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As rate-relief deal advances, American Water seeking new surcharge

New York American Water's Merrick headquarters.

New York American Water's Merrick headquarters. Credit: Danielle Silverman

As New York State goes to court to finalize a rate-relief settlement with New York American Water, the company is awaiting a ruling on its request for a new surcharge to recover potentially millions of dollars in state income taxes that it must pay because of legislation that excluded the company from a tax break.

In 2017 filings, the water company proposed a “recovery mechanism” for collecting the expense associated with New York State’s exclusion of water utilities as “Qualified New York Manufacturers,” a designation that affords significant tax breaks.

A state law that became effective in January changed the definition, and a recently completed audit of the company found that the change “has an earlier effective date than January 1, 2018,” according to a company filing. The new tax rate goes to 8.34 percent.

In a statement to Newsday on Wednesday, New York American Water said it is working with the state to offset the charge with a federal tax-related credit. 

"The legislative change that occurred in New York increased the company's state tax burden, but New York American Water and the New York State Department of Public Service will look to offset the new costs with the recent reduction in their federal income tax rates," the statement said. "Our goal is to minimize the adverse impact on customers as a result of the tax change." 

The company’s filing says the state Department of Taxation and Finance following an audit is “currently taking the position” that New York American Water “did not qualify” as a state qualified manufacturer for periods prior to 2018, and thus has levied $392,151 in taxes for the prior-year periods.

New York American Water had sought to recover the costs resulting from the tax change through a new surcharge to be implemented in April, but the Public Service Commission has yet to approve such a move.

It’s unclear specifically how any future approval would impact rates. But the company, in documents, lists the cumulative “impact” for its two New York service areas.

For Service Area One, which includes its Lynbrook district, the new amounts to be recovered are $422,448 for this year, $1.47 million for 2019, $1.52 million for 2020 and $1.57 million for 2021. For Service Area Two, which includes Merrick and Sea Cliff and some surrounding areas, it’s $18,656 this year, $377,980 next year, $438,726 in 2020 and $478,465 in 2021.  

David Denenberg, co-director of Long Island Clean Air, Water and Soil, a watchdog group, called the likelihood of another surcharge tied to the tax judgment "par for the course." 

"They are pigs at the trough," Denenberg said. "Anytime they can get money they’re going for it and the PSC, true to form, will allow it."

It's routine for utilities subject to taxes to recoup such pass-through costs through rates or surcharges. State Sen. Todd Kaminsky (D-Long Beach), said Thursday he'd sponsor legislation as soon as next week that would reinstate the tax break "so ratepayers are protected."

Meanwhile, New York State on Tuesday filed legal action against New York American Water as part of a previously announced settlement of complaints over high bills by more than 1,200 of the company’s 120,000 Long Island customers.

The filing by the PSC in state Supreme Court in Albany includes a consent order and judgment that together resolve the litigation as part of a deal announced last week by Gov. Andrew M. Cuomo for upward of $11 million in rate relief.

PSC chairman John Rhodes said, "While our investigation continues, the court filing will provide for the customer refunds that have been promised."

Customers from East Rockaway to Sea Cliff have been complaining of soaring bills since the 2016 state-approved rate increase, which included a new tier of charges called a conservation rate and led some customer bills to spike.

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