Investor Update Conference Call January 16, 2013

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1 Long Island Power Authority Investor Update Conference Call January 16, 2013

2 This presentation is provided for general informational purposes only and a copy will also be disseminated as Other Financial Voluntary Information pursuant to SEC Rule 15c2-12. The presentation is also available on our website at The presentation and an audio recording thereof will be available for a limited time at The presentation speaks only as of its date does not purport to include every item which may be of interest, nor does it purport to present full and fair disclosure with respect to any of the Long Island Power Authority s debt issuances within the meaning of applicable securities laws. These materials do not constitute an offer to sell, or the solicitation of an offer to buy, any security of the Authority. The presentation contains statements which, to the extent they are not recitations of historical fact, constitute forward-looking statements. A number of important factors affecting the Authority s business and financial results could cause actual results to differ materially from those stated in the forward-looking statements. 1

3 Agenda» Leadership and Management» Hurricane Sandy Update» Liquidity/2013 Budget» Moreland Commission and Privatization of LIPA 2

4 Participants Participating on today s call will be:» Michael J. Taunton, Chief Operating Officer and Chief Financial Officer» Stephen Clark, Executive Director of Finance 3

5 Changes in LIPA Leadership» Over the past several months, LIPA has had a number of changes within the Board and senior management. At one point, seven of the 15 Board seats were vacant leaving the minimum of 8 Trustees necessary for a quorum» Two additional Trustees were appointed to the Board in December, bringing the total number of trustees to 10, leaving five seats currently unfilled» On December 11, 2012, Governor Cuomo appointed Lawrence Waldman as Chairman of LIPA s Board of Trustees» LIPA s Board of Trustees appointed Michael Taunton to Chief Operating Officer (Mr. Taunton retains his title as Chief Financial Officer); in the absence of a Chief Executive Officer, Mr. Taunton, as Chief Operating Officer, assumes the responsibilities of the CEO 4

Hurricane Sandy Recap» On the evening of October 29, 2012, Hurricane Sandy, a large

size of the storm, States from the mid-atlantic to New England were impacted» In advance

10 days» LIPA s Service Territory, including Long Island and the Rockaways, sustained

devastating flooding along the south and north shores of Long Island» The LIPA T&D system

6 Hurricane Sandy Recap» On the evening of October 29, 2012, Hurricane Sandy, a large Category 1 Hurricane, made landfall near Atlantic City, New Jersey, however, due to the size of the storm, States from the mid-atlantic to New England were impacted» In advance of the storm, LIPA warned its customers that they could experience outages of up to 7 to 10 days» LIPA s Service Territory, including Long Island and the Rockaways, sustained significant damage from hurricane force winds and an historic storm surge, resulting in devastating flooding along the south and north shores of Long Island» The LIPA T&D system sustained more than 40,000 damage locations» At the peak, over 90% of LIPA s 1.1 million customers lost power 5

Hurricane Sandy Recap» LIPA s Response and Restoration Efforts included approximately 14,000 workers from across the country and Canada including: Approximately 6,400 line workers Approximately

easter which caused an additional 123,000 power outages» Prior to the Nor easter, LIPA was on track to restore power to 90% of its customers by day ten as originally anticipated» The Nor easter

7 Hurricane Sandy Recap» LIPA s Response and Restoration Efforts included approximately 14,000 workers from across the country and Canada including: Approximately 6,400 line workers Approximately 3,700 tree trimmers Another nearly 4,000 workers providing support, logistics and call center staffing» On November 7, 2012, ten days into the restoration efforts, Long Island was hit by a Nor easter which caused an additional 123,000 power outages» Prior to the Nor easter, LIPA was on track to restore power to 90% of its customers by day ten as originally anticipated» The Nor easter set the restoration effort back several days» Ultimately, all customers, except for those customers in the flooded areas who could not safely accept power, were returned to service within 16 days 6

