Will Sandy Storm Money Bail Out LIPA Re Shoreham?

The financial engineering required to privatize the LIPA could cost taxpayersif the state decides to bailout Long Island. Customers of the Long Island Power Authority in Nassau, Suffolk and parts of Queens counties suffered through prolonged blackouts during Superstorm Sandy thanks to the utility's widely lambasted mismanagement. Governor Cuomo earlier this month in his State of the State address tated that he wanted to "abolish" LIPA. But analysts believe that persuading a private company to buy the much-maligned utility would require the state to assume at least $4 billion of LIPA's $7 billion in debt from the Shoreham nuclear power plant closure.



A sale would also trigger nearly $1 billion in additional costs: early-termination fees paid to bondholders, as well as penalties for the derivatives contracts that would suddenly become void, according to people who have studied a privatization.

LIPA could a very hot property for publicly traded Consolidated Edison Inc., New Jersey's Public Service Enterprise Group or another utility seeking to expand. Its chief asset: a monopoly serving a region whose population is larger than 20 states. LIPA has 1.1 million customers and ranks as the second-largest government-owned utility after the Los Angeles Department of Water & Power.

The trouble is LIPA's balance sheet. Debt obligations are nearly twice the value of its $4 billion in assets, and its 19-to-1 debt-to-cash ratio is more than double the industry average.



Any private buyer would seek to raise rates so it could pay down debt, cover the costs of stormproofing LIPA's infrastructure—and generate a decent shareholder return. But higher rates are a nonstarter. Mr. Cuomo earlier this month demanded they be frozen as part of any privatization. The only way out of this box, analysts say, is for the state to assume a portion of LIPA's debt so a buyer gains some financial flexibility.  Could part of the $60 billion in Superstorm Sandy bailout money be used to bailout LIPA?  Sounds plausible, unless restrictions are tied to the federal money.

Mr. Mitnick suggests the state take on some or all of LIPA's obligations, at least assuming the $4 billion liability originally associated with the long-closed Shoreham nuclear-power plant. With a lower debt load, LIPA would surely attract plenty of suitors eager to own its transmission and distribution assets.

The state's debt load is $63 billion, according to a report earlier this month by state Comptroller Thomas DiNapoli, who said the state has the capacity to add only another $2 billion through next year.

Another knotty problem centers on paying off trading partners and investors if the utility is privatized. Like most utilities, LIPA has entered into lots of derivatives transactions to help hedge its exposure to fluctuating interest rates and energy prices. In the event of a privatization, those contracts would be voided, forcing the utility to pay $295 million in early-termination fees, according to a 2011 report for LIPA by the Brattle Group, a consulting firm.

It would be more expensive still to deal with LIPA's investors. In order to retire LIPA's approximately $7 billion in debt, the Brattle Group estimated that holders would have to be paid a $666 million premium in exchange for selling their bonds before maturity. (Crain's New York Business, 1/18/2012)

PJM Interconnection & NY ISO Coordinate

PJM INTERCONNECTION AND NEW YORK ISO LAUNCH MARKET-TO-MARKET COORDINATION BETWEEN TRANSMISSION SYSTEMS

Increases Efficiencies of Regional Wholesale Electricity Markets

PJM Interconnection and the New York Independent System Operator (NYISO) yesterday successfully began jointly managing transmission limits that occur near the "seams" between their regions. The coordination between the two markets will increase the efficiency and lower the costs of electric transmission congestion management.

Congestion occurs when limits on transmission lines restrict the amount of power that can flow. In response, grid operators typically increase or decrease output from generators. The joint coordination allows the most cost effective generator— whether in New York or PJM— to be adjusted to address the constraint.



