TAX MATTERS AGREEMENT by and among

EXHIBIT 10.1

EXECUTION COPY

TAX MATTERS AGREEMENT

by and among

DUKE ENERGY CORPORATION,

SPECTRA ENERGY CORP,

and

THE OTHER SPECTRA ENERGY PARTIES

Dated as of

December 13, 2006

TAX MATTERS AGREEMENT

THIS TAX MATTERS AGREEMENT is entered into as of December 13, 2006, by and among Duke Energy Corporation, a Delaware corporation (“ Duke Energy ”), Spectra Energy Corp (f/k/a Gas SpinCo, Inc.), a Delaware corporation (“ Spectra Energy ”), and each of the Other Spectra Energy Parties; each a “Party” and collectively, the “ Parties ”.

R E C I T A L S:

WHEREAS, Duke Energy, acting through its direct and indirect subsidiaries, currently conducts a number of businesses, including (i) the Gas Business, and (ii) the Power Business;

WHEREAS, as of the date hereof, Duke Energy and its direct and indirect domestic subsidiaries are members of an Affiliated Group, of which Duke Energy is the common parent;

WHEREAS, the Board of Directors of Duke Energy has determined that it is appropriate, desirable and in the best interests of Duke Energy and its stockholders to separate Duke Energy into two separate, independent and publicly traded companies: (i) one comprising the Gas Business, which shall be owned and conducted, directly or indirectly, by Spectra Energy, and (ii) one comprising the Power Business which shall continue to be owned and conducted, directly or indirectly, by Duke Energy (the “ Separation ”);

WHEREAS, in order to effect the Separation, (i) Duke Energy Services Inc. intends to transfer certain Gas Assets and Gas Liabilities to Duke Energy Enterprises Corp. (“ Internal Contribution 1 ”) and distribute the stock of Duke Energy Enterprises Corp. to PanEnergy Corp. (“ Internal Distribution 1 ”); (ii) PanEnergy Corp. intends to transfer certain Gas Assets and Gas Liabilities to Duke Energy Enterprises Corp. (“ Internal Contribution 2 ”) and distribute the stock of Duke Energy Enterprises Corp. to Duke Energy Registration Services, Inc. (“ Internal Distribution 2 ”); (iii) Duke Energy Registration Services, Inc. intends to transfer certain Gas Assets and Gas Liabilities to Duke Energy Enterprises Corp. (“ Internal Contribution 3 ” and together with Internal Contribution 1 and Internal Contribution 2, the “ Internal Contributions ”) and distribute the stock of Duke Energy Enterprises Corp. to Duke Capital, LLC (“ Internal Distribution 3 ,” and together with Internal Distribution 1 and Internal Distribution 2, the “ Internal Distributions ”); and (iv) Duke Energy intends to transfer the membership interests of Duke Capital LLC to Spectra Energy (the “ Contribution ”) and distribute all of the issued and outstanding shares of common stock of Spectra Energy, on a pro rata basis (the “ Distribution ,” and together with the Internal Contributions, Internal Distributions and the Contribution, the “ Spin-Off ”) to the holders of the outstanding common stock of Duke Energy.

WHEREAS, Duke Energy and Spectra Energy have determined that it is necessary and desirable, as part of the Separation, to allocate, transfer, retain or assign to the Spectra Energy Group, the Gas Assets and Gas Liabilities, and to allocate, transfer, retain or assign to the Duke Energy Group, the Power Assets and Power Liabilities;

WHEREAS, to effect this separation Duke Energy and Spectra Energy entered into that certain Separation and Distribution Agreement dated as of even date hereof (as amended or otherwise modified from time to time, the “ Separation Agreement ”);

 

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WHEREAS, it is the intention of the Parties that Internal Contribution 1 and Internal Distribution 1 together qualify as a reorganization within the meaning of sections 368(a)(1)(D) and 355 of the Code;

WHEREAS, it is the intention of the Parties that Internal Contribution 2 and Internal Distribution 2 together qualify as a reorganization within the meaning of sections 368(a)(1)(D) and 355 of the Code;