Damage to the LIPA T&D System» Damage included: 137 transmission line lock-outs 51

over 4,400 distribution poles» Nearly 2,500 transformers were repaired or replaced»

5 million gallons of fuel dispensed» Repairs were made to over 7,600 cross arms» LIPA

8 Damage to the LIPA T&D System» Damage included: 137 transmission line lock-outs 51 substations (12 were flooded) 455 distribution lock-outs» LIPA replaced or repaired over 4,400 distribution poles» Nearly 2,500 transformers were repaired or replaced» Over 400 miles of wire was repaired or replaced» 2.25 million feet of wire issued» 2.5 million gallons of fuel dispensed» Repairs were made to over 7,600 cross arms» LIPA never ran out of any materials necessary to sustain and complete the restoration efforts 7

9 # of Outages Restoration of Customers Progressed Steadily 1,200,000 Customers Out of Service November 7 th Nor easter 1,000, , ,000 Nor easter 400, , Date Approximately 85% of customers were restored within the first week; all who could safely accept power were restored within 16 days

10 Severe Flooding Long Island Communities Impacted Babylon / Islips Amityville / Lindenhurst Seaford / Massapequa Baldwin/Freeport Long Beach/Oceanside/Island Park 9

Impact in the Flood Zone» Severe flooding occurred throughout LIPA s service territory, but was most severe on the south shore of Long Island and in the

challenges to its restoration efforts» Devastation in these areas included the destruction of homes, businesses and other infrastructure» LIPA established

certification before they could be safely energized» Approximately 100,000 customers were originally identified in the flood zone» Established community

11 Impact in the Flood Zone» Severe flooding occurred throughout LIPA s service territory, but was most severe on the south shore of Long Island and in the Rockaway Peninsula» In the areas of LIPA s service territory which experienced unprecedented and historic flooding, LIPA faced some of the greatest challenges to its restoration efforts» Devastation in these areas included the destruction of homes, businesses and other infrastructure» LIPA established a reconnection process to ensure the safety of the public:» Required door-to-door surveys» Premises deemed unsafe, required electrical work and certification before they could be safely energized» Approximately 100,000 customers were originally identified in the flood zone» Established community outreach in the Rockaways, Oceanside and Wantagh» Efforts continue with remaining 8,200 customers (including 7,000 in the Rockaways) that still can not safely accept power 10

12 Comparison to Other Storm Events» Hurricane Sandy obliterated many storm records along the East Coast including extraordinary low air pressure, high sustained wind speeds and wind gusts and neverbefore seen storm surge levels» As a result of Sandy, the LIPA Service territory sustained 40,000 damage locations; twice as many as in Hurricane Irene and over six times as many as in Hurricane Gloria in 1985» LIPA s restoration after Sandy (for all customers who could take power) was completed in 16 days as compared to 8 days after Irene (approximately 523,000 customers affected) and approximately 13 days after Gloria (approximately 750,000 customers affected)» According to an Associated Press article dated November 16, 2012 and entitled, Power Outages After Hurricane Sandy Weren t Unusually Long After All, New York utilities restored power to at least 95 percent of customers 13 days after the peak number of outages was reported. After Hurricane Katrina, local utilities in Louisiana had power restored to only three-quarters of their customers after 23 days before Hurricane Rita hit and caused additional outages. Their analysis noted a number of other storms including Rita, Wilma and Ike, whose recovery times were in excess of Sandy. 11

13 Storm Comparisons Irene, Sandy/November 2012 Nor easter Tropical Storm Irene Hurricane Sandy/Nor easter 18,926 # Jobs ~ 40, ,000 # Customers Affected 1,194,000 * 61 Transmission Lines Damaged Substations Affected Distribution Lock-outs 455 2,700 High Voltage Linemen 6,400 1,300 Tree Trimmers 3,700 8 Days to Restore 16 1,196 Poles 4,400 1,320 Transformers 2,500 2,844 Cross Arms 7, Miles of Wire 426 * Includes both outages as a result of Sandy and additional outages incurred following the November 7 th Nor easter 12

