Facts at a Glance LIPA/National Grid – Amended & Restated Power Supply Agreement

Browse the frequently asked questions below.
republished from lipower.org

What is the Amended and Restated Power Supply agreement between Long Island Power Authority (LIPA) and National Grid?

At the time of the LIPA/Long Island Lighting Company (LILCO) merger in 1998, LIPA entered into certain agreements with affiliates of National Grid (formerly KeySpan Corporation) which included, among other agreements, a 15-year Power Supply Agreement (the “Original PSA”) as
authorized by Public Authorities Law § 1020-f(r). The PSA outlines the terms, charges and conditions of how LIPA purchases the capacity of the power plants, formerly owned by LILCO, now owned by National Grid.

The Original PSA will expire by its terms on May 28, 2013; however LIPA has the right to renew on “substantially the same” terms for another fifteen years. In order to continue to meet the electricity needs of LIPA’s customers and location generation requirements established by the New York Independent System Operator (NYISO) and the New York State Reliability Council, it is necessary to continue to secure power supply from the National Grid power plants until they can be repowered or replaced by new “on-Island” electricity resources. As a result, LIPA has “Amended and Restated” the Original PSA on improved terms and conditions to provide for the continued purchase of power from National Grid at a lower cost, and to provide for additional benefits not included in the Original PSA.

If approved by LIPA’s Board of Trustees, what is the term of the Amended and Restated PSA (Agreement)?

The Agreement would begin on May 28, 2013 and end April 30, 2028, however, LIPA does have the option to terminate the agreement as early as April 30, 2025 with two years advance notice.

What is the benefit to LIPA’s customers?

The Agreement balances the need to continue operating the National Grid power plants to maintain reliable electric service on Long Island, with the goal of continuing the transition to a cleaner and more fuel-efficient power system. This Agreement assures that National Grid will continue to invest the capital needed to maintain these plants and comply with applicable environmental laws and regulations, while providing LIPA options to selectively repower or retire plants when such plants can no longer be operated economically.

The Agreement has a reduced price (relative to the Original PSA) which is guaranteed for the first five years, and which will result in an immediate price reduction amounting to nearly $10 million through 2017. The Agreement also provides for significantly reduced future charges through the end of the contract if LIPA exercises its rights to remove older National Grid-owned generating facilities from the contract.

What is the benefit to National Grid?

National Grid is assured the continued recovery of and on its investments in these plants through the term of the contract, retains private sector jobs at power plants on Long Island, and has the potential for investing new capital in repowering some of its existing aged generation fleet.

Does National Grid remain the operator of the plants?

Yes.

As the plants age, is there a plan to address the impacts of possible retirement of the facilities?

Yes, the Agreement provides the opportunity to strategically and selectively remove or replace existing generation in an orderly fashion, consistent with LIPA’s needs to maintain reliable electric service for its customers. By providing for an orderly transition to a more efficient generating fleet, the Agreement provides stability for National Grid’s workforce and provides for some level of continued property tax revenues for host communities from the generating plants. LIPA’s Electric Resource Plan and its implementation will assure resources are available when necessary to meet electricity demand.

Are the options for repowering being examined at some of the facilities?

Yes. The Agreement establishes procedures to evaluate the feasibility of a potential repowering of the Port Jefferson, and Barrett (Island Park) and Northport steam plants, as well as the Barrett and Holtsville combustion turbine sites. Any subsequent repowering would be based on the results of an economic study and subject to a mutually agreeable power purchase agreement between National Grid and LIPA, a separate environmental review, and LIPA Board approval. It also establishes a potential phase-out schedule for any plants that cannot be repowered or that fail to continue operating economically. National Grid will commence the request for proposals (RFP) process for assessing the viability of repowering the E.F. Barrett and Port Jefferson steam plants no later than 30 days following the commencement date of the Agreement.

How will continued operation of National Grid’s plants impact the environment?

National Grid’s plants operate primarily on low-emitting natural gas and meet all applicable environmental requirements. Since the plants were acquired in 2007, National Grid has invested $100 million in partnership with LIPA in the Northport, Barrett and Port Jefferson steam electric power plants to improve fuel efficiency and reduce emissions. These and other efforts have resulted in NOX, SO2 and CO2 emission reductions at these facilities of 67%, 89% and 44%, respectively, making them among the cleanest one-third of steam electric plants in the country.

The repowering options within the Agreement provide opportunity for even further reductions in environmental impact and improved fuel efficiency. In addition, National Grid and LIPA continue to work together to research and develop cost-effective solutions to best mitigate marine organism impacts associated with plant water-cooling systems. These efforts have led to significant investments in water-cooling infrastructure improvements. The provisions of the Agreement for repowering bring even greater opportunities for minimizing and even eliminating marine impacts.

How are the rates determined under the Amended and Restated PSA?

The Federal Energy Regulatory Commission (FERC) approved rate formula contained in the new agreement is similar to the rate formula in the Original PSA and is based on traditional utility “cost-of-service” rate setting principles.

How does the Agreement affect LIPA’s challenges of the current tax assessments of the facilities?

Challenges to the high property tax assessments on LIPA-owned property and National Grid-owned properties and assets paid for by LIPA customers are continuing, as are discussions with each taxing jurisdiction related to these challenges.

What is the approval process for the Amended and Restated PSA?

LIPA’s Board of Trustees must authorize the execution of the Amended and Restated PSA, after which it must be approved by the New York State Attorney General and the New York State Comptroller. After those approvals, it must be filed with and accepted by FERC. These approvals are expected to be received over the next several months.

How does the Amended and Restated PSA affect LIPA’s August 2010 Request for Proposals for new generation?

The Amended and Restated PSA does not affect the 2010 RFP. It would, however, give LIPA rights it did not have before to decide on the future of National Grid-owned generating facilities to improve the quality of generation resources available on Long Island. New generation resources will still be needed even with this Agreement in order to meet electric reliability requirements and provide for the repowering or retirement of generation under the Agreement.

What has LIPA done to date in the areas of energy efficiency and renewable energy on Long Island?

LIPA continues to be a leader in energy efficiency and renewable energy development. The Clean Energy Initiative (“CEI”) achieved 166 MW of demand reduction with a 10-year budget of $370 million over the years 1999-2008. Efficiency Long Island (“ELI”) launched in 2009 is a 10-year, $924 million investment program designed to reduce peak demand by 520 MW in 2018. Since the inception of ELI through August 2012, LIPA has invested over $240 million in ELI and renewable energy projects. These nationally recognized programs have achieved 130 MW of demand reduction. Moreover, LIPA initiated the largest utility-scale solar photovoltaic (PV) project in New York State contracting for up-to 50 MW in a public-private partnership, and was the first utility in the State to offer a solar PV feed-in-tariff which is expected to add an additional 50 MW of solar PV to the grid by 2014. In total, LIPA has reduced peak demand by over 300 MW as a result of its efficiency and renewable programs since 1999, which is equivalent to one medium size power plant.

Will the Agreement affect LIPA’s plans for further renewable energy development on Long Island?

The Agreement will strengthen LIPA’s support for investments in renewable energy development. The Agreement is an important component of LIPA’s electric resource plan and assures LIPA’s continued ability to provide secure and reliable base-load and peaking generation necessary to meet statewide and Long Island specific reliability requirements. The Agreement is not in lieu of renewable energy or other resources, and in fact positions LIPA to further develop its energy portfolio with an emphasis on new and cleaner more efficient generation, improved energy efficiency, and new renewable energy resources, which together would provide significant economic value and environmental benefits.

Categories Port Jeff News Room | Tags: | Posted on October 2, 2012

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