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Hydroelectric Dispute Reaches Agreement

By Staff | Sep 16, 2009

A $12.6 million settlement has been reached in a five-year-old dispute over the ad valorem property tax liability of the New Martinsville Hydroelectric Plant.

Wetzel County Circuit Judges Mark A. Karl and David W. Hummel Jr. approved “payment in lieu of taxes” agreements Aug. 31 under which Allegheny Power Co. ultimately will pay the money in monthly installments over 26 years.

Those payments began Sept. 1 with $280,200 for the first half of 2009. Second half payments are due March 1 of the following tax year.

Although the payments initially will be made by the city, they will be reimbursed by AP, which contracts with the city to purchase electricity from the hydroplant. AP then resells the energy via the nation’s electrical grid.

Payments in lieu of taxes-known as “pilot agreements”-are established by West Virginia statute for use by county taxing authorities, such as the county commission and board of education.

Under the schedule, AP will reimburse $560,400 a year for the first five years, which includes “back taxes” on the hydroplant from 2005-09. Payments of $467,000 annually will be made for the years 2010 through 2034.

The chief beneficiary of the settlement is the Wetzel County School System, which derives about 30 percent of its annual operating budgets from local revenues and about 70 percent from the state legislature. Another 10 percent is held in reserve.

But, here’s where it gets tricky. There is actually no new money, no “windfall.”

“We will receive only what we should have been receiving all along,” said School System Treasurer Jeff Lancaster. Lancaster estimated that the school system’s share of the payments would be about 64 percent-about $179,328 per payment in the first five years.

The legislature has based its funding of schools on regular levy assessments, even though no money changed hands from 2005-09. For that reason, however, the legislature did increase the county’s allotment slightly to help offset a drop in cash flow. That increase is expected to disappear with the Aug. 31 settlement.

The agreement apparently concludes a complex issue whose origins are more than a decade old and that involves multiple layers of contractual and statutory relationships between and among multiple parties.

In 1988, the New Martinsville Hydroplant went online. Two years later the city entered an agreement with New Jersey-based Covanta Energy Corp., an owner/operator of power generating projects.

Under that agreement, Covanta reimbursed the city for wages and other production costs at the hydroplant. Allegheny Power, as the end user, then reimbursed those costs to Covanta. Property taxes during those years were paid by the city, which were reimbursed accordingly.

In 2004, the city terminated the agreement with Covanta and began direct operation of the facility.

In 2005, the city filed the first of four appeals with the Wetzel County Commission, sitting as the Board of Equalization and Review. The city claimed that the hydroplant is used for a public purpose and, therefore, not subject to taxation.

Having been unsuccessful in those appeals, the city filed a civil action in circuit court later that same year against the Wetzel County Commission/Board of Equalization and Review; the Wetzel County Assessor; and the state tax commissioner, whose department had made its own assessment of the hydroplant.

The court’s approval of the agreement dismisses the city’s appeals, declares the hydroplant as public property for the tax years 2005-09, and, therefore, exempts it from ad valorem taxes.

Superintendent of Schools Bill Jones noted that the board of education must prioritize where to budget its money, based on how much is available. He cited a number of areas where expenditures have been reduced because of the lack of funding, including vocational agriculture, reading intervention, foreign languages, full-time coaching, cook and custodial staffing, school counselors, nurses, and alternative education.

Jones said he will recommend that the board use the resumed cash flow to pay any unexpected expenses for this year and carry over any balance for use in the following school year’s budget.

A chief architect of the agreement was Wetzel County Prosecuting Attorney Tim Haught, who represented the county commission and assessor. “I think it is a win-win agreement for everyone concerned,” said Haught. “One benefit of it is that it guarantees a fixed stream of income that can be budgeted, rather than litigated every year with unknown results.

“The city was very cooperative in helping us arrive at the agreement which is mutually beneficial to all parties.”

Haught estimated that he, as the statutory legal counsel for the commission, spent some 1,000 hours in research and negotiations with other counsel.

The city was represented by the Charleston office of Jackson & Kelly and by City Attorney Carolyn Flannery. Kay Casto and Chaney, also in Charleston, represented the board of education, while the state attorney general’s office represented the state tax department.