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AES agrees to revised tax break deal ; Agreement reduces company payments by $3 million over next two years

AES Corp., Niagara County's largest property taxpayer, has agreed to a revised tax break deal that's not as generous as the company had requested.

Henry M. Sloma, chairman of the county Industrial Development Agency, announced the agreement at Wednesday's IDA board meeting.

The terms reduce total tax payments by AES on its coal-burning power plant in Somerset by $1.5 million in the 2011-12 school year and by another $1.5 million in 2012-13.

However, Sloma said there is a mechanism that would increase AES' payments again if the currently depressed wholesale electricity market bounces back.

If market conditions remain as they are now, AES, which this year paid a total of $15.8 million to the county, the Town of Somerset and the Barker Central School District, would pay $14.3 million next year and $12.8 million in each of the three years after that.

"If the company wants the taxing entities to share in their distress, they certainly should be able to share in their success," Sloma said.

"We don't know what the reopener conditions are going to be, but it will probably be [pegged to] general economic conditions," said Peter Bajc, president of AES Somerset. "It will be broader."

The company wants a provision that will also allow for lower payments if market conditions worsen.

"It's a two-edged sword. It can work either way," said William L. Ross, chairman of the Niagara County Legislature.

Sloma said if AES thought a $15.8 million payment was fair a year ago, then it should pay that much again if prices return to where they were a year ago. But he conceded that the taxing entities might give the company "a little leeway" on that.

Bajc said AES sought to get out from under a requirement in the tax deal it signed less than a year ago that it had to post a letter of credit to protect the taxing jurisdictions in case of a company default. The local governments refused.

"Credit's difficult to get right now for electric generating companies. We're going to try to work through an alternative means that works for both of us," Bajc said.

"There's some legal work to refine the indexing piece and the credit piece," Sloma said.

But the deal is firm enough that the IDA scheduled a public hearing for 5 p.m. Feb. 1 in Somerset Town Hall. A vote on the revised payment-in-lieu-of-taxes, or PILOT, arrangement is expected at the IDA board's Feb. 9 meeting.

Sloma said the key is to get the deal done before March 1, which is taxable status day in Somerset. Any changes made after that date wouldn't take effect until the 2012-13 school year.

"Compromise was the name of the game," Ross said. "As I said in my State of the County address [last week], this was our No. 1 problem."

AES had applied to the IDA for a reduction in its PILOT from $15.8 million this year to $12.8 million in 2011-12 and $9.8 million for three years thereafter.

The taxing jurisdictions responded with the financial terms that the company agreed to in an e-mail to Sloma about 5 p.m. Tuesday.

Sloma and Ross said AES wanted to go lower, but the local governments refused to do so.

"I don't think the taxing jurisdictions think they're the only solution to [AES'] problem," Sloma said.

AES has been able to avoid laying off any of its 122 employees, but the plant was shut down for most of November. Besides plunging wholesale prices, the company has been hard hit by increasing coal and transportation prices and by new taxes and regulations.

AES, in common with all coal-burning plants in the Northeast, must pay a $10 million annual carbon dioxide tax under the Regional Greenhouse Gas Initiative. AES, a Virginia-based company, also has estimated it may cost as much as $139 million for the Somerset plant to comply with new federal and state environmental regulations.

The Barker School District collects nearly half of its budget from AES. The district receives 59.25 percent of AES' annual payment, which under the old terms was $9.36 million.

By 2012-13, the district would receive a little less than $7.6 million a year from AES if the revision is approved.

Barker School Superintendent Roger J. Klatt said, "A reduction of that magnitude will have consequences. As a result of this relief, there will be a greater reduction of our district's reserves."

Sloma said he's confident the loss would be made up by new PILOT payments already approved for the proposed Verizon Communications data center, to be built next door to AES -- if Verizon prevails in pending litigation over its environmental approvals.

According to a chart released after the IDA approved the Verizon deal in November, Barker can expect $1.4 million from Verizon in each of the data center's first three years of existence, a figure that would rise thereafter.

Ross said the local officials who worked out the deal wanted to make sure AES didn't close its 675-megawatt plant.

"We want to keep AES here," the Legislature chairman said. "The impact on this county [of a closure] would be tremendous. And for a little school district like Barker, it would make such a hole in their budget that they might not survive."

e-mail: tprohaska@buffnews.com

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