LIPA IS UNSUSTAINABLE


Operating a retail utility is challenging and there are good people at LIPA who try their best. However, with the discovery of customer overcharges on top of issues like storm costs, it appears doubtful that the authority can continue to function as it now does.

Five months ago on January 27th the LIPA Board with little discussion quietly accepted a staff recommendation to adopt an accounting change to correct a practice of over collecting from customers a charge for “lost and unbilled energy “. The balance of these charges had reached $231 million and the Board in its discretion decided to refund about one half to customers over a 3 year period.

Disturbing as it is that only one half of the overcharge is being refunded and then in only dribbles over time, it is even more disturbing to wonder how many more secrets lurk in the complicated labyrinth of LIPA’s accounting system.

This would not be as much of a concern if LIPA was subject to the oversight of the PSC, but the authority has resisted this because it claims it would damage its financial ratings. Yet, many public utilities in the country just like LIPA are regulated in some way and actually have higher bond ratings. Plus, the other public utilities on Long Island such as Freeport and Rockville Center are regulated by the PSC and seem to do quite well.

While our state legislators continue to pursue legislation to subject LIPA to PSC scrutiny, the authority should open itself to a full independent management audit that would produce an unbiased assessment of its finances, policies and procedures. Based on the past, this may be the most expedient mechanism for dealing with LIPA’s problems and gaining the public’s trust. Such an audit would be paid for by LIPA and be very similar to audits the PSC has ordered for private utilities. To ensure independence, possibly the Suffolk Legislature’s LIPA Oversight Committee could have some  involvement. However organized, the firm conducting the audit must report to a  neutral party and not LIPA.

To add to its recent woes, LIPA is now also wrestling with 2 major issues that may decide its very existence.

One of these is how to provide 2500 MW of power for the future while dealing with the fate of the aging electric generating stations. Unfortunately this should have been addressed almost 10 years ago before the authority became committed to expensive projects that now compromise its financial ability to act. Indeed, back in 2002 LIPA was advised to seriously pursue the repowering of Long Island’s existing plants but rejected the concept.

The other issue is deciding on how LIPA could best be organized to deal with the challenges of the future. Continuing as it is with 100 employees performing overlapping and duplicative functions, while overseeing a private utility contractor, is simply inefficient and costly. There are 2 possible ways to address this.

One, LIPA could be shrunk down to a handful of employees and function merely as a custodian of tax exempt debt. All electric service functions would be carried out by a contractor with professional utility management credentials having clear responsibility for day to day decisions. In the end LIPA would function more like a regulatory body overseeing the contractor’s performance and rates.

The other option is for LIPA to expand and take on direct responsibility for all aspects of running an electric utility without relying on an outside contractor. This is how most government owned utilities throughout the US are organized and eliminates the ambiguities of who is responsible for what.

Perhaps a comprehensive management audit will provide valuable insights to help decide what form LIPA should take in the future. In any case, the authority as it is now constituted is unsustainable.

Dr. Matthew Cordaro has been a CEO and senior executive  officer of several major utilities and most recently the dean of the school of  business at 2 Long Island Colleges.

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About lipaoversight

LIPA Oversight Committee was created to analyze the rates and practices to determine if it is working in the best interests of the Suffolk County ratepayers
This entry was posted in audit, municipalization, national grid, Overbilling, repowering, Storm Costs. Bookmark the permalink.

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