WHEREAS, it is the intention of the Parties that Internal Contribution 3 and Internal Distribution 3 together qualify as a reorganization within the meaning of sections 368(a)(1)(D) and 355 of the Code;

WHEREAS, it is the intention of the Parties that the Contribution, and the Distribution together qualify as a reorganization within the meaning of sections 368(a)(1)(D) and 355 of the Code;

WHEREAS, in contemplation of the Separation, pursuant to which the Spectra Energy Group will cease to be members of the Affiliated Group of which Duke Energy is the parent, if (but only if) the Distribution occurs, the Parties have determined to enter into this Agreement, setting forth their agreement with respect to certain tax matters; and

NOW, THEREFORE, in consideration of the foregoing premises, the mutual promises and covenants hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

Section 1. Definitions.

Capitalized terms used in this Agreement and not otherwise defined in this Section 1 shall have the meanings set forth in the Separation Agreement. As used in this Agreement, the following capitalized terms shall have the following meanings:

“ Affiliated Group ” means an affiliated group of corporations within the meaning of section 1504(a)(1) of the Code that files a consolidated return for United States federal Income Tax purposes.

“ After Tax Amount ” means any additional amount necessary to reflect the hypothetical Tax consequences of the receipt or accrual of any payment required to be made under this Agreement (including payment of an additional amount or amounts hereunder and the effect of the deductions available for interest paid or accrued and for Taxes such as state and local Income Taxes), determined by using the highest applicable statutory corporate Income Tax rate (or rates, in the case of an item that affects more than one Tax) for the relevant taxable period (or portion thereof).

“ Agreement ” shall have the meaning set forth in the preamble hereto.

 

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“ Audit ” means any audit, assessment of Taxes, other examination by any Taxing Authority, proceeding, or appeal of such a proceeding relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations.

“ Business Day ” shall have the meaning set forth in the Separation Agreement.

“ Carryback Period ” shall have the meaning set forth in Section 4.02.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Combined Return ” means any Tax Return, other than with respect to United States federal Income Taxes, filed on a consolidated, combined (including nexus combination, worldwide combination, domestic combination, line of business combination or any other form of combination) or unitary basis wherein Spectra Energy or one or more Spectra Energy Affiliates join in the filing of such Tax Return (for any taxable period or portion thereof) with Duke Energy or one or more Duke Energy Affiliates.

“ Consolidated Return ” means any Tax Return with respect to United States federal Income Taxes filed on a consolidated basis wherein Spectra Energy or one or more Spectra Energy Affiliates join in the filing of such Tax Return (for any taxable period or portion thereof) with Duke Energy or one or more Duke Energy Affiliates.

“ Contribution ” shall have the meaning set forth in the recitals hereto.

“ Deferred Intercompany Item ” shall mean any income, gain, deduction or loss from transactions between members of the same Affiliated Group that is deferred for U.S. federal income tax purposes under the principles in Treasury Regulations § 1.1502-13, or any similar provision under state, local or foreign law.

“ Distribution ” shall have the meaning set forth in the recitals hereto.

“ Distribution Date ” shall have the meaning set forth in the Separation Agreement.

“ Distribution Taxes ” means any Taxes imposed on, or increase in Taxes incurred by, Duke Energy or any Duke Energy Affiliate, and any Taxes of a Duke Energy shareholder (or former Duke Energy shareholder) that are required to be paid or reimbursed by Duke Energy or any Duke Energy Affiliate pursuant to a Final Determination, provided that Duke Energy shall have vigorously defended itself in any legal proceeding involving Taxes of a Duke Energy shareholder, (without regard to whether such Taxes are offset or reduced by any Tax Asset, Tax Item, or otherwise) resulting from, or arising in connection with, the failure of Internal Contribution 1, Internal Distribution 1, Internal Contribution 2, Internal Distribution 2, Internal Contribution 3, Internal Distribution 3, the Contribution or the Distribution to qualify as a transaction in which no income, gain or loss is recognized pursuant to sections 355 and 368(a)(1)(D) of the Code (including any Tax resulting from the application of section 355(d) or section 355(e) of the Code to Internal Distribution 1, Internal Distribution 2, Internal Distribution 3 or the Distribution) or corresponding provisions of the laws of any other jurisdictions. Any Income Tax referred to in the immediately preceding sentence shall be determined using the highest applicable statutory corporate Income Tax rate for the relevant taxable period (or portion thereof).

