Irving Like: Summation of Brattle and Lazard LIPA Reports


Comments from Irving Like with regards to the Lazard Freres report of February 2010, and the Brattle Group report of July 21, 2011, on the strategic organization options available to LIPA.

FULL MUNICIPALIZATION WITH RATEPAYER ELECTED BOARD

The case for full municipalization is the strongest. Brattle, p 18. Although Brattle says that getting from LIPA’s current state to Full Municipalization presents considerable “transition risk”, it does not document this assertion with any evidence. Nor does it say that such transition risk would occur, if the transition was to a ratepayer elected board. In fact, neither Brattle nor Lazard Freres, ever analyzed the option of, and transfer to  a rate payer elected board.

 I believe it  unlikely there would be transition risk, because the amendment of the LIPA statute to re-create the rate payer elected board, could also provide for the state to assume the cost of defining the boundaries of the rate payer districts, and the election and other administrative costs, and thereby reduce what would otherwise be  the supposed transition risk costs of municipalization with the current appointed LIPA board, staying in place.

 Neither report analyzed whether, as I still believe, a rate payer elected board is the preferred option, because it is more transparent and accountable, than an appointed board, and the elected board provides the rate payers with direct, not indirect,  control  over resources, including the power to employ the most qualified managers, whether they are qualified volunteers, or compensated employees.

Neither report established that PSC oversight would likely result in higher rates, although that  is the unsupported view of the opponents to such review, who are seeking to urge Governor Cuomo to oppose any legislation requiring it.

A credible argument can be made that a rate payer elected board, would provide multiple inputs to the PSC review process that would cause a lowering of the rates, because rate payers do not want their rates to increase, and more likely to respond to energy efficiency, energy conservation, and renewables programs. The validity of this argument should be empirically checked by comparing the history of rates fixed  by elected boards, who are, or who are not regulated by a public service commission.

LIPA’S FAILURE TO ENFORCE KEYSPAN/NATIONAL GRID OBLIGATIONS

In 1998 KeySpan agreed in writing with LIPA, and signed a consent order with the DEC on September 30,1999, to clean up the worst of  its Manufactured Gas Plant sites, in Bay Shore and Hempstead, that are contaminating Suffolk and Nassau Counties. KeySpan’s consultants estimated that the cost to clean up the Bay Shore MGP alone was about $200 million, and that the total cost to clean up Bay Shore, and the additional sites in Hempstead, Glen Cove, Halesite, and Patchogue was $600 million, and that these amounts did not include the multi million estimated costs of dredging, removing and treating contaminated sediments in surface waters, and paying toxic tort liability claims of persons and properties exposed to the hazardous carcinogenic wastes.

In August 2007, KeySpan admitted that there were additional MGP related sites, raising the total to about 15, and maybe more,  that had not been cleaned up, and their cost estimated.

LIPA has done nothing  to enforce KeySpan/ National Grid’s clean up obligations, and has not opposed their imposing the costs of the clean up on the rate payers, and not the stockholders.

Thus in a nutshell, KeySpan/National Grid, with the acquiescence of LIPA, has put the health of exposed persons at risk, depreciated and stigmatized the market values of their properties, stuck them with clean up bills for decades to come, and  to add insult to injury, concealed the history and scope of the MGP contamination, by creating a privilege log of 8200 documents which they refuse to disclose.

THE DEFICIENCIES OF THE RFP’S AND REPORTS AND QUESTIONABLE

RELIABILITY OF BRATTLES ESTIMATES OF OPERATING COSTS AND COST IMPACT COMPARISONS 

Both reports are deficient in that they fail to assess KeySpan/National Grid’s misconduct;  their   failure to expeditiously and faithfully  perform the MGP clean up obligations  assumed in 1998 in the agreements with LIPA, and the abusive billing practices, and excessive charges that our committee has been investigating.

This is not surprising because the Requests For Proposal’s circulated by LIPA did not provide information concerning KeySpan’s  failure to perform its contractual commitment, and did not ask any bidder to include in its bid, an MGP  clean up obligation, to be undertaken by the bidder, and its estimated cost.

Brattle states that privatization will likely produce the largest reduction in operating costs,  while ServCo and Full Muni are expected to have modest increases in operating costs.(p 12)

But these estimates do not analyze the projected MGP clean up costs, which will increase  operating costs, result in less savings in operating expenses, and consequently be even less of an offset against the increased financing costs of privatization, and result in  higher % rate increases.(pp 14- 17)

RECOMMENEDATIONS

 

Our committee now has sufficient information to deliver a report, with these preliminary findings, and we should devote the time remaining to  resolving the  issue of qualifications of candidates to serve as board members, and achieving the following goals.

 A rate payer elected board, with PSC oversight is the preferred strategic option, whether the Full Municipalization or the ServCo model is adopted.

Whether the new board should be volunteers, or compensated is yet to be determined, as is the question of how their qualifications can be vetted to determine that they would be suitable candidates to serve on a board of directors.

The state legislature should be asked to enact the necessary legislation to re-create the LIPA rate payer elected board,  and PSC review,as soon as possible, and before the date of termination  of the National Grid  Management Services Agreement on December 31, 2013.

The LIPA board should postpone the September 2013 meeting to a date following

The election of such board, so that the new board, will make the ultimate determination of full municipalization or ServCo model.

The new rate payer elected board, should prepare Requests for Proposals, taking into account the history of LIPA. KeySpan/National Grid’s unsatisfactory conduct,

The RFP’s should require each prospective bidder, to agree to expeditiously complete the clean up of the MGP sites, and to estimate and assume the clean up costs of all the MGP’s, and allocate the costs of clean up equitably between the rate payers and stockholders,  and to agree to make full disclosure of all documents claimed by KeySpan/National Grid, to be privileged or redacted, which relate to the scope and nature of the contamination, the adoption of remedial action plans satisfactory to both the DEC, and Suffolk County Department of Health Services, and the terms of a comprehensive settlement it was willing to propose to resolve the MGP controversies, with the impacted persons and property owners.

Irving Like

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