Caithness II tab at $1.09B, costs could rise above $3B

The cost to build and equip a new megapower plant in Yaphank is $1.09 billion, according to documents seeking tax relief filed by developer Caithness Long Island II with the Brookhaven Industrial Development Agency.

The costs have not been made public, but they were discussed last week at a meeting of Brookhaven IDA and Caithness II officials. Caithness II is seeking tax breaks of about $68 million.

The construction costs are only a portion of the larger tab for the proposed 752-megawatt plant, which is expected to enter into a contract for a 20-year power supply agreement with the Long Island Power Authority.

Other costs not included in the $1.09 billion figure are long-term financing, 20 years of payments in lieu of taxes to local governments and school districts, and the plant owners' profit. In all, the costs would push the total contract value paid by ratepayers over the 20 years to more than $3 billion, according to people with knowledge of the pact.

LIPA projects power gap

Ratepayers ultimately will pick up the tab, but the exact impact is still being determined.

When the first Caithness plant of 350 megawatts was being built on adjoining property in Yaphank in 2007, contractor Siemens announced the construction cost at $450 million. But the total contract value paid by LIPA ratepayers over 20 years was (and remains) $1.67 billion, according to the state comptroller's website.

LIPA has said the new plant is needed to fill a projected need for up to 1,200 megawatts of additional power by 2023 and to fill in for power gaps when older plants are taken offline for overhauls. Critics point to flat or declining power use by Long Island residents in the past few years, as well as LIPA's excess plant capacity, in arguing the plant isn't needed and will hike rates unnecessarily.

Approval of the LIPA contract by its board has been delayed until later this year as PSEG Long Island studies the need for the plant and its impact on rates.

Lisa Mulligan, chief executive of the Brookhaven Industrial Development Agency, said the Caithness II requests would relieve the plant owners from a 1.05 percent mortgage tax, split by the town and the county, and the 8.625 percent state and county sales tax on an eligible $690 million of the total $1.09 billion construction cost. That would amount to just over $9 million and $59 million, respectively. Mulligan said the application is pending.

"Keep in mind the details of what they're going to receive have not been finalized," she said. "They are not necessarily going to get any of it."

In a statement, Caithness II spokesman Don Miller acknowledged the company was applying for "exemptions from certain taxes," but didn't specify the amounts, or comment on the plant's overall costs. He said the plant "will be a major economic benefit" for the region, creating some 500 construction jobs (the application says 270), $200 million in payroll and benefits, and $400 million in direct spending on local goods, services and taxes over its 20-year contract.

The $1.09 billion tab to build the much-larger Caithness II includes $150 million in labor costs, according to the company's filing. About 270 full-time employees would work to build and equip it, with a construction start date projected at Sept. 30, 2015, according to the filing. When operating, the plant will have 15 full-time and part-time employees earning $2.4 million annually.

Other costs expected

Other costs associated with the Caithness II project include a new gas main that must be brought to the plant, which is expected to cost several hundred million dollars, according to a source with knowledge of the plans. Electric transmission infrastructure upgrade and construction costs could add several hundred million more.

"If you start adding the gas and transmission costs to this, you start to approach a Shoreham number," said Matthew Cordaro, a former Long Island Lighting Co. executive, referring to the more than $5 billion cost of that ultimately shuttered nuclear plant.

Cordaro, who stressed that he was speaking as an energy expert and not in his capacity as a LIPA trustee, projected that "the cost of this project over 20 years will definitely be in the neighborhood of $3 billion," based on "classic industry yardsticks."

LIPA has previously said the plant would add upward of 3 percent to ratepayer bills when it becomes operational in 2018.

But LIPA declined to comment on the total cost for Caithness II over 20 years.

Rick Shansky, managing director of Power Supply Long Island, LIPA's power markets division, said in an email, "We are still studying the cost of the gas line and transmission necessary to support the Caithness II project, so it is premature to comment on these costs."