Upstate New York towns that host power plants are getting socked by fallout from the same low natural gas prices that are hurting savvy investors like Warren Buffett and Carl Icahn.
When the price of natural gas goes down, the price of electricity goes down. But power companies still have the same fixed expenses.
The speed of the dislocation caused by the 2010 American natural gas revolution is likely to cost Warren Buffett $2 billion on a failing Texas utility. Carl Icahn, invested in another utility, Dynegy, last year, that is fighting for its life in bankruptcy court in Poughkeepsie, N.Y. now.
The fate of Carl Icahn’s Dynegy investment is linked to that of the 2,000 students in the Marlboro Central School District, in Newburgh, New York. Two power plants in town pay their school taxes.
Icahn and company would like to ditch the Roseton and Danskammer plants there because they don’t make enough money to pay down the debt Dynegy piled on them when they bought them. New U.S. enforcement of the Clean Air Rules also make these older plants more expensive to operate. The plants are worth their salvage value only to investors at this point.
I spoke to the superintendent of the Marlboro Central School District a couple of weeks ago about the power plants. He said they pay $14M of a $39M tax levy for the schools. If they close it will be a “crippling blow” to the school, one he hopes will be made up by the county.
Dunkirk City School District outside of Buffalo, N.Y. is also facing the loss of significant tax revenue because low natural gas prices are forcing NRG Energy to try to mothball their coal-burning Dunkirk power plant there.
When I was an intern at The New York Times I wrote about the impact of a power plant tax snafu on a small town, Haverstraw, N.Y., that was ultimately settled in court, but wreaked havoc on school budgets and property taxes.
It’s part of the Faustian bargain communities make to have a power plant in their borders. Locals are willing to overlook smokestacks and pollution for the jobs and tax revenues.
Now that the revenue is going away, and the schools are strapped, you can’t exactly blame Dunkirk, Newburgh or Haverstraw for long-term bets on power plants, they were in good company with Buffett’s Berkshire Hathaway and Icahn Associates.