The benefits of market-to-market coordination between NYISO and PJM include:

• Lower overall congestion costs for consumers
• More consistent prices across the two wholesale electricity markets because prices at the borders between them are expected to come together more closely
• Greater reliability because a broader pool of resources is available

In October 2012 NYISO and PJM announced a long-term approach to optimize the flow of electricity across their common border and reduce threats to reliability that also includes:

• Coordinating planning processes to facilitate efficient transmission investments
• Deploying smart grid technologies that maintain system balance through the use of robust data, communications and automated systems
• Developing a shared understanding of regional natural gas delivery constraints for power generation



The New York Independent System Operator (NYISO) is a not-for-profit corporation responsible for operating the state’s bulk electricity grid, administering New York’s competitive wholesale electricity markets, conducting comprehensive long-term planning for the state’s electric power system and advancing the technological infrastructure of the electric system serving the Empire State.

PJM Interconnection, founded in 1927, ensures the reliability of the high-voltage electric power system serving 60 million people in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia. PJM coordinates and directs the operation of the region’s transmission grid, which includes 59,750 miles of transmission lines; administers a competitive wholesale electricity market; and plans regional transmission expansion improvements to maintain grid reliability and relieve congestion. Visit PJM. (PJM, NYISO)

RGGI States Initiate Bidding Process for Auction 19

Auction to be held: March 13, 2013 | 9:00 AM - 12:00 PM ET

Auction Notice now available at:

http://www.rggi.org/market/co2_auctions/information

Webinar Information now available at:
http://www.rggi.org/docs/Auctions/19/Auction19-Webinar-Instructions.pdf

January 15, 2013 - The states participating in the Regional Greenhouse Gas Initiative (RGGI) 2013 auctions today released the Auction Notice and application materials for their nineteenth quarterly carbon dioxide (CO2) allowance auction, to be held on March 13, 2013. The Auction Notice for CO2 Allowance Auction 19 provides potential auction participants with the information needed to submit a Qualification Application and indicate their intent to bid in Auction 19. As indicated in the Auction Notice for CO2 Allowance Auction 19, the states will offer for sale 37,835,405 CO2 allowances. The states will use a reserve price of $1.98 for the March auction.
Details
Key Dates:	January 17: Prospective Bidder Webinar [Registration & Details] January 30: Intent to Bid and/or Qualification Application Due by 5:00 PM ET March 6: Financial security due by 5:00 PM ET March 13: Auction 19 (9:00 AM - 12:00 PM ET) March 15: Auction results posted to www.rggi.org
Bidder Webinar Information:	Prospective bidders are encouraged to participate in a free webinar, which is open to the public, that will review the RGGI auction format and qualification process. The webinar will present the auction format, forms that need to be submitted, and an overview of the qualification process. No questions will be taken during the webinar. The webinar will be held from 2:00 PM ET to 3:00 PM ET on Thursday, January 17, 2013. Date and Time: Thursday, January 17, 2013, 2:00 PM - 3:00 PM ET Registration: While the webinar is open to the public, registration is required. To register for the webinar, please go to: https://www3.gotomeeting.com/register/319512430 . After registering you will receive a confirmation email containing information about joining the webinar. Audio Access Toll-Free Phone Dial In: (888) 609-1608 Alternative Phone Dial In: +1 (909) 259-0034 Access Code: 862-164-649 Presentation Slides and Recording: The presentation slides for the webinar will be posted on the Auction Materials webpage no later than 10:00 AM ET on Wednesday, January 16, 2013. A recorded version of the webinar will be made available no later than 5:00 PM ET on Tuesday, January 22, 2013 on the Auction Materials webpage. The Auction Materials webpage can be visited at http://www.rggi.org/market/co2_auctions/information.

Richard Kauffman - - Cuomo Energy Czar

Richard Kauffman, a senior advisor to U.S. Energy Secretary Steven Chu, will be New York’s new “energy czar,” Gov. Andrew Cuomo announced in his State of the State.

Richard Kauffman

Kauffman will join Cuomo’s cabinet as chairman for energy policy and finance. One of his top priorities will be to “plan and execute” a strategy to bolster the state’s energy infrastructure and curb its contribution to climate change while keeping rates down.

Cuomo unveiled his “Charge NY Plan” during the address, increasing the number of plug-in, electric vehicles on the road in New York. The plan calls for installing 3,000 charging stations across the state in hopes of supporting 40,000 electric vehicles.

