Plan Also Provides for Possible Rate Cuts or Rebates, Repowering of 2 Plants, Debt Reductions, and Service Continuity

Governor George E. Pataki today announced an agreement in principle between the Long Island Power Authority (LIPA) and KeySpan that will provide substantial benefits to LIPA customers, including the freezing of electric rates for two years and rate reductions and/or rebates, while also maintaining reliable service, improving efficiency, lowering debt service, and promoting cleaner plants and technologies.

“The creation of the Long Island Power Authority in 1998 represented a new and better way of doing business, helping to ensure that residents and industry on Long Island have access to safe, reliable and affordable energy,” Governor Pataki said. “This agreement builds on that original plan and shows that, even in light of high energy prices, we can control electricity costs and improve utility services so that homeowners and businesses are able to thrive on Long Island.

“The broad scope of this agreement provides extensive benefits, including the repowering of two power plants so that they will operate cleaner and more efficiently, and a program to pay down debt service costs,” the Governor said. “I commend all the parties who worked on this agreement, which clearly has a strong vision and strategy for a bright energy future for all Long Islanders.”

LIPA Chairman Richard M. Kessel said, “Today’s announcement brings welcome relief to Long Island ratepayers. The Governor and LIPA are addressing the most important issue facing the island today – the ability to afford to live on Long Island. Everyone is talking about the need to do something about skyrocketing property taxes, mortgages, insurance costs and energy prices. LIPA is taking the lead to actually do something about it and give our customers a break. While energy prices are soaring throughout the region and the country, LIPA is moving prices down to make Long Island more competitive and affordable.”

Robert B. Catell, chairman and CEO of KeySpan Corporation, said, “This is a milestone for Long Island consumers and a positive development for KeySpan and its shareholders. By working with LIPA, we have created a plan that will benefit LIPA and its ratepayers, as well as benefit KeySpan, our skilled employees and our shareholders. I commend Governor Pataki for his leadership in developing this innovative, far reaching plan. I look forward to continuing to work with LIPA Chairman Richard Kessel to see that Long Islanders have access to the energy they need. Further, resolution of our plant ownership clears the way for us to work with LIPA on a plan for efficiency and environmental enhancements, including repowering.”

U.S. Senator Charles E. Schumer said, “This plan is a win, win, win. It is a win for ratepayers because rates will be lower; a win for public health because the air Long Islanders breathe will be cleaner; and it’s a win for the utilities because there will be more power.”

Senator Kenneth P. LaValle said, “The purchase of the power plants in Island Park and Far Rockaway is great news for Long Islanders. It not only provides rate reductions for LIPA consumers, it protects our environment by generating cleaner, more efficient power. I am especially pleased that the deal includes the goal to develop a plan to reduce emissions at the Port Jefferson plant, which is located in my Senate district. There is no doubt that this settlement will benefit Long Islanders well into the future.”

Assemblyman Thomas P. DiNapoli, chairman of the Assembly Environmental Committee, said, “This is good news for Long Island’s electric consumers. The strong relationship between LIPA and KeySpan will be maintained, which will insure the continuation of reliable service, and there are significant economic and environmental benefits for consumers and Long Island as well with the lowering of electric bills and the re-powering of older power plants.”

The agreement would extend the Management Services Agreement between LIPA and Keyspan until 2013. Over approximately the past two years, LIPA had been studying its future options to provide rate stability to its customers. Among the options analyzed were: purchasing all of KeySpan’s power plants, selling the system to a private company, or continuing with the current system.

Under the terms of the LIPA Ratepayer Protection Plan (RPP), more than 1 million LIPA electric customers will not see any increase in their electric bills in 2006 and 2007, unless a catastrophic event such as Hurricane Katrina occurs. The new RPP also provides for a reduction in electric bills and/or customer rebates to be determined by LIPA after a public hearing that will be held in January. The hearing will help to gather public input on how to best utilize $69 million in cash to be received by LIPA from KeySpan as a result of the agreement.

As part of the RPP, LIPA will also: pay down an additional portion of the Shoreham debt to reduce future costs; establish a $1 million Solar Roof Initiative for 2006, in conjunction with Renewable Energy Long Island (RELI), to increase the use of solar energy for residential homes on Long Island, expanding on LIPA’s already-budgeted Solar Pioneer Program; and create a $250,000 fund to help lower-income families who heat with electricity pay their bills during this year’s winter heating season. In addition, the plan provides for a $75 million fuel cost reserve that will be used to cover future increased fuel costs, enabling LIPA to stabilize electric bills over the next two years.

The LIPA-KeySpan agreement in principle also provides for lower annual management costs paid by LIPA to KeySpan in the amount of approximately $34 million annually on a net present value basis. The cost reduction, which will be phased in over three years, will provide long-term cost stability to LIPA and help prevent future spikes in electric bills.

The agreement also provides LIPA with a one-time opportunity to purchase, for book value, two of KeySpan’s base-load generating plants – the E.F. Barrett facility in Oceanside and the Far Rockaway plant – for the purpose of repowering these older plants. The new generation purchase option gives LIPA one year – from January 1, 2006 through Dec 31, 2006 – to decide whether to purchase the Barrett and/or Far Rockaway plants and re-power them for future use. LIPA plans to exercise this option for the purposes of repowering pending due diligence on both facilities.

LIPA and KeySpan have also agreed to work jointly to reduce emissions at all of KeySpan’s plants, including the Northport facility, beginning in 2006.

“The environmental community has long advocated for cleaning up and replacing Long Island’s antiquated power plants with state-of-the-art technology and we are quite pleased to see that our perseverance was productive,” Gordian Raacke, executive director of Renewable Energy Long Island (RELI) said. “We welcome the expansion of LIPA’s solar program and look forward to working with the Authority on a plan to begin with repowering two plants, and to find additional ways to reduce harmful emissions from the power sector.”

Neal Lewis, executive director, Long Island Neighborhood Network, said, “Long Island’s air quality will be improved significantly as a result of Governor Pataki’s and LIPA’s announcement today to retrofit or repower two power plants and take advantage of the latest technologies to substantially increase the efficiencies of these plants. The plan will reduce air pollution while also reducing rates in the long run.”

Adrianne Esposito, executive director, Citizens Campaign for the Environment, said, “Wise planning and preparing for Long Island’s energy future are of critical importance to every member of the public. We are delighted the plan establishes the first steps for re-powering some of the outdated power plants on Long Island and therefore incorporates key environmental and public health concerns identified by the public.”

Jack Kulka, co-chair of the Utilities and Infrastructure Committee of the Hauppauge Industrial Association, said, “I’m very pleased that the plants can be purchased at book value, which is a win- win for consumers. And the cutting of KeySpan’s costs insures that LIPA will maintain competitive rates throughout the duration of the management agreement.”

The agreement must be approved by the LIPA Board of Trustees, KeySpan’s Board of Directors, the New York State Attorney General and New York State Comptroller.

LIPA is not precluded under the agreement from considering privatization or other structures that could be implemented in the future as a way to moderate costs and/or promote greater efficiencies. It also resolves a number of outstanding issues and disputes between the two companies and provides for a simpler and better operational relationship going forward.

The agreement in principle resolves a number of issues that have developed between LIPA and KeySpan regarding branding, accountability and managerial oversight. As part of the agreement in principle, LIPA will assign one of its executives to KeySpan’s Electric Business Unit fulltime and both companies will cooperate in ensuring enhanced service reliability and planning needs on a regular basis.

The LIPA Board of Trustees will consider the completed agreement and RPP at its January 26, 2006 meeting.