Executive Summary Electric sales Revenues for 2004

Transcription

1 Approved Capital Budgets-2004 and 2005 Five Year Financial Projections Executive Summary The revenue and expenditure forecasts contained herein represent the approved operating budget of the Long Island Power Authority and its subsidiaries (LIPA) for the year ending December 31, 2004 and the approved capital budgets for the years ending December 31, 2004 and Also included are projected statements of revenues and expenses and sources and uses of funds for the five-year period The revenue budget incorporates actual and projected results for 2003, as normalized for the effects of weather, and forecasts of electric load additions and the expected effects of the Long Island Choice program and LIPA s demand side management/energy conservation initiatives. The revenue budget also reflects the current recovery of a portion of excess fuel and purchased power costs estimated to be incurred in 2004 as well as a portion of 2003 excess costs deferred for future recovery in accordance with LIPA s tariff. Expenditure forecasts contained in the budget incorporate those operation and maintenance programs, including initiatives planned for 2004, which are designed to meet system growth requirements and to further improve the levels of service provided to LIPA s customers. Highlights of the sales and revenue forecasts and approved operating and capital expenditure plans follow. Electric sales for 2004 are forecasted to increase to 19,307,665 MWH, or 1.1% over 2003 s budget and 1.7% over projected normalized sales for Sales to residential customers are estimated to grow by 5.2% while sales to commercial and industrial customers are forecasted to decline by 2.3% versus the levels contained in the 2003 budget. Finally, other electric sales, mostly consisting of sales to other public authorities, are estimated to decline by 3% as compared with the 2003 budget. Revenues for 2004 are forecasted to increase to $2.710 billion, or 5.6% over the 2003 budgeted level. Revenues are primarily from retail sales of electricity to the residential, commercial and industrial markets. Also included are revenues -1-

2 from electric sales to public authorities and for street lighting and revenues from non-electric sources, such as for pole attachments and late payment charges. Budgeted revenues also include the recovery on a current basis of a portion of 2004 s excess fuel and purchased power costs as well as those costs deferred during 2003, which are being recovered from customers over a ten-year period. Finally, budgeted revenues reflect $34.2 million of recoveries from Suffolk County customers as permitted under the Shoreham Property Tax Settlement and the effect of lower New York State gross receipts taxes, the product of legislation advocated and approved by Governor Pataki. Fuel and Purchased Power costs for 2004, before the impact of prior year deferrals, are budgeted at $1.251 billion, or 8.3% over the comparable 2003 budgeted amount. The budget is based on forecasted natural gas, fuel oil, nuclear fuel prices and the cost of purchased power. Also included are costs related to: generation capacity added by contract since 2002; electric power wheeling; non-owned transmission cable capacity payments and operations and maintenance activities; LIPA s share of New York ISO operating and administrative costs; services received under the Energy Management Agreement with KeySpan Corporation (KeySpan); LIPA s fuel hedging program, partially offset by forecasted financial settlements under the program; commissions paid on off-system sales; and a non-cash charge to match the revenues, before associated taxes, related to the recovery of 2003 s deferred excess fuel and purchased power costs, which are being recovered from customers over a ten-year period (see Revenues, above). Partially offsetting these costs are budgeted revenues from the sale of ancillary services, such as providing operating reserves, regulation and frequency response services and the sale of transmission congestion credits. Operations and Maintenance expenses for 2004 are budgeted at $660.4 million, a decrease of 1.6% as compared with the 2003 budgeted level. O&M expenses are comprised primarily of costs associated with the transmission and distribution system management and power supply agreements with KeySpan. In addition to the costs associated with operating LIPA s T&D system and providing generated and purchased power, these agreements include management fees and performance incentives related to system reliability, customer service, operating efficiencies and worker safety. Other major costs included in Operations and Maintenance expenses are those related to: LIPA s Clean Energy Program; the operation and maintenance activities associated with the Nine Mile Point 2 nuclear power generating plant, including amounts to provide for LIPA s share of costs associated with the future retirement of the plant; research and development activities; reserve accruals for potential losses related to bad debts and storm damage; and retail programs and market research activities. General and Administrative expenses for 2004 are budgeted at $40.5 million. This represents a decrease of 3.6% as compared with the budgeted level for General and Administrative costs consist primarily of outside engineering, -2-

