Initiative for Competitive Energy v. Long Island Power Authority

• Decision Date: 07 October 1998
• Citation: 178 Misc.2d 979,683 N.Y.S.2d 391
• Parties: , 1998 N.Y. Slip Op. 98,642 INITIATIVE FOR COMPETITIVE ENERGY et al., Plaintiffs, v. LONG ISLAND POWER AUTHORITY, Defendant.
• Court: New York Supreme Court

Page 391

683 N.Y.S.2d 391

178 Misc.2d 979, 1998 N.Y. Slip Op. 98,642

INITIATIVE FOR COMPETITIVE ENERGY et al., Plaintiffs, v. LONG ISLAND POWER AUTHORITY, Defendant.

Supreme Court, Suffolk County.

Oct. 7, 1998.

Reilly, Like, Tenety, Ambrosino & Vetri, Babylon, for plaintiffs.

Rivkin, Radler & Kremer, Uniondale, for defendant.

MELVYN TANENBAUM, J.

This motion by plaintiffs (the Initiative for Competitive Energy, and Jack Kulka) ("IFCE") brought on by Order to Show Cause (Berler, J.) dated May 27, 1998 seeking a preliminary injunction pursuant to CPLR § 6301 and § 6314 and the cross motion by defendant the Long Island Power Authority ("LIPA") for an order pursuant to CPLR § 505 and PAL § 1020-y(1) changing venue of this proceeding to Nassau County, or in the alternative, dismissing plaintiffs' complaint pursuant to CPLR Rule 3211(a)(2), (4), (5) and (7) and the cross motions by proposed intervenors Nassau County Legislature, Town of Riverhead and Town of Southold each seeking leave to intervene pursuant to CPLR § 1012 and § 1013, and the cross motion by plaintiffs for an order pursuant to CPLR Rule 3025(b) seeking leave to amend the complaint to add an additional cause of action claiming that defendant "Authority's" proposed bifurcated rate plan is arbitrary and unreasonable in favor of Nassau County ratepayers are determined as follows:

The Long Island Lighting Company (LILCO) proposed construction of a nuclear powered electric generating plant ("Shoreham") to provide future power services for "LILCO's" customer service area located in Nassau, Suffolk and parts of Queens County (the Rockaways). This plant was built at Shoreham (Town of Brookhaven, Suffolk County) in 1984. It was substantially completed at a cost of $5.5 billion amid controversy concerning the project's cost and safety. This cost was a contributing factor in causing LILCO's rates to be the highest in the United States.

In 1986 the Governor and State Legislature created the Long Island Power Authority a not-for-profit public corporation. The "sine qua non objective of the Act was to give 'LIPA' the authority to save ratepayers money by controlling and reducing utility costs." (Citizens for an Orderly Energy Policy v. Cuomo, 78 N.Y.2d 398, 414, 576 N.Y.S.2d 185, 582 N.E.2d 568 (1991).) The legislation's primary statutory objectives were: 1) closing the Shoreham Nuclear Power Plant; 2) replacing LILCO as the provider of gas and electric power on Long Island; and 3) reducing power costs (PAL §§ 1020-f, 1020-g and 1020-h).

By February 1989, LILCO and "LIPA" entered into an agreement to transfer the Shoreham Nuclear Power Plant to "LIPA". Litigation ultimately delayed transfer of title to "LIPA" until February 29, 1992 (although the plant itself was rendered "permanently and irreversibly non-operative in 1991" [see LIPA v. Shoreham-Wading River Central School District, 88 N.Y.2d 503, 647 N.Y.S.2d 135, 670 N.E.2d 419 (1996)] ). Although the Legislature indicated that replacement of LILCO would be the "best" or "most appropriate" method of remedying the problems addressed by the Act (see PAL §§ 1020-a, 1020-h(1)(a), (n)) "LIPA" was granted flexible authority to make the ultimate choice to acquire all or any part of LILCO's stock and assets (PAL § 1020-h). "LIPA" retained "sole discretion" to acquire and replace LILCO (PAL § 1020-h) based upon time and circumstances including market conditions and the state's financial condition. This broad discretion was conferred on "LIPA" so that "all of the powers necessary or convenient" to implement its multi pronged, complicated purposes could be achieved (PAL § 1020-f).

In 1995 PAL § 1020 et seq. was amended to create the New York State Public Authorities Control Board ("PACB"), a five member Board authorized to oversee "LIPA's" operations. This oversight responsibility required "PACB's" prior approval of bonds and certain contracts in excess of one million dollars.

In March 1997, "LIPA" agreed in principle to acquire through a stock acquisition, "LILCO's" electric transmission and distribution facilities, and "LILCO's" retail electric operations. In June 1997, "LIPA", LILCO and the Brooklyn Union Gas Company ("BUGC") ¹ entered into an agreement subject to approvals from federal and state regulatory agencies and the "PACB". Regulatory approvals were granted by the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and the Internal Revenue Service ("federal approvals") and in New York by the State Comptroller and the New York State Public Service Commission ("state approvals").

