In a signal that the pending buyout of KeySpan Corp. faces unexpected hurdles, the New York State attorney general's office has said it will delay reviewing the Long Island Power Authority's new contract with KeySpan until LIPA is comfortable with its partner's newly proposed parent, National Grid Plc.

The delay also has prompted similar action from State Comptroller Alan Hevesi's office, which also must approve the contract. A spokesman for Hevesi said the comptroller as a matter of practice doesn't begin reviews until after the attorney general has approved them.

Long Island Power Authority chairman Richard Kessel said yesterday he expects his due diligence and negotiations with National Grid to be concluded in 90 days. He has indicated that LIPA would seek assurances and concessions from National Grid including possible rate cuts, service quality levels and job retention, before signing off on the contracts.

In a March 2 letter to LIPA, assistant deputy attorney general Patricia Martinelli wrote, "This office will hold off on reviewing the proposed contract between LIPA and KeySpan until we hear further from your office."

Explained attorney general spokesman Paul Larrabee, "We don't want to review a contract that potentially they [LIPA] are not going to seek to execute."

LIPA has the ability to end the contract in the event of a change of ownership at KeySpan. The new management services agreement sets KeySpan as the manager of LIPA's local electric grid until 2013. LIPA pays KeySpan as much as $400 million annually for the work, Kessel has said.

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