3 financial, legal and other professional services and salaries, benefits and other LIPA employee-related costs. Also included are expenses related to the cost of public liability damage claims, office rent, communications, and other general and administrative activities. Depreciation and Amortization in 2004 is budgeted to decrease to $231.9 million, or.5% lower versus the budgeted 2003 level. This category of expense is comprised of depreciation of LIPA-owned electric assets, the amortization of the acquisition adjustment, and the budget year s contributions to the Nine Mile Point 2 nuclear decommissioning fund. Revenue Taxes for 2004 are budgeted at $54.1 million. This level reflects a decrease of 11.9% as compared with the prior year. These taxes are based on gross revenues received from the sale of electricity and tax assessments on other sources of revenues, including the recovery of fuel and purchased power costs incurred in prior years. The expense included in the budget is net of tax credits associated with sales made under the Power-for-Jobs program. The year-to-year decrease reflects the lower gross receipts tax rates associated with legislation advocated and approved by Governor Pataki in Payments in-lieu-of Taxes, or PILOTS for 2004 are budgeted at $158.3 million, an increase 3.9% as compared with the budgeted level for The expense levels reflect forecasts of real property-based taxes presently incurred by LIPA from various jurisdictions, including New York City (the Rockaways), Nassau and Suffolk Counties, towns, villages, school districts and special purpose districts. They also reflect the real property-based taxes being passed through to LIPA pursuant to its purchase power agreements for merchant-owned generation. Other Income and Deductions for 2004 are budgeted at $41.1 million. This represents a decrease of 10.1% as compared with the budgeted 2003 level. This category consists of non-cash carrying charges accrued on deferred balances related to the Shoreham Property Tax Settlement, earnings on LIPA s short-term cash investments and Nine Mile Point 2 decommissioning fund balances, net proceeds from the sales of emissions allowances and miscellaneous sources, such as rental income. The lower 2004 level is primarily the result of reduced earnings on LIPA s short-term investments expected as a result of lower interest rates and lower projected cash balances. Interest Expense for 2004 is budgeted at $298.5 million, a 7.7% decrease as compared with the 2003 budgeted level. The budgeted expense is based on forecasted levels of outstanding debt, related fees and the amortization of debt-related deferred charges and credits. The lower expense level reflects the savings LIPA has been able to achieve by restructuring its -3-

4 debt to take advantage of today s lower interest rates. The average level of debt outstanding during 2004 is forecasted at $6.947 billion. The effective interest rate is 4.214%. This debt level and rate compare with a budgeted debt level of $7.013 billion and an effective interest rate of 4.354% for Excess of Revenues Over Expenses of $20.0 million for 2004 is consistent with LIPA s tariff, which provides for the recovery of LIPA s excess fuel and purchased power costs up to the level sufficient to achieve revenues over expenses of $20 million. Cash Flow from Operations for 2004 is budgeted at $279.2 million and reflects cash generated from LIPA s budgeted operating results and the recovery of excess fuel and purchased power costs in an amount sufficient to achieve revenues over expenses of $20 million on a current, or real-time basis, versus the deferral approach used in the past. Capital expenditures, comprised primarily of construction and removal projects, are budgeted at $234.7 million for This represents a decrease of $16.3 million, or 6.5% versus the expenditure level approved for The capital expenditure budget for 2005 is $233.7 million, a decrease of $1.0 million, or.5% as compared with the expenditure level approved for Transmission and distribution system projects, which include the construction of new supply transmission interconnections and major substation and transmission system upgrades, total $210.3 million for 2004 and $212.3 million for The higher spending level for T&D system improvements for 2005 reflects the funding requirements for interconnections and other system improvements to accommodate the new generation capacity to be built on Long Island. The spending programs contained within LIPA s capital budgets continue to underscore LIPA s commitment to provide safe and reliable electric service, and to expand and upgrade the electric T&D system to serve the energy needs of existing and new customers. Capital expenditures, including the cost of capitalized nuclear fuel, related to LIPA s 18% share of the upstate Nine Mile Point 2 nuclear power plant are budgeted at $17.5 million in 2004 and $14.8 million in 2005, when fuel reloadings are scheduled to take place. These expenditure levels represent an increase of $12.4 million in 2004 and a decrease of $2.7 million in 2005 as compared to the level for the prior year. The remainder of the capital budget includes provisions for LIPA information systems, furniture, computer and other equipment and capitalized interest. The spending programs that comprise these budgets underscore LIPA s commitment to the provision of safe, reliable and affordable electric service to the residents and businesses of Long Island and the Rockaways. They incorporate the operating and capital outlays necessary to provide additional and reliable sources of electricity, while reflecting LIPA s commitment to -4-

