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Remember LILCO? LIPA plans to soon retire name, $300M in remaining debt

The saga of the Shoreham nuclear power plant spanned decades... — The saga of the Shoreham nuclear power plant spanned decades and cost Long Islanders billions of dollars. Credit: Daniel Brennan

By Mark Harringtonmark.harrington@newsday.com MHarringtonNewsUpdated July 8, 2024

It has taken more than a quarter century, but the ghosts of LILCO may soon be exorcised from the Long Island Power Authority.

Billions of dollars in debt from the 1998 acquisition of the Long Island Lighting Co., now amounting to just over $300 million, are expected to be paid off in 2026. Meanwhile, the LILCO name, which has remained active as a subsidiary of LIPA, primarily for tax reasons, is set to be discontinued after a series of board moves begun in 2020.

At a board meeting last month, LIPA trustees approved measures that would formally merge the Long Island Lighting Co. into LIPA, effectively ending the need to use the name primarily on financial documents. LIPA said it has received a letter ruling from the IRS confirming there would be no impact on LIPA’s tax-exempt status were it to fully acquire and dissolve LILCO.

Purging the name LILCO from the authority comes as LIPA closes in on paying the last of the debt resulting from the acquisition of formerly investor-owned utility in 1998. According to data provided by the state Assembly at the time of the acquisition, LIPA was to issue around $7.59 billion in new bonds to acquire LILCO in 1998, while taking on $476 million in existing LILCO debt for a total of just over $8 billion. Some $3.2 billion of prior LILCO debt mostly tied to the mothballed Shoreham nuclear plant, was to be refinanced, according to the Assembly analysis.

WHAT TO KNOW

LIPA expects to pay off in 2026 the last of billions of dollars in debt it accrued from the 1998 acquisition of the Long Island Lighting Co.
Meanwhile, the LILCO name, which has remained active as a subsidiary of LIPA, primarily for tax reasons, is set to be discontinued.
LIPA reported that as of Dec. 31, there was $321.14 million remaining of the LILCO “acquisition adjustment,” with the authority paying off around $111 million a year.

Debt-service payments over the first decade alone would amount to $23.446 billion, including $14.3 billion in interest, the Assembly projected. Each of LIPA’s 1.2 million customers were projected to pay a total of $23,000 each, on average, over the life of the bonds to cover for the purchase, including $400 a year in interest. LIPA was not immediately able to confirm the state analysis.

The purchase price included the mothballed Shoreham nuke plant and an agreement to settle a tax challenge LILCO had filed on the never-used plant. LIPA paid $1 for the Shoreham power plant. Residents have been footing the bill ever since.

In its 2023 year-end financial statement, LIPA reported that as of Dec. 31, there was $321.14 million remaining of the LILCO “acquisition adjustment.” With the authority paying off around $111 million a year, that would end ratepayers’ obligations to charges resulting from the buyout by the end 2026.

LIPA acquired most of the Long Island electric grid as a result of the purchase, plus LILCO’s 18% interest in an upstate nuclear plant, which continues to operate. In addition to paying off LILCO stock holders (to the tune of $2.4 billion) the money went to buy the poles, wires, substations and other properties. The gas system then owned by LILCO and the old fossil-fuel power plants were acquired by the former Brooklyn Union Gas company. After a series of transformations, it became KeySpan, then was acquired by National Grid, which still owns most power plants licensed to LIPA and the gas system.

LIPA since 1998 has always used third-parties to operate the grid, starting with KeySpan (MarketSpan) and National Grid. PSEG Long Island took over in 2014 and manages it today under an $80 million annual contract; and the authority recently put the contract out to bid to eye the prospect of a new operator by 2026.

While LIPA owns the hulking and unused Shoreham power plant and the roughly 57-acre of property on which it and smaller generators sit, around 800 acres of forest around the property are still owned by London-based National Grid. New York State has been eyeing a purchase of that wooded land for an estimated $35 million for nearly a decade.

A spokesman for the state Department of Environmental Conservation, which would oversee the purchase, said the agency is “currently working with National Grid and utility corridor operators to finalize the terms of the Shoreham Woods state land acquisition.” The DEC’s role is to ensure “all land acquisitions and purchases are consistent with the goals of the agency to uphold the protection of public health and the environment,” the agency said. The acquisition of Shoreham Woods, as the property is known, “remains a priority for the agency,” DEC said.

As for the Shoreham plant itself, which has been the occasional subject of unauthorized visits, LIPA says there are “no plans for the central plant itself.”

At the board meeting discussing the ending of the LILCO name, trustees suggested its departure couldn’t come soon enough. “Folks will be [asking], well, where’s LILCO?” board member Drew Biondo quipped. Trustee David Manning suggested the “historic” departure of the name could be marked with “a very small plaque.”

As for LIPA's debt, even though the $8 billion is projected to be paid off in around two years, LIPA has since amassed new debt, primarily to upgrade and fortify the system over the past two decades. Total long-term at the end of 2023 amounted to around $9.3 billion, according to LIPA's most recent financial statement.

LIPA in a statement wouldn’t say whether wiping out the LILCO debt would result in lower rates but said its board policies “have provided the groundwork for our budget actions, allowing us to make significant strides in deleveraging the utility including reducing the debt attributed to LILCO.”