powergen Holding Company" means each Holding Company other than LG&E
Energy.
"Separate return tax" shall mean the tax on the corporate taxable income of
a member computed as though the member were not a member of a consolidated
group.
2. A U.S. consolidated income tax return shall be filed by Powergen USA for
the tax period ended December 31, 2000 and for each subsequent taxable
period in respect of which this Agreement is in effect and for which the
Affiliated Group is required or permitted to file a consolidated tax
return. Powergen USA shall be solely responsible for the preparation of
such returns, and shall be entitled to make all such elections under the
Code (in its sole discretion) as it shall deem appropriate or advisable in
connection with those returns; provided that Powergen USA shall have no
liability to the subsidiaries for any errors or omissions in the
preparation or filing of those returns, or in connection with those
elections. Each of the undersigned members shall, and shall cause their
respective subsidiaries to execute and file such consents, elections, and
other documents that Powergen USA may in its sole discretion determine are
required or appropriate, in Powergen USA's discretion and at its request,
for the proper filing of, or in connection with, such returns, and take all
such other actions as shall be required to give effect to the provisions of
this Agreement. The undersigned members and their respective subsidiaries
are hereinafter collectively referred to as the "subsidiaries" or
"members", and individually referred to as a "subsidiary" or a "member".
3. LG&E Energy will make all Federal corporate income tax payments to the
Internal Revenue Service on behalf of the Affiliated Group.
4. Each member (including each Holding Company) shall pay the amount of its
separate return tax to LG&E Energy if such amount is positive. LG&E Energy
shall pay any member with a positive corporate tax credit the amount of
such credit; provided, however, that no such payment shall be made in this
respect to any Holding Company. Any corporate tax credit of a Holding
Company, other than in connection with tax benefits related to the debt
incurred by Powergen USA (or any other Powergen Holding Company) from time
to time to finance the acquisition of its U.S. utility and energy-related
businesses, including LG&E Energy and its direct and indirect subsidiaries,
and any debt incurred to refinance or refund the foregoing ("Acquisition
Debt"), shall be
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reallocated to the other members of the Affiliated Group having a positive
separate return tax liability in proportion to their separate return tax.
The corporate tax benefits related to the Acquisition Debt shall be
retained by LG&E Energy. In the event that the total separate return tax of
the Affiliated Group exceeds the consolidated tax liability of the
Affiliated Group, the excess shall be allocated to the members having
positive separate return tax liability in proportion to the separate return
tax liabilities of such members. For purposes of this Agreement, any
liability for alternative minimum tax shall be treated as part of the
member's separate tax liability provided that the entire Affiliated Group
incurs an alternative minimum tax liability. Intercompany eliminations
recorded by consolidation entries that affect the consolidated tax will be
assigned to the appropriate member necessitating the intercompany
elimination for the purpose of computing separate return tax. In the event
that less than all of the net tax benefits of the members having negative
separate return tax are absorbed, the aggregate corporate tax credit
applicable to such members shall be allocated to such members in proportion
to their separate return tax liabilities; provided, however, that to the
extent that the consolidated tax and separate return tax for any year
include material items taxed at different rates or involve other special
benefits or limitations, the associated tax benefits shall be first
allocated, to the extent possible, to the individual members of the group
applicable to them. Under no circumstances shall the amount of tax
liability allocated to a member of the Affiliated Group under this
Agreement exceed its separate tax liability.
5. Payment of the consolidated U.S. tax liability for a taxable period shall
include the payment of estimated tax installments due for such taxable
period. Each member shall pay to LG&E Energy an amount equal to its
positive separate return tax liability, if any, for that taxable period,
and LG&E Energy shall pay to each member an amount equal to its corporate
tax credit attributable to that taxable period, in each case by the due
date for payment of the consolidated U.S. taxes. Any amounts paid by a
member on account of a separate return or separate estimated tax payment
that are credited against the consolidated tax liability of the Affiliated
Group shall be included in determining the payments due from such member.
Any overpayment of estimated tax shall be promptly refunded to such member.
Payment shall be made within ten days after each quarterly payment date for
estimated taxes and the date of filing of the consolidated return for such
taxable period.
6. If part or all of an unused loss or tax credit is allocated to a member of
the Affiliated Group pursuant to Treasury Regulations Section 1.1502-79,
and is carried back or forward to a year in which such member filed a
separate return or a consolidated return with another affiliated group, any
refund or reduction in tax liability arising from the carryback or
carryover shall be retained by such member. Notwithstanding the above,
Powergen USA shall determine whether an election shall be made not to
carry back part or all of a consolidated net operating loss for any tax
year in accordance with Section 172(b)(3) of the Code.