14 Estimated Costs and FEMA Reimbursement» While National Grid and LIPA continue to accumulate all of the costs of the storm, current estimates of the total costs of the repair and restoration efforts are approximately $900 to $950 million» Under the Management Services Agreement, all storm costs are incurred by National Grid and reimbursed by LIPA» LIPA expects that the invoices from National Grid to be presented over the next several months as National Grid accumulates invoices from contractors and suppliers» Based on past experience, LIPA expects that at least 75% of this will be reimbursed by FEMA, given LIPA s status as a State power authority» Certain elected officials, including Governor Cuomo, are asking FEMA to reimburse the State for amounts in excess of the traditional 75%, including and up to 90% to 100% for certain costs, however, at this time, LIPA is only planning on a 75% reimbursement from FEMA 13

15 LIPA s Liquidity» At year-end, LIPA had $335 million in cash and liquid investments; in addition, LIPA is anticipating the receipt of nearly $70 million from FEMA related to the 2011 Hurricane Irene storm» LIPA has $100 million of authorized, but unused commercial paper capacity» LIPA is currently working on establishing a $500 million working capital line of credit from a syndicate of banks, led by TD Bank, NA and expects this to be completed in February 2013» Additionally, LIPA has received approval from its Board and from the PACB to issue debt to refund $200 million of outstanding commercial paper, which, if implemented, would increase the unused capacity under the CP program from $100 million to $300 million» Finally, LIPA has received approval from its Board, and is currently seeking PACB approval to issue up to $500 million of medium-term notes, if necessary, to finance a portion of the repair and restoration costs of Hurricane Sandy until reimbursement is available from FEMA and other sources 14

16 LIPA 2013 Budget Highlights» LIPA s approved 2013 budget totals $3.597 billion and provides for a net zero rate increase for its customers» Forecasted 2013 sales are slightly higher (0.4%) than 2012 sales, after adjusting for normal weather and the additional day in 2012 for leap year.» Fuel and purchased power costs are budgeted to be lower than 2012 based on current forecasts of fuel costs. LIPA adopted a change in its tariff to provide for a monthly adjustment to its fuel and purchased power charge to provide for more timely collection of any increases in fuel and purchased power, as well as a return to customers for any decline» The approved 2013 budget contains no provision for the collection of any unreimbursed Hurricane Sandy related expenditures as the total costs and amount of any FEMA reimbursements is not yet known; to the extent there are any unreimbursed amounts, LIPA s management will propose a plan to the Board for further recovery» LIPA s full 2013 budget presentation can be found on LIPA s website at: ( 15

