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State lawmakers challenge Cuomo's LIPA debt refinancing plan

PSEG/LIPA power lines span the sky in Commack

PSEG/LIPA power lines span the sky in Commack on Dec. 2, 2014. Credit: Newsday / J. Conrad Williams Jr.

Gov. Andrew M. Cuomo's plan to refinance $2.5 billion more of LIPA's old debt faces challenges from state lawmakers seeking overhauls of power plants in their districts and limits on borrowing terms.

The State Senate's one-house budget bill doesn't yet contain Cuomo's LIPA's debt refinancing proposal, which LIPA says would save $155 million in 2016-18, said Sen. Kenneth LaValle (R-Port Jefferson).But it does include a resolution requesting funds to study power-plant upgrades in Port Jefferson and Island Park. The language calls for repowering studies to begin by July 1, and be completed and presented to LIPA's board by next March.

LaValle's demand as part of down-to-the-wire budget negotiations is not uncommon. Lawmakers often make constituent-centric demands in one-house budget bills. Their fate is uncertain because the final budget will be the result of negotiations involving Cuomo, the Senate and Assembly. The budget is due April 1.

"You can read into it what you want," LaValle said. "These communities need certainty. And as far as I'm concerned if we have any leverage at all, it is right now as we move forward on things that LIPA has to make some economic and fiscal decisions on."

Leaving out the debt-refinancing provision would impact LIPA and PSEG Long Island's plan to limit a rate hike for 2016-18 to just under 4 percent. LIPA is banking on savings of $155 million from the refinancing to limit the rate hike and future borrowings.

Morris Peters, spokesman for the state Division of the Budget, said, "The Executive Budget proposal would provide substantial electric utility savings to Long Island ratepayers and we're working with our partners in government to get it done."

LIPA has leverage if the debt refinancing doesn't come off as planned. It has devised a new delivery service adjustment to recoup costs should the refinancing not deliver the expected savings.

In filings, it said that without the securitization law, debt could swell to $8.6 billion by 2018, compared with $8.2 billion with the refinancing. LIPA currently has about $7.8 billion in debt.

LaValle for years has been urging LIPA to overhaul the Port Jefferson plant. The plant, which is used less than 5 percent of the year, provides nearly $30 million a year in local taxes, mostly to school districts.

In the Assembly, an amendment was inserted into its one-house budget bill to limit LIPA from extending the term of refinanced debt.

Assemb. Fred Thiele (I-Sag Harbor), who wrote the amendment, said it "solves a big issue for me about extending debt principal. There still isn't enough transparency in this whole process . . . [to determine] whether the refinancing is saving money."

LIPA finance chief Tom Falcone has consistently maintained that the debt refinancing, otherwise known as a "securitization," will not "stretch," or extend LIPA's debt.

LIPA cautioned that the "actual savings to customers will depend upon interest rates at the time of the refinancing, and could be higher or lower than today."

A state authority created under the LIPA Reform Act, the Utility Debt Securitization Authority, would issue new debt, all at Triple-A ratings.

LIPA expects the new bonds to be issued at a 3.66 percent interest rate, compared with the current bond's 5.31 percent. Cumulative principal and interest payments on the new bonds would be $3.48 billion, according to LIPA, compared with a projected $3.69 billion under the old terms.The "final maturity of the LIPA bonds to be refinanced is the same as the . . . [newly proposed] bonds to be issued," LIPA said in a statement, adding the "weighted average maturity date" for both is 12 years.

But some Long Islanders are not convinced. Sheldon Sackstein, chairman of business group Action Long Island, during rate hearings earlier this month raised questions about whether "our children and grandchildren will have to pay those bonds off."

"We feel clearly there's an opportunity here to stop this train," Sackstein testified. "In fact, one of the things that was requested of the Albany legislature was to hold back approving the issuance of the bonds that are being requested."

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