Surging Fuel Prices Require LIPA to Add 5.5% to Electric Bills to Cover a Portion of the Higher Costs LIPA to Absorb $150 Million to Avoid 11.5% Hike Crude Oil, Fuel Oil & Natural Gas Prices Reach Record Highs Due to Hurricane Impacts, Worldwide Demands & Refinery Shortages Market Futures Show Little Relief in Months Ahead Uniondale, NY - September 30, 2005 - The Long Island Power Authority (LIPA) today announced that it will add an additional 5.5% to its Fuel Price Adjustment surcharge in October to reflect the skyrocketing oil, natural gas LIPA announced that it would NOT pass through an additional $150 million in higher fuel and purchased power costs to prevent having to apply an additional 6% to its surcharge, which would have increased bills 11.5%, reflecting all of the higher oil and gas costs. The increase, which will become effective October 8, is needed to avoid a $130 million short fall in LIPA's projected year-end revenues. LIPA Chairman Richard M. Kessel said that while any increase in electric bills is "painful to customers," LIPA's 5.5% fuel price adjustment pales in comparison to recent gasoline increases of almost 50% in recent weeks, and The increase will raise the average monthly residential base electric bill by about $28. LIPA's total fuel price adjustment will add about $52 to the average base electric bill of $105, which will bring the average residential monthly electric bill to about $157. "I'm extremely disappointed that the record-setting increases in the cost of oil and natural gas, the primary fuels used by our suppliers to produce electricity for distribution by LIPA to our customers, requires us to increase our fuel price adjustment," said LIPA Chairman Richard M. Kessel. "LIPA is not raising its rates but rather only passing through higher fuel costs from oil and gas suppliers. LIPA is a victim just like our customers. "We have been able to mitigate some of the cost impacts through our fuel hedging program, which will save us more than $775 million over time, and through the import of cheaper electricity through the cross-Sound cable, but Since May 1998, when a barrel of oil was $15, the price of a barrel of oil has increased over 400%. The cost of a barrel of oil hit an unprecedented high of $70.85 on August 30, up from what was then thought to be an upper Overall, natural gas costs are 525% more today than in 1998. Natural gas prices have increased 88% in just the last 3 ½ months. In mid September, the price of natural gas jumped 13.6% in one day. "No economic model predicted this kind of a price surge for oil and natural gas," said Mr. Kessel. "9/11; the war; the dramatic increase in the use of crude oil-derived products by countries such as China and India; the Despite this tremendous pressure, LIPA has held the fuel price adjustment to the absolute minimum, Mr. Kessel indicated. Mr. Kessel explained that LIPA has minimized the impact of increased fuel and purchased power costs on its electric customers by holding down budget expenditures in recent years and by instituting a fuel hedging program in "Under LILCO, all of its increased fuel and purchased power costs would have been passed along to customers and that would have made electric bills about 20% higher than LIPA's even with the fuel price adjustment," said Mr. Kessel. "In fact, LIPA has absorbed approximately $800 million in fuel costs since 1998." "As a non-profit municipal electric utility, LIPA does not make a profit on the sale of electricity, but we must cover our expenses. Our overriding goal is to minimize the impact of the increased costs of oil and natural gas on In April, LIPA released a report entitled "A Discussion on Sustained Advances in Energy Prices," which was assembled by PACE Global Energy Services. PACE is a strategic energy market consulting firm. The report highlights some of the global market conditions influencing the record-setting prices being recorded for crude oil and natural gas - such as China's 150% increase in crude oil use since 2001; and India's 28% increase in crude oil consumption over the same period - that have driven up fossil fuel costs in the United States. When first released, the PACE report noted that "The best assumption for the future is that prices in U.S. dollars will be permanently higher....and the consequences of any and all exogenous shocks will be magnified in this tight The full report is available on LIPA's Web site www.lipower.org/pdfs/newscenter/energy_prices.pdf LIPA has set a public comment session on the surcharge increase for October 3, starting at 10AM in LIPA's 2nd floor Assembly Center at the OMNI Building in Uniondale. LIPA, a non-profit electric utility, owns the retail electric system on Long Island and provides electric service to nearly 1.1 million customers in Nassau and Suffolk counties, and the Rockaway Peninsula in Queens. ### Contact Information: Press Release 09/30/05 8:25 AM Eastern |
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