Average residential customers will see a $16.91 increase in their...

Average residential customers will see a $16.91 increase in their bills next month because of an anticipated jump in natural gas pricing, and a backlog of unpaid fuel costs from November, LIPA said. (Jan. 11, 2013) Credit: Newsday / Karen Wiles Stabile

The Long Island Power Authority and its biggest contractor, National Grid, are negotiating to settle a more than decade-old dispute over pensions and other retiree benefits that could leave ratepayers on the hook for hundreds of millions of dollars in future benefit payments.

LIPA and National Grid both say they are actively working to settle the 13-year-old dispute, which revolves around a "significantly underfunded" pension benefit plan for utility workers. Sources previously have told Newsday that the liability amounts to upward of $600 million.

LIPA, in its 2012 annual report, did not disclose an amount, but called it "significant."

The issue has taken on a new urgency because LIPA's contract with National Grid expires at the end of the year, after which PSEG of New Jersey will take over the system.

"LIPA is still in negotiations and it is premature to comment," spokeswoman Elizabeth Flagler said.

LIPA trustees in the past have said it's unlikely that ratepayers would be faced with a big lump sum payment to settle the case, even if the authority agrees to fund contributions to the worker pension plans. Still, the amounts being discussed aren't small. Every $40 million of cost to LIPA requires a 1 percent hike in bills, so a new cost of $400 million, for example, could require a 10 percent rate increase.

As Newsday has reported, LIPA had asserted since 2000 that responsibility for the pension costs, originally $250 million in benefits for former Long Island Lighting Co. workers, rests with the former KeySpan. National Grid bought KeySpan in 2007. People familiar with more recent estimates say the pension funding obligations ballooned over the years because of Wall Street declines and other economic factors.

A spokesman for Gov. Andrew M. Cuomo, who has promised a three-year rate freeze as part of a LIPA reform bill he recently signed, downplayed the issue's potential impact on future rates. "We are aware of and monitoring this long-standing issue, but it is a balance sheet issue, not a rate issue," said Cuomo spokesman Matthew Wing.

LIPA trustee Matthew Cordaro said the pension issue is being reviewed by the board, which first learned of it following an outside review of LIPA's future structure in 2011.

"It's lingered for a long time, and there's been a lot of confusion and uncertainty surrounding it and what the obligations are, what the liability is and the amount," he said. "Conceivably, LIPA could arrive at a settlement that reduces the authority's substantial liability somewhat or perhaps allows it to whittle away at the liability over time, a solution that would minimize its impact on rates."

LIPA chairman Larry Waldman didn't return a call seeking comment.

In its 2012 annual report, LIPA said that, while it has long funded the workers' retirement plan costs, National Grid "has asserted that LIPA is responsible for significant pension and other employee plan benefit obligations that are currently substantially underfunded or unfunded."

LIPA said it is "carefully" assessing those costs, "given the various legal and financial factors involved, and may result in the need for LIPA to record a liability after" National Grid's contract expires in December.

Wendy Ladd, a spokeswoman for National Grid, said talks with LIPA were continuing, but that in any case, employees "will be made whole."

"We hope it's going to be settled," she said. "We're working toward an agreement."

Don Daley, business manager for local 1049 of the International Brotherhood of Electrical Workers, said financial analysts for the union have looked into the matter and aren't necessarily concerned that the benefits won't be paid.

"We had our actuaries look into it. It's funded to the appropriate levels," he said. "That's all we can be concerned about. The argument is between the two parties."

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