Exhibit B
ENERGY EAST CORPORATION
Tax Sharing Agreement
THIS AGREEMENT, made and entered into as of the 1st day of May, 1998,
by and among ENERGY EAST CORPORATION, a New York corporation having an office
for the transaction of business in Albany, New York ("EEC"), and such
subsidiaries of EEC as execute this Agreement at anytime.
WITNESSETH:
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WHEREAS, EEC is or will be a registered holding company under the
Public Utility Holding Company Act of 1935 ("Act");
WHEREAS, Rule 45(c) has been adopted by the Securities and Exchange
Commission with the intention of providing methods of allocating current income
taxes by a registered holding company and its subsidiaries, and this Agreement
is intended to comply with Rule 45(c);
WHEREAS, EEC and its subsidiaries (herein EEC and its subsidiaries are
referred to collectively as the "Group" and individually as a "Member") have
elected to file consolidated Federal income tax returns pursuant to Chapter 6 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder;
WHEREAS, New York State Electric & Gas Corporation ("NYSEG") and NGE
Generation, Inc. ("NGE Generation") are two of the Members;
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WHEREAS, the Members desire to set forth their agreement as to how the
Members shall share, with respect to any such consolidated Federal income tax
return, the consolidated Federal income tax liability (determined before taking
into account the business credit ("BC") under Section 38 of the Code and the
minimum tax credit ("MTC") under Section 53 of the Code) (such before BC and MTC
tax liability is referred to herein as "FIT") and the consolidated Federal
environmental tax liability ("FET"), should such tax exist;
WHEREAS, the Members desire to set forth their agreement as to how any
Member whose inclusion in the Group results in a reduction in the FIT or FET of
the Group or an increase in the BCs or MTCs utilized by the Group shall be
compensated;
WHEREAS, the Members desire to set forth their agreement as to how the
Members shall share any tax liability that may be incurred with respect to any
consolidated non-Federal tax return that may be filed for purposes of any tax
that is imposed by any state, local or other jurisdiction;
WHEREAS, the Members desire to set forth their agreement as to how any
Member whose inclusion in any such consolidated non-Federal tax return results
in a reduction in tax or an increase in any applicable tax credit that is
utilized on such consolidated non-Federal tax return shall be compensated; and
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WHEREAS, this Agreement is intended to reflect an election by the
Group to allocate tax liability among the members under the method described in
Regulations sections 1.1552-1(a)(2) and 1.1502-33(d)(3);
NOW, THEREFORE, in consideration of the above premises and other good
and valuable consideration received by each party hereto, the parties hereto
agree as follows.
1. Each party hereto, by virtue of its membership in the Group, agrees
to participate in the annual filing of a consolidated Federal income tax return.
2. With respect to each such return, there shall be apportioned to
each Member a part of the Group's FIT and a part of the Group's FET and there
shall be allocated a part of the BCs utilized by the Group and a part of the
MTCs utilized by the Group.
3. The Group's regular tax ("RT") and alternative minimum tax ("AMT")
with respect to such a return shall be separately apportioned to each member as
follows:
(a) First, determine the Group's FIT by using the "RT"
calculation or the "AMT" calculation, whichever is applicable for the
Group.
(b) Next, determine each Member's separate FIT by using the RT
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calculation or the AMT calculation, whichever is used in Section 3(a),
above.
(c) Next, determine the Group's FIT by (i) using the RT
calculation or the AMT calculation, whichever is used in Section 3(a),
above, and (ii) excluding all Members ("Section 3 Members") of the
Group for which the calculation in Section 3(b), above, did not result
in a positive FIT.
(d) Next, apportion the amount determined pursuant to Section
3(c), above, among the Members that are not Section 3 Members pro rata
based upon each's separate FIT determined pursuant to Section 3(b),
above.
(e) Next, determine the amount by which (i) the amount determined
pursuant to Section 3(c), above, exceeds (ii) the amount determined
pursuant to Section 3(a), above.
(f) Finally, apportion the amount determined pursuant to Section
3(e), above, among the Section 3 Members pro rata based upon each's
"Contribution Amount". For this purpose, a Section 3 Member's
"Contribution Amount" is equal to the amount, if any, by which (i) the
Group's FIT, determined (A) by using the RT calculation or the AMT
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calculation, whichever is used in Section 3(a), above, and (B) by not
including the Section 3 Member in the Group, exceeds (ii) the amount
determined pursuant to Section 3(a), above.
