Nine Mile Point Nuclear seeks New York approval for tax agreement

Nine Mile Point Nuclear Station LLC (NMP LLC) on Dec. 16 petitioned the New York State Public Service Commission for a declaratory ruling that a lease-leaseback transaction that would implement a Payment in Lieu of Taxes (PILOT) agreement with the County of Oswego Industrial Development Agency (Oswego IDA) is not subject to further review under Public Service Law Sections 69 or 70.

The company said tt is well settled by the commission that lease-leaseback transactions implementing PILOT agreements between lightly-regulated electric generators and New York industrial development agencies (IDAs) are not subject to review or approval under PSL 69 or 70 where an IDA receives only a passive interest in the generating facility, cannot exercise any control over its operations, and no debt or financing with the IDA is involved.

“As those circumstances all exist here, Petitioner respectfully requests that the Commission issue a declaratory ruling no later than February 17, 2017 finding that no review or approval of the proposed transactions between NMP LLC and the Oswego IDA under PSL §§ 69 or 70 is required,” wrote the company. “If the Commission does not issue a ruling by February 17th, NMP LLC will be required to pay under the PILOT agreement up to an additional, and approximate, $5.9 million over the next three years.”

The Nine Mile Point Nuclear Station owned by NMP LLC is located in Scriba, New York and consists of two boiling-water reactors. Unit 1 began operating in 1970 and Unit 2 was brought online in 1988. Together, both units are capable of generating more than 1,900 net MW. The NMP Facility is licensed to operate through 2029 and 2046 for Units 1 and 2, respectively.

In 2001, Constellation Nuclear LLC acquired the NMP Facility’s Units 1 and 2 from Niagara Mohawk Power, New York State Electric and Gas, Rochester Gas and Electric and Central Hudson Gas and Electric. The Long Island Lighting Co. d/b/a the Long Island Power Authority (LIPA) retained an 18% ownership interest in the NMP Facility’s Unit 2. Constellation Nuclear was owned by Constellation Energy Group. Exelon Corp. (NYSE: EXC) acquired Constellation in 2012.

Exelon Generation Co. LLC (ExGen), a wholly-owned subsidiary of Exelon Corp., indirectly owns 50.01% of Constellation Energy Nuclear Group LLC (CENG). CENG is a joint venture between ExGen and EDF Inc., which owns the remaining 49.9% of the company.

On April 27, 2016, the Oswego IDA adopted a resolution agreeing to:

  • the acquisition of a leasehold interest in various parcels of land totaling approximately 900 acres all located at 348 Lake Road in the Town of Scriba, County of Oswego, New York, improved with two existing operating reactor units and related buildings and structures (i.e., the NMP Facility);
  • the construction of a new approximately 10,000 square foot storage building adjacent to one or more of the existing facilities located at the site;
  • the acquisition and installation of certain machinery and equipment and material in and on the NMP Facility site to support the continued production of electricity from nuclear fuel, including, but not limited to, the replacement of a fire panel system, the replacement of an uninterruptible power source for the security system, roof replacements, plant lighting improvements, and installation of horizontal storage modules;
  • the granting of certain financial assistance in the form of exemptions from state and local sales and use tax and real property taxes; and
  • the lease of the NMP Facility by the Oswego IDA pursuant to a lease agreement, and the sublease of the NMP Station back to NMP LLC and LIPA pursuant to a sublease agreement.

NMP LLC and the Oswego IDA are nearing completion of the PILOT Agreement which incorporates the terms contained in the April 27 resolution. The parties must execute the lease and sublease agreements, and a related PILOT agreement, before Feb. 28, 2017, to comply with a taxing jurisdiction-imposed deadline and avoid a related PILOT payment increase. If this deadline is not met and the IDA arrangement is not in place by March 1 of each successive tax year, NMP LLC will be required to pay the taxing jurisdictions an additional amount of more than $1.9 million per year for tax years 2017, 2018, and 2019. As part of the PILOT agreement’s execution, the involved local property tax jurisdictions will also accept and agree to its terms.

The lease of the NMP Facility from NMP LLC to the Oswego IDA and the reverse sublease comprising the lease-leaseback transaction will occur contemporaneously and at no time will the Oswego IDA have managerial or operational control of the NMP Facility. The Oswego IDA will not take possession of the NMP Facility, acquire any authority to manage the facilities, or be able to exercise any control over its operations. Moreover, at the end of the three-year term of the PILOT agreement, the Oswego IDA’s passive interest will expire, without the Oswego IDA retaining any residual or contingent interests in the NMP Facility.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.