Long Island Power Authority plans higher bond issuance for capital

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The Long Island Power Authority will push borrowing above its usual target to fund its capital plans.

LIPA announced an $820 million capital budget plan for 2020 last week including a $76 million year-over-year increase for “regulatory driven” projects, mostly for constructing a $176 million underground transmission line in western Nassau County to meet national reliability standards. The public utility is also eyeing $37 million of additional capital funding for the second phase of a storm-hardening initiative after the $730 million Federal Emergency Management Agency-funded program expires in March.

The capital proposal includes $559.7 million of planned debt issuance that includes $175 million for the underground cable project and $242 million for smart meters. LIPA interim CFO Kenneth Kane said during a Nov. 13 budget presentation that the budget will exceed LIPA's goal of limiting yearly borrowings to no more than 64% of capital spending in 2020 and 2021 before returning to lower levels once the two projects are completed.

“It is a temporarily blip where we are going to exceed 64 percent,” Kane said. “The Western Nassau Transmission Hub and smart meters are the two big drivers. If you were to strip those out of the calculation we would be at 60 percent.”

LIPA received three rating upgrades in September ahead of a $485 million electric system revenue bond sale to fund part of its $860 million 2019 capital budget. The new ratings of A2 from Moody’s Investors Service and A from both Fitch and S&P with stable outlooks are the highest in the utility’s 33-year history.

The September credit boost followed a refinancing of around 60% of $7.6 billion in LIPA’s previous outstanding debt through the issuance of triple-A-rated bonds from its Utility Debt Securitization Authority. LIPA’s $4.5 billion of conduit borrowing netted an estimated $492 million in present value savings. Kane said refinancing existing debt will generate around $60 million of savings in 2020.

A $3.7 billion operating budget pitched by LIPA would include a 2.45% delivery charge increase which is just under the 2.5% threshold for triggering a full rate review by New York State’s Department of Public Service. Kane stressed that the delivery charge jump is offset by other decreases including power supply charges dropping by $1.40.

LIPA was formed in 1986 and 12 years later became the retail supplier for Nassau and Suffolk Counties as well as the Rockaway Peninsula of Queens through its acquisition of the Long Island Lighting Company. Investor-owned PSEG Long Island took over the utility’s operations in 2014 following the LIPA Reform Act of 2013.

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Utilities Municipal utility districts Revenue bonds Long Island Power Authority New York