 

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“ Duke Energy ” shall have the meaning set forth in the preamble hereto.

“ Duke Energy Affiliate ” means any Person included in the Duke Energy Group.

“ Duke Energy Business Records ” shall have the meaning set forth in Section 9.01(c).

“ Duke Energy Group ” shall have the meaning set forth in the Separation Agreement.

“ Duke Energy Separate Tax Liability ” means an amount equal to the Tax liability that Duke Energy and each Duke Energy Affiliate would have incurred if they had filed a consolidated return, combined return or a separate return, as the case may be, separate from the members of the Spectra Energy Group, for the relevant Tax period, and such amount shall be computed by Duke Energy in a manner consistent with (i) general Tax accounting principles, (ii) the Code and the Treasury Regulations promulgated thereunder, and (iii) past practice, if any. For the avoidance of doubt, the Duke Energy Separate Tax Liability shall in no event be less than zero.

“ Duke Energy Stock Options ” means options to acquire Duke Energy common stock.

“ Duke Energy Tax Acts ” shall have the meaning set forth in Section 4.01(a).

“ Effective Time ” shall have the meaning set forth in the Separation Agreement.

“ Estimated Tax Installment Date ” means, with respect to United States federal Income Taxes, the estimated Tax installment due dates prescribed in section 6655(c) of the Code and, in the case of any other Tax, means any other date on which an installment payment of an estimated amount of such Tax is required to be made.

“ Exchangeco Tax ” means any Tax imposed on Spectra Energy or any Spectra Energy Affiliate in connection with (i) the transfer of shares of Duke Energy stock to Spectra Energy or any Spectra Energy Affiliate during any Post-Distribution Period in connection with a transfer of such stock to holders of Duke Energy Canada Exchangeco Inc. exchangeable shares; (ii) the transfer of cash by Duke Energy to Spectra Energy or any Spectra Energy Affiliate in connection with any Duke Energy dividend; or (iii) the transfer of shares of Duke Energy stock to holders of Duke Energy Canada Exchangeco Inc. exchangeable shares.

“ Excluded Spectra Energy Affiliates ” means Duke Energy Early Grove Company and Duke Energy Virginia Pipeline Company.

“ Filing Party ” shall have the meaning set forth in Section 8.01.

 

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“ Final Determination ” means the final resolution of liability for any Tax for any taxable period, by or as a result of (i) a final and unappealable decision, judgment, decree or other order by any court of competent jurisdiction; (ii) a final settlement with the IRS, a closing agreement or accepted offer in compromise under section 7121 or section 7122 of the Code, or a comparable agreement under the laws of other jurisdictions, which resolves the entire Tax liability for any taxable period; (iii) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered by the jurisdiction imposing the Tax; or (iv) any other final disposition, including by reason of the expiration of the applicable statute of limitations.

“ Force Majeure ” shall have the meaning set forth in the Separation Agreement.

“ Gas Assets ” shall have the meaning set forth in the Separation Agreement.

“ Gas Business ” shall have the meaning set forth in the Separation Agreement.

“ Gas Liabilities ” shall have the meaning set forth in the Separation Agreement.

“ Income Tax ” means any federal, state, local or foreign Tax determined (in whole or in part) by reference to net income, net worth, gross receipts or capital, or any such Taxes imposed in lieu of such a Tax. For the avoidance of doubt, the term “Income Tax” includes any franchise Tax, net worth, gross receipts, capital or any such Taxes imposed in lieu of such a Tax.

“ Income Tax Return ” means any Tax Return relating to any Income Tax.

“ Internal Contribution 1 ” shall have the meaning set forth in the recitals hereto.

“ Internal Contribution 2 ” shall have the meaning set forth in the recitals hereto.

