LIPA to establish debt-reduction fund

LIPA trustees next month will announce the creation of a fund aimed at significantly reducing the authority's lingering $7 billion debt, chairman Howard Steinberg said at a trustees meeting Thursday.

Steinberg said LIPA expects to apply money from tax grievance filings and an anticipated cut in debt service payments in 2013 to bolster the fund.

The aim: to slice "several billion dollars" from a debt load that continues to weigh on Long Island Power Authority rates, which remain among the highest in the country. "We've been talking about it for years," Steinberg said. "We need to start doing something about it in earnest."

Around 17 percent of LIPA's annual revenue -- and 17 percent of each ratepayer's bill -- goes to paying interest on the debt (along with depreciation and financial reserves). It's a big factor, Steinberg said, in putting LIPA in the "ugly tier" of having among the highest electric rates in the nation. Aggressive debt reduction will lower rates, Steinberg said.

"Long term, it creates not only financial stability, but it will improve our debt rating and bring down rates," he said. While he stopped short of saying LIPA would increase rates to bolster the fund, he said, "I think we have to pay a short-term price for long-term benefits. I want to see a secular change in our rates."

When it was formed in 1998, LIPA assumed $7.3 billion in debt from the Long Island Lighting Co., including $4.5 billion from the shuttered Shoreham nuclear power plant. While LIPA technically has kept up debt payments on the $7.3 billion, new borrowings for system upgrades and other projects have kept LIPA's debt around the same level. In fact, LIPA's debt climbed $42 million last year to $6.89 billion, despite retirement of $238 million of previous debts.

In addition to applying savings from taxes and lower debt-service payments, Steinberg said trustees would reach out to Wall Street and lawmakers in Albany for solutions, and could work with other state authorities to help.

Matthew Cordaro, co-chairman of the Suffolk Legislature's LIPA Oversight Committee, applauded the concept of debt reduction, as long as LIPA doesn't resort to a rate increase to do it. "If indeed it's extra money, that's fine, but they should not resort to a rate increase."

Separately at the meeting, LIPA chief operating officer Michael Hervey said the authority over the past week cleared up a problem that led auditor KPMG to draft a letter expressing concern over its account controls. The memo, briefly posted in a draft audit report on LIPA's website Wednesday, said KPMG discovered a "significant deficiency" relating to how contractor National Grid separated financial computer duties.

The letter said the auditor identified a "risk that unapproved or inappropriate changes to system configurations, including financially significant data used for financial reporting, could potentially occur."

Hervey said KPMG worked with National Grid to resolve the concern and the draft memo was removed from the LIPA website.

National Grid spokeswoman Karen Young said the company "provided KPMG with additional information to address the concerns raised in the draft memo."