Government Affairs Albany Update - October 26, 2001

Senate, Assembly Pass Additional Budget Items

The Senate on Wednesday evening, and the Assembly in the early Thursday hours, passed additional budgetary measures: S.5824/A.9458 and S.5828/A.9459. Both measures are expected to be signed by the Governor.

Two significant tax items were included. One was continuation of the current Bank Tax law (Article 32) for two more years through all taxable years commencing before January 1, 2003. Article 33 was extensively revamped in 1985, but, the changes were given limited life. New York has extended the effectiveness of those changes numerous times since; this year's legislation continues that process. The legislation made a similar two-year extension to the transitional provisions relating to the Federal Gramm-Leach-Bliley Act.

The second major item was the creation of a credit against the Gas Importation Privilege Tax (Section 189); this newly established credit was made retroactive to August 1, 1991 in order to foil the Court of Appeals' finding in Tennessee Gas Pipeline v. Urbach. Therein, the Court found Section 189 to be unconstitutional on its face due to the theoretical possibility of gas importers being taxed at a higher rate than the rate on in-State gas purchasers. The new credit was set equal to the Section 186 Gross Receipts Tax rate in effect (Note: the Section 186 rate was 0.75% until January 1, 2000 when it was repealed.) and is only available to gas importers who actually paid a Section 186-like tax to another state. Since no other state had a Section 186-like tax, the retroactive credit costs New York nothing, but, if accepted by the Court, it would prevent some $75 million of potential refunds to taxpayers who before January 1, 2000 imported gas for use within New York. Besides the retroactivity issue, the legislation did not address the period of October 1, 1998 through December 31, 1999. (Tennessee Gas Pipeline v. Urbach dealt with a five-year period ending in 1996) when the GIPT rate on out-of-State purchasers was 4.25%, while the in-State combined rate of Sections 186 and 186-a was 4.0%.

Sale of Nile Mile Point 1 & 2 Nuclear Plants Approved by PSC

On October 24th the Public Service Commission (PSC) approved the sale and transfer of the nuclear assets at Nine Mile Point Nuclear Station from Niagara Mohawk and other public utilities to Constellation Nuclear, LLC. The petition for approval of the sale had been filed with the Public Service Commission on January 31, 2001.

The purchase prices for Nine Mile 1 and 82% of Nine Mile 2 are approximately $221 million and $559 million, respectively. Included in the terms is the transfer to Constellation of the decommissioning funds. Constellation will take full responsibility for the decommissioning of the plants and the disposal of spent nuclear fuel as well.

The terms for the sale also include Power Purchase Agreements (PPAs) that require Constellation to sell 90% of the output from Nile Mile 1 and 2, at fixed prices, for 10 years or through August 2009 if the license for Nine Mile 1 is not extended. After the PPAs expire Revenue Sharing Agreements (RSAs)for Nine Mile 2 will be in effect until 2021. Under these RSAs, if the actual electricity market prices are above the prices established in the agreement, Constellation will pay 80% of the difference to the ratepayers of the selling utilities.

Nine Mile 1, a 609 MW nuclear generating power plant, is wholly owned by Niagara Mohawk. Nine Mile 2, a 1,148 MW nuclear unit, is a jointly owned venture of Niagara Mohawk (41%), New York State Electric & Gas (18%), The Long Island Power Authority (18%), Rochester Gas & Electric (14%), and Central Hudson Gas & Electric (9%). The Long Island Power Authority is not participating in the sale.

Niagara Mohawk-National Grid Merger

On October 12th Niagara Mohawk Holdings and National Grid Group announced a proposed merger and rate plan settlement agreement. The merger will create the ninth largest electric utility in the nation. It was filed with the Public Service Commission on Thursday, October 11th. The agreement is the culmination of five months of negotiations among Niagara Mohawk, National Grid, staff of the Department of Public Service, state agencies, energy service companies, industrial customers and other parties.

The agreement calls for a net customer savings of about $1 billion over the next 10 years if the merger is approved. Under the merger, Niagara Mohawk customers will see an immediate $160 million savings in delivery charges. The companies also intend to expand Niagara Mohawk's annual upstate New York economic development efforts by $12.5 million.

Other proposed aspects of the agreement include; $24 million in annual penalties (or more) if certain customer service and reliability goals are not met; an expectation that cost for delivery of electricity will drop 8% for a projected 5% net savings on the customer's overall electricity bill; a forgoing of the collection of about $850 million in nuclear costs that otherwise would have been collected from customers and; a 16 month extension of a multi-year gas rate settlement (that kept delivery rates unchanged since 1996) until 2004.

Niagara Mohawk and National Grid have asked that the matter be considered at the November 28th meeting of the Public Service Commission. A series of public hearing will be held in early November in Albany, Syracuse and Buffalo. The merger also requires the approval of the Securities and Exchange Commission.

Economic Development Programs

This week's budget measures included nearly $90 million in funding for several key economic development incentives, although in most cases, the funding levels were significantly below levels originally sought. These measures include:

"Green Building" Rule

The Business Council has submitted extensive comments on the Department of Environmental Conservation's draft regulations for implementing the state "Green Building Tax Credit" program. This program provides $25 million in tax credits over a ten year period for the construction or rehabilitation of "green" buildings and tenant space. It was adopted during the 2000 legislative session, but has yet to be implemented because of delays in finalizing this rule-making package.

In these formal comments, The Business Council supported the basic tenets of "green" construction, but raised concerns about the extensive compliance costs that would be imposed by the proposed rules, and challenged a number of product-specific provisions intended to define what constitutes a "green" building product.

With regard to the designation of "green" building products, the Business Council criticized the draft rule for failing to apply any consistent standards, and for failing to consider the overall benefits and impacts of building materials. The Council also recommended that the DEC Commissioner be allowed to accept additional products into the green building tax credit program, where such products have been shown as having significant net environmental benefits.

The Business Council's comments