5 containing or even reducing its controllable expenditure levels. For example, LIPA s non-fuel operating costs and interest expense for 2004 are 2.4% lower than the 2003 budgeted level. At the same time, LIPA s budget reflects its strong commitment to the role of conservation and new technologies in meeting the growing energy needs of its customers. Expenditures for the Clean Energy program, including peak load reduction rebates, are estimated to total almost $37 million in LIPA is ready to meet the challenges that the coming years will no doubt present. In spite of the cost pressures we continue to face with respect to fuel and purchased power, we will continue to work hard to meet the growing energy needs of Long Island and to make certain our customers continue to receive high quality service. Five-Year Projections of Revenues and Expenses and Sources and Uses of Cash are being presented for the first time this year and reflect LIPA s focus on a longer-term financial planning horizon. These projections indicate, assuming base rates remain unchanged in the five-year period, LIPA s FPPCA surcharge will require modest increases in , reflecting the growing demand for energy. The projected increases in the FPPCA surcharge in are 1.4%, 0.0%, 1.0% and 1.6%, respectively. Actual results may differ from these projections. -5-

6 Approved Capital Budgets-2004 and 2005 Five Year Financial Projections Table of Contents Schedule Schedule A-1 Statements of Revenues and Expenses A-9 Taxes and Payments in-lieu-of Taxes A-2 Sales and Revenues A-10 Other Income and Deductions A-3 Source of 2004 Revenue Dollar A-11 Interest Expense A-4 Use of 2004 Revenue Dollar A Average Cost of Debt A-5 Fuel and Purchased Power Costs A-13 Comparative Interest Rates A-6 Operations and Maintenance Expenses A-14 Cash Flow from Operations A-6.1 KeySpan Contracts-Operating Expenses B-1 Capital Expenditures A-6.2 Nine Mile Point 2 Operations and Maintenance Expenses B-2 Use of 2004 Capital Dollar A-6.3 Research and Development Expenses B-3 Use of 2005 Capital Dollar A-6.4 Clean Energy Program Expenses C-1 Cost Comparisons-1999 through 2004 A-7 General and Administrative Expenses D-1 Statements of Revenues and Expenses-Five Years A-7.1 Professional Services D-2 Statements of Sources and Uses of Funds-Five Years A-8 Depreciation and Amortization

7 Statements of Revenues and Expenses Approved Projected Approved Ref. Revenues $ 2,566,281 $ 2,582,232 $ 2,710,006 A-2 Expenses Fuel and Purchased Power Costs 1,108,883 1,107,630 1,287,430 A-5 Operations and Maintenance Expenses 670, , ,442 A-6 General and Administrative Expenses 42,073 43,877 40,541 A-7 Depreciation and Amortization 233, , ,875 A-8 Revenue Taxes 61,414 62,061 54,110 A-9 Payments in Lieu of Taxes (PILOTS) 152, , ,290 A-9 Total Operating Expenses 2,268,697 2,297,992 2,432,688 Operating Income 297, , ,318 Other Income and Deductions 45,750 54,197 41,139 A-10 Interest Expense 323, , ,457 A-11 Excess of Revenues Over Expenses $ 20,022 $ 20,000 $ 20,000 Debt Service Coverage Ratios (x): Senior Lien Debt #REF! Senior Lien and Subordinated Debt #REF! Total Debt #REF! A-1

8 Sales and Revenues 2003 Approved % Chg. From Approved Projected 2004 Projected 2003 Sales of Electricity (MWh) Residential Sales 8,627,189 8,993,565 9,078, Commercial & Industrial Sales 10,031,697 9,572,480 9,803, Other Sales to Public Authorities/Street Lighting 438, , ,327 (7.65) Total Sales of Electricity 19,097,365 19,026,610 19,307, Revenues ($ thousands) Residential Sales $ 1,152,093 $ 1,210,595 $ 1,242, Commercial & Industrial Sales 1,113,947 1,076,111 1,122, Other Sales to Public Authorities/Street Lighting 40,150 41,936 39,327 (6.22) Sales for Resale 2,110 6,496 2,610 (59.82) Deferral/(Recovery) of Shoreham Property Tax Settlement Costs 11,880 6,523 (34,164) (623.75) Wheeling Revenues 7,274 6,513 6, Pole Attachment Fees 3,178 4,093 2,550 (37.70) Late Payment Charges 3,204 3,765 3,675 (2.38) Service Activation Charges - - 3,064 N/M Miscellaneous Revenues 1,350 1,173 1, Recovery of Prior Year Deferred Fuel and Purchased Power Costs 154, ,166 37,493 (75.03) Current Recovery of Excess Fuel and Purchased Power Costs 76,624 74, , Total Revenues $ 2,566,281 $ 2,582,232 $ 2,710, N/M=Not Meaningful A-2