In calculating FIT pursuant to Sections 3(a) and 3(f), above, if the calculation
results in a carryforward or carryback of any item of deduction that results in
a tax savings for a taxable year other than the taxable year for which the
calculation is being made, such savings shall be treated as a negative FIT for
the taxable year for which the calculation is being made. However, not
withstanding any provision of this Agreement that may be to the contrary, in the
case of tax savings that results from the carryforward of any item of deduction,
no payment shall be made pursuant to Section 8, below, and Section 13 below,
until the tax savings is actually realized by the Group. A Member's separate FIT
shall be calculated as if the Member, for the taxable year for which the
calculation is being made and all other relevant taxable years, were not a
member of an affiliated group of corporations for purposes of the Code, except
that any "net operating loss" as defined in Section 172(c) of the Code (and any
"alternative tax net operating loss" for purposes of Section 56(d) of the Code)
that ever has been taken into account in calculating the Group's FIT shall be
disregarded.
4. Each Member's apportioned share of the Group's FET with respect to
such a return shall be determined as follows:
(a) First, determine the Group's FET.
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(b) Next, determine each Member's separate FET.
(c) Next, determine the Group's FET by excluding any Member (a
"Section 4 Member") of the Group that, for purposes of calculating its
separate FET, did not have a positive "modified alternative minimum
taxable income" as defined in Section 59A(b) of the Code.
(d) Next, apportion the amount determined pursuant to Section
4(c), above, among the Members that are not Section 4 Members pro rata
based upon each's separate FET determined pursuant to Section 4(b),
above.
(e) Next, determine the amount by which (i) the amount determined
pursuant to Section 4(c), above, exceeds (ii) the amount determined
pursuant to Section 4(a), above.
(f) Finally, apportion the amount determined pursuant to Section
4(e), above, among the Section 4 Members pro rata based upon each's
"Contribution Amount". For this purpose, a Section 4 Member's
"Contribution Amount" is equal to the amount, if any, by which (i) the
Group's FET, determined by not including the Section 4 Member in the
Group, exceeds (ii) the amount determined pursuant to Section 4(a),
above.
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A Member's separate FET shall be calculated as if the Member, for the taxable
year for which the calculation is being made and all other relevant taxable
years, were not a member of an affiliated group of corporations for purposes of
the Code, except that any "alternative tax net operating loss" for purposes of
Section 56(d) of the Code that ever has been taken into account in calculating
the Group's FET shall be disregarded.
5. Each Member's allocated share of the BCs utilized by the Group
(including any additional amount of BCs that, pursuant to Section 9(e), below,
is deemed to be utilized) with respect to such a return shall be determined as
follows:
(a) First, assign all not previously used BCs that have been
generated by Members to vintage years based upon the taxable years in
which they have been generated.
(b) Next, determine to which vintage years the BCs that the Group
uses, or is deemed to use, on such return ("Used BCs") belong by
deeming the Used BCs to consist first of the oldest vintage of BCs,
then of the next oldest vintage of BCs and so on until all of the Used
BCs have been deemed to belong to a vintage of BCs.
(c) Finally, allocate the Used BCs to those Members of the Group
that generated BCs during the vintage years determined pursuant to
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Section 5(b), above. There shall be allocated to each such Member an
amount that is equal to the total amount of the BCs that were
generated by the Member in the vintage years so determined.
Notwithstanding the previous sentence, if, pursuant to Section 5(b),
above, a lesser amount of Used BCs is deemed to belong to a vintage
year than the amount of BCs that, pursuant to Section 5(a), above,
have been assigned to that vintage year, as to that vintage year there
shall be allocated to a Member that generated BCs in that vintage year
a pro rata amount of the Used BCs that are deemed to belong to that
vintage year, which pro rata amount shall be based upon the ratio that
the amount of BCs that were generated by the Member in that vintage
year and not previously used bears to the amount of BCs that, pursuant
to Section 5(a), above, have been assigned to that vintage year.
For purposes of this Section 5, in determining the research credit ("R&DC")
under Section 41 of the Code that has been generated by a particular Member, the
following rules shall apply.
(d) First, determine the R&DC generated by the Group.
(e) Next, determine the R&DC that would have been generated by
each Member if, for the taxable year for which the calculation is
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being made and all other relevant taxable years, the Member were not a
member of an affiliated group of corporations for purposes of the
Code.
(f) The amount of the R&DC generated by each Member shall be
deemed to be the product of (i) the amount determined for the Group
pursuant to Section 5(d), above, multiplied by (ii) a fraction (A) the
numerator of which is the amount determined for the Member pursuant to
Section 5(e), above, and (B) the denominator of which is the sum of
the amounts determined for all the Members pursuant to Section 5(e),
above.
