An aerial photo of LIPA's Caithness facility in Yaphank shows...

An aerial photo of LIPA's Caithness facility in Yaphank shows the large rectangular parcel about the same size as the plant directly adjacent to the now operating facility on June 6, 2013. Credit: Doug Kuntz

The Long Island Power Authority on Thursday said it will move forward with Caithness Energy to build a 707-megawatt plant in Yaphank by 2018, a plan that would increase customer bills at that time by 2.5 percent to 3 percent.

The announcement at a trustees meeting doesn't commit LIPA to a 20-year contract just yet -- a new LIPA board is likely to approve that next year -- and LIPA's only obligation now is to undertake studies on connecting the new plant to the electric grid. The studies will cost "several" million dollars, LIPA chief operating officer John McMahon said.

The project will require increased natural gas service to fuel the plant, and Caithness is studying one of three different options to provide it, including expanding an existing National Grid line. That cost ultimately will be incorporated into the 20-year agreement with LIPA.

During a presentation, McMahon said LIPA staff, and a separate review by the New York Power Authority, found the Caithness project the most economical of the more than 45 proposals reviewed over the past three years. Navigant Consulting, the Chicago-based company that was the subject of a Moreland Commission report that found excessive fees charged to LIPA, worked on that review.

McMahon and LIPA chairman Lawrence Waldman, in a discussion after the meeting, did not release the total cost of the project or its eventual impact on rates. Similarly, Ross Ain, executive vice president of Caithness Energy, declined to disclose cost figures, deferring to LIPA. Newsday has reported that the 20-year contract is valued at upward of $3 billion.

However, in response to Newsday questions afterward, LIPA estimated the cost of construction alone to be around $1 billion. "Based on that estimate and the data supporting the selection of Caithness for further power purchase agreement negotiations, we expect rates could increase by approximately 2.5 percent to 3 percent in the 2018 to 2019 time frame," LIPA spokesman Mark Gross said.

Gross added, "We have to make such investments and incur such costs as a normal part of the business if we are to reliably and economically meet customers' needs."

It's not just the cost to build Caithness that would ultimately affect rates. LIPA and Caithness also would make annual payments to schools, fire districts and others near the plant, as so-called host payments.

"This board should really be deciding not which new fossil fuel plant is needed, but whether any new fossil fuel plant is necessary at all in light of flat electrical demand here, and the need for a rapid transition to renewable energy sources," Peter Gollon, chairman of Sierra Club Long Island's energy committee, told trustees after the presentation.

Caithness already operates a plant in Yaphank that is half the size of the proposed facility. LIPA spends around $9 million a year in so-called payments in lieu of taxes over the 20-year contract. It also funded a host community benefits package of around $12 million that included upfront payments for community centers and other perks. The cost of the original Caithness project is around $1.67 billion.

LIPA for years resisted releasing the cost, which ultimately was reported in Newsday after it was released to the state comptroller.

The $9 million annual payment is well below what LIPA pays for other less-efficient, lesser-used plants owned by National Grid. Tax payments, which LIPA has grieved, range from $29 million to $74 million a year.

Trustee Laurence Belinsky was the only LIPA trustee to broach the subject of the plant's possible impact on customer rates during an extended presentation. He noted that LIPA during last week's heat wave was "well within reasonable limits of meeting our needs," and said LIPA needed to view such projects from a "rate impact" perspective.

Thomas Bjurlof, an energy expert at Bruguel Advisors and a resident of Port Jefferson, questioned LIPA's decision to move forward without publicly airing its rate impact at the board meeting.

"I have never heard of such a selection being done without a detailed cost justification and specification of the contract terms desired by the utility," he said after the meeting.

LIPA said the project is needed to meet increased capacity requirements. During a presentation at the trustees meeting about last week's heat wave, McMahon and other officials said the system performed so well that LIPA was even able to offer excess power to regions to the north that were in need. Ultimately, LIPA's offer wasn't needed.

Officials stressed that LIPA's choice of Caithness doesn't obligate the authority to any contract. Caithness will move forward with environmental reviews, licensing and permitting at its own cost.

Ain said the plant, when built, will be Long Island's most efficient, after the original Caithness plant.

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