[EXHIBIT 8.1 TO COLONIAL ENERGY'S
REGISTRATION STATEMENT ON FORM S-4]
Palmer & Dodge LLP
One Beacon Street, Boston, MA 02108-3190
Telephone: (617) 573-0100
Facsimile: (617) 227-4420
March 4, 1998
Colonial Gas Company
40 Market Street
Boston, Massachusetts 02199
Re: Merger pursuant to Agreement and Plan of Merger by
and among Colonial Gas Company, Colonial Gas Mergeco,
Inc. and Colonial Energy
Ladies and Gentlemen:
This opinion is being rendered in connection with the
proposed formation of a holding company structure for Colonial
Gas Company ("Colonial Gas"), a Massachusetts utility
corporation, and the related Agreement and Plan of Merger (the
"Agreement") by and among Colonial Gas, Colonial Gas Mergeco,
Inc. ("Mergeco"), a Massachusetts utility corporation, and
Colonial Energy, a Massachusetts business trust formed by
Colonial Gas. Pursuant to the Agreement, Mergeco will merge with
and into Colonial Gas in a transaction (the "Merger") in which
Colonial Gas will continue as the surviving corporation and a
wholly- owned subsidiary of Colonial Energy, and the separate
corporate existence of Mergeco will cease. Capitalized terms not
defined herein have the meanings set forth in the Agreement. All
section references, unless otherwise indicated, are to the United
States Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel for Colonial Gas in the Merger
and for purposes of rendering this opinion, we have examined and
relied upon (without any independent investigation or review
thereof) (i) the Agreement and the exhibits thereto, (ii) the
Proxy Statement/Prospectus (the "Proxy Statement") included in
the Registration Statement on Form S-4 filed by Colonial Energy
with the Securities and Exchange Commission in connection with
the Merger, (iii) certain statements and representations made by
executives of Colonial Gas and Colonial Energy (the "Officers'
Representations") and (iv) such other documents as we have deemed
necessary or appropriate in order to enable us to render this
opinion. In our examination of documents, we have assumed the
authenticity of original documents, the accuracy of copies, the
genuineness of signatures, and the legal capacity of signatories.
In rendering this opinion, we have assumed that all parties
to the Agreement and to any other documents examined by us have
acted, and will act, in accordance with the terms of such
Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set
forth in the Agreement without the waiver or modification of any
such terms and conditions. We have further assumed that the
Officers' Representations and all representations contained in the
Agreement and the documents related thereto and in the Proxy
Statement are, at the time they are made, and will remain at all
times through the Effective Time, true and complete in all
material respects and that we may rely on such representations at
the time they are made and at all times through the Effective
Time. We have also assumed that any representation that is made
"to the best of the knowledge and belief" (or similar
qualification) of any person or party will be correct without
such qualification and that, as to all matters for which a person
or entity has represented that such person or entity is not a
party to, does not have, or is not aware of, any plan, intention,
understanding, or agreement, there is no such plan, intention,
understanding, or agreement. We have not attempted to verify
independently such representations, but in the course of our due
diligence with respect to the delivery of this opinion, nothing
has come to our attention that would cause us to question the
accuracy thereof.
Our opinion is based on existing provisions of the Code,
Treasury Regulations, judicial decisions, and rulings and other
pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion, all of which are subject to
change. No assurances can be given that a change in the legal
authorities on which our opinion is based will not occur prior to
or after the Effective Time or that such change will not affect
the conclusions expressed herein. In particular, Congress
enacted legislation in 1997 expanding the definition of
"investment company" for purposes of Code Section 351(e)(1),
which provides that tax-free treatment under Code Section 351 is
not available for transfers of property to an "investment
company." The Senate Committee Report with respect to this
legislation states that the change to Section 351(e)(1) is
intended to change only the types of assets considered in the
definition of an "investment company" in the present Treasury
Regulations and not to override other provisions of those
regulations, including the rule that, for purposes of Section
351(e)(1), stock in a subsidiary corporation is disregarded and
the parent corporation is deemed to own its ratable share of the
subsidiary's assets. In reliance on this legislative history,
this opinion assumes the continued operation of the foregoing
rule, pursuant to which Colonial Energy will not be an
"investment company" for purposes of Section 351(e)(1) in the
Merger. The Treasury Department could change this rule in future
regulations and such regulations could apply retroactively. We
undertake no responsibility to advise you of developments in the
law after the Effective Time.
Our opinion is not binding upon either the IRS or any court.
Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or
rejected by a court.
This opinion addresses only the specific United States
federal income tax consequences of the Merger set forth below,
and does not address any other federal, state, local, or foreign
income, estate, gift, transfer, sales, use, or other tax
consequences that may result from the Merger or any other
transaction (including any transaction undertaken in connection
with the Merger). We express no opinion regarding the tax
consequences of the Merger to shareholders of Colonial Gas that
are subject to special tax rules, including dealers in
securities, tax-exempt entities, shareholders who are not United
States persons and shareholders who do not hold Colonial Gas
Common Stock as "capital assets" within the meaning of Section
1221 of the Code.
On the basis of, and subject to, the foregoing, and in
reliance upon the representations and assumptions described
above, we are of the opinion that:
1. The Merger will be treated as an exchange by the holders of
Colonial Gas Common Stock of their shares of Colonial Gas Common
Stock for Colonial Energy Common Shares. Under Section 351 of
the Code, no gain or loss will be recognized by the holders of
Colonial Gas Common Stock upon such exchange.
2. No gain or loss will be recognized by Colonial Gas or
Colonial Energy as a result of the Merger.
3. The tax basis of the Colonial Energy Common Shares received
pursuant to the Merger will be the same as the tax basis of the
shares of Colonial Gas Common Stock exchanged therefor.
4. The holding period for the Colonial Energy Common Shares
received pursuant to the Merger will include the period that the
shares of Colonial Gas Common Stock exchanged therefor were held
by the holder, provided such shares were a capital asset of the
holder.
No opinion is expressed as to any federal income tax
consequence of the Merger except as specifically set forth
herein, and this opinion may not be relied upon except with
respect to the consequences specifically discussed herein.
This opinion is being delivered to you solely in connection
with the Agreement. It may not be relied upon for any other
purpose or by any other person or entity, and may not be made
available to any other person or entity without our prior
consent. We hereby consent, however, to the filing of this
opinion as an exhibit to the Registration Statement and to the
use of our name under the caption "Certain Federal Income Tax
Consequences" in the Registration Statement.
Very truly yours,
/s/ Palmer & Dodge LLP
[END OF EXHIBIT 8.1 TO COLONIAL ENERGY'S
REGISTRATION STATEMENT ON FORM S-4]