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KeySpan, National Grid Merger Raises Questions for LIPA

Saying the proposed National Grid acquisition of KeySpan Corp. "raises many important questions and concerns," the chairman of the Long Island Power Authority (LIPA) on Tuesday said that LIPA will seek to meet with National Grid and KeySpan to discuss various concerns LIPA has related to the merger at the earliest possible date. The United Kingdom's National Grid on Monday said it plans to acquire KeySpan (see Daily GPI, Feb. 28).

LIPA Chairman Richard Kessel on Tuesday noted that since the 1998 LILCO takeover, LIPA and KeySpan have been working together in a unique public-private partnership under which KeySpan operates and maintains LIPA's extensive transmission and distribution (T&D) system and supplies LIPA with a substantial portion of its electric power needs. KeySpan has over 4,300 employees -- from senior managers, to linemen, to customer service personnel, to plant operators -- dedicated to LIPA's operations.

In January, LIPA and KeySpan entered into a new set of agreements that would amend and restructure the agreements by which KeySpan operates LIPA's T&D system, give LIPA the option to buy two KeySpan generating stations and also settle a number of outstanding contract disputes.

"We approved and signed these new agreements -- which we then submitted to the state comptroller and attorney general for their approvals -- after conducting an 18-month study of our strategic options, concluding that a continuation of our partnership with KeySpan was in our customers' best interests," Kessel said.

LIPA believes that the new agreements will provide additional benefits for its customers and improve its working relationship with KeySpan. Moreover, the $120 million of settlement payments from KeySpan would fund LIPA's announced customer rebate and two year rate freeze program.

"National Grid's acquisition of KeySpan does, however, present LIPA and its customers with a fundamentally different situation from that which we have had with KeySpan since 1998 and have just now renegotiated," Kessel said. LIPA's "overriding concern is that our customers continue to receive the high level of reliable, safe and economic electric service to which they have been accustomed and that service be provided at the lowest possible cost to LIPA's customers."

Kessel said that at this early date, "we have not yet had the opportunity to assess National Grid's capabilities, operating experience or resources or to discuss with National Grid and KeySpan the possible impacts of the acquisition on LIPA and its customers or their plans to carry out KeySpan's commitments under our agreements. We have many questions to which we will want answers in this regard, including the future organizational, management and administrative structure of the combined companies, employee impact, National Grid's commitment to Long Island and particularly to high-quality service, and the effect on LIPA's ability to control rates charged to our customers."

Kessel said that it is essential that LIPA be able to conduct this assessment in a "thorough and deliberate fashion" given LIPA's rights under its various agreements with KeySpan. If the proposed acquisition takes place, the resulting change of control of KeySpan would give LIPA the right to terminate its agreements with KeySpan under which KeySpan operates and maintains the LIPA T&D System, supplies electricity to LIPA's customers and purchases and manages the fuel and energy supply, the LIPA chairman noted. "Consequently, it is critically important for us to undertake a comprehensive review and assessment of the proposed National Grid/KeySpan combined entity to determine whether and under what circumstances LIPA should continue to operate under these agreements."

In addition, LIPA will want to ensure that its customers, "who have had to endure record fuel price increases, receive on a recurring basis their fair share of any 'synergy savings' and other financial benefits as a way to lower LIPA customer bills," Kessel said.

Along with seeking to meet with National Grid and KeySpan to discuss these concerns, LIPA also expects to participate in state and federal regulatory proceedings regarding requests for approval of the proposed acquisition "to ensure that the interests of our customers are adequately protected."

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