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Letter: Taxes are Only Part of the Plant Problems

Johan Gripenstedt of Port Jefferson says that political assistance with the LIPA tax issue can clear the way to make the Port Jefferson power plant a viable power supplier again.

When Massachusetts faced tax reductions, as a result of partial deregulation of electric power generation, they included a section in the law that limited to 10 percent per year the reduction in taxes. Anything more would have created havoc in the schools and the local communities.

A similar political compact should be enacted for the Port Jefferson and Huntington electric power plants. It is hard to understand why our elected leaders appear quiet on the issue. Do they have the will and the ability?

If the Port Jefferson plant is not repowered, the tax base will disappear entirely sometime after 2013 regardless of the tax certiorari filed by National Grid at LIPA's direction. A political solution to the tax issue would clear the table so that we were instead able to address the modernization of the large workhorse power plants on Long Island. This is the long term issue that needs to be resolved. These plants must be transformed into modern, efficient, clean and environmentally acceptable electricity generators.

The root cause of the problem faced by Port Jefferson and Huntington is the lack of investment by the British owner National Grid and its predecessor Keyspan in these aging plants. It is a scandal that National Grid has run the plants into obsolescence.

A single company owns the majority of base load generating plants on Long Island. They appear not to have spent one penny of their own money to increase the efficiency of their plants. They have instead argued that LIPA (read the rate payers) should in effect fund such an upgrade of their plants - their private property - through long term power supply commitments.

This lack of investment is the main cause of the fact that Long Island has among the highest rates for electricity in the United States. A sorry state of affairs that is not foremost due to the Shoreham debt or high taxes, as some would have us believe. If you look closely at the data from the New York wholesale electric power auction (which determines the marginal cost of power on Long Island before debt, taxes, administrative, and transmission costs), you will discover that we have the highest price for wholesale electricity in the State and consequently the highest electricity rates. There is no good excuse for this.

As this scandal continues, NRG, a private generation company, is spending $1.4B of their own funds to repower their Astoria Queens plant, not a penny from Con Edison, and no guarantees by the rate payers (in the form of long term agreements).  New York City is doing much better than Long Island!

When Caithness, the new privately owned electric plant in Yaphank, was built, their financial risk was assumed by a long term supply agreement with LIPA. Simply put, the rate payers of Long Island assume the financial risk, while private actors pocket the financial rewards!  “No risk, no reward.” Did I get that right?

Electric power generation in New York was deregulated in the late 1990’s for the purpose of attracting private investment to upgrade the electric infrastructure, in particular generation. Long Island's politicians decided to hedge, instead cementing a cozy relationship between the utility, LIPA, and the main electric power generator, Keyspan (acquired by National Grid in 2007).

It has become clear over time that our politicians are not qualified to govern an electric utility. The LIPA board is appointed by Albany, by the governor, the senate and the assembly. Can anyone see why that is not a good concept: A politically appointed board in charge of LIPA? It is time to begin to address the real issues, not the peripheral ones like the tax certiorari, which has a straightforward political solution, as shown by the Massachusetts legislature.

Johan Gripenstedt, Port Jefferson

Yvonne Affronti March 20, 2011 at 05:58 PM
This is an issue we, as residents and taxpayers, need to keep well informed about.
Peter C. Walsh March 21, 2011 at 01:51 AM
There is much to be informed about. LIPA is a public benefit corporation. LIPA buys the electricity it provides to the public from National Grid. National Grid has aquired a monopoly on Long Island. It owns seventeen power plants. I don't know if it owns the Yaphank plant, the primary provider of power to LIPA. LIPA has an implied duty to purchase the most cost efficient energy and provide it to the rate payers. The Yaphank plant is the most efficient producer of electricity on the island. One, among many, reasons the Yaphank plant can be cost efficient is because it's tax liability is capped at less than 10 million per year. The Port Jefferson plant, operating at 5 percent capacity, has a tax liability in excess of 27 million per year. This tax liability is based upon operation at 100% capacity. On the one hand, their lawsuit to reduce their tax liability by 90 percent is fair given the regulations that attach production to their level of tax liability. On the other hand, their capacity reduction is self created. If the level of effeciency of the Port Jefferson plant were improved it wouldcost about 450 million. This would result in a plant that is more productive than the Yaphank facility. NO easy answers here. A political solution is the likely outcome; private investment in the plant by clean coal industrialists is another possibility that I think should be explored.
greencap March 21, 2011 at 04:27 AM
"Simply put, the rate payers of Long Island assume the financial risk, while private actors pocket the financial rewards! “No risk, no reward.” Did I get that right?" No I do not think you did. Why would a company build a power plant with no agreement to buy power from it? It would be like building a skyscraper with no leasers. This is very common in the power generation industry, and nobody would ever build a power plant without a commitment from someone to purchase power from it. Especially on Long Island where it is not cheap or easy to do so. "As this scandal continues, NRG, a private generation company, is spending $1.4B of their own funds to repower their Astoria Queens plant, not a penny from Con Edison, and no guarantees by the rate payers (in the form of long term agreements)." This is completely untrue. see http://www.yournabe.com/articles/2011/01/28/astoria_times/news/at_nrg_repowering_okd_20110127.txt From the article: "Gaier said NRG’s project was announced in 2006. It will begin after the company reaches a long-term power purchase agreement for the electricity the plant will produce, after which it will begin construction in two phases projected to last 30 months each." This is not scandalous at all. What is scandalous is that we in Port Jefferson have enjoying outsized benefits subsidized by every rate-payer on Long Island.
greencap March 21, 2011 at 04:43 AM
27 million dollars a year is equivalent to 2700 households paying $10k a year in property taxes. Can people here honestly say that they would be in support of their utility paying this much in taxes if they were not living here in Port Jefferson? Do you think it is fair that our schools that have a host of amenities for not that many students get 40% of their money from rate-payers on LI while other people are paying outrageous property taxes for less? National Grid should act in the interest of their shareholders and rate-payers. This means building power plants where it is cheapest. They should not subsidize an already very wealthy area. Right now National Grid is doing what they should do, and any repowering should not happen unless this egregious tax situation is changed.
lc March 29, 2011 at 06:53 PM
does anyone specifically know the Massachusettes law that is referenced in the article
Johan Gripenstedt March 30, 2011 at 04:53 PM
It is in the 1997 law regarding the restructuring of the electric utility industry in Massachusetts (Section 71). It is important to note that the Long Island plants as specified in the LIPA/Keyspan PSA and Agreement & Waiver cannot be classed as merchant plants.
Karen Goldsteen March 30, 2011 at 06:30 PM
Does anyone know how much electricity is produced by the Port Jefferson plant at present?
Johan Gripenstedt March 31, 2011 at 12:29 AM
Hard to find out. The New York PSC does not provide real time data as far as I know. The New York ISO publishes the so called "Gold Books", and you would be able to find historical utilization numbers in those publications (at least through 2009). Taxes are however not based on revenue but on income. To understand that aspect in real time you need to look at the New York wholesale auction and try to estimate so called "spark spreads" in relation to plant "heat rates". This gets quite technical and would unfortunately take a couple of hours to explain adequately.
Karen Goldsteen March 31, 2011 at 02:07 AM
Thank you for your response. I asked because I wondered if this property could produce the same amount of electricity if solar generation were used.
Johan Gripenstedt March 31, 2011 at 02:17 AM
Solar requires a lot of space. The Port Jefferson location is probably too small and needs to use technology with a large energy output per square foot. You are hence limited to clean fossil fuels such as natural gas to maintain a reasonable tax base.

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