“ Internal Contribution 3 ” shall have the meaning set forth in the recitals hereto.

“ Internal Contributions ” shall have the meaning set forth in the recitals hereto.

“ Internal Distribution 1 ” shall have the meaning set forth in the recitals hereto.

“ Internal Distribution 2 ” shall have the meaning set forth in the recitals hereto.

“ Internal Distribution 3 ” shall have the meaning set forth in the recitals hereto.

“ Internal Distributions ” shall have the meaning set forth in the recitals hereto.

“ IRS ” means the United States Internal Revenue Service or any successor thereto, including its agents, representatives, and attorneys.

“ IRS Ruling ” means the private letter ruling issued by the IRS in connection with the Spin-Off, which is a condition to the Distribution under the Separation Agreement.

 

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“ IRS Ruling Documents ” means the request for the IRS Ruling filed with the IRS, together with all supplemental filings or other materials subsequently submitted on behalf of Duke Energy, the Duke Energy Affiliates and Duke Energy’s shareholders to the IRS, the appendices and exhibits thereto, and the IRS Ruling itself.

“ Joint Responsibility Item ” means any Tax Item, including Distribution Taxes, for which the non-Filing Party’s responsibility under this Agreement could exceed one million dollars ($1,000,000), but not a Sole Responsibility Item.

“ Non-Income Tax Return ” means any Tax Return relating to any Tax other than an Income Tax.

“ Officer’s Certificate ” means a letter executed by an officer of Duke Energy or Spectra Energy and provided to Spin-Off Tax Counsel or Tax Counsel as a condition for the completion of the Spin-Off Tax Opinion, a Supplemental Tax Spin-Off Opinion or Supplemental Tax Opinion.

“ Other Spectra Energy Parties ” means the entities listed in Schedule 1.1(129) of the Separation Agreement other than Spectra Energy and the Excluded Spectra Energy Affiliates.

“ Owed Party ” shall have the meaning set forth in Section 7.05.

“ Owing Party ” shall have the meaning set forth in Section 7.05.

“ Parties ” shall have the meaning set forth in the preamble hereto.

“ Payment Period ” shall have the meaning set forth in Section 7.05(e).

“ Post-Distribution Period ” means any taxable period beginning after the Distribution Date.

“ Power Assets ” shall have the meaning set forth in the Separation Agreement.

“ Power Business ” shall have the meaning set forth in the Separation Agreement.

“ Power Liabilities ” shall have the meaning set forth in the Separation Agreement.

“ Pre-Distribution Period ” means any taxable period beginning on or before the Distribution Date.

“ Separation ” shall have the meaning set forth in the preamble hereto.

“ Separation Agreement ” shall have the meaning set forth in the recitals hereto.

 

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“ Sole Responsibility Item ” means any Tax Item for which the non-Filing Party has the entire economic liability under this Agreement.

“ Spectra Energy ” shall have the meaning set forth in the preamble hereto.

“ Spectra Energy Affiliate ” means any Person included in the Spectra Energy Group.

“ Spectra Energy Business Records ” shall have the meaning set forth in Section 9.01(c).

“ Spectra Energy Group ” shall have the meaning set forth in the Separation Agreement.

“ Spectra Energy Separate Tax Liability ” means an amount equal to the Tax liability that Spectra Energy and each Spectra Energy Affiliate would have incurred if they had filed a consolidated return, combined return or a separate return, as the case may be, separate from the members of the Duke Energy Group, for the relevant Tax period, and such amount shall be computed by Duke Energy in a manner consistent with (i) general Tax accounting principles, (ii) the Code and the Treasury Regulations promulgated thereunder, and (iii) past practice, if any. For the avoidance of doubt, the Spectra Energy Separate Tax Liability shall in no event be less than zero, and nothing in this Agreement shall be construed to require compensation by Duke Energy for any losses of Spectra Energy or any Spectra Energy Affiliate.

“ Spectra Energy Stock Options ” means options to acquire Spectra Energy common stock.

“ Spectra Energy Tax Acts ” shall have the meaning set forth in Section 4.01(b).

