The Long Island Power Authority could refinance some of its $7 billion of outstanding debt through federal loans under a proposal New York Sen. Charles Schumer announced yesterday.

Details of the legislative proposal, which is still being drafted, was unavailable yesterday, according to LIPA president and chief executive officer Kevin Law. It would create a new federal program to provide low rate loans from the U.S. Department of Energy to publicly owned electric utilities for capital projects and to refinance debt. The federal government could also act as a guarantor on bond issues, Law said.

“It’s an effort to try to help public utilities lower their debt service which would allow them to have more money to invest in renewable energy projects,” Law said. LIPA is looking at possibilities of using both refinancing and guarantees for bonds that “could be better than insurance that we now have to obtain for financing,” he said. 

Law said the proposal arose out of conversations he had with Schumer earlier this year and is being modeled after programs that exist to finance electric power projects in rural areas. About 15% of LIPA’s customers’ utility bills goes to pay down debt service.

“We estimated [interest savings of] up to $150 million a year and that’s money that could be used in either paying down more debt, or reduce or stabilize [utility] rates, or be used to invest in renewable energy, or all of the above,” Law said.

The authority owns and operates the electric transmission system in Nassau and Suffolk counties as a well as a small part of Queens, serving 1.15 million customers. LIPA also owns a 18% stake in the Nine Mile Point 2 nuclear power plant in upstate New York. It is currently exploring investing in offshore wind farms and solar power projects and acquiring generation plants from National Grid.

A spokesman for the American Public Power Association said yesterday the group is working with Schumer on the legislation and hopes that it is broad enough to cover all public power utilities and any of their bonds.

“With so many publicly owned utilities struggling during these tough economic times, we have to do everything we can to provide some relief to LIPA and the millions of families that are simply trying to make ends meet,” Schumer said in a press release.

LIPA took on billions of debt when it acquired the Long Island Lighting Co.’s electric transmission and distribution systems  in 1998. The takeover required federal approval.  The authority sold $6.73 billion of bonds in 1998 to acquire LILCO and its debt obligations, including $4.1 billion associated with the decommissioned Shoreham Nuclear Power Plant.

LIPA’s $7 billion of outstanding debt has a combined interest rate of approximately 5%. According to a press release, if it could refinance all its debt at 2%, then rates to customers could be cut by approximately 5%. However, Law said they were not sure how much debt they would want to refinance because some variable-rate debt currently has favorable rates.

Out of $6.39 billion of bonds LIPA has sold since 2000, $3.49 billion was new money, $2.31 billion was refunding and $585.1 million was combined, according to Thomson Reuters.

The bill could be attached to the Waxman-Markley energy bill currently in Congress or introduced next year as freestanding legislation, Law said.

Audrey Dutton contributed to this story.

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