17 2013 Approved Budget Long Island Power Authority and Subsidiaries Approved Operating Budget Statements of Revenues and Expenses (Thousands of Dollars) Approved Budget Projected Revenues $3,597,613 $3,719,915 $3,682,150 $3,793,875 $3,985,376 Fuel and Purchased Power Costs 1,533,274 1,504,488 1,446,712 1,522,732 1,672,753 Revenues Net of Fuel and Purchased Power $2,064,339 $2,215,427 $2,235,438 $2,271,143 $2,312,623 Operating Expenses Operations and Maintenance Expenses $1,046,417 $1,120,546 $1,122,481 $1,139,637 $1,162,127 Salaries and Benefits Expense 21,515 23,218 23,891 24,560 25,248 Professional Services and General Expenses 25,730 30,724 31,615 32,500 33,410 Depreciation and Amortization 277, , , , ,412 Revenue Taxes 63,832 67,655 67,534 69,006 71,403 Payments in Lieu of Taxes (PILOTS) 278, , , , ,110 Total Operating Expenses $1,713,438 $1,846,378 $1,866,502 $1,904,043 $1,948,710 Operating Income $350,901 $369,049 $368,936 $367,100 $363,913 Other Income and Deductions 34,437 37,909 41,326 42,684 42,355 Grant Income 21,406 5,542 4,560 4,122 4,122 Interest Expense 331, , , , ,390 Excess of Revenues Over Expenses $ 75,000 $ 75,000 $ 75,000 $ 75,000 $ 75,000 Debt Service Coverage Ratios (X) (a): Senior Lien Debt Senior Lien and Subordinated Debt Total Debt (a) The Series 2010A Bonds mature in 2014 ($96,665,000) and 2015 ($96,660,000), while the 2003 bonds refunded by the Series 2010A Bonds had scheduled principal payments in the years 2027 through The projected debt service coverage ratios presented above reflect the payment of this principal at the scheduled 2014 and 2015 maturity dates. The Authority s current expectation is to refinance the Series 2010A Bonds at maturity with indebtedness that matures on a similar basis as the original 2003 bonds which were refunded. Assuming that the refunding of the Series 2010B Bonds takes place in accordance with such plans, the projected debt service coverage ratios for 2014 and 2015 would be as follows: Senior Lien Debt Service 2.66 x 2.98 x 2.80 x 3.02 x 2.83 x Senior Lien and Subordinate Debt Service 2.64 x 2.94 x 2.74 x 2.93 x 2.74 x Total Debt Service 2.59 x 2.89 x 2.70 x 2.41 x 2.72 x 16

18 Moreland Commission» On November 13, 2012, Governor Cuomo established a Moreland Commission under Section 6 of the Executive Law» Commission was tasked with investigating and reviewing the preparation and response by New York utilities to Hurricane Sandy and other storms» On January 7, 2013, the Moreland Commission issued its Preliminary Report (report can be found at pdf)» With respect to LIPA, the Moreland Commission considered three options (privatization, full municipalization under LIPA, and municipalization under NYPA); the Commission recommended that LIPA should be privatized» The Commission also recommended strengthening the State s oversight of utilities in the state and giving more power and teeth to the Department of Public Service. In addition, they recommended unifying management structure of DPS and NYSERDA» A final report is expected to be issued by Spring

19 Potential Privatization of LIPA» Privatization of LIPA, as recommended by the Moreland Commission and advocated by Governor Cuomo in his State of the State speech on January 9 th, would require a number of legislative and regulatory actions, the outcome and timing of which is uncertain at this time» Timeline for completion of any potential privatization is uncertain, however, the Moreland Commission s report acknowledged that there are a number of significant hurdles to overcome and that it is unlikely that this would occur before the end of 2013» Existing LIPA bondholders have a number of protections in the bond resolutions, which would require either repayment or defeasance of all outstanding bonds and notes in accordance with their terms, or consent of bondholders prior to any sale of the T&D system or assets. LIPA is committed to complying with these provisions and other obligations to bondholders. 18

20 Conclusion» LIPA is evaluating the recommendations of the Moreland Commission and, as always, is committed to working with the Governor and the State legislature to implement the best structure for its customers» While uncertainty regarding LIPA s future exists, LIPA continues to pursue its plans for 2013 and conducting the business of LIPA» Those plans include, among others: Transition of the operations of the T&D System to PSEG/LM Adding new generation resources, including potential repowering of existing onisland generation owned by National Grid Feed-in tariff for renewable energy Establishing the liquidity facility and other liquidity measures discussed above LIPA is committed to providing its customers with safe, reliable and economic power and to meeting its obligations to its bondholders. 19

Long Island Power Authority Approved 2002 Operating Budget Approved 2002 and 2003 Capital Budgets

Approved 2002 Operating Budget Approved 2002 and 2003 Capital Budgets George E. Pataki Governor Richard M. Kessel Chairman LONG ISLAND POWER AUTHORITY APPROVED 2002 OPERATING BUDGET APPROVED 2002 AND 2003