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LIPA Vows to Fight Plan to Raise Fee
By Tom McGinty - Newsday - November 4, 2003
KeySpan Corp., which generates more than 60 percent of the electricity sold by the Long Island Power Authority, has petitioned federal regulators for a 9-percent increase in the fee it charges the utility for exclusive access to that supply.
LIPA chairman Richard Kessel said KeySpan's proposal would automatically lead to an electric- rate increase of more than 1 percent for Long Islanders, and he vowed to "vigorously oppose" it.
Kessel also said the petition gives LIPA a strong incentive to buy KeySpan's power plants, a one-time contractual option the authority can choose to exercise anytime between the end of next year and May 27, 2005.
"They claimed that they had achieved significant efficiencies in running these plants," Kessel said. "If they can't control costs, maybe we should own them so we could control costs."
KeySpan spokeswoman Andrea Staub said company officials "fully expect to engage LIPA in a settlement discussion" while the Federal Energy Regulatory Commission reviews the petition.
She said the power supply agreement between KeySpan and LIPA has saved Long Islanders hundreds of millions of dollars by shielding them from the dramatic price swings of New York's open electricity market.
"Long Islanders have benefited from this below-market rate over the last six years, and they're going to continue to benefit over the next five years," Staub said.
The power supply agreement dates to 1998, when LIPA bought the transmission and distribution wires of the Long Island Lighting Co. LILCO retained its natural gas network and power plants and merged with Brooklyn Union Gas, forming the company now known as KeySpan.
Under the power supply agreement, LIPA essentially was given exclusive access to the former LILCO plants until 2013. The fee LIPA pays for that right - about $304 million in 2003 - can be renegotiated every five years. It covers KeySpan's cost of owning and operating the plants and provides the company with a profit.
The original contract gave KeySpan an annual after-tax profit of about $20 million. KeySpan's petition seeks a total fee of $332 million a year, which would provide the company with an annual profit of $23 million, Staub said
Federal regulators have jurisdiction over the fee charged by KeySpan because the company owns more than 80 percent of the generating capacity on Long Island, and could exert monopoly control over power prices.
LIPA and KeySpan each will have a chance to petition the FERC in a process that could last into next year.
Copyright © 2003, Newsday, Inc.
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