National Grid Group PLC – ‘U-1’ on 6/11/99 – EX-99.1

On:  Friday, 6/11/99   ·   Accession #:  898080-99-183   ·   File #:  70-09519

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Application or Declaration   —   Form U-1
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: U-1         Application or Declaration                            43    121K 
 2: EX-99.1     Form of Tax Allocation Agreement                       6     21K 
 3: EX-99.2     Form of Notice                                         1      6K 

EX-99.1   —   Form of Tax Allocation Agreement

EX-99.1
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 NATIONAL GRID GENERAL PARTNERSHIP AND
AFFILIATED U.S. CORPORATIONS

 FORM OF
 FEDERAL AND STATE INCOME TAX ALLOCATION AGREEMENT

     This  agreement  made  as  of  ___________,  among  National  Grid  General
Partnership,  a  Delaware  general  partnership  ("GP");  NGG  Holdings,  Inc, a
Delaware   corporation   ("NGG   Holdings");   New  England  Power  Company,   a
Massachusetts   corporation   ("NEP");   Massachusetts   Electric   Company,   a
Massachusetts corporation ("Mass Electric"),  The Narragansett Electric Company,
a Rhode Island corporation  ("Narragansett");  Granite State Electric Company, a
New  Hampshire   corporation   ("Granite");   Nantucket   Electric  Company,   a
Massachusetts  corporation  ("Nantucket");  New  England  Electric  Transmission
Corporation,    a   New   Hampshire    corporation    ("NEET");    New   England
Hydro-Transmission  Corporation,  a New  Hampshire  corporation  ("NEHTC");  New
England  Hydro-Transmission  Electric Company, Inc., a Massachusetts corporation
("NEHTEC");  New England  Hydro Finance  Company,  a  Massachusetts  corporation
("NEHF");  AllEnergy Fuels Corporation,  as Delaware corporation  ("AllEnergy");
NEES Global,  Inc., a Massachusetts  corporation  ("NEES Global");  NEES Energy,
Inc., a Massachusetts corporation ("NEES Energy"); Granite State Energy, Inc., a
New Hampshire  corporation  ("Granite State Energy");  New England Water Heating
Company,  a  Massachusetts  corporation  ("NEWH");  New England  Power  Services
Company, a Massachusetts  corporation  ("NEPS"),  NEES  Communications,  Inc., a
Massachusetts   corporation  ("NEESCom");   NEES  Telecommunications   Corp.,  a
Massachusetts corporation ("NEES Telecom") and New England Energy, Incorporated,
a Massachusetts corporation ("NEEI") (each, a "Member").                        

W I T N E S S E T H T H A T:

     WHEREAS,  the term  "Affiliates" as used herein shall be deemed to refer to
NGG Holdings, NEP, Mass Electric,  Narragansett,  Granite, Nantucket, NEET, NEES
Global, NEES Energy, ALLEnergy,  Granite State Energy, NEWH, NEPS, NEESCom, NEES
Telecom and NEEI.  The  Affiliates  together with GP, as a collective  taxpaying
unit, is sometimes referred to as the "Group" and                               

     WHEREAS,  GP owns  directly or indirectly at least 80 percent of the issued
and  outstanding  shares  of each  class of voting  common  stock of each of the
Affiliates  and at least 80 percent  of the total  value of the stock of each of
the Affiliates; each of GP and the Affiliates is a member of an affiliated group
within the meaning of Section  1504 of the  Internal  Revenue  Code of 1954,  as
amended (the "Code"),  of which GP is the common parent; and the Group presently
participates in the filing of a consolidated income tax return.                 

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     WHEREAS,  GP owns directly or indirectly  less than 80 percent of the total
voting power of each of NEHTC,  NEHTEC and NEHF (the "Hydro Group") or less than
80  percent of the total  value of the stock of each of NEHTC,  NEHTEC and NEHF,
but files certain unitary state tax returns with the Hydro Group,               

GP, the  Affiliates  and the Hydro  Group  agree to allocate  tax  liability  as
follows:                                                                        

I.   Allocation  shall be made in accordance with Treasury  Regulation  Sections
1.1552-1(a)(1) and 1.1502-33(d)(3).                                   

A.   General Rule                                                     

     Step 1 - The federal consolidated tax liability of the Group (not including
any  liability  for  alternative  minimum  tax) shall be  apportioned  among the
Members of the Group in the ratio that each  Member's  separate  taxable  income
bears to the sum of the separate  taxable  incomes of all Members having taxable
income.                                                                         

     Step 2 - An additional liability amount will be allocated to Members of the
Group equal to 100% of the excess of the Member's  separate tax  liability  over
the  consolidated  tax liability of the Group allocated to the Member under Step
1.                                                                              

     Step 3 - The  total  of the  amounts  allocated  under  Step 2 is  credited
pursuant to a  consistent  method to those  Members of the Group who had losses,
credits or other net tax benefits included in the consolidated return, (referred
to as "corporate tax benefits") as follows:                                     

     (a) If all  corporate  tax  benefits  reduce  the  amount of tax due in the
consolidated  return of the Group, each Member of the Group having corporate tax
benefits will be allocated the value thereof.  The value of net operating losses
shall generally be determined by applying the then current  corporate income tax
rate to the amount of the loss, and the value of a credit shall  generally equal
100% of the credit utilized.                                                    

     (b) If the total of the  corporate  tax  benefits is greater than the total
reduction in the consolidated  tax of the Group,  then the benefits arising from
the inclusion of negative  taxable incomes in the  consolidated  return shall be
recognized  and  paid  prior  to the  benefits  arising  from  credits  or other
benefits.                                                                       

