The LIPA board on Friday will vote to authorize the refinancing of up to $2.5 billion more of old debt with the aim of saving $155 million in interest, but a handful of ratepayers are raising objections.
The proposed debt offering is aimed not at reducing customer electric rates but moderating a future 3-percent-plus rate hike between 2016 and 2018, similar to a 2013 refinancing that LIPA said helped hold rates steady.
At a public hearing last week, several ratepayers expressed concerns about the plan, saying it will saddle ratepayers with a large, unavoidable obligation for years, while limiting the utility's ability to convert to greener energy sources. Testimony and cross examination of the LIPA and PSEG officials in the rate hike proceeding start Tuesday at an open meeting in Smithtown.
"LIPA has essentially cleared its books and loaded [its debt] onto its consumers," said MaryAnn Johnston, president of the Affiliated Brookhaven Civic Organization, charging that ratepayers were footing the bill for the authority's decades of "mismanagement."
On Friday, trustees will vote to authorize another state agency, the Utility Debt Securitization Authority, to refinance the debt in up to three separate transactions, starting this year.
LIPA's current debt of about $7.8 billion is expected to increase to at least $8.26 billion by the end of 2018. Without the refinancing, LIPA's debt could swell to more than $8.6 billion.
The UDSA, which was formed as part of Gov. Andrew M. Cuomo's LIPA Reform Act, exists solely to refinance old LIPA debt into new bonds at lower interest rates by providing greater protections for bondholders. The debt authority already has refinanced about $2 billion in prior debt, at a savings LIPA said is a combined $51 million for 2014 and 2015, and $131 million over 20 years.
The first debt refunding incurred $25.7 million in upfront financing costs, including $10.4 million in underwriting fees to Wall Street firms and $1.5 million in rating-agency fees, according to UDSA documents. LIPA described that first refinancing as "a key component" in a two-year freeze in the delivery charge.
Among protections in the new bonds is that the UDSA is "bankruptcy remote," meaning that it can't erase its ratepayer-guaranteed obligations by filing for bankruptcy.
John Little, LIPA's director of strategic planning and rates, said the fact that the UDSA can't file for bankruptcy was a "big factor" in its Triple-A bond rating, which is higher than LIPA's.
Little said all customers connected to and drawing power from the LIPA grid must pay the debt costs, which are assessed in the delivery rate on a per-kilowatt-hour usage basis.
"If you take power from LIPA, you would be subjected to UDSA charges," he said.
But three ratepayers who attended the hearing in Hauppauge on Friday expressed concern and even suspicion about the transaction.
Johnston said, "We're working to keep the bond-rating high, and LIPA solvent," charging the LIPA Reform Act amounted to "no reform at all."
Jeffrey Kagan, treasurer of Affiliated Brookhaven Civic Organization, expressed concern that as the number of customers who use solar power increases, a larger burden of debt will fall on ratepayers who don't have renewables. "If they use zero kilowatt-hours, they pay [a] zero" rate, including toward that debt, he said. "The charge on the remaining people will grow and grow."
Southampton resident Lynn Arthur, who sits on the town's sustainability committee, said language in the debt-offering documents "wasn't clear" on whether residents with solar power still had to pay UDSA charges. Either way, she said of the debt charge, "It sort of seems like a tax."