Dominion, state differ over profit numbers on which new tax is based

The owner of Millstone Power Station said Friday that the estimated profit margins used as a basis for a proposed tax on electricity are inflated, but the state's consumer advocate stands by the numbers.

Millstone owner Dominion has said the company will shut down one or both of its operating reactors in Waterford if lawmakers' proposed $332 million tax is approved. The tax represents 2 cents per kilowatt hour on more than 16 million megawatts of generation a year. Lesser tax rates are also proposed for coal and oil generation in Connecticut.

Since the company does not have to open its books to the public, lawmakers and Mary Healey, the state's consumer counsel, have relied on estimates of Millstone profit margins as they've studied the issue, Healey said.

This year, they've determined that, if taxed at $332 million, Millstone's owner would still clear profit margins of between $190 million and $700 million.

The profit margins constitute the difference between the price for which electricity was sold and the cost to make it. The state Office of Consumer Counsel is just corroborating the figures for lawmakers, she added. A variety of consultants she would not name helped compile that analysis, she said.

If the tax is approved, counters Dominion spokesman Ken Holt, "we will be making little or no profit, or even losing money."

"And I don't think anybody wants a nuclear power plant operating on low margins," Holt said. "The owners before us did that, and I don't think anybody wants that because we are a safe operator."

Northeast Utilities, the previous owner of the Millstone complex, was forced to shut down the reactors in the mid-1990s after federal findings of mismanagement.

Holt declined to specify what would constitute an unacceptably low profit margin.

Healey insisted that her agency's estimates of Dominion's past annual profit margins, which ranged between $298 million and $975 million over the past decade, are reliable.

According to a financial spreadsheet provided by the Office of Consumer Counsel to The Day, those annual margins are based on the past decade of public records of output for Millstone, an estimated average annual clearing price and estimated fixed costs. The analysis puts Millstone's annual profit margin at nearly $514 million last year.

The clearing price is the price bid by many electric generators in the wholesale spot market for a particular time period. Instead of bidding in the wholesale market, most of Dominion's power is hedged, said Holt. This means it is sold in advance at a fixed price and does not fluctuate in the spot market.

"Their assumptions are wrong, plain wrong," Holt insisted. "They're assuming our costs have remained flat over the last 10 years. Our business costs have not remained flat over the last 10 years. And their clearing price is not the price that we get for our electricity."

The Hartford-based Connecticut Business & Industry Association, which has 10,000 members, is opposing the proposed energy tax.

"Dominion pays taxes in other ways, and this attitude that exists with some that companies are just bottomless pits of money is ridiculous," said Bonnie Stewart, vice president of government affairs for CBIA. "That's not the case. Companies have choices where they locate. We don't want to discourage them from locating here."

The proposed tax is based on sound estimates, said Healey and Rich Sobolewski, her supervisor of financial analysis. Dominion should "step up to the plate and leave" some of their profits in Connecticut instead of in the hands of shareholders, either for electric ratepayer relief, a balanced budget or to promote conservation and renewables, she said.

"At first blush, I could understand why people say this is not fair to Dominion, that it's anti-business," she said. "But it really is an attempt to help provide relief to ratepayers in Connecticut and at the same time to still allow the company to make a healthy profit, which is their right, but not an excessive profit."

"The numbers done to calculate the tax show (Millstone's earnings) are excessive and haven't met the goal of reducing our electric rates in Connecticut," Healey said.

Earlier this week, state Sen. John Fonfara, D-Hartford, co-chairman of the legislature's Energy and Technology Committee, said the Office of Consumer Counsel and its consultants estimated that this year Millstone would earn $480 million before deducting for taxes and other expenses.

Based on the Virginia-based Dominion's own 2011 earnings guidance, that $480 million figure represents the bulk of some $581 million in earnings the company has projected for its New England-based nuclear and coal plants in 2011. Healey would not say how her staff and consultants arrived at that estimate, however.

"It's one year's result," said Sobolewski. "It's an estimate. That $480 million will probably be the lowest result they've had in a decade."

Fonfara could not be reached Friday to elaborate.

"They're suggesting that nuclear power is selling for five times as much as coal," said Holt. "That's incorrect. Their estimates for 2011 sound very favorable for collecting a tax, but they don't sound like they smack of reality."

Fonfara has also said the proposed legislation, which calls for the tax revenue to be used in part to reduce electric ratepayers' bills, will not pass on costs to those ratepayers.

A spokesperson for ISO New England, which manages the region's wholesale electric market, said Friday that if Dominion decided not to operate one or more reactors, not only could the agency not stop them, but ISO-New England's costs to replace those missing megawatts over the next three years would be passed on to ratepayers.

p.daddona@theday.com

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