6. Each Member's allocated share of the MTCs utilized by the Group
(including any additional amount of MTCs that, pursuant to Section 10(e), below,
is deemed to be utilized) with respect to such a return shall be determined as
follows:
(a) First, assign all not previously used MTCs that have been
generated by Members to vintage years based upon the taxable years in
which they have been generated.
(b) Next, determine to which vintage years the MTCs that the
Group uses, or is deemed to use, on such return ("Used MTCs") belong
by deeming the Used MTCs to consist first of the oldest vintage of
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MTCs, then of the next oldest vintage of MTCs and so on until all of
the Used MTCs have been deemed to belong to a vintage of MTCs.
(c) Finally, allocate the Used MTCs to those Members of the Group
that generated MTCs during the vintage years determined pursuant to
Section 6(b), above. There shall be allocated to each such Member an
amount that is equal to the total amount of the MTCs that were
generated by the Member in the vintage years so determined.
Notwithstanding the previous sentence, if, pursuant to Section 6(b),
above, a lesser amount of Used MTCs is deemed to belong to a vintage
year than the amount of MTCs that, pursuant to Section 6(a), above,
have been assigned to that vintage year, as to that vintage year there
shall be allocated to a Member that generated MTCs in that vintage
year a pro rata amount of the Used MTCs that are deemed to belong to
that vintage year, which pro rata amount shall be based upon the ratio
that the amount of MTCs that were generated by the Member in that
vintage year and not previously used bears to the amount of MTCs that,
pursuant to Section 6(a), above, have been assigned to that vintage
year.
7. Those Members (other than EEC) that are apportioned a share
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pursuant to either Section 3(d), above, or Section 4(d), above, shall make, with
respect to such a return, a cash payment to EEC equal to any such apportioned
amount.
8. EEC shall make, with respect to such a return, a cash payment to
those Members (other than EEC) that are apportioned a share pursuant to Section
3(f), above, equal to the share apportioned. However, the cash payment required
by the previous sentence shall be reduced by the amount (the "Reduction
Amount"), if any, determined as follows:
(a) First, determine the Group's total cash tax liability with
respect to such return without regard to the Group's FET.
(b) Next, determine the Group's total cash tax liability with
respect to such return (i) without regard to the Group's FET and (ii)
by excluding all items of income and deduction of Members ("Section 8
Members") of the Group that, based solely on the first sentence of
this Section 8, would be entitled to a cash payment.
(c) Next, determine the amount, if any, by which (i) the amount
determined pursuant to Section 8(b), above, exceeds (ii) the amount
determined pursuant to Section 8(a), above.
(d) Next, apportion the amount determined pursuant to Section
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8(c), above, among the Section 8 Members pro rata based upon each's
"Contribution Amount". For this purpose, a Section 8 Member's
"Contribution Amount" is equal to the amount, if any, by which (i) the
Group's total cash tax liability with respect to such return
determined (A) without regard to the Group's FET and (B) by not
including the Section 8 Member in the Group exceeds (ii) the amount
determined pursuant to 8(a), above.
(e) Finally, for each Section 8 Member, determine the amount by
which (i) the amount of the share apportioned to the Section 8 Member
pursuant to Section 3(f), above, exceeds (ii) the amount determined
pursuant to Section 8(d), above. The amount determined pursuant to the
previous sentence is the Reduction Amount.
In calculating the Group's total cash liability pursuant to Sections 8(a) and
8(d), above, if the calculation results in a carryforward or carryback of any
item of deduction that results in a cash tax savings for a taxable year other
than the taxable year for which the calculation is being made, such savings
shall be treated as a negative cash tax liability for the taxable year for which
the calculation is being made.
9. If, with respect to such a return, any Section 8 Member has a
positive Reduction Amount, the BC carryforwards and carrybacks of the Members
shall be adjusted as set forth in this Section 9.
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(a) First, determine what would have been the amount of BCs
actually used on the return if the Group's total cash tax liability
had been determined pursuant to Section 8(b), above.
(b) Next, determine the amount (the "Reallocated BC Amount") by
which (i) the amount determined pursuant to Section 9(a), above,
exceeds (ii) the amount of BCs actually used on the return.
(c) Next, apportion the Reallocated BC Amount among those Section
8 Members that have positive Reduction Amounts pro rata based upon
each's Reduction Amount.
(d) Next, deem any Reallocated BC Amount that is apportioned to a
Section 8 Member pursuant to Section 9(c), above, to be a BC that was
generated by that Section 8 Member for purposes of applying Section 5,
above, to any other consolidated Federal income tax return that is
filed by the Group. For purposes of so applying Section 5, (i) all BCs
that are attributable to Reallocated BC Amounts shall be assigned to
vintage years based upon the taxable years to which the Reallocated BC
Amounts relate and (ii) the vintage years to which they are assigned
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shall be deemed to be more recent than the vintage years of any BCs
that are not attributable to Reallocated BC Amounts.
