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Statement by Richard M. Kessel
Chairman, Long Island Power Authority

Yesterday, KeySpan announced that it has entered into an agreement with National Grid under which KeySpan has agreed to be acquired for approximately $7.3 billion.

LIPA has been closely monitoring the KeySpan situation ever since February 17th, when following media reports, KeySpan disclosed that it was talking with potential purchasers of the company.

The proposed National Grid acquisition of KeySpan raises many important questions and concerns for LIPA and its 1.1 million customers on Long Island and Far Rockaway.

Since the 1998 LILCO takeover, LIPA and KeySpan have been working together in a unique public-private partnership under which KeySpan operates and maintains LIPA’s extensive transmission and distribution system and supplies LIPA with a substantial portion of its electric power needs. KeySpan has over 4,300 employees -- from senior managers, to linemen, to customer service personnel, to plant operators -- dedicated to LIPA’s operations.

Just last month, LIPA and KeySpan entered into a new set of agreements that would amend and restructure the agreements by which KeySpan operates LIPA’s T&D system, give LIPA the option to buy two KeySpan generating stations and also settle a number of outstanding contract disputes. We approved and signed these new agreements – which we then submitted to the State Comptroller and Attorney General for their approvals – after conducting an 18-month study of our strategic options, concluding that a continuation of our partnership with KeySpan was in our customer’s best interests.

LIPA believes that these new agreements would provide additional benefits for our customers and improve our working relationship with KeySpan. Moreover, the $120 million of settlement payments from KeySpan would fund our announced customer rebate and two year rate freeze program.

National Grid’s acquisition of KeySpan does, however, present LIPA and its customers with a fundamentally different situation from that which we have had with KeySpan since 1998 and have just now renegotiated. LIPA’s overriding concern is that our customers continue to receive the high level of reliable, safe and economic electric service to which they have been accustomed and that service be provided at the lowest possible cost to LIPA’s customers. At this early date, we have not yet had the opportunity to assess National Grid’s capabilities, operating experience or resources or to discuss with National Grid and KeySpan the possible impacts of the acquisition on LIPA and its customers or their plans to carry out KeySpan’s commitments under our agreements. We have many questions to which we will want answers in this regard, including the future organizational, management and administrative structure of the combined companies, employee impact, National Grid’s commitment to Long Island and particularly to high-quality service, and the effect on LIPA’s ability to control rates charged to our customers.

It is essential that LIPA be able to conduct this assessment in a thorough and deliberate fashion given LIPA’s rights under its various agreements with KeySpan. If the proposed acquisition takes place, the resulting change of control of KeySpan would give LIPA the right to terminate its agreements with KeySpan under which KeySpan operates and maintains the LIPA T&D System, supplies electricity to LIPA’s customers and purchases and manages the fuel and energy supply. Consequently, it is critically important for us to undertake a comprehensive review and assessment of the proposed National Grid/KeySpan combined entity to determine whether and under what circumstances LIPA should continue to operate under these agreements.

In addition, we will want to ensure that LIPA’s customers, who have had to endure record fuel price increases, receive on a recurring basis their fair share of any “synergy savings” and other financial benefits as a way to lower LIPA customer bills.

LIPA will seek to meet with National Grid and KeySpan to discuss these concerns at the earliest possible date. We look forward to these discussions. We also expect to participate in the state and federal regulatory proceedings regarding requests for approval of the proposed acquisition to ensure that the interests of our customers are adequately protected. LIPA will keep its customers updated on the course of these discussions and the effect the proposed transaction will have on LIPA and its customers.

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