9 Source of 2004 Revenue Dollar Residential Sales $0.45 Excess Fuel & Purchased Power Cost Recovery $0.11 Other Operating Revenues $0.03 Commercial & Industrial Sales $0.41 A-3

10 Use of 2004 Revenue Dollar Revenue Taxes & PILOTS $0.08 General & Administrative $0.01 Depreciation & Amortization $0.09 Fuel and Purchased Power $0.47 Interest Expense $0.11 Operations & Maintenance $0.24 A-4

11 Fuel and Purchased Power Costs 2003 Approved % Chg. From Approved Projected 2004 Projected 2003 Fuel Oil $ 156,563 $ 449,098 $ 366,801 (18.32) Natural Gas 264, , ,129 (6.15) Purchased Power 414, , ,459 (7.24) Wheeling and Capacity Charges (excl. Nine Mile) 196, , , Nine Mile Nuclear Fuel (incl. Disposal and Decomm. Costs) 9,112 7,864 8, Nine Mile Wheeling Charges 7,328 7,449 7, Y-49 and Y-50 Cable Operating Costs 21,597 24,873 24,140 (2.95) Fuel Hedging Program Costs 21,968 5,593 17, Fuel Hedging Program Financial Settlements (19,553) (45,931) (3,074) (93.31) Emissions Allowance Purchases 3,598 7,390 4,562 (38.27) ESCO Bill Credit Adjustment Payments 7,835 5,889 4,438 (24.64) Ancillary Service Revenues-Net (5,930) - (2,682) N/M Energy Management Agreement 11,079 7,449 7, ISO-Related Service Costs 48,470 47,638 47,150 (1.02) NYPA Transmission Adjustment Charge 10,913 7,741 8, Cost of Off-System Sales 5,180 14,551 6,315 (56.60) Barge Lease and Transportation Costs (20.63) Clean Energy Peak Load Reduction Rebates 1, , Other - 19,927 - (100.00) 1,154,937 1,329,688 1,250,530 (5.95) Recovery of Deferred Fuel and Purchased Power Costs 151, ,761 36,900 (75.20) Deferred Fuel and Purchased Power Costs (197,250) (370,819) - (100.00) Total Fuel and Purchased Power Costs $ 1,108,883 $ 1,107,630 $ 1,287, N/M=Not meaningful A-5

12 Operations and Maintenance Expenses Approved Approved % Chg. Ref. KeySpan Management Services Agreement (1) $ 257,459 $ 242,572 (5.78) A-6.1 KeySpan Power Supply Agreement 317, ,865 - A-6.1 Nine Mile Point 2 O&M 27,328 29, A-6.2 Research & Development 4,853 2,586 (46.71) A-6.3 Clean Energy Program 32,608 36, A-6.4 Storm Damage Reserve 9,000 5,000 (44.44) (2) Uncollectible Accounts 12,524 12,130 (3.15) (2) Assessments 2,731 2,575 (5.71) (2) Long Island Choice Program (90.00) (2) Customer Service Telephone Response Systems (34.84) (2) Customer Care Services N/M (2) Economic Development (2) Retail Programs and Market Research Activities 2,246 1,430 (36.33) (2) Load Research/Rates Tariffs (2) Power Quality Program (20.45) (2) Postage-Paid Remittance Envelopes 2,092 2, (2) O & M-Y49 Cable (2) O&M-Y50 Cable - 1,600 N/M (2) Accretion of Asset Retirement Obligation - 3,867 N/M (2) Miscellaneous (24.34) (2) Total Operations and Maintenance Expenses $ 670,996 $ 660,442 (1.57) N/M=Not meaningful Notes: (1) Expenditures related to the Research & Development and the Clean Energy programs are included in the related budget area. (2) Not detailed on separate schedule. A-6