“ Spin-Off ” shall have the meaning set forth in the recitals hereto.

“ Spin-Off Tax Counsel ” means Skadden, Arps, Slate, Meagher & Flom LLP.

“ Spin-Off Tax Opinion ” means the opinion to be issued by Spin-Off Tax Counsel, as one of the conditions to completing the Spin-Off, addressing certain United States federal Income Tax consequences of the Spin-Off under section 355 of the Code.

“ Supplemental Ruling ” means any ruling (other than the IRS Ruling) issued by any Taxing Authority in connection with the Spin-Off.

“ Supplemental Ruling Documents ” means any request for a Supplemental Ruling, together with any supplemental filings or other materials subsequently submitted, the appendices and exhibits thereto, and any Supplemental Rulings issued.

“ Supplemental Spin-Off Tax Opinion ” means any opinion (other than the Spin-Off Tax Opinion) issued by any tax counsel in connection with the Spin-Off.

“ Supplemental Tax Opinion ” shall have the meaning set forth in Section 4.04(d).

 

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“ Tax Asset ” means any Tax Item that has accrued for Tax purposes, but has not been realized during the taxable period in which it has accrued, and that could reduce a Tax in another taxable period, including a net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction or credit related to alternative minimum tax or any other Tax credit.

“ Tax Benefit ” means a reduction in the Tax liability (or increase in refund or credit or any item of deduction or expense) of a taxpayer (or of the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of any other jurisdiction, of which it is a member) for any taxable period. Except as otherwise provided in this Agreement, a Tax Benefit shall be deemed to have been realized or received from a Tax Item in a taxable period only if and to the extent that the Tax liability of the taxpayer (or of the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of any other jurisdiction, of which it is a member) for such period, after taking into account the effect of the Tax Item on the Tax liability of such taxpayer (or of the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of any other jurisdiction, of which it is a member) in the current period and all prior periods, is less than it would have been had such Tax liability been determined without regard to such Tax Item.

“ Tax Counsel ” means a nationally recognized law firm mutually agreed upon by Duke Energy and Spectra Energy to provide a Supplemental Tax Opinion.

“ Tax Detriment ” means an increase in the Tax liability (or reduction in refund or credit or any item of deduction or expense) of a taxpayer (or of the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of any other jurisdiction, of which it is a member) for any taxable period. Except as otherwise provided in this Agreement, a Tax Detriment shall be deemed to have been realized or incurred from a Tax Item in a taxable period only if and to the extent that the Tax liability of the taxpayer (or of the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of any other jurisdiction, of which it is a member) for such period, after taking into account the effect of the Tax Item on the Tax liability of such taxpayer (or of the Affiliated Group, or similar group of entities as defined under corresponding provisions of the laws of any other jurisdiction, of which it is a member) in the current period and all prior periods, is more than it would have been had such Tax liability been determined without regard to such Tax Item.

“ Tax Item ” means any item of income, gain, loss, deduction, expense or credit, or other attribute that may have the effect of increasing or decreasing any Tax.

“ Tax Return ” means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund or declaration of estimated Tax) required to be supplied to, or filed with, a Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax.

“ Tax Material ” shall have the meaning set forth in Section 9.01(a).

 

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“ Taxes ” means all federal, state, local or foreign taxes, charges, fees, duties, levies, imposts, rates or other assessments, including income, gross receipts, excise, property, sales, use, license, capital stock, transfer, franchise, payroll, withholding, social security, value added or other taxes, (including any interest, penalties or additions attributable thereto) and a “Tax” shall mean any one of such Taxes.

“ Taxing Authority ” means any governmental authority or any subdivision, agency, commission or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or imposition of any Tax (including the IRS).

“ U.S. Gas Transmission Business ” means the U.S. Gas Transmission Business as defined in the IRS Ruling Documents.

Section 2. Preparation and Filing of Tax Returns.

