By JOSEPH KELLARD
Under the terms of a proposed agreement between the Long Island Power Authority and the KeySpan Corporation, LIPA may purchase Island Park's Barrett plant from KeySpan. The agreement affords LIPA the option to purchase both the Island Park plant and another in Far Rockaway for $75 million before a December 2006 deadline.
On entering the agreement with KeySpan last week, LIPA announced that it would repower both plants and would reduce customers' rates. To this end, the agreement also stipulates that KeySpan pay $69 million to LIPA to assist in regulating energy costs for two years.
"This $69 million would reconcile some long outstanding issues that we had as far as billing for some services that KeySpan provided under the original Managers Service Agreement that started in May 1998," said Bert Cunningham, LIPA's vice president of communications. "That is part of the proceeds we will use to help stabilize rates or lower bills a bit in some fashion or provide a rebate or refund. The details of how we are going to apply that money will be coming out in early January."
"What this agreement does, from KeySpan's perspective, is it really gives a great deal of clarity to the KeySpan-LIPA relationship going forward," said KeySpan spokesperson Jody Fisher.
Prior to the proposed agreement, KeySpan owned all of the major power generating plants on Long Island and LIPA was the primary purchaser of its power. LIPA had until Dec. 15 to decide whether it would exercise a Generation Purchase Right Agreement, which it signed with KeySpan in 1998, to buy all of KeySpan's 17 generation plants - the Barrett and Far Rockaway plants being among five major base-load plants - and numerous small individual combustion units spread throughout Long Island, from Island Park to Montauk. LIPA decided against the larger purchase.
"We were miles apart with regard to the price," Cunningham said. "KeySpan felt that there was a market value to those 17 locations of anywhere from $1.5 [billion] to $2 billion. LIPA felt the market value to all those generation assets was about $500 million."
Fisher said that when KeySpan and LIPA first formed their partnership, in which a private company and a public utility were joining hands, "a lot of unforeseen things that no one could imagine came up. We now have the benefit of hindsight here and to redefine the terms of how we interact."
Fisher said the benefit of the proposed agreement for KeySpan will be improved efficiency in LIPA's electrical system, and that LIPA has extended an agreement with KeySpan for KeySpan to be LIPA's primary power supplier from 2008 to 2013.
Feeding gas or oil-generated power into an electrical grid, the Barrett Plant generates a significant portion of the energy used in southwestern Nassau County. Local environmental groups have pointed to Barrett and plants in Northport and Port Jefferson as most in need of re-powering due to their age, and charge that they produce comparatively high levels of pollution. The Barrett plant consists of two units, the first built in 1956 and the other in 1963.
"We have to do a very detailed economic analysis of repowering at the Island Park and Far Rockaway plants," Cunningham said, "to make sure that it is economically worthwhile to buy those two plants before December 2006 or earlier."
The proposed agreement must be approved by both LIPA's and KeySpan's board of directors as well as the state's attorney general and comptroller.
Comments about this story? JKellard@liherald.com or (516) 569-4000 ext. 287.