7. If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, claim for refund, or after a tax
audit by the Internal Revenue Service, the liability of each member shall
be recomputed to give effect to such adjustments, and in the case of a
refund, LG&E Energy shall make payment to each member for its share of
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the refund, determined in the same manner as in paragraph 4 above, within
ten days after the refund is received by LG&E Energy, and in the case of an
increase in tax liability, each member shall pay to LG&E Energy its
allocable share of such increased tax liability, penalties and interest
within ten days after receiving notice of such liability from LG&E Energy.
8. The allocation of state and local income tax liabilities will be determined
based on the application of one of the following filing methods:
(1) Separate entity
(2) Unitary group
(3) Nexus Combined
(4) Consolidated (mirrors the federal group);
provided, however, that no member's state or local tax income tax liability
under the Agreement shall exceed its state or local tax liability had it
filed a separate return.
All tax cost or benefit determined under a SEPARATE ENTITY filing will be
allocated to the subsidiary that filed the separate return.
Tax cost or benefit determined for a UNITARY filing will be allocated to
the applicable business unit, similar to a separate entity filing
allocation. For example, if the gas facilities group files a state unitary
return including the gas facilities parent and all its subsidiaries, the
entire state tax cost or benefit is allocated to the gas facilities group.
Further allocation within the group is optional at the discretion of the
group.
Tax cost or benefit determined for a NEXUS COMBINED filing will be
allocated as if each entity or business unit (e.g., KU, LG&E, Power
Generation, Facilities) filed a "stand alone" or separate entity return.
Both apportionment factors and taxable income are to be considered in the
allocation. No benefit will be allocated to Powergen USA. Any remaining
cost or benefit will be allocated to LG&E Energy on at least an annual
basis.
Tax cost or benefit determined for a CONSOLIDATED filing will be allocated
based on each subsidiary's or business unit's nexus (as defined below) with
the individual state or locality. For example, state tax determined in a
consolidated return will be allocated as if the entity (or business unit)
filed a "stand alone" or separate tax return using both: (a) the entity's
(or business unit's) property, payroll, and receipts apportioned to the
state and (b) their taxable income or loss. No tax cost or benefit will be
allocated to any entity or business unit having no nexus in the state or
locality, and no benefit will be allocated to Powergen USA. The remaining
cost or benefit will be allocated to LG&E Energy on at least an annual
basis.
For purposes of state and local allocations, the following definitions are
provided:
"Nexus"--The connection an entity has with a taxing jurisdiction generally
represented by property and payroll. The applicable jurisdiction's nexus
standards will determine whether tax cost or benefit is allocated to an
entity. (E.g., state sales or receipts of an
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entity may require inclusion in a consolidated return even though the
entity itself does not have nexus and is protected by PL 86-272.)
"Unitary"--The relationship between related/affiliated members generally
within a consolidated group. The applicable jurisdiction will determine
whether the entities are unitary. This often requires a presence of unity
of ownership (e.g., over 50% owned by common parent), unity of operation
(back-office or central support functions) and unity of use (centralized
policies, common management forces, intercompany products flow or services
provided by one entity to another)
"Nexus-combined"--A return that includes only those entities having nexus
in the applicable jurisdiction.
9. The payment or refund of any tax liability discussed in paragraphs 2-8
above may be satisfied through the debiting or crediting of the member's
(s') intercompany payable or receivable account on the same day as payment
or refunds would have otherwise been required. If during a consolidated
return period Powergen USA or any subsidiary acquires or organizes another
corporation that is required to be included in the consolidated return,
then such corporation shall join in and be bound by this Agreement.
10. This Agreement shall apply to the tax period ending December 31, 2000, and
all subsequent taxable periods unless and until (a) this Agreement is
terminated by the mutual consent of the signatories hereto, or (b) this
Agreement is terminated by Powergen USA (in its sole discretion) as to any
one or more subsidiaries at any time that those subsidiaries are no longer
members of an affiliated group with Powergen USA under Section 1504(a) of
the Code. Notwithstanding such termination, this Agreement shall continue
in effect with respect to any payment or refunds due for all taxable
periods ending on or prior to termination.
11. This Agreement shall be binding upon and inure to the benefit of any
successor of the parties and their subsidiaries, whether by operation of
law or otherwise, to the same extent as if the successor had been an
original party to the Agreement.
12. This Agreement is subject to revision as a result of changes in income tax
law and changes in relevant facts and circumstances, subject to approval of
such revision by the Securities and Exchange Commission as and to the
extent required by the Public Utility Holding Company Act of 1935.
13. Notwithstanding any provision in this Agreement to the contrary, income tax
shall be allocated among the parties in a manner consistent with Rule
45(c)(2)(ii) of the Public Utility Holding Company Act of 1935.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed by their duly authorized representatives on _______________, 2001.
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Powergen USA
By
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PowerGen US Investments Corp.
By
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LG&E Energy Corp.
By
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Louisville Gas and Electric Company
By
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Kentucky Utilities Company
By
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LG&E Capital Corp.
By
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LG&E Energy Marketing Inc.
By
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