Bankruptcy Blackout: Deregulation and the Decimation of the Energy Industry in Rockland

Deregulation and the Decimation of the Energy Industry in Rockland

Part Two: 2001—2009

BY CHERYL SLAVIN

At the time when power utilities were still subject to governmental regulation, Orange and Rockland—and Con Edison—had agreed to pay higher than average local tax assessments in exchange for the rights to the power industry in the Hudson Valley. But deregulation of the power industry required that O&R sell off its plants, while at the same time eliminated the give and take on which the tax assessments were based. Within a year Bowline and Lovett became just two more assets in the portfolio of Atlanta based energy giant Southern.

No longer owned by a local company with roots in the community and no longer subject to generous tax agreements worked out with local municipalities for the right to operate the heavy emissions facilities in the area, the move would prove disastrous for the Rockland economy.

Deregulation was the brainchild of huge energy trading firms, including the infamous Enron, which convinced the federal government during the 1990s that competition in the power industry would benefit the public. And in 1999, when O&R sold off its plants, the future still looked rosy. After the sale, Southern, which became Mirant in 2001, enjoyed a brief but steep rise in the industry, its shares selling at their height in 2001 for $47 apiece.

But then the bottom fell out. Enron filed for bankruptcy protection in 2001 amid revelations of enormous deception in its auditing and reporting processes. Throughout 2002, as the truth emerged and the extent of Enron’s losses revealed, the market for energy trading evaporated for all the major firms. Mirant’s reputation also took a beating: an audit found $188 million in income overstatements, and Mirant was facing additional allegations that it had illegally manipulated energy prices in California. That year Mirant suffered $2.4 billion in losses and by 2003 its shares were down to $2.01.

Thus the timing could not have been worse for Mirant when the State of New York brought a legal action in June 2003 to force mitigation of the extensive environmental violations stemming from the aging Lovett plant. At that time, coal-powered Lovett was releasing unacceptably high levels of nitrogen oxide and sulfur dioxide into the atmosphere. Still, despite its precarious financial situation and as of yet unable to refinance its $4.9 billion dollar debt, Mirant entered into a consent decree agreeing to retrofit two of Lovett’s three working units with “back-end controls” to limit the emissions by 2006. In the alternative, Mirant obtained the option to shut Lovett down no later than by 2008.

A month later Mirant filed for bankruptcy protection. Three years later, just as Mirant emerged from bankruptcy it won its enormous tax certiorari case against the Rockland taxing jurisdictions. To the detriment of the towns and the school district, Mirant did not pay any of its disputed tax bill throughout the three years of the bankruptcy proceedings, even though it continued to pay its employees and produce electricity. When the towns finally did get a payment, the assessment was not even half of what they previously had received—and reduced even further by the enormous refund now due.

Despite the negative impact the judgment had on the entire community, newly reorganized multi-state corporation Mirant did not choose to reinvest its $294 million refund back into Rockland. It didn’t use that money, or any money, to retrofit Lovett. Rather, it exercised its option to shut the plant down, despite having won a judgment that lowered Lovett’s tax assessment by half of its pre-2006 amount.

“After the assessment settlement, the Lovett plant was shut down because of high capital costs required to comply with environmental issues,” a spokesman for the company claimed.

Many local authorities and people following the situation suspected that Mirant already knew, when it signed the consent decree in 2003, that it would never spend the money to upgrade Lovett, that it had always intended to leave. Notably, Mirant’s abandonment of Lovett followed shortly on the heels of the sale of its sizable assets in the Philippines and the Caribbean. Closing Lovett fit in nicely with Mirant’s publicly touted plan, executed from 2007 through 2008, to liquidate assets and return $4.6 billion dollars in “excess cash” to stockholders. Moreover, Mirant added insult to injury for Stony Point by dismantling Lovett prior to the tax deadline for the coming year, thereby lowering the tax value of the remaining property even further.

The physical loss of Lovett translated into an additional loss of $10 million a year for the school district, and $1.5 million for Stony Point. The state tried to mitigate the severe loss of revenue by imposing a two-year moratorium on any tax assessment challenges by Mirant. The two year period (2007—2008) coincided with the original timeframe within which Mirant had to fix or abandon Lovett. Thus, not only was 2009 the first year that Stony Point suffered the full financial impact of Lovett’s destruction, it was also the year that Mirant again brought a tax certiorari challenge, this time demanding a 94 percent reduction of its assessments.

This was not the scenario the state and federal governments promised when they first introduced power deregulation to the public. Instead of bringing a multitude of independent power suppliers to compete for business, North Rockland’s main source of tax revenue ended up in the hands of a huge out-of-state corporation. With no connection to the community, Mirant treated the power plants as assets to be used in the best interests of the shareholders, despite what harm their disposal would wreak upon the local economy.

It didn’t matter that 61 jobs were lost when Lovett closed, that a town’s or a school district’s already strained tax base would be severely depleted, or that New York had lost a valuable in-state source of energy and revenue. The shareholders got their piece of the $4.6 billion “excess cash,” straight out of the pockets of Rockland County.

Soon after, Bowline Power Plant in Haverstraw would cease to run near full capacity, all part of a strategy by a now revolving door of energy giants assuming control of the entity to hold the assets at low production. Rocklanders were forced to pay higher electricity rates to bring energy into the county, in spite of having gas plants sitting in place, virtually unused.

The new owners of Bowline had formed production strategies based on the regional and national gas market and in response to taxation. Bowline became a sleeping giant, used only the coldest and warmest days of the year. Taxes were slashed another 90 percent, prompting Haverstraw Supervisor Howard Phillips to remark, “If this was going to be the deal, Supervisor Rotella would have never signed off on the Bowline project in the first place.”

READ PART IPower Outage: Deregulation and the Decimation of the Energy Industry in Rockland

 

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