(e) Finally, for purposes of applying Section 5, above, deem the
Reallocated BC Amount to be an additional amount of BCs that is
utilized by the Group.
10. If, with respect to such a return, any Section 8 Member has a
positive Reduction Amount, the MTC carryforwards of the Members shall be
adjusted as set forth in this Section 10.
(a) First, determine what would have been the amount of MTCs
actually used on the return if the Group's total cash tax liability
had been determined pursuant to Section 8(b), above.
(b) Next, determine the amount (the "Reallocated MTC Amount") by
which (i) the amount determined pursuant to Section 10(a), above,
exceeds (ii) the amount of MTCs actually used on the return.
(c) Next, apportion the Reallocated MTC Amount among those
Section 8 Members that have positive Reduction Amounts pro rata based
upon each's Reduction Amount.
(d) Next, deem any Reallocated MTC Amount that is apportioned to
a Section 8 Member pursuant to Section 10(c), above, to be a MTC that
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was generated by that Section 8 Member for purposes of applying
Section 6, above, to any other consolidated Federal income tax return
that is filed by the Group. For purposes of so applying Section 6, (i)
all MTCs that are attributable to Reallocated MTC Amounts shall be
assigned to vintage years based upon the taxable years to which the
Reallocated MTC Amounts relate and (ii) the vintage years to which
they are assigned shall be deemed to be more recent than the vintage
years of any MTCs that are not attributable to Reallocated MTC
Amounts.
(e) Finally, for purposes of applying Section 6, above, deem the
Reallocated MTC Amount to be an additional amount of MTCs that is
utilized by the Group.
11. EEC shall make, with respect to such a return, a cash payment to
those Members (other than EEC) that are apportioned or allocated a share
pursuant to either Section 4(f), above, Section 5(c), above, or Section 6(c),
above, equal to any such apportioned or allocated amount.
12. Notwithstanding any provision of this Agreement that may be to the
contrary, (i) any cash payment that, but for this Section 12, would be made by
NGE Generation to EEC shall instead be made by NYSEG to EEC, and (ii) any cash
payment that, but for this Section 12, would be made by EEC to NGE Generation
shall instead be made by EEC to NYSEG.
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13. Any cash payments that are required pursuant to Section 7, above,
Section 8, above, Section 11, above, or Section 12, above, shall be made at such
times throughout the year as the related tax payments (or refunds) are made to
(or received from) the Internal Revenue Service.
14. In the case of any consolidated non-Federal tax return that may be
filed for purposes of any tax that is imposed by any state, local or other
jurisdiction, any tax liability that is incurred shall be shared by the Members
that are included in such consolidated non-Federal tax return on a basis that is
analogous to how such Members would share FIT under this Agreement in the case
of the filing of a consolidated Federal income tax return solely by the Members
that are included in such consolidated non-Federal tax return.
15. If the inclusion of a Member in any such consolidated non-Federal
tax return results in a reduction in tax or an increase in any applicable tax
credit that is utilized on such consolidated non-Federal tax return, that Member
shall be compensated on a basis that is analogous to how that Member would be
compensated under this Agreement in the case of the filing of a consolidated
Federal income tax return solely by the Members that are included in such
consolidated non-Federal tax return.
16. This Agreement may be amended only by a written instrument that is
executed by all the Members.
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17. This Agreement may be executed in several counterparts, each of
which shall be an original and all of which shall constitute but one and the
same instrument.
18. This Agreement contains the entire understanding and agreement of
the Members as to the subject matter hereof and this Agreement shall completely
and fully supersede all other prior understandings or agreements, both written
and oral, between and among the Members.
19. This Agreement is intended solely for the benefit of the parties
hereto. Nothing in this Agreement shall be construed to create any duty to,
standard of care with reference to, or any liability to, any person not a party
to this Agreement.
20. If any paragraph, phrase, provision or portion of this Agreement
shall for any reason be adjudged to be illegal or unenforceable by a court of
competent jurisdiction or regulatory agency, such paragraph, phrase, provision
or portion so adjudged shall be deemed separate, distinct and independent, and
the remainder of this Agreement shall be and remain in full force and effect and
shall not be rendered illegal, unenforceable or otherwise affected by such
adjudication.
IN WITNESS WHEREOF, the Members have caused this Agreement to be
executed by their proper officers thereunto duly authorized as of the date first
above written.
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ENERGY EAST CORPORATION
By:
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NEW YORK STATE ELECTRIC & GAS
CORPORATION
By:
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NGE GENERATION, INC.
By:
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