13 KeySpan Contracts-Operating Expenses Approved Approved % Chg. Management Services Agreement (1) T&D System Operating Costs $ 284,453 $ 272,385 (4.24) Management Fee 10,000 10,000 - Synergy Savings (42,494) (47,213) Non-Cost Performance Incentives 5,500 7, Total Management Services Agreement $ 257,459 $ 242,572 (5.78) Power Supply Agreement (1) Operation and Maintenance Expenses $ 317,253 $ 316,219 (0.33) Synergy Savings (3,388) (2,354) (30.52) Non-Cost Performance Incentives 4,000 4,000 - Total Power Supply Agreement $ 317,865 $ 317,865 - Energy Management Agreement (2) Operating Expenses $ 2,636 $ 3, Management Fees 3,693 1,500 (59.38) Synergy Savings (2,250) (1,884) (16.27) Non-Cost Performance Incentives 7,000 5,000 (28.57) Total Energy Management Agreement 11,079 7,766 (29.90) Total Contracts with KeySpan $ 586,403 $ 568,203 (3.10) Notes: (1) Expenses incurred under the Management Services and Power Supply Agreements are included as Operations and Maintenance Expenses. See schedule A-6. (2) Expenses incurred under the Energy Management Agreement are included as Fuel and Purchased Power costs. See schedule A-5. A-6.1

14 Nine Mile Point 2 Operations and Maintenance Expenses Approved Approved % Chg. Refueling Outage Amortization $ 3,569 $ 3, Non-Outage Operating Expenses 22,904 24, Insurance (15.24) Nine Mile Oversight (16.40) Total Nine Mile Point 2 O&M Expenses $ 27,328 $ 29, A-6.2

15 Research & Development Expenses Approved Approved % Chg. T&D and Customer Utilization Projects $ 3,125 $ 875 (72.00) NYSERDA 1, (40.00) Clean Energy/Energy Efficiency Projects 4,300 4, Base KeySpan Labor Included in MSA Budget 728 1, Total Research and Development Budget 9,153 7,086 (22.58) Less: R&D Projects Included in Clean Energy Program (4,300) (4,500) 4.65 Total Research & Development Expenses $ 4,853 $ 2,586 (46.71) A-6.3

16 Clean Energy Program Expenses Approved Approved % Chg. Energy Efficiency Programs $ 19,165 $ 21, Peak Load Reduction Program (1) (27.22) Low Income Conservation 2,800 2,700 (3.57) Research & Development 4,300 4, Advertising and Promotion 2,000 2, Program Administration 690 1, Base KeySpan Labor Included in MSA Budget 2,966 3, Total Clean Energy Program Expenses $ 32,608 $ 36, Note: (1) Excludes cost of customer rebates, which are provided for under Fuel and Purchased Power costs. A-6.4

17 General and Administrative Expenses Approved Approved % Chg. Employee Salaries and Benefits $ 12,375 $ 11,986 (3.14) Other Employee Expenses (51.56) Professional Services (1) 19,151 20, Office Rent 1,251 1, Telephone Office Supplies, Printing, Postage and Messenger Meetings, Conferences and Seminars Equipment Leases and Maintenance (47.02) Dues/Memberships/Subscriptions Repairs and Maintenance (44.44) Insurance 1,498 1, Injuries and Damages Reserve 1,500 2, NUSCO Cable Insurance 1,254 - (100.00) Communications (10.54) Board of Trustees and Other Public Meetings (69.44) Community Relations (37.71) Sponsorships/Special Events Investor Relations/Bond Trustee Expense (50.00) Miscellaneous 1, (92.68) Total General and Administrative Expenses $ 42,073 $ 40,541 (3.64) N/M=Not meaningful Note: (1) See schedule A-7.1 for details. A-7

18 Professional Services (1) Approved Approved % Chg. Accounting and Audit Services 2,900 $ 1,600 (44.83) Forensic Accounting Services 1,000 1, Rates and Tariff Design Legal 4,332 3,861 (10.87) Communications Information Technology 1, (47.93) Telecommunications N/M Engineering 6,140 8, Risk Management-Insurance Risk Management-Fuel (7.69) Financial Advisor/Cash Management 1,650 2, Human Resources (60.00) Market Research 50 - (100.00) Service Improvement - 50 N/M Long Island Choice N/M Storm Review Panel (50.00) Business Continuity 75 - (100.00) Records Management 50 - (100.00) Miscellaneous (62.72) Total Professional Services $ 19,151 $ 20, N/M=Not meaningful Note: (1) Professional services related to the Clean Energy Program have been included in the related budget area. A-7.1

