New Page 4

The Long Island Power Authority, responding to recent indications that National Grid's purchase of KeySpan Corp. may not translate into significant concessions for local ratepayers, broached the possibility yesterday of putting its lucrative management service contract with KeySpan out for competitive bidding.

LIPA chairman Richard Kessel said that although there was no immediate plan to do so, it was critical for LIPA to explore and prepare for all options in the event it decides not to do business with London-based National Grid, which is buying KeySpan in a deal valued at $11.8 billion. LIPA would also explore taking on the management of the local electric grid itself.

LIPA's contracts with KeySpan are valued at $6 billion between now and 2013, but LIPA would have the right to walk away if it doesn't like terms under National Grid.

"We can put it out to bid like we were supposed to do," he said, referring to the KeySpan management service agreement and LIPA's prior obligation to seek competitive bids. "We're going to start looking at that option."

At a committee meeting of the Suffolk County Legislature yesterday, lawmakers sought clarity on the chronology of the events that led up to LIPA's decision to enter into the contract with KeySpan in mid-December, just weeks before KeySpan's negotiations with National Grid began in earnest. The suggestion: that KeySpan could have forewarned LIPA of a possible buyout before it locked in terms of the management contract.

"I hate to say this, but in a way you've been duped," said Legis. Thomas Barraga (R-West Islip). "This was all about the money."

Kessel, saying he first heard about the deal after a call from a reporter in February, responded, "Do I feel we could have been told in some general way before our deal was made? I do." He added, "It's a little unfair to say we were duped."

In an interview yesterday, KeySpan chairman Robert Catell said securities laws are clear about sharing nonpublic information, such as potential sales, suggesting that doing so would have landed officials in jail.

"I called him as soon as I was legally able to," he said, referring to Kessel. "He was one of the first people I called." Catell said talks with National Grid didn't really heat up until after the first of the year.

Kessel seemed more perturbed yesterday by recent suggestions that LIPA would receive only a small portion - if any - of the $200 million in "synergy savings" projected from the combined KeySpan-National Grid operations. He referred to Catell's comments in Newsday on Tuesday that there wasn't "a lot of room" for concessions beyond what LIPA and KeySpan agreed to in December. That management contract awaits approval by state regulators. Catell yesterday acknowledged that those savings must be split among all of KeySpan's operating areas, as far north as New England, and he said that National Grid-KeySpan shareholders would also receive a portion of that $200 million.

"I don't accept that," Kessel said. "That's not going to be enough for us. We want a significant amount of money for our customers." He also said he wants assurances that no jobs will be lost or call centers outsourced from the region.

Legislators and consumers used the session to criticize LIPA surcharges that have raised customer bills by 40 percent to 80 percent, depending on their rate structure. Kessel defended his plan to change LIPA's bill to eliminate the fuel-adjustment surcharge, and replace it with a new commodity charge, saying utilities across the state are already doing it. But he conceded that public criticism of the surcharge played a role in his timing.

"Con Edison bills have gone up much more than LIPA's," he contended, displaying poster-size copies of bills for the legislators. Insisting that LIPA had actually absorbed some fuel-cost increases, he added, "There's no hanky-panky here."