Uniondale, N.Y.— The Long Island Power Authority (LIPA) and National Grid announced that they have agreed to a new Power Supply Agreement (PSA) for the purchase of up to 3,700 megawatts (MW) of generation produced by National Grid-owned generating facilities, on improved terms and conditions (the Agreement).
The new Agreement would give Long Island better options for updating and modernizing the aged National Grid power plants through “repowering” existing facilities while reducing energy costs, further improving environmental performance, and removing uneconomic generation from the Agreement.
“I would like to thank the team at LIPA and National Grid for negotiating a progressive and state-of-the art agreement that would result in significant savings to our customers over time and provide the opportunity for National Grid to potentially repower older, inefficient generation. Next year when the contract takes effect, and if the economics prove out, we can take a look at next steps for repowering” said LIPA Board Chairman Howard Steinberg.
The Agreement would give LIPA rights it doesn’t have now to decide on the future of these generating units, which is an important piece of the continuing effort to enhance the overall efficiency of Long Island’s power supply resources. The Agreement sets forth improved terms, conditions and rates for LIPA’s purchase of electricity produced by the power plants owned by National Grid on Long Island. LIPA would continue to purchase power from National Grid for a maximum term of 15 years, with an option to terminate the agreement after 12 years. The Agreement would contain a pricing formula similar to the current PSA, at rates approved by the Federal Energy Regulatory Commission.
The Agreement would result in an immediate price reduction relative to the current agreement, which would be guaranteed for the first 5 years, amounting to nearly $10 million through 2017. Costs are expected to be lower through the term of the contract with such reductions being associated with LIPA exercising its options to repower or remove older generation from the contract. Current PSA costs are approximately $450 million annually, comprised of $270 million in payments to National Grid for operating and maintaining the generation fleet, and $180 million in property tax payments to localities related to PSA assets.
LIPA’s Chief Operating Officer, Michael D. Hervey, said, “The Agreement would achieve the goals of better controlling costs for customers, securing immediate on-island energy requirements, driving more environmentally-friendly performance and solutions, and increasing the transparency of operations associated with the generation units. However, this is only part of the equation, as LIPA must still secure new generation resources, including renewables, in order to meet its customers’ needs, as well as increase participation in its efficiency programs.”
“Following a lengthy and comprehensive negotiation process, LIPA has positioned itself to further develop its energy portfolio with an emphasis on new and cleaner more efficient generation, improved energy efficiency, and new renewable energy resources, that together would provide significant economic value and environmental benefits for our customers,” said Paul A. DeCotis, Vice President of Power Markets at LIPA.
“National Grid is pleased we were able to reach agreement with LIPA on improved terms and conditions related to the existing PSA,” said Tom King, National Grid’s Executive Director in the US. “The Agreement provides benefits for LIPA’s customers and the economy of Long Island. We look forward to working with LIPA, as well as the communities we jointly serve, to make Long Island’s energy future safe, secure, and sustainable, while keeping jobs on Long Island. Additionally, I want to thank the LIPA and National Grid teams for achieving this innovative Agreement and thank our power plant employees for their continued dedicated service.”
The Agreement establishes new procedures to evaluate the feasibility of a potential repowering of the Port Jefferson, Barrett, and Northport steam plants, as well as the Barrett and Holtsville combustion turbine sites. Any subsequent repowering would be based on the results of an economic study and subject to a mutually agreeable power purchase agreement, which would be subject to a separate environmental review and LIPA action.
Before the Amended and Restated PSA between LIPA and National Grid becomes effective, regulatory approvals are required from the New York State Attorney General, the New York State Office of the State Comptroller, and the Federal Energy Regulatory Commission. These approvals are expected to be secured over the next several months.