19 Depreciation and Amortization Approved Approved % Chg. Amortization of Acquisition Adjustment $ 112,681 $ 112,681 (0.00) Depreciation Expense-Plant-in-Service 115, ,671 (0.14) Depreciation Expense-Decommissioning Fund-Nine Mile Point 2 4,500 3,523 (21.71) Total Depreciation and Amortization $ 233,018 $ 231,875 (0.49) A-8

20 Taxes and Payments in-lieu-of Taxes Approved Approved % Chg. Revenue Taxes $ 61,414 $ 54,110 (11.89) Payments in-lieu-of Taxes (PILOTS) Long Island and New York City $ 137,812 $ 145, Nine Mile PILOTs 4,901 3,780 (22.87) Merchant Power Plants 9,600 9,184 (4.33) Total PILOTs $ 152,313 $ 158, A-9

21 Other Income and Deductions Approved Approved % Chg. Short-Term Investment Income $ 10,583 $ 5,070 (52.09) Carrying Charges on Deferred Shoreham Property Tax Settlement Costs 30,480 31, Sales of Emission Credits 2,593 1,005 (61.24) Interest Income on Nuclear Decommissioning Trust Fund 1,700 2, Miscellaneous Income and Deductions Total Other Income and Deductions $ 45,750 $ 41,139 (10.08) A-10

22 Interest Expense Approved Approved % Chg. LIPA Interest Expense from Schedule A-12 $ 305,360 $ 292,758 (4.13) Other Interest Expense NYSERDA $ 20,664 $ 8,075 (60.92) Debentures 22,140 - (100.00) Amortization of Deferred Debt Issue Costs/Discounts/ (Premiums) 79 (12,158) N/M Amortization of Deferred Losses (Gains) on Debt Redemptions 5,662 4,790 (15.40) Letters of Credit Fees 6,201 7, Broker/Dealer Fees on Auction Rate Bonds 1,750 2, Interest on Customer Security Deposits 2,163 1,150 (46.83) Bond Administration Costs and Bank Fees 1, (36.57) Remarketing Fees Promissory Note due from KeySpan (42,804) (8,075) (81.13) Carrying Charges on Deferred Credits 3,592 5, Other 1,845 - (100.00) Total Other Interest Expense $ 23,300 $ 10,499 (54.94) Capitalized Interest 5,348 4,800 (10.25) Total Interest Expense $ 323,312 $ 298,457 (7.69) N/M=Not meaningful A-11

23 2004 Average Cost of Debt Series Type Maturity Senior Lien Debt Average Principal Outstanding Effective Interest Rate Interest Expense ($Thousands) ($Thousands) 1998 A Serial Bonds $ 790, % 41, A Term Bonds ,263, % 66, A Capital Appreciation Bonds (1) , % 8, B Serial Bonds , % 32, B Term Bonds , % 2, A Capital Appreciation Bonds (2) , % 16, A Serial Bonds , % 1, A Term Bonds , % 14, (B-K) (M-P) Auction Rate Bonds (3) , % 11, L Term Bonds (4) , % 6, A Serial Bonds , % 4, B Serial Bonds , % 24, C Serial Bonds , % 7, C Term Bonds , % 9, D-H Variable Rate Debt , % 7, I-O Auction Rate Debt , % 7,536 Total Senior Lien Debt $ 5,857, % $ 261,679 Subordinate Debt Series 7A & 7B Variable Rate (5) 2025 $ 250, % $ 10,520 Series 8 Mandatory Purchase , % 10,401 Series A-3B Variable Rate (3) , % 8,532 Commercial Paper Variable Rate (3) Various 100, % 1,626 Total Subordinated Debt $ 1,089, % $ 31,079 Total Average Debt Outstanding $ 6,947, % $ 292,758 (1) Represents accreted value of original proceeds of $ million, adjusted for partial refinancing in (2) Represents accreted value of original proceeds of $ million, adjusted for partial refinancing in (3) Variable rates ranging from 1.50% to 1.75%. (4) The Authority has entered into a floating-to-fixed rate swap agreement to effectively offset the effect of the fixed-to-floating rate swap agreement which continues to be in force. (5) The Authority has entered into interest rate swap agreements in connection with the Series 7A & 7B Bonds pursuant to which the Authority makes a fixed rate payment based on a rate of 4.208%. A-12

