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LIPA energy purchase contract to expire

The Long Island Power Authority's contract to purchase energy and capacity to meet state requirements from a New York Power Authority plant in Holtsville ends this month, and the two parties have yet to renegotiate a new one.

LIPA and its predecessor, the Long Island Lighting Co., have been the primary purchasers of energy from the 135-megawatt plant, which was built in 1994 and underwent extensive maintenance as recently as the fall of 2011. In 2012 LIPA exercised its right to terminate the 20-year agreement, which expires April 30.

Termination of the contract comes as LIPA prepares to enter contracts for new energy supplies from a 750-megawatt plant in Yaphank and and several new renewable energy sources.

LIPA says expiration of the contract doesn't present it with any near-term power supply shortages because power from the plant is still available through state-run power auctions. In addition, because the Richard M. Flynn plant in Holtsville is an Long Island-based resource, its capacity is still available to be counted toward a state-mandated capacity requirement that LIPA must fulfill to meet the region's peak summer needs, LIPA said.

LIPA and NYPA say they are negotiating a new contract. People familiar with the talks say LIPA has sought more favorable financial terms from NYPA, the country's largest state public-power supplier. Disclosure of the expiration of the contract appeared in LIPA's year-end financial statement.

"NYPA's objectives are to cover its cost to operate and maintain the facility at terms that are in the best interests of the Long Island ratepayers," NYPA spokesman Michael Saltzman said in written responses to Newsday questions. "Any future energy and capacity from the plant that NYPA does not provide to LIPA will be sold by NYPA into the New York Independent System Operator wholesale energy marketplace," Saltzman said.

He said LIPA bought energy "at a discount and capacity at a fixed price to cover NYPA's costs to operate and maintain the plant."

Rick Shansky, managing director of Power Supply Long Island, LIPA's power markets division, confirmed the authority is in talks over a new contract, adding, "We expect any [capacity] and energy from the plant that is not covered by a contract would be sold into the New York Independent System Operator energy market," where LIPA could purchase it.

Port Jefferson energy consulant Thomas Bjurlof said LIPA's willingness to allow the contract to expire, though a potential short-term money saver, raises questions about the authority's claim of near-term capacity shortages that require big new investments in power plants. He pointed to a 2013 state-commissioned report by Potomac Economics stating that "Long Island generally has far more capacity than needed to satisfy its local capacity requirement." LIPA predicts a need of between 900 megawatts and 1,200 megawatts by 2023.

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