Shoreham

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There is a new line item on my bill titled, “Suffolk Property Tax Adjustment.” What is this tax, and why am I paying it on my Electric Bill?
Suffolk County and certain Suffolk taxing jurisdictions overtaxed the Shoreham Nuclear plant by approximately $1.4 billion causing all ratepayers to pay excessive electric rates. To avoid an increase in property taxes in Suffolk County to pay for the overtaxation, Suffolk County and the Suffolk taxing jurisdictions requested and LIPA agreed in a Shoreham Tax Settlement Agreement instead to charge its Suffolk County customers for the property overtaxation of the Shoreham Nuclear Power Plant.

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What is the Shoreham Tax Settlement Agreement?
The Settlement Agreement is the formal agreement among LIPA, Suffolk County, Brookhaven Town, the Shoreham/Wading River School District and other Suffolk taxing jurisdictions and Nassau County under which LIPA agreed to reduce the obligation by over half to $620 million, and that Suffolk ratepayers would pay the settlement through a surcharge on their bills beginning June 1, 2003. The Surcharge will be approximately 2.8% per year and will last for approximately 26.5 years.

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Is LIPA recovering all the costs it should as a result of the overtaxation by Suffolk County and the certain Suffolk taxing jurisdictions?
No. LIPA agreed to accept less than half the amount of the overcharges.

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What caused the Shoreham Property Tax Settlement?
During the construction of the Shoreham Nuclear Power Plant, Suffolk County, the Town of Brookhaven, Shoreham-Wading River Central School District, Wading River Fire District and Shoreham-Wading River Library District (now succeeded by the North Shore Library District) levied and received taxes that were later determined to be far in excess of proper assessment valuations. These Suffolk County taxing jurisdictions also levied excessive PILOTs on the plant which LIPA paid beginning in 1992 when Shoreham was transferred to LIPA. The settlement was reached to address this over taxation and excessive PILOTs on the plant.

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Why was a tax collected before the Shoreham Plant was operational?
It was and continues to be common practice for utilities to begin paying assessments on plant valuation as if the plant is operational based on the assumption that any plant once approved and under construction will result in a useful operating asset. It is a way for the utility to demonstrate its commitment to the community in which the plant is located.

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Why did LILCO seek an end to the taxation?
LILCO argued that the Shoreham plant was no longer of value and sought a return of the tax payments including interest and costs associated with the monies already paid.

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Who ordered the refunding of the tax?
The New York State Supreme Court determined that LILCO had paid excessive property taxes on the Shoreham plant. This decision was upheld on appeal.

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Did this decision cover the PILOT payments made by LIPA during the ensuing years it owned the plant?
No. In a separate case, New York’s highest court ruled that LIPA had the right to seek a refund of the PILOT payments made based upon the over-assessment of the Shoreham plant.

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How were these issues resolved?
LIPA and the Suffolk Taxing Jurisdictions agreed to the Shoreham Settlement Agreement in early 2000 to resolve all of the outstanding issues and litigation regarding the over assessment of the Shoreham plant.

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What did LIPA receive in return for this Agreement?
The Suffolk Taxing Jurisdictions agreed to a settlement amount of $620 million.

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What was the rationale for LIPA forgiving approximately half of the Overtaxation?
LIPA recognized that if the Settlement were collected from the Suffolk Taxing Jurisdictions for the full amount, there would be a significant financial impact which would seriously harm Suffolk County and the Suffolk County taxing jurisdictions involved and increased property taxes.

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How did this Agreement affect Nassau County?
Nassau County officials recognized the benefits of a balanced Settlement Agreement and agreed not to challenge the Suffolk Property Tax Settlement Agreement.

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How was the Settlement Agreement crafted to benefit ratepayers in Suffolk County, Nassau County and the Rockaways?
Because of LIPA’s ability to borrow funds at low, tax-exempt financing rate, LIPA did so on behalf of Suffolk County and the Taxing Jurisdictions. LIPA then agreed to administer the funds across ratepayers in all three areas. This plan was put into place to refund all overpayments to all LIPA ratepayers over a five-year period and then recover the costs through a Surcharge to all Suffolk County ratepayers over a 26.5 year period.