24 Interest Rate 8.0% Comparative Interest Rates (As of 1/16/2004) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% LIPA Fixed Rate Debt A Rated Municipal Tax Exempt Utility 20 Year-Bond Yield Bond Buyer 20 Year G.O. LIPA Variable Rate Debt 6-Month LIBOR Bond Market Association Index A-13

25 Cash Flow from Operations Approved Approved % Chg. Excess Of Revenues Over Expenses $ 20,022 $20,000 (0.11) Add Back (Deduct) Non-Cash Items: (Deferral)/Recovery of Shoreham Property Tax Settlement Credits (11,880) 34,164 N/M (Deferral)/Recovery Fuel and Purchased Power Expense (46,054) 36,900 N/M Prepaid Fuel Hedging Program Costs-Net of Amortization (18,782) (3,979) Prepaid Nine Mile Point 2 Refueling Outage Costs-Net of Amortization 3,569 (3,591) N/M Prepaid Nuclear Fuel Costs-Net of Amortization 6,032 (2,789) N/M Depreciation and Amortization 233, ,875 (0.49) Depreciation Expense-Decommissioning Fund-Nine Mile Point 2 (4,500) (3,523) (21.71) Accretion of Asset Retirement Obligation - 3,867 N/M Carrying Charges on Deferred Shoreham Property Tax Settlement Costs (30,480) (31,578) 3.60 Amortization of Deferred Debt Issue Costs (Premiums) 79 (12,158) N/M Amortization of Deferred Losses (Gains) on Debt Redemptions 5,662 4,790 (15.40) Interest on Capital Appreciation Bonds 30,480 25,086 (17.70) Capitalized Interest (5,348) (4,800) (10.25) Other 6,003 (15,100) N/M Total Non-Cash Items 167, , Excess of Revenues Over Expenses-Cash Basis $ 187,821 $ 279, N/M=Not meaningful A-14

26 Approved Capital Budgets-2004 and 2005 Capital Expenditures Approved Approved Approved % Chg % Chg. Transmission Projects Transmission Interconnections-New Power Plants (Major Capital) $ - $ 2,000 N/M $ 14, Transmission Interconnections-Cable Projects (Major Capital) 13,500 - (100.00) - - Queens Substations and Lines (Major Capital) 2,075 4, (100.00) Nassau Substations and Lines (Major Capital) 1,953 2, , Western Suffolk Substations and Lines (Major Capital) 7,910 8, , Eastern Suffolk Substation and Lines (Major Capital) 7,855 24, , North Fork Substations and Lines (Major Capital) 29,350 10,000 (65.93) - (100.00) Other Transmission (Routine Capital) 15,226 13,132 (13.75) 12,696 (3.32) Other Transmission (Major Capital) 14, (93.75) 4, Total Transmission Projects 91,869 66,265 (27.87) 81, Distribution Projects Substations (Major Capital) 28,440 23,585 (17.07) 20,760 (11.98) Substations (Routine Capital) 3,404 8, ,615 (34.10) Electric Lines-New Customer Load (Routine Capital) 30,086 25,687 (14.62) 21,030 (18.13) Electric Lines-Other (Routine Capital) 46,992 55, ,399 (5.84) Purchase and Install Meters/Transformers (Routine Capital) 19,507 20, ,624 (20.76) Public Works 2,453 2,453-1,963 (19.98) Other Distribution (Routine Capital) 9,407 2,414 (74.34) 675 (72.04) Total Distribution Projects 140, ,289 (0.71) 119,066 (14.52) Project Funding for Emerging Work and Land Acquisitions 10,435 3,772 (63.85) 10, Additional Public Works Projects (beyond MSA) 1,000 1,000-1,000 - Total Transmission and Distribution Projects 243, ,326 (13.66) 212, Cost-Sharing and Other Contributions (5,233) - (100.00) - NM Capitalized Interest 5,348 4,800 (10.25) 5, Nine Mile Point Two Plant Additions/Replacements/Capitalized Nuclear Fuel 5,127 17, ,793 (15.65) LIPA Information Systems/Furniture and Equipment 2,176 2,061 (6.94) 1,126 (44.40) Total Capital Expenditures $ 251,011 $ 234,724 (6.49) $ 233,656 (0.46) N/M=Not Meaningful B-1

