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LIPA tax settlements won’t cut bills immediately

History suggests ratepayers shouldn’t expect an immediate reduction in their bills from settlements in challenges to taxes on National Grid plants.

LIPA's first potential property tax settlement for several

LIPA's first potential property tax settlement for several National Grid-owned power plants, including the one in Northport, seen above, is in sight, but the benefits may not immediately translate into lower electricity rates, LIPA says. Photo Credit: Newsday / John Paraskevas

The first potential settlement of the $179.5 million in tax challenges to National Grid power plants is in sight, but history suggests ratepayers shouldn’t expect an immediate windfall on their monthly bills.

The first trial date for one of the challenges, involving Huntington Town, is set for June 11 — a milestone that has heightened expectations for settlements.

LIPA is challenging property taxes for four National Grid-owned power plants in Northport, Island Park, Port Jefferson and Glenwood Landing. LIPA’s 1.1 million ratepayers cover the payments in lieu of taxes on the plants, which operate under long-term contracts with LIPA. The authority anticipates that use of the plants, which account for 45 percent of LIPA’s total tax bill, will decline by 50 percent to 75 percent over the next eight years.

Earlier this month, Brookhaven Supervisor Edward Romaine announced the town had reached an agreement in principle with LIPA for a settlement of the Port Jefferson plant taxes.

Romaine has pushed for a stipulation that any lower tax payments the town agrees to must have some corresponding reduction in LIPA ratepayer bills.

But whether customers see those impacts immediately remains open to question.

LIPA bills are made up of many parts, and savings in the past typically have been used to moderate rate increases. LIPA next year is expected to begin proceedings for a rate increase in 2020, after boosting rates in each of the last three years. Such a rate increase could offset the impact of any property tax savings.

LIPA since 2014 has reported that it has saved ratepayers some $492 million by refinancing old debt with new securities that sharply lowered borrowing costs. The savings helped keep higher rate increases at bay, LIPA said.

Advocates for lowering the power plant taxes see the Huntington trial date and potential Brookhaven settlement as breakthroughs that portend rate relief.

“Once a deal is reached, LIPA must put those savings back into the 1.1 million ratepayers’ pockets and not reallocate it to address other budget issues,” said Kyle Strober, executive director of the Association for a Better Long Island, a developers group that has lobbied for the challenges for a decade. ABLI once envisioned a 14 percent rate reduction from the tax challenges.

“A real rate reduction is necessary to compensate us for everything we’ve been through,” said Mitch Pally, chief executive of the Long Island Builders Institute, which has also advocated for the LIPA challenges.

LIPA in a statement said it “agrees that customers hosting power plants deserve their fair share of tax support. Our other 1.1 million customers, however, also deserve to pay no more than their fair share for school tax relief in communities other than their own.”

If Brookhaven’s potential settlement is a guide, it likely will take years for the cumulative impact of lower tax payments to amount to appreciable reductions on bills.

Brookhaven’s tentative settlement could result in phased-in reduction of the $32.4 million LIPA now pays annually in taxes for the Port Jefferson plant. The expected 50 percent cut in that amount could mean tax reductions of about $2 million a year over eight years, beginning in 2019.

With an annual budget of $3.5 billion, every $35 million in LIPA costs represents about 1 percent of customer bills. Theoretically, that means LIPA can reduce bills 1 percent for every $35 million in savings it achieves. Average residential bills hover around $150 a month, so a 1 percent reduction would amount to $1.50.

If all the power plants were to reach similar 50 percent reductions in taxes from their respective municipalities, the impact of nearly $90 million in savings would take eight years to be felt, a Newsday analysis shows.

LIPA taxes for the four plants total $179.5 million: $80.8 million for Northport; $42.6 million at Island Park; $32.6 million at Port Jefferson; and $23.5 million at Glenwood Landing.

In today’s dollars, a 50 percent reduction of $89.4 million could result in a nearly 3 percent cumulative reduction in ratepayers’ bills, or around $4.50 a month.

Romaine said any settlement is not expected to include past amounts that LIPA could collect if the case went to trial, an amount LIPA has previously estimated to be around $200 million.

LIPA says settlements will bring predictable reductions in taxes the utility has long viewed as excessive, and stave off cumulative increases.

John Gross, an attorney at the firm Ingerman Smith who represents several school districts fighting the challenges, suggested ratepayers shouldn’t bank on a windfall — even if court verdicts or settlements are in the utility’s favor.

Gross also cautioned that ratepayers should plan for “a lot of diversion of this money into capital projects, if you look at the history of what they’ve been doing.”

Pally said his group is hoping for a significant reduction in rates.

“We’re still hoping for a 10 percent reduction when all of this is done,” he said. And while he expects the amount to be phased in over time, he stressed that he’s expecting a tangible reduction from LIPA, not a moderating effect on other rising costs, as LIPA has used past savings.

“We paid the taxes illegally,” Pally said. “We’re just asking for the money back.”

LIPA trustee Matthew Cordaro, speaking for himself, said he expects the settlement amounts may not be enough to have a material impact on rates. “I would love to see that,” he said of a reduction, but “many times these don’t result in a net decrease for the ratepayer.”

Still, he said, “You would hope for some sort of visible sign that it benefits ratepayers through lower rates, but the amount may not be a large number.”

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