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So is this really money owed by certain Suffolk County taxpayers to LIPA ratepayers?
Yes, but seeking repayment would have resulted in substantial property tax increases in Suffolk County and harmed Suffolk’s economy.

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What will LIPA recover from Suffolk County ratepayers to satisfy this Settlement?
LIPA will be recovering its outlays for principal and interest on the debt securities it issued to finance the requirements under the Settlement Agreement. These include customer rebates, arrears credits and bill credits issued to Suffolk and non-Suffolk customers. Additionally, LIPA is entitled to recover related costs, including but not limited to bond issuance and administration expenses and interest costs incurred (or interest income foregone) on advances it made prior to the issuance of the Shoreham Settlement-related debt. Finally, LIPA will be assessing carrying charges on the annual timing difference between its debt service requirements and the levelized percentage surcharge.

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When will the Shoreham Surcharge begin for Suffolk County customers?
The surcharge will become effective June 1, 2003 and remain in effect over the life of the underlying debt, or approximately 26.5 years.

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What is the expected surcharge being applied to Suffolk County electric bills?
The Surcharge will be approximately 2.8% and will be applied over approximately 26 and 1/2 years, i.e., June 2003 through 2029, the term of the repayment of the Shoreham Property Tax Settlement Bonds. The Surcharge will be a percentage of projected base electric sales revenues (i.e., revenues from electric sales, excluding Fuel and Purchased Power Cost Adjustments (“fuel surcharge”) and revenue-based PILOTs) from billings to Suffolk County Customers. The levelized percentage will initially be set at approximately 2.80%, excluding fuel surcharges and associated taxes which is designed to achieve full recovery of the settlement obligation costs incurred by the LIPA on behalf of the Shoreham taxing jurisdictions.

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I remember receiving a Shoreham Refund Check. Was that in reference to this issue?
Yes. LIPA agreed to borrow the required funds to pay the settlement amount through rebates and bill credits over a period of five years. The debt service on those borrowings, which begins in the sixth year, will be paid through a surcharge on Suffolk County ratepayers.

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If the Shoreham Tax Credits end in May of 2003, what will the effect be on customer’s bills and will the effect be different in Suffolk than in Nassau?
The effect will be different. The credit in Nassau, which ranged from approximately 4.0% to 5.0%, will end. In Suffolk County, the credit ranging from 2.0% to 3.0% will end and a 2.8% surcharge will be added.

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How will the Surcharge be applied to my bill?
In order to calculate the impact on each customer’s bill, the Surcharge Revenue Requirement must first be determined by multiplying the Surcharge Rate (taking the Base Rate for electricity on Long Island of $0.12 x 2.80% = $0.00336) x Suffolk Sales (52.1% or 10.17 Billion kWhrs) = $34,171,200. The Surcharge Revenue Requirement is then divided by forecasted Suffolk sales revenues, including the fuel surcharge and before taxes, to determine the factor to be applied to each customer’s billed revenues (before taxes).

For example:

The average residential bill, eliminate the tax (say divide by 1.03), eliminate the current credit (say divide by .98) and multiply by 1.028.

New Bill
$100.94/1.03=$98.00=Current bill before tax
$98.00/.98=$100.00=Current bill before tax and credit
$100.00 x 1.028=$102.98=New bill before tax
$102.98-$98.00=$4.98=Bill increase before tax

If I’m a LI Choice customer, how will this surcharge affect me?
The Surcharge for Suffolk County Customers who participate in the Long Island Choice Program will be determined by adding back to total billed electric sales revenues (before revenue-based PILOTs) all bill credits received in accordance with the Authority’s Tariff Leaf Nos. 310 - 312 and then applying the Surcharge Factor to that sum.

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How will the Shoreham Surcharge Factor affect Nassau County and the Far Rockaways customers?
The repayment factor will be zero for Customers in Nassau County and the Rockaway Peninsula.

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