27 Approved Capital Budget-2004 Use of 2004 Capital Dollar Transmission Interconnections $.04 Distribution Projects $.57 Nine Mile Point 2 $.07 Other Capital Expenses $.05 Transmission Projects $.27 B-2

28 Approved Capital Budget-2005 Use of 2005 Capital Dollar Transmission Interconnections $.06 Distribution Projects $.51 Nine Mile Point 2 $.06 Other Capital Expenses $0.08 Transmission Projects $.29 B-3

29 Approved Operating and Capital Budgets-2004 Cost Comparisons 1999 Through 2004 (based on acutal and budgeted values) 1,500 1,400 1,300 Amount ($ in millions) 1,200 1,100 1, Total Fuel and Purchased Power Costs Other Operating Expenses Capital Expenditures Years C-1

30 Five Year Financial Forecast Statements of Revenues and Expenses Approved Budget Projected Revenues $ 2,710,006 $ 2,766,211 $ 2,800,708 $ 2,856,384 $ 2,938,286 Expenses Fuel and Purchased Power Costs 1,287,430 1,300,976 1,308,255 1,324,584 1,369,443 Operations and Maintenance Expenses 660, , , , ,492 General and Administrative Expenses 40,541 40,694 41,874 43,088 44,338 Depreciation and Amortization 231, , , , ,464 Revenue Taxes 54,110 47,366 50,960 51,804 53,021 Payments in Lieu of Taxes (PILOTS) 158, , , , ,697 Total Operating Expenses 2,432,688 2,460,472 2,497,714 2,553,062 2,635,455 Operating Income 277, , , , ,831 Other Income and Deductions 41,139 46,678 48,475 47,515 49,596 Interest Expense 298, , , , ,427 Excess of Revenues Over Expenses $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 Debt Service Coverage Ratios (x): Senior Lien Debt Senior Lien and Subordinated Debt Total Debt FPPCA Surcharge % 13.3% 14.7% 14.7% 15.7% 17.3% Change from prior year 4.5% 1.4% 0.0% 1.0% 1.6% D-1

31 Five Year Financial Forecast Statements of Sources and Uses of Funds FUNDS PROVIDED FROM : Approved Projected Budget Excess Of Revenues Over Expenses $ 20,000 $ 20,000 $ 20,000 $ 20,000 $ 20,000 Plus (Minus) Non-Cash Items: Amortization of Deferred Shoreham Property Tax Settlement Credits 34,164 34,560 35,251 35,938 36,725 Carrying Charges on Deferred Shoreham Property Tax Settlement Costs (31,578) (32,344) (32,488) (31,044) (32,916) Deferred Fuel Cost Reconciliation 36,900 36,900 36,900 36,900 36,900 NMP2 Amortized Nuclear Fuel Expense 6,811 7,482 6,102 6,663 6,290 Prepaid NMP2 Refueling Outage Costs-Net of Amortization (3,591) 3,642 (1,319) 3,875 (179) Asset Retirement Obligation Accretion - FASB 143 3,867 4,099 4,345 4,606 4,882 Depreciation and Amortization 231, , , , ,464 Other (15,100) 5,100 5,300 5,500 5,700 Debt Service Interest Expense 306, , , , ,502 Proceeds of Bonds and Notes - 175, , , ,364 Total Sources of Funds before Interest Expense $589,880 $833,007 $843,150 $812,076 $788,732 FUNDS USED FOR : Prepaid Fuel Hedging Program Costs-Net of Amortization 3,979 (403) Funding for NMP2 Plant Decommissioning 3,523 3,523 3,523 3,523 3,523 Bank and Related Fees 11,290 11,290 11,264 9,764 9,764 Debt Service Payments 462, , , , ,799 Capital Expenditures 220, , , , ,075 NMP2 Cash Fuel Expense Capital Expenditures 9,600 9,152 1,399 9,201 8,820 Change in cash position due to Operating, Financing and Investing Activities (120,928) 122,026 16,049 (3,735) (7,249) Total Uses of Funds $589,880 $833,007 $843,150 $812,076 $788,732 D-2