     (c) If the corporate tax benefits attributable to Members of the Group with
negative  taxable  incomes are not  absorbed  in the  consolidated  return,  the
benefit  allocated  to each such Member of the Group shall be in  proportion  to
their respective negative taxable incomes.                                      

     (d) If the corporate tax benefits  attributable to credits or other net tax
benefits  are not fully  applied in the  consolidated  return of the Group,  the
benefits arising from credits shall be recognized and paid prior to the benefits
arising from other benefits.                                                    

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     (e) If the corporate tax benefits attributable to Members of the Group with
credits are not absorbed in the  consolidated  return of the Group,  the benefit
allocated to each Member  company  shall be in  proportion  to their  respective
credits.                                                                        

     (f) If the corporate tax benefits attributable to Members of the Group with
other  benefits are not absorbed in the  consolidated  return of the Group,  the
benefit  allocated  to each  Member  company  shall  be in  proportion  to their
respective other benefits.                                                      

     Step 4 - If the total consolidated tax liability results in an "Alternative
Minimum  Tax"  liability,  then any  additional  amount will be allocated to the
Members of the Group based upon their proportionate amounts of separate adjusted
alternative minimum taxable income.                                             

     Step 5 - Under no  circumstances  shall the  amount of tax  allocated  to a
Member exceed its separate tax liability.                                       

     Step 6 - Reimbursement - Each Member of the Group shall pay its apportioned
share of the  consolidated  tax liability  (including its  apportioned  share of
consolidated   alternative   minimum  tax)  along  with  any  additional  amount
determined  under  Step 2 to GP no later  than 90 days  after the  filing of the
consolidated tax return. GP shall thereafter  distribute any amounts  determined
under  Step 3 to the  appropriate  Member of the  Group.  Within 30 days of each
quarterly  payment date for estimated taxes,  each Member of the Group shall pay
to GP an estimate  of the  amounts due to GP under Steps 1 and 2 above.  GP will
thereafter distribute an estimate of the amounts due under Step 3 to appropriate
members of the Group.  These  amounts  shall be paid within a reasonable  period
after  request  by GP. Any  amounts  so paid in any year shall  reduce the final
amounts  payable as set forth  above,  and any  balance due  resulting  from the
reduction shall be promptly refunded.                                           

B.   Unused Corporate Tax Benefits                                    

     A Member of the Group that is  entitled  to  payment  for a  corporate  tax
benefit,  but does not receive such payment because of the rules in Step 3 shall
retain such right for the future to the extent that such  benefit can be applied
against the  consolidated  tax liability.  Uncompensated  corporate tax benefits
arising  from  negative  taxable  income shall have  priority  over the benefits
attributable to excess tax credits.                                             

C.   NEET Rule                                                        

     Notwithstanding any other provisions herein, 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.                                                                        

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D.   Tax Adjustments                                                  

     In the event of any adjustments to the tax returns of any of the Members of
the Group filed (by reason of an amended return,  a claim for refund or an audit
by the Internal Revenue Service), the liability,  if any, of each of the Members
of the Group under  Section A shall be  redetermined  to give effect to any such
adjustment  as if it had been made as part of the  original  computation  of tax
liability,  and  payments  between GP and the  appropriate  Members of the Group
shall be made  within 120 days after any such  payments  are made or refunds are
received,  or, in the case of  contested  proceedings,  within  120 days after a
final determination of the contest. Interest and penalties, if any, attributable
to such an  adjustment  shall  be paid by  each  Member  of the  Group  to GP in
proportion  to the  increase  in such  Member's  separate  return tax  liability
computed under Section A of this Agreement that is required to be paid to GP. In
any  situation  in which the  Group's  tax  liability  is  adjusted by a revenue
agent's report or a court  settlement and an  item-by-item  modification  is not
made,  the Group shall consult its  accountants  for assistance in determining a
fair allocation of the adjusted liability.                                      

II.  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:                                                                     

     1.   NEET and the Hydro Group 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 NEET and the Hydro Group shall be
          allocated  first to NEET in an amount equal to the  difference  in the
          combined unitary tax computed with and without its inclusion, with the
balance, if any, assigned to NEHTC.                         

     2.   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                                      

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          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.

     3.   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.                                          

     4.   For  purposes of this  section  IIB,  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.                             

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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  IA  above.  Only
companies  with tax nexus in a particular  state shall be allocated a portion of
such state's income tax liability.                                              

III. Subsidiaries of Affiliates                                                 

     If at any time,  any of the  Affiliates  acquires  or  creates  one or more
subsidiary  corporations  that are includible  corporations  of the Group,  they
shall be subject to this Agreement and all  references to the Affiliates  herein
shall be interpreted to include such subsidiaries as a group.                   

IV.  Successors                                                                 

     This  Agreement  shall be  binding  on and  insure  to the  benefit  of any
successor, by merger,  acquisition of assets or otherwise, to any of the parties
hereto  (including  but  not  limited  to  any  successor  of GP or  any  of the
Affiliates  succeeding to the tax attributes of such  corporation  under Section
381 of the Code) to the same  extent as if such  successor  had been an original
party to this agreement.                                                        

V.   Termination Clause                                                         

     This  Agreement  shall  apply to the  taxable  year  ending  ________,  and
subsequent  taxable  years,  unless  all of the  members  of the Group  agree in
writing  to  terminate  the  Agreement  prior  to the end of the  taxable  year.
Notwithstanding  any  termination,  this Agreement shall continue in effect with
respect  to any  payment  or  refunds  due  for all  taxable  periods  prior  to
termination.                                                                    

     IN WITNESS WHEREOF, the duly authorized representatives of the parties have
set their hands this ____ day of _______________.                               

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