Jack Kulka and the Hauppauge Industrial Association ("HIA") want you to believe that there is a better deal available than the LIPA transaction, and they want you to vote against the LIPA transaction based on that belief. The Long Island Power Authority has analyzed "Competition Now", the proposal of Kulka and the HIA which promises a 38% rate reduction, and have concluded that it is a fraud on the public. His proposal calls for a "grassroots" effort to seek State legislation which if enacted would result in years of litigation with an outcome that is highly uncertain. LIPA's proposal can be implemented next year with guaranteed rate savings and a realistic plan to open the Long Island market to full retail competition.

Kulka's proposal requires passage of State legislation that would direct the Public Service Commission to take numerous actions which are [unsustainable, inconsistent and/or contrary to federal regulations].

Order the PSC to direct LILCO to write-off $2.5 billion of the Shoreham Regulatory Asset. A $2.5 billion write-off of the Regulatory Asset, which equals roughly 96% of the shareholders' equity, would bankrupt LILCO. In such a situation LILCO would litigate this legislation all the way to the United States Supreme Court, a process which could take five to ten years. Every year of litigation would cost the Long Island rate payers $400 to $500 million in lost savings.

Order the PSC to establish full retail competition, and limit LILCO's wheeling charges to recover only the book value of the Transmission and Distribution system. Federal regulations establishing wheeling charges under open access provide for full recovery of stranded costs. Even if the PSC were able to force LILCO to write-off $2.5 billion of the Shoreham Regulatory Asset, there would be no basis for excluding recovery of the remaining Shoreham costs in the wheeling charges. Mr. Kulka is in essence mandating a complete write-off of the Shoreham Regulatory Asset.

Authorize LIPA to refinance $3.2 billion of LILCO's Shoreham Regulatory Asset. Since LIPA will not be the owner of the T&D system, this could not be financed with lower cost tax exempt debt unless the State were to effectively levy a tax for this purpose. If LIPA were to refinance the Shoreham Regulatory Asset with higher cost taxable bonds, such bonds would have to be secured by a non-bypassable charge to every electric customer on Long Island (whether served by LILCO or not) set at whatever level is necessary to fully pay off the bonds. LIPA's proposal does not include such an onerous provision.

Kulka also continues to misrepresent the implications of LIPA's issuance of more than $7 billion of bonds. LIPA's low cost bonds effectively replace LILCO's higher cost debt and equity relating to the T&D system, Shoreham Regulatory Asset, 18% interest in Nine Mile Point 2 which LIPA is acquiring. The PSC currently allows LILCO to collect approximately $900 million annually for its debt and equity related to these assets. When LIPA issues its bonds, this annual cost will be $320 million lower. LIPA is not creating a "crushing debt burden", it is reducing the debt burden.

The LIPA transaction can be implemented within one year. The savings come from some very simple elements:

LIPA is refinancing the expensive debt and equity that is charged to electric ratepayers today with lower cost municipal debt.

LIPA, as a municipal entity, is not subject to federal income tax. Today electric ratepayers pay for federal income tax through their electric rates, and LIPA is able to eliminate this assessment in the future. It is important to note, however, that LIPA will continue to pay state and local taxes so that our communities are not hurt by this transaction.

LIPA is settling the Shoreham Property Tax litigation of $1.2 billion for only $625 million and doing it in a manner that delivers benefits to both Nassau and Suffolk, while minimizing the difference in rates between the two counties. It is important to note here that LIPA has repeatedly stated that we are prepared to work with the Suffolk County legislature on funding mechanisms such as the sales tax increase, as long as the interests of the electric ratepayers are protected.

LIPA has negotiated guaranteed benefits from the merger of Brooklyn Union Gas and LILCO, even if the companies never realize any savings from their merger. We made them put their money where their mouth is.

These four elements result in immediate rate cuts of 17% , which LIPA will hold for five years.

Beyond the rate cuts, the LIPA transaction has several benefits that Kulka and the HIA ignore:

LIPA will immediately implement a retail choice program for both residential and business customers, starting initially with 50 megawatts for residential customers and 50 megawatts for business customers, and expanding to choice for all customers within ten years. This program will give customers the opportunity to participate in the country's competitive markets.

In addition to settling the Shoreham Property Tax Litigation, LIPA and BU/LILCO will drop all pending tax certiorari law suits, saving Long Island communities approximately $436 million.

The talented, well-trained, reliable work force that has been reading the meters, climbing the poles and stringing the lines will continue to provide the high level of reliability that we have come to expect on Long Island

LIPA will actively promote conservation and renewable energy, dedicating $32 million in the first year to clean energy programs, nearly tripling LILCO's current expenditures.

It is ironic that Kulka's proposal is entitled Competition Now, yet its recommendations require actions that will lead to years of litigation with a highly uncertain outcome. LIPA's goal is to create sustainable double digit electric rate reductions; by issuing tax-exempt bonds and avoiding federal income taxes, LIPA can achieve its goal within one year. Kulka wants you to vote against LIPA because he wants you to believe there is a better deal available than the LIPA deal.