The June 1997 acquisition was predicated on a determination that the merger would result in significant and substantial rate savings with higher savings for Nassau County ratepayers due to a preexisting tax certiorari judgment obtained by LILCO against Suffolk County, Brookhaven Town and the Shoreham-Wading River School District. On July 16, 1997 "PACB" approved "LIPA's" acquisition subject to various conditions relating to corporate restructuring, management agreements, future purchase and lease agreements, and future financing. On August 21, 1997 "LIPA" accepted these conditions.

"PACB" granted "LIPA" permission to finance the LILCO acquisition (PAL § 1020-f) through the issuance and sale of bonds. "LIPA" adopted bond resolutions dated May 13, 1998 and May 20, 1998 authorizing the issuance of $4.95 billion senior lien fixed rate and variable rate bonds. The State Comptroller thereafter approved the terms and conditions of "LIPA's" bond proposals. On May 28, 1998 "LIPA" acquired LILCO by purchasing 99.9% of its stock.

Plaintiff "IFCE" is composed of a group of Suffolk County business and residential electric ratepayers. Plaintiff's motion brought on by Order to Show Cause (Berler, J.) sought a preliminary injunction: of "LIPA's" acquisition of LILCO; the issuance and sale of capital appreciation bonds; adoption of a bifurcated rate structure for Nassau County, Suffolk County and Rockaway ratepayers and payments or refunds relating to the proposed "Shoreham" Property Tax Settlement and the "Shoreham rebates", "credits" and Suffolk County surcharge.

"IFCE's" complaint contains six causes of action claiming that: 1) "LIPA" exceeded its statutory authority to issue bonds; 2) "LIPA" violated PAL § 1020-q(3); 3) "LIPA's" issuance of bonds and/or adoption of a bifurcated rate structure is unconstitutional (New York Constitution Article X, Section 5); 4) "LIPA's" bifurcated rate structure violated the Suffolk County Tax Act; 5) "LIPA's" bifurcated rate structure is arbitrary, capricious and without a rational basis; and 6) "LIPA's" bifurcated rate structure is discriminatory and violates 42 U.S.Code Section 1983, and New York Constitution, Article 1, Sections 2, 6, and 7(a).

During the pendency of this action, on May 28, 1998 counsel for the parties entered into a stipulation which, inter alia, provided:

1) Statements for utility services will be sent under the regular billing schedules. Such estimates may reflect a bifurcated rate schedule. In the event the court invalidates any portion of the rate schedule, the Long Island Power Authority will provide prompt credits to its customers to reflect the Court's decision.

2) No rebate checks will be issued prior to August 15, 1998. Any funds appropriated for such purposes will be prudently invested prior to the distribution of said funds.

Cross motions by proposed non-party intervenors Town of Riverhead and the Nassau County Legislature were thereafter submitted as was a stipulation by counsel and the Southold Town Attorney to permit the Town of Southold to intervene. Plaintiff subsequently submitted a cross motion seeking leave to amend the complaint on July 6, 1998, and written correspondence from counsel (July 6, July 10, August 13, August 20, and September 23, 1998) have been submitted setting forth additional arguments by the parties.

In addition and in support of plaintiffs' motion for a preliminary injunction, movants submit four affirmations and claim ratepayers and bond purchasers will suffer irreparable injury by a "LIPA" bond sale and discriminatory bifurcated rate structure. Movant asserts that "LIPA" intends to use proceeds totaling $143 million from the sale of capital appreciation bonds to create preferences for Nassau and Rockaway ratepayers ("Nassau"). These preferences are claimed to result from the plan to give "Nassau" rebates totaling $62.5 million ("Shoreham rebates") and "Credits" totaling $50 million a year for five years, while only providing Suffolk ratepayers with $30 million a year for five years ("Shoreham Credits"). It is plaintiffs' position that "LIPA" intends to repay the bonds by imposing a discriminatory surcharge on Suffolk County ratepayers ("the bifurcated rate structure") and that absent an injunction, ratepayers and bondholders will suffer incalculable financial injury. Plaintiffs argue that court intervention was required to prevent: 1) the sale of the bonds; 2) distribution of bond proceeds; 3) imposition of a bifurcated rate structure; and 4) any payments related to rebates, credits and surcharges--to determine the legal and factual issues surrounding "LIPA's" takeover.

Plaintiffs also claim that only LILCO, as Shoreham plant owner until February 1992, was authorized to seek recovery of Shoreham tax certiorari refunds and that "LIPA" acted "ultra vires" when it claimed to have ownership of LILCO judgments and refunds as part of the purchased assets. Plaintiffs contend that the impact of a bifurcated rate structure is discriminatory against nine Suffolk towns (excluding Brookhaven). "IFCE" claims that an alternative one-quarter percent County sales tax proposal is the most equitable method of satisfying the Shoreham tax certiorari judgment. Movants also claim that "LIPA" failed to credit Suffolk County ratepayers with savings realized: 1) by closing the Shoreham power plant and 2) by a $400 million settlement of...