SOMERSET: AES faces higher taxes, lower demand and more regulations

By Bill Wolcott<br><a href="mailto:bill.wolcott@lockportjournal.com">E-mail Bill</a>
Lockport Union-Sun & Journal

SOMERSET July 01, 2009 01:23 am

— While AES Somerset is the most efficient of the international corporation’s seven power plants in the state, there is concern that higher taxes, lower demand and more regulations could force the coal-burning facility to close.
Binghamton has two units shutting down permanently, and AES is down to five in New York state. Penn-Yan has one of two units running. Cayuga has two coal units, both running Tuesday.
Kevin Pierce, plant manager of AES Somerset, was not sounding a warning bell Tuesday, and said, “Somerset has the advantage of being the most efficient, so in the pecking order, would be the last-man standing. The other units are not doing well,” said Pierce. “The demand is not there.”
Because AES Somerset’s payment in lieu of taxes agreement was overturned by the state Appellate Court, there is uncertainty in the Lake Ontario town.
Nationally, there is a move to do away with all coal-burning power plants. Internationally, the downturn in the economy means less demand for electricity.
AES, originally known as Applied Energy Services, has power plants all over the world. There are AES solar, wind, hydro and natural gas plants, as well as coal.
“We’re sort of scraping every day to get by and hoping the economy turns around,” Pierce said. “The market is very soft, prices are extremely low and there have been days we don’t make enough margin to cover our tax payment. The plant is running fine, it’s the electric market that is extremely soft.”
Under the PILOT, Pierce said, AES pays a combined $50,000 in taxes every day to the Barker School District, the Town of Somerset and Niagara County, Pierce broke the figures down to everyman’s terms
“We’re not even covering that in the market,” Pierce said. “At the same time, we’re being inundated with new environmental regulations that are coming at us which are basically set up to kill coal. Coal is not a fuel that’s in favor right now.”
New York state has implemented the Regional Green Grid House Gas initiative, a penalty on carbon emitters, and coal is one of the higher emitters.
In June 2008, AES was running at 92.7 percent of full load. This June, AES is, running at 69 percent. In May 2008, AES was running at 88 percent capacity. This year it was 68 percent (for May).”
Pierce said he was contemplating pulling out of the PILOT when it was overturned by the 4th District Appellate Court.
“We agreed upon it because it created certainty,” he said. “Now it’s all in trouble. We’re fighting for our survival and looking for voluntary and involuntary layoffs.”
In 2006, AES believed that the PILOT agreement represented a temporary solution to a long-standing issue and avoided ongoing litigation. “Under the PILOT agreement, we had certainty. We knew what our taxes would be,” Pierce said. “Before the PILOT, we had runaway taxes.”
Town Supervisor Richard Meyers and board members Dan Engert and Randall Wayner said the town hopes to avoid costly litigation and Pierce hopes to meet with town leaders.
“We haven’t sat down in formal negotiation right now,” Pierce said. “Everybody is sort of recovering from the shock of the PILOT being overturned. We did not expect that.
“We want to work out something that does not create the devastation the lawsuit did have,” Pierce added. “It’s distasteful for everyone, in that right now, when you’re not making much money, the last thing we want to do is take on an added expense of legal fees of going to court.”