New legislation would allow LIPA to refinance debt, borrow for system upgrades

New legislation under Gov. Andrew M. Cuomo’s proposed budget would allow the Long Island Power Authority to expand its borrowing powers under the 2013 LIPA Reform Act to refinance existing debt and pay for system upgrades and storm hardening.

Under the bill, the authority would use its Utility Debt Securitization Authority created as part of the reform act to refinance debt and borrow at potentially lower rates, to save customers millions of dollars in interest costs.

LIPA has already paid off nearly $1 billion of the $4.5 billion in debt borrowed under the separate authority's triple-A-rated bonding authority (LIPA's bond rating is lower, at A2). The new law would keep the same $4.5 billion cap, but allow LIPA to borrow new amounts up to that amount as it pays down older debt.

UDSA bonds have a higher debt rating because the triple-A rating is considered a better, safer investment for bondholders, guaranteeing payoff under most circumstances, including if, for instance, the authority were to file for bankruptcy protection.

Re-issuing bonds under the UDSA between 2014 and 2017 saved ratepayers some $490 million in interest costs, LIPA has said.

Interest rates now are lower than they were during that period, a senior LIPA official said, explaining the move, so LIPA "can go back and refinance those bonds at a lower cost."

The UDSA also could issue new LIPA bonds at lower interest rates to pay for important projects such as storm hardening over a longer term. LIPA also could shift some of its own higher-interest debt to the UDSA at lower rates.

LIPA has scheduled some $70 million in storm-hardening this year, after half a decade of doing the work chiefly with a $730 million federal grant. This year’s cost is coming from current rates. Borrowing would reduce the cost and spread it out over the term of the bonds. "We have storm hardening we’d like to do," said the official. "We’d like to do more, if we can do a UDSA bond."

Plans to further harden the system against storms comes six months after Tropical Storm Isaias slammed into Long Island, knocking out power to more than 535,000 customers and leaving ratepayers with a cleanup tab of more than $300 million. It's also led to new strains in LIPA's relationship with PSEG Long Island, which experienced cascading failures in its computer and telecom systems.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.