Power Outage: Deregulation and the Decimation of the Energy Industry in Rockland

Part One: 1999—2006

BY CHERYL SLAVIN

Not so very long ago, North Rockland was the home to two thriving Orange and Rockland power plants that supplied most of the gas and electricity to Rockland home and business owners.

In addition, the Bowline and Lovett plants comprised an important part of the community, providing valuable jobs and even more valuable tax revenues to a number of jurisdictions.

Today, the industry is just a shadow of itself, decimated by the unintended consequences of energy deregulation. Lovett is leveled, and Bowline is barely used. Residents, business owners and elected officials now cope with the aftermath of two devastating tax certiorari rulings while trying to figure out how to compensate for the major loss of jobs and tax income.

Like all utilities up until the mid 1990s, Orange and Rockland was regulated by the government, and as such held a de facto power monopoly, controlling both the supply and the distribution of its product. Competition did not set the rates. Rather, in exchange for sole control over its market area, O&R agreed to government established rates and services, and also agreed to whatever tax assessments were established by the various taxing jurisdictions. Its profits were safe because any increase in cost could easily be passed onto the ratepayers.

Then, in the mid 90s, the federal government decided that this arrangement, which allowed monopolies to control public utilities, did not serve the public. Although regulation had kept prices down and quality of services and products up, the new theory concluded that deregulation would provide the consumer with the benefits normally associated with competition—lower prices, greater choice of services and products.

By 1998, the New York Public Service Commission had implemented deregulation and public utilities had to choose between operating supply or distribution. O&R was one of the first to file its divestment plan and chose, as did most other companies, to keep distribution in order to maintain control over the lucrative distribution infrastructures, such as pipelines and wires. By 1999 Bowline and Lovett were sold to Southern Energy, a huge multi-state energy corporation.

However, the multitude of independent power suppliers envisioned by the federal and state governments never appeared in New York. Instead, the open market freed Southern to file a petition for tax certiorari with regard to the assessment of the Bowline plant, demanding a lower valuation and refund of any overpayments. Its successor, Mirant Energy Corporation, added a challenge to the Lovett assessment in 2003.

Even as Stony Point, Haverstraw and the North Rockland School District fought the case, the assessments on the plants continued to rise. Explains Mike Gamboli, Finance Director for Haverstraw: “Between 1999 and 2006, as housing prices were going through the roof, the power plants’ actual value was going down because they are valued according to the income they produce rather than at fair market price. However, the state equalization rates imposed for the housing market also falsely inflated the valuation of the power plants, and consequently their tax assessments.”

The Towns were aware of being caught between the state’s equalization rates on the one hand, and Mirant’s claims for a refund on the other. At one point in 2004 then-assessor Dave Adams dropped the Bowline assessment 27 percent, after the Haverstraw Town Board expressed its concerns. The state responded by coming in and re-setting the equalization rate so that Bowline’s value remained unrealistically high. Jack O’Shaughnessy, who was the Stony Point assessor in 2004, remembers the absurdity of arguing with the state on the one hand that the assessment of the plants was too high, and then going into court and arguing the opposite against Mirant. “At times it was like I was fighting against myself,” he says.

The litigation also strained relations between the towns, especially as all the parties were represented by the same legal counsel even though there were competing interests. At one point a possible settlement would have established a $100 million escrow account to offset what everyone at that point knew would be an inevitable refund. All the taxing jurisdictions were ready to sign off on the agreement, except Stony Point.

Howard Phillips, current Supervisor of the Town of Haverstraw, conjectures that the Stony Point Board was guided by a misplaced belief that the agreement would not provide a sufficient valuation for Lovett, the plant located within that Town’s borders. Stony Point Supervisor Geoff Finn, who was a councilman at the time of the litigation, counters that legal counsel had advised his Board at the time that the offer was not in Stony Point’s best interests, and that the Town would fare just as well or better by going to court. He adds that in fact Stony Point did make out a little better under the court’s later decision than it would have under the proposed settlement.

“The inability (of the parties) to negotiate…led to a scenario whereby the company claim against the school, county and town accrued over a 10 year period to $275m,” one blogger stated in 2011. And indeed, by the time the trial was over—after 59 days, the testimony of dozens of experts and witnesses, and reams of documentary evidence—the judge had decided that Bowline and Lovett together were worth only a little more than half of the over $1 billion valuation the state had placed on them.

North Rockland School District bore the brunt of the staggering $294 million refund—about $224 million. The district went on austerity. Staff, personnel and services were cut, the unions agreed to a wage freeze and benefits packages were renegotiated. North Rockland took out a 30-year bond to pay for the bulk of the refund. Taxes doubled. Today the district’s debt service is between $11 and 15 million a year.

More choices, better services, ratepayer savings? By 2006, all that deregulation had done for Rockland County was diminish its tax base while imposing a huge debt. The result: higher taxes, fewer jobs and residents who wondered if they would be able to remain in their homes.

PART II Next Week