2.01. Duke Energy’s Responsibility . Subject to the other applicable provisions of this Agreement, Duke Energy shall have sole and exclusive responsibility for the preparation and filing of:

(a) all Consolidated Returns and all Combined Returns for any taxable period;

(b) all Income Tax Returns (other than Consolidated Returns and Combined Returns) with respect to Duke Energy and/or any Duke Energy Affiliate for any taxable period;

(c) all Non-Income Tax Returns with respect to Duke Energy, any Duke Energy Affiliate, or the Power Business or any part thereof for any taxable period; and

(d) all Non-Income Tax Returns with respect to Spectra Energy, any Spectra Energy Affiliate, or the Gas Business or any part thereof, that are required to be filed (taking into account any extension of time which has been requested or received) on or prior to the Distribution Date.

2.02. Spectra Energy’s Responsibility . Spectra Energy shall have sole and exclusive responsibility for the preparation and filing of:

(a) all Income Tax Returns (other than Consolidated Returns and Combined Returns) with respect to Spectra Energy and/or any Spectra Energy Affiliate for any taxable period; and

(b) all Non-Income Tax Returns with respect to Spectra Energy, any Spectra Energy Affiliate, or the Gas Business or any part thereof, that are required to be filed (taking into account any extension of time which has been requested or received) after the Distribution Date.

2.03. RESERVED.

 

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2.04. Agent . Subject to the other applicable provisions of this Agreement, Spectra Energy hereby irrevocably designates, and agrees to cause each Spectra Energy Affiliate to so designate, Duke Energy as its sole and exclusive agent and attorney-in-fact to take such action (including execution of documents) as Duke Energy, in its sole discretion, may deem appropriate in any and all matters (including Audits) relating to any Tax Return described in Section 2.01.

2.05. Manner of Tax Return Preparation .

(a) Unless otherwise required by a Taxing Authority, the Parties hereby agree to prepare and file all Tax Returns, and to take all other actions, in a manner consistent with (1) this Agreement, (2) the Spin-Off Tax Opinion, (3) any Supplemental Spin-Off Tax Opinion, (4) any Supplemental Tax Opinion, (5) the IRS Ruling Documents, and (6) any Supplemental Ruling Documents. All Tax Returns shall be filed on a timely basis (taking into account applicable extensions) by the Party responsible for filing such returns under this Agreement.

(b) Subject to the other applicable provisions of this Agreement, Duke Energy shall have the exclusive right, in its sole discretion, with respect to any Tax Return described in Section 2.01, to determine (1) the manner in which such Tax Return shall be prepared and filed, including the elections, method of accounting, positions, conventions and principles of taxation to be used and the manner in which any Tax Item shall be reported, (2) whether any extensions shall be requested, (3) the elections that will be made by Duke Energy, any Duke Energy Affiliate, Spectra Energy, and/or any Spectra Energy Affiliate on such Tax Return, (4) whether any amended Tax Returns shall be filed, (5) whether any claims for refund shall be made, (6) whether any refunds shall be paid by way of refund or credited against any liability for the related Tax, and (7) whether to retain outside firms to prepare and/or review such Tax Returns.

(c) With respect to any Consolidated Return or Combined Return including or reporting a Spectra Energy Separate Tax Liability: (1) Spectra Energy shall provide Duke Energy with a pro forma draft of the portion of such Tax Return that reflects Spectra Energy and/or any Spectra Energy Affiliate at least seventy-five (75) days prior to the due date (with applicable extensions) for the filing of such Tax Return; (2) Duke Energy shall provide to Spectra Energy a pro forma draft of the portion of such Tax Return that reflects the Spectra Energy Separate Tax Liability and a statement showing in reasonable detail Duke Energy’s calculation of the Spectra Energy Separate Tax Liability (including copies of all worksheets and other materials used in preparation thereof) at least forty-five (45) days prior to the due date (with applicable extensions) for the filing of such Tax Return for Spectra Energy’s review and comment; and (3) Spectra Energy shall provide its comments to Duke Energy at least thirty (30) days prior to the due date (with applicable extensions) for the filing of such Tax Return. For the avoidance of doubt, nothing in this Section 2.05(c) shall alter the sole and exclusive responsibility for the preparation and filing of Tax Returns under Sections 2.01 and 2.02. Any dispute regarding the reporting of any Tax Item on any Tax Return covered by this section shall be resolved pursuant to Section 9.02. If Spectra Energy has not provided its comments on the pro forma draft of the portion of the Tax Return, or in the case of a dispute regarding the reporting of any Tax Item, such dispute has not been resolved by the due date (with applicable extensions) for the filing of any Tax Return, Duke Energy shall file such Tax Return reporting all Tax Items in the manner as originally set forth on the pro forma draft of the portion of the Tax

