The Long Island Power Authority has released its first full-year budget as the owner of Long Island's electrical system. The budget includes the preservation of the 20 percent islandwide rate reduction that the Authority implemented last year. Among other things, it also calls for capital improvements to maintain system reliability and to meet the electrical energy needs of the region's growing population, especially on the East End.

Our 1999 budget projects revenues of approximately $2.1 billion dollars. Operating and capital expenses, including debt service payments, will nearly match projected revenues. However, the Authority should end the year with a net income of $465,000.

This is a tight, sensible budget. We have preserved Governor Pataki's pledge to maintain the 20 percent rate reduction. At the same time, we are providing funds for system improvements to help maintain and improve service reliability, PILOT payments to local governments, energy conservation and efficiency programs, and the implementation of retail choice on Long Island.

We have accomplished a great deal since last June. Our customers enjoy significantly lower electric rates and have received more than $171 million in direct refunds. Our Plan of Finance was completed in just six months. New energy conservation and energy efficient programs, that will help consumers save more while helping the environment, are in the process of being finalized. And the first phase of our retail competition program is getting under way soon. We have accomplished our stated goals and more.

Our operating budget projects that residential and commercial and industrial electric sales account for 97 percent of the total revenues we will generate in 1999. Residential electric sales account for nearly 50 percent of the total revenues, while commercial and industrial sales total 47 percent of all revenues. The remaining three percent of revenues comes from other sources.

On the expense side, fuel for electric generation and electric power from sources other than KeySpan Energy account for 30 percent of our expenses. Operations and maintenance expenses account for 33 percent of the Authority's costs. Debt service payments equal 15 percent of expenses; payments in-lieu-of taxes equal seven percent; depreciation and amortization amount to 10 percent; operating taxes amount to five percent of total expenses.

We have budgeted $124.5 million for capital expenditures during 1999. Projects scheduled include: capital improvements at substations in Nassau and Suffolk counties; major and routine transmission and distribution line work; distribution lines for new customers; distribution line upgrades for existing customers; and expansion and enhancement of our electric system on the ever-growing East End.

Budget Highlights:

*Electric sales are forecasted at 17,031,000 MWH, an increase of 349,000 MWH, or 2.1 percent over 1998's normalized level. Sales in the commercial and industrial market are expected to grow by 2.7 percent. Residential sales will increase by 1.2 percent.

*Revenues are budgeted at $2.1 billion and are primarily based on sales of electricity to the residential and commerical and industrial markets. Also included are sales to public authorities and revenues from electric sales for street lighting, as well as revenues associated with sales for resale (wholesale sales made outside of our retail service territory), reimbursement from KeySpan for the cost of providing postage-paid remittance envelopes to our customers and revenues from other sources, such as pole attachments and late payment charges.

*Fuel and purchased power costs are budgeted at $628.9 million and are based on forecasted natural gas and fuel oil prices, adjusted in accordance with the provisions of our tariff.

*Operation and maintenance expenses are budgeted at $684.5 million and are comprised primarily of costs associated with the transmission and distribution system management, and power generation agreements with KeySpan Energy Corp. In addition to the costs associated with operating our T&D system and providing generated and purchased power, these agreements provide for management fees and various performance incentives related to system reliability, customer service and worker safety.

*Depreciation and amortization is budgeted at $212 million and is comprised of the amortization of the Acquisition Adjustment as well as the depreciation of the T&D system assets.

*Revenue taxes are budgeted at $109.4 million and are based on gross revenues received from the sale of electricity and charges levied for other services.

*Payments in-lieu-of taxes or PILOTS are budgeted at $151.8 million and reflect forecasts of real property-based taxes presently incurred by us from various jurisdictions, including New York State, Nassau and Suffolk Counties, towns, villages, school districts and special purpose districts.

*Interest expense and income reflects a net interest expense of $324.1 million. Interest expense, net of that portion capitalized as a cost associated with captial projects, is budgeted at $412.9 million and is based on forecasted balances of outstanding debt and related fees as well as the mortization of deferred charges associated with the early redemption of prior indebtedness. Interest income is budgeted as $88.8 million, representing interest earned on our operating funds and other short-term investments.

*Capital expenditures, comprised of construction and removal projects, are budgeted at $124.5 million. Transmission and distribution system projects total $115.9 million. These investments underscore our commitment to provide safe and reliable electric service and to expand and upgrade the electric T&D system to serve new customers, particularly on the eastern end of Long Island, where additional investments are needed to meet the energy needs of that region's growing population.

A public meeting was held on the proposed 1999 budgets on March 22 at 10 a.m. at the Omni Teleconference Center in Uniondale.

The 1999 Budgets are scheduled to be adopted at the March 25 meeting of the Board, which will be held at the Dye Center in Hauppauge, starting at 10:30 a.m.

LIPA Chairman Richard Kessel