Cuomo also emphasized investment in “clean tech”—including solar energy and lowering emissions. He proposed creating a $1 billion “green bank” to offer state incentives for investing in green energy. (Albany Watch, 1/9/2013)

Moreland Commission Recommends Dissolving LIPA

The Moreland Commission (Moreland Commission on Utility Storm Preparation and Response) has recommended that the Long Island Power Authority (LIPA) should be dissolved.  LIPA is a state agency that was created in 1985 to manage Long Island’s power grid. The commission recommended that the network that supplies electricity to 1.1 million customers should be turned over to a utility company overseen by the same state commission that regulates Consolidated Edison and other power distributors in New York.



But that regulator, the Public Service Commission, needs more resources and the power to punish utility companies with heavy fines and even the loss of their franchises, the commission said. Those recommendations were part of a preliminary report presented to the governor in advance of his annual State of the State speech. The major changes proposed by the commission would require legislation.
      

After storms in 2011 and again after Hurricane Sandy cut power to 90 percent of Long Island Power Authority customers, that longstanding arrangement drew criticism from officials, including Mr. Cuomo. They blamed it for the authority’s disorganized response, which left most customers without power for more than a week in November, and some for over two weeks.

 

 



      

To improve the way utilities prepare for and respond to storms like Hurricane Sandy, the governor said, state regulators need a better set of potential incentives and sanctions. Most of all, he said, they need the ability to brandish the threat of withdrawing a utility’s certificate to operate.

      

Placing the power grid in private hands would be the most cost-effective option and would put its operation under the scrutiny of state regulators, the Moreland Commission concluded. It would then operate as other big utilities like Con Edison do, rather than in the bifurcated way it has for more than three decades.

      

The power authority, which has just 112 employees, does not actually operate the system for distributing electricity on Long Island. It merely owns the grid, and oversees the work of a utility company — National Grid, which is in the final year of its contract — that it pays to keep the power flowing.

      

The unusual arrangement goes largely unnoticed until a storm blows in and knocks out power to large swaths of the island. Then, attention turns to the authority’s executives and the board of political appointees they answer to.

 

The commission said the regulatory agency needed a larger staff and should have more engineers and auditors to monitor utilities effectively, but it provided no estimate of how much that expansion would cost.

      

A more complicated financial issue is the question of how to make the Long Island grid attractive to a private buyer. The authority is saddled with about $7 billion in debt it took on to build the Shoreham nuclear plant, which was shuttered before it ever operated commercially. The authority has assets worth about $4 billion, which would leave it with about $3 billion of “stranded debt.” Another obstacle to privatization cited by some industry experts would be the loss of the ability to issue tax-exempt debt, which would increase the costs of paying to run the utility. (NYTimes, 1/7/2012) 

 

2013 State of the State

Governor Andrew Cuomo’s third and rather lengthy “State of the State” address in Albany, NY. The speech was limited on the topic of energy.

 



The governor announced the appointment of a “Clean Energy Czar” to figure out financing of certain renewable technologies. Richard L. Kauffman, former senior advisor to U.S. Energy Secretary Steven Chu, will serve as chair of the newly formed Energy Policy and Finance Sub-Cabinet. He will lead the effort to develop policy and financing strategies to advance the following goals:

• NY Green Bank: The $1 billion Green Bank will leverage public dollars with a private sector match to spur the clean economy.
• Extend NY-Sun Solar Jobs: The program will be expanded at $150 million annually for 10 years to increase solar panel installations for homes and businesses.
• Charge NY Program: The Charge NY Program will invest in an electric car network to reduce reliance on fossil fuels by installing a statewide network of charging stations and providing charging infrastructure tax credits.

The governor also called for a “fundamental redesign” of New York’s power system including expanding the regulatory authority of the Public Service Commission and abolishing the Long Island Power Authority. He also continued his charge for clean energy development in New York, proposing a mandate to lower the regional greenhouse gas cap and announcing his commitment to “ensure a skilled energy workforce.” (2013 State of the State)