The proposed $9 billion public buyout of the Long Island Lighting Co. could cost billions of dollars more than expected as New York State figures in the cost of the utility's unpaid taxes, state legislative staffers and market analysts said yesterday.
Lilco's deferred tax liabilities total $2.93 billion as of Dec. 31, 1993. At the moment, staffers working in the state legislature say they believe that Lilco has a total of $1.9 billion in deferred federal taxes that the state may be forced to pay in the event of a buyout, making the state's total buyout cost around $11 billion.
When asked if the state would have to pay off the tax liabilities, Lilco spokeswoman Andrea Staub said, "Lilco expects that both the Long Island Power Authority and the New York Power Authority would seek an Internal Revenue Service ruling on the matter."
The tax liabilities come in the wake of the closing of Lilco's Shoreham nuclear power station. Lilco has written off its Shoreham losses through to 2002. As a part of the plant's closing, Lilco was able to defer its tax payments.
Municipal bond traders worry that the cost of the buyout plus unpaid taxes could ultimately result in $11 billion of bonds flooding the New York municipal market in the next year.
Officials at the state power authority, who are negotiating the Lilco buyout, declined to confirm or deny the existence of a large tax liability and its impact on the size of the deal.
"We have yet to sit down with Lilco and examine their books," said S. David Freeman, the New York Power Authority's president and chief executive officer. "They and only they know what their current tax situation is."
Freeman said the letter that the authority sent to Lilco proposing the buyout offers $21.50a share, provided that the state could immediately reduce customer rates by 10%.
Under the buyout plan proposed last month by Gov. Mario M. Cuomo, the state would sell $9 billion of tax-exempt revenue bonds over the course of a year to buy all of Lilco's existing assets. The Long Island Power Authority would issue the debt and the New York Power Authority would operate the utility.
Both market sources and political observers have said, however, that Cuomo's plan may simply be a ploy to win votes on Long Island.
Lilco stock was trading at $17.87 yesterday, up slightly from Wednesday. In October, shares cost about $16.50.
Stephen Schoenholz, director of public relations for the New York Power Authority, said that a new public utility would achieve "considerable savings" of $165 million to $175 million a year from the removal of federal taxes from customer rates.
"We don't see the unpaid tax liability as a problem," Schoenholz said. "At this point, it is not our expectation ,that we would have to take that on. We certainly don't see it as a potential impediment to an acquisition."
Lilco officials will have their first meeting with power authority officials next week to discuss the buyout.
Long Island Power Authority chairman Richard Kessel called the federal tax liabilities "a nonevent in terms of the price tag," adding, "We don't think it will add to the cost of the deal." However, Kessell would not comment on what the size of the tax liability is, or role out that it might add to the buyout's price tag.