LIPA and PSEG's move to limit town tax bills to a 2 percent increase under the LIPA Reform Act has drawn objections from several Suffolk town officials and Nassau's comptroller, who argue that utilities have it wrong.

The Long Island Power Authority last week directed PSEG Long Island to send tax payments to Suffolk towns that were a combined $2 million less than towns had billed. LIPA cited provisions in the LIPA Reform Act of 2013 that limited tax increases on any properties it owns to a new 2 percent tax cap.

"It's crystal clear," LIPA general counsel Jon Mostel told Newsday last week. "We're not permitted to pay more than 2 percent a year" over the prior year.

StoryLIPA can't pay town taxes over 2% capdataSearch LIPA payroll

LIPA each year pays more than $280 million in "payments in lieu of taxes" on properties it owns across the Island, including substations, switching yards and rights of way for power lines. In all, around 15 percent of customer bills goes to taxes.

In a letter to a lawyer for PSEG, which is handling the tax payments for LIPA, Huntington Supervisor Frank Petrone argued that the law "does not apply" to property tax payments LIPA has been making to Huntington, which were $197,336 below what Huntington had billed. Petrone denied that Huntington and LIPA had any agreement for payments in lieu of taxes for properties that it owns, as LIPA maintained. Huntington requested LIPA pay the full amount due to avoid 11 percent penalties.

"The town will pursue all legal remedies available to it to collect the sums due and owing," Petrone wrote.

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LIPA could be in for a similar battle in Nassau, where Comptroller George Maragos on Wednesday said, "I think LIPA is misreading" the law.

"We agree with Town of Huntington," Maragos said. "Properties that do not have a payment-in-lieu-of-tax agreement will have to pay the normal assessment." Only those that have PILOTs are subject to the cap, Maragos said.

LIPA and PSEG declined to comment. A letter to Huntington from LIPA cites Public Authorities Law in saying the utility is "exempt" from paying town taxes, but is "authorized" to make payments in lieu of taxes. The law was amended in 2013 with the 2 percent cap on those payments.

Brookhaven Supervisor Ed Romaine, in a letter to PSEG on Wednesday, also argued that the law cited by LIPA to limit its tax payment "does not apply." Brookhaven exceeded the 2 percent cap by $1.07 million, according to LIPA.

The town said it notified Suffolk County that LIPA's second-half property tax payments "are deficient," Romaine wrote.

For seven other Suffolk towns, the charges exceeded the cap by a range of 39 cents to more than $1 million. Islip Town's tax bill was over by $681,080, Smithtown's by $63,979, Babylon's by $30,288, Southampton's by $20,225, Southold's by $3,884 and Riverhead's by $1,102. Shelter Island didn't exceed the cap, and East Hampton was just 39 cents over.

Sean Walter, supervisor of Riverhead, said he "knew nothing about this [LIPA] tax cap."

"Riverhead Town did not exceed the tax cap," Walter said. "If LIPA says we did, they are woefully mistaken in their calculations."

Smithtown Supervisor Pat-rick Vecchio wrote a letter to PSEG similar to Huntington and Brookhaven's, saying the unpaid taxes are "due and owing." Islip said it has asked for more information from LIPA.

Babylon Town and Southampton, like Southold, called the underpayment amounts generally inconsequential to their overall budgets.