 

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Return provided to Spectra Energy; provided , however , that Duke Energy agrees that it will thereafter file an amended Tax Return, if necessary, reporting any disputed Tax Item in the manner determined under Section 9.02, and any other Tax Item as agreed upon by Duke Energy and Spectra Energy.

2.06. Tax Services . The Transition Services Agreement shall control the provision of any other Tax related services by Duke Energy for Spectra Energy and/or any Tax related services by Spectra Energy for Duke Energy.

Section 3. Liability for Taxes.

3.01. Spectra Energy’s Liability for Taxes . Spectra Energy and each Spectra Energy Affiliate (other than the Excluded Spectra Energy Affiliates) shall be jointly and severally liable for the following Taxes, and shall be entitled to receive and retain all refunds and credits of Taxes previously incurred by Spectra Energy, any Spectra Energy Affiliate, or the Gas Business with respect to such Taxes:

(a) all Taxes with respect to Tax Returns described in Section 2.01(a) to the extent that such Taxes are related to (i) the Spectra Energy Separate Tax Liability, or (ii) the Gas Business, for any taxable period;

(b) all Taxes with respect to Tax Returns described in Section 2.01(d);

(c) all Taxes with respect to Tax Returns described in Section 2.02;

(d) all Taxes imposed by any Taxing Authority with respect to Spectra Energy, any Spectra Energy Affiliate, or the Gas Business (other than in connection with the required filing of a Tax Return described in Sections 2.01(a), 2.01(d) or 2.02) for any taxable period;

(e) notwithstanding any other provision in Sections 3.01 or 3.02, Spectra Energy and any Spectra Energy Affiliates (other than the Excluded Spectra Energy Affiliates) shall be jointly and severally liable for the portion of any Exchangeco Tax as determined based on the formula for the allocation of Unallocated Liabilities described in Article VI of the Separation Agreement;

(f) notwithstanding any other provision in Sections 3.01 or 3.02, Spectra Energy and any Spectra Energy Affiliates (other than the Excluded Spectra Energy Affiliates) shall be jointly and severally liable for any Taxes resulting from any Deferred Intercompany Item, whenever created, that is caused to be recognized after the Distribution, by any action or omission of Spectra Energy or any Spectra Energy Affiliate (Duke Energy shall have no liability for any such Taxes); and

(g) notwithstanding any other provision in this Agreement, all Taxes with respect to the matters or items described on Schedule 3.01(g) attached hereto.

 

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3.02. Duke Energy’s Liability for Taxes . Duke Energy shall be liable for the following Taxes, and shall be entitled to receive and retain all refunds and credits of Taxes previously incurred by Duke Energy, any Duke Energy Affiliate, or the Power Business with respect to such Taxes:

(a) all Taxes with respect to Tax Returns described in Section 2.01(a) to the extent that such Taxes are related to (i) the Duke Energy Separate Tax Liability, or (ii) the Power Business, for any taxable period;

(b) all Taxes with respect to Tax Returns described in Section 2.01(b) or Section 2.01(c);

(c) all Taxes imposed by any Taxing Authority with respect to Duke Energy, any Duke Energy Affiliate, or the Power Business (other than in connection with the required filing of a Tax Return described in Sections 2.01(a), 2.01(b) or 2.01(c)) for any taxable period;

(d) notwithstanding any other provision in Sections 3.01 or 3.02, Duke Energy shall be liable for the portion of any Exchangeco Tax as determined based on the formula for the allocation of Unallocated Liabilities described in Article VI of the Separation Agreement;

(e) notwithstanding any other provision in Sections 3.01 or 3.02, Duke Energy shall be liable for any Taxes resulting from any Deferred Intercompany Item, whenever created, that is caused to be recognized after the Distribution, by any action or omission of Duke Energy or any Duke Energy Affiliate (Spectra Energy shall have no liability for any such Taxes); and

(f) notwithstanding any other provision in this Agreement, all Taxes with respect to the matters or items described on Schedule 3.02(f) attached hereto.

