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COUNTY OF SUFFOLK v. LONG ISLAND LIGHTING CO.

March 9, 2000

COUNTY OF SUFFOLK, A MUNICIPAL CORPORATION, AND ROBERT ALCORN, CHRISTOPHER S. GEORGE, FRED HARRISON, PETER MANISCALCO, WILLIAM F. QUINN, ROBERT HOFFMAN, SUSAN CHASE, YOLANDA OWENS, JAMES ROTH, MYRA BERKOFF AND SANDRA ROSENBERG ON BEHALF OF THEMSELVES AND OTHER SIMILARLY SITUATED, PLAINTIFFS,
V.
LONG ISLAND LIGHTING COMPANY, STONE & WEBSTER ENGINEERING CORP., CHARLES R. PIERCE, WILFRED O. UHL, CHARLES J. DAVIS, AND ANDREW W. WOFFORD, DEFENDANTS, AND MARKETSPAN CORP., INTERVENOR-DEFENDANT.



The opinion of the court was delivered by: Weinstein, Senior District Judge.

MEMORANDUM, FINDINGS OF FACT, CONCLUSIONS OF LAW, ORDER, AND JUDGMENT
I INTRODUCTION _________________________________________________ 189 II FACTS ________________________________________________________ 189 III JURISDICTION _________________________________________________ 191 IV INTERPRETATION OF THE STIPULATION ____________________________ 192 V STATUTE OF LIMITATIONS _______________________________________ 195 VI LAW OF THE CASE ______________________________________________ 195 VII INTEREST _____________________________________________________ 196 VIII ATTORNEYS' FEES ______________________________________________ 196 IX CONCLUSION ___________________________________________________ 196

I INTRODUCTION

The Class seeks a declaration interpreting the judgment and stipulation of settlement of a RICO class action and False Claims action ("Stipulation"). See County of Suffolk v. Long Island Lighting Co., 710 F. Supp. 1428, 1452-66 (E.D.N.Y. 1989) (Stipulation appended). It contends that the Long Island Lighting Company and its successors, including Keyspan Corporation ("LILCO"), are required to pay the Class approximately $21.5 million more than LILCO intends to pay. Additionally requested are interest on past due amounts and attorneys' fees.

LILCO responds that the $21.5 million is being provided to ratepayers in the form of reduced taxes on their electric bills. Essentially, LILCO contends that the tax benefits reaped by the Class as a result of rate reductions resulting from the RICO class action are appropriately included in the $390 million aggregate settlement LILCO agreed to pay.

The Class is entitled to the relief it seeks.

II FACTS

A decade ago LILCO was in serious financial trouble as a result of its construction of the Shoreham nuclear power plant. Ratepayers had brought a class action alleging that LILCO and those associated with it had fraudulently obtained rate increases from the New York State Public Service Commission (PSC) by making deliberate misrepresentations to the PSC respecting Shoreham. Extensive litigation followed. See, e.g., County of Suffolk v. Long Island Lighting Co., 710 F. Supp. 1428 (E.D.N.Y. 1989) [LILCO I] (approving settlement); County of Suffolk v. Long Island Lighting Co., 710 F. Supp. 1487 (E.D.N.Y. 1989) [LILCO II] (final judgment); County of Suffolk v. Long Island Lighting Co., 710 F. Supp. 1387 (E.D.N.Y. 1989) (dismissing claims by Suffolk County), aff'd as modified, 907 F.2d 1295 (2d Cir. 1990); County of Suffolk v. Long Island Lighting Co., 685 F. Supp. 38 (E.D.N.Y. 1988) (standing to bring suit); see also County of Suffolk v. Long Island Lighting Co., 14 F. Supp.2d 260 (E.D.N.Y. 1998) (rejecting modifications of Stipulation to allow acceleration of payments); County of Suffolk v. Long Island Lighting Co., Civ. No. 87-0646, 1995 WL 761828 (Dec. 19, 1995) (extending life of Citizens Advisory Panel), aff'd sub nom, County of Suffolk v. Stone & Webster Engineering Corp., 106 F.3d 1112 (2d Cir. 1997) [LILCO III].

Faced with the substantial possibility that it would be liable to pay a judgment for billions of dollars — resulting in bankruptcy — LILCO settled the suit. LILCO agreed to pay "the sum of Three Hundred Ninety Million Dollars ($390,000,000) in the form of (i) rate reductions, and (ii) payments to Former Ratepayers." Stipulation ¶ 2(a). The $390 million figure was arrived at after intense negotiations by the parties with the aid of the court-appointed Special Master.

Payments were to be made over a ten year period, with the largest payments ballooning in the latter years. The amount and terms of the payments were fixed at a level that it was believed the stock and capital markets would recognize as reasonable, thus avoiding further injury to LILCO's financial standing. There was a concern that setting the aggregate settlement payment too high would result in a "boomerang effect," that is to say, a higher settlement would have unsettled the financial markets causing LILCO to pay exorbitant interest on needed loans, in turn requiring LILCO to charge higher electric rates to cover these costs. As the decision approving the settlement put it:

higher payments in the RICO settlement would present a serious danger to LILCO by threatening investor confidence in the financial health of the utility. This would lead to higher interest rates if LILCO's bonds were not certified as of investment quality. The higher interest rates would, in turn, under standard PSC practice, be charged back to ratepayers as allowable utility costs. These additional costs would then, the experts for the PSC concluded, more than outweigh any increased level of payments above the schedule set out. . . .

LILCO I, 710 F. Supp. at 1434.

The settlement worked. LILCO has prospered.

The Stipulation, settlement and judgment are specific about the amount that was to be paid by LILCO to ratepayers.

LILCO shall pay to the Ratepayer Class . . . the sum of Three Hundred Ninety Million Dollars ($390,000,000) in the form of . . . rate reductions. . . . (Stipulation ¶ 4(a)).
The annual rate reductions required by the Stipulation shall be accomplished in accordance with the following schedule, commencing on the month and date indicated:
June 1990 ---- $20 million June 1991 ---- $20 million June 1992 ---- $20 million June 1993 ---- $30 million June 1994 ---- $30 million June 1995 ---- $40 million June 1996 ---- $50 million June 1997 ---- $60 million June 1998 ---- $60 million June 1999 ---- $60 million [Total = $390 million]

(Stipulation ¶ 4(d)).

Instead of paying the sums due under the schedule, LILCO has paid less, leading to a deficit that will amount to more than $21.5 million by May 31, 2000. The following table sets out the monthly installments made by LILCO, the resulting monthly tax "reduction," and the total monthly bill "reduction" to the Class.

Class Settlement Amounts Claimed as Payments by LILCO
(1) (2) (3) Base Rate Savings to Aggregate Reduction Ratepayers Reduction paid by from Revenue in Ratepayers' ...

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