LIPA may face millions in new costs

The Long Island Power Authority is facing hundreds of millions of dollars in possible new costs as it renegotiates one contract with National Grid, prepares to end another and considers needed upgrades for local power plants.

Already, LIPA and National Grid have decided to shutter a 6-megawatt diesel plant in Montauk to avoid the expense of outfitting it with new equipment. A plant in East Hampton will get an $832,000 upgrade and a new 40-foot smokestack, LIPA disclosed in financial filings.

The documents also noted a pending legal dispute over a "significantly underfunded" or "unfunded" pension plan for workers. LIPA says it is not responsible for the costs. The filings also discuss the companies' separate obligations to clean up environmental problems on properties.

LIPA officials say the effect on electrical rates of many of the new costs likely would be minimal, as payment could be spread over a number of years.

Some of LIPA's largest potential costs relate to permits from the state Department of Environmental Conservation to cool National Grid power plants. If LIPA chooses to continue buying power from National Grid plants in Northport, Port Jefferson and Island Park, it must retrofit them with new water-cooling technology that protects fish.

The financial report estimates that it could cost between $260 million and $400 million to fit Northport alone with cooling towers. The E.F. Barrett plant in Island Park could require $120 million for towers.

Michael Hervey, LIPA's chief operating officer, said he hopes technology already installed at the Barrett plant satisfies the DEC. He said other fixes could negate the need for cooling towers at Northport.

National Grid spokeswoman Wendy Ladd said the company was "not in the position to comment at this time."

DEC spokeswoman Lisa King said operators of old steam plants "must either retrofit the facility with closed-cycle cooling or reduce [impacts on fish] to levels commensurate with closed-cycle cooling." The system helps protect fish by cooling water internally instead of drawing in fresh water and dumping heated water back into water bodies.

The DEC said the Port Jefferson plant would not require cooling towers, but may need an $18.9 million upgrade to change the way it draws water.

Hervey said the impact on rates for such fixes would be minimal, as the cost can be paid over the life of the contracts -- as long as 20 years.

The contract issues revolve around two agreements between LIPA and National Grid.

One governs the purchase of power from the company's Long Island plants, and expires in May 2013. LIPA already has decided to part ways with National Grid on the other major component of its operations -- managing the local electric grid. PSEG of New Jersey takes over Jan. 1, 2014.