3.03. Joint Liability for Certain Unallocated Taxes .

(a) In the event that any Taxes with respect to Tax Returns described in Section 2.01(a) are not otherwise allocated by Sections 3.01 or 3.02, then the liability for such Taxes shall be allocated in the manner consistent with the allocation of Unallocated Liabilities described in Article VI of the Separation Agreement.

(b) Except for Distribution Taxes, any Tax resulting from any transactions undertaken to effectuate the Separation shall be allocated in the manner consistent with the allocation of Unallocated Liabilities described in Article VI of the Separation Agreement, and for the avoidance of doubt, such Taxes shall not be allocated under the provisions in Section 3.01 or 3.02.

3.04. Refunds and Credits . Nothing in this Agreement shall be construed as to require compensation, by payment, credit, offset or otherwise, by Duke Energy (or any Duke Energy Affiliate) to Spectra Energy (or any Spectra Energy Affiliate) for any loss, deduction, credit or other Tax attribute arising in connection with, or related to, Spectra Energy or any Spectra Energy Affiliate, that is shown on, or otherwise reflected with respect to, any Tax Return

 

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described in Section 2.01. Nothing in this Agreement shall be construed as to require compensation, by payment, credit, offset or otherwise, by Spectra Energy (or any Spectra Energy Affiliate) to Duke Energy (or any Duke Energy Affiliate) for any loss, deduction, credit or other Tax attribute arising in connection with, or related to, Duke Energy or any Duke Energy Affiliate, that is shown on, or otherwise reflected with respect to, any Tax Return described in Section 2.02.

3.05. Payment of Tax Liability . If one Party is liable or responsible for Taxes, under Sections 3.01 through 3.04, with respect to Tax Returns for which another party is responsible for preparing and/or filing, or with respect to Taxes that are paid by another Party, then the liable or responsible Party shall pay the Taxes (or a reimbursement of such Taxes) to the other Party pursuant to Section 7.05; provided , however , Spectra Energy’s liability to pay Duke Energy under Section 7.05 shall be reduced by the amount Duke Energy accrued for Income Taxes of Spectra Energy for the 2006 calendar year; provided further, however, that if the amount that Spectra Energy owes Duke Energy is negative as a result of such reduction, Duke Energy shall pay the absolute value of such negative amount to Spectra Energy.

3.06. Computation . Duke Energy shall provide Spectra Energy with a written calculation in reasonable detail (including copies of all work sheets and other materials used in preparation thereof) setting forth the amount of any Spectra Energy Separate Tax Liability or estimated Spectra Energy Separate Tax Liability (for purposes of Section 7.01) and any Taxes for which Spectra Energy is liable under Section 3.01. Spectra Energy shall have the right to review and comment on such calculation. Any dispute with respect to such calculation shall be resolved pursuant to Section 9.02; provided , however , that, notwithstanding any dispute with respect to any such calculation, in no event shall any payment attributable to the amount of any Spectra Energy Separate Tax Liability or estimated Spectra Energy Separate Tax Liability be paid later than the date provided in Section 7.

Section 4. Distribution Taxes and Deconsolidation.

4.01. Distribution Taxes .

(a) Duke Energy’s Liability for Distribution Taxes . Notwithstanding Sections 3.01 through 3.04, Duke Energy shall be liable for any Distribution Taxes, to the extent that such Distribution Taxes are attributable to, caused by, or result from, one or more of the following (collectively, “ Duke Energy Tax Acts ”):

(i) any action or omission by Duke Energy or any Duke Energy Affiliate, at any time, that is inconsistent with any material,