REPORT ON LIPA’S FUTURE STRUCTURE TO BE RELEASED JULY 21st


It appears that the consultant hired by LIPA to study alternatives to LIPA’s future structure will present its findings to the LIPA board of trustees on July 21st @ 2:00 in Uniondale, at which point copies of the report will be made available for public scrutiny and comment.  Hopefully the report will be impartial and not reflect the bias of the very same LIPA people who supervised and directed the consultants. It is understood that there may be some very tough personal issues for the 100 or so existing LIPA employees with this decision process. However LIPA’s future will affect over one million ratepayers and thus overshadows the preservation of individual jobs at the troubled utility.

Long Island Power Authority ponders public power

by Claude Solnik

May 12, 2011

The Long Island Power Authority Chairman Howard Steinberg said (last week) the authority hopes to be weeks away from receiving a recommendation for one of three structural options: selling LIPA’s assets, continuing to outsource or municipalizing.

The authority commissioned the Brattle Group to study the alternatives and provide a detailed report.

Although the options to continue as is and privatize have received the most attention, some experts say municipalizing could hold the most promise for ratepayers. Critics,
however, claim that any benefits would be offset by the risks of running the new nonprofit entity and the additional expenses associated with it. Even though LIPA owns the transmission grid, it isn’t a true municipal provider, since it contracts to National Grid for daily operations.

In the municipalization model, LIPA would not just own the distribution grid; it also
would employ the more than 1,000 people who operate and maintain it. The model would
eliminate the profit motive inherent in privatization and end the extra layer of bureaucracy in the current arrangement.

Municipalization has gained traction in other parts of the country. More than 2,000
community-owned electric utilities, or munis, serve 45 million people nationwide and generate 14 percent of the nation’s electricity, according to the American Public Power Association. Locally, Freeport and Rockville Centre have municipal utilities.

The association claims munis in general offer lower rates – 14 percent less than investor-owned utilities – and ratepayers, rather than shareholders, are the beneficiaries.

“We are locally controlled,” said Nicholas Braden, a spokesman for the APPA.
“We serve people within our communities.” Jim Tracy, CFO of the Sacramento Municipal Utility District, said tax benefits are key in holding down muni costs. “We’re a
tax-exempt entity, so we don’t pay income taxes. We don’t have to collect that from our customers,” Tracy said. “And we have the ability to issue bonds with interest exempt from federal taxes. Those two pieces provide an advantage on our capital costs.” SMUD said its
average residential bill is $91 per month, 23 percent lower than its closest investor-owned competitor, Pacific Gas & Electric.  “We have some of the lowest rates in California,” said Chris Capra, a SMUD spokesman. “Our customers seem pleased. Our rates are among the lowest. It’s all because of the public power model.”SMUD also scores high in J.D. Power satisfaction ratings and low in rate surveys. “The areas that customers found we’re best were reliability, billing and payment, price, communication and customer service,” Capra said. But munis can carry some additional costs that private utilities don’t have to bear – municipal workers typically are entitled to the benefits of public employees. “The
problem that I see with municipalization is taking employees and making them public employees with pensions,” said Michael Faltischek, a former LIPA trustee who is a partner at Ruskin Moscou Faltischek and a stakeholder in Caithness Energy. “That would be a huge additional cost.” He added that the approval process for actions could be longer and more costly than for private firms.

“You now become subject to added costs of developing your infrastructure, maintenance
and improvement,” Faltischek said. “You’re in a bidding environment.”Munis, however,
typically pay executives lower salaries than private firms, potentially holding down labor costs.

Tracy said the cost savings from the muni structure will only fully be realized if the
organization is run well. “Some of the margin we have is based on making good investment decisions on big items,” Tracy said, noting the firm obtains a large amount of hydropower.
“Everything that has to do with running a successful business has to do with managing costs and making good decisions and providing good customer service.”

Munis like SMUD, for instance, have been able to hold down rates, at least in part by
relying on hydropower, as Freeport and Rockville Centre have. “That’s very low-priced power,” Capra said. “We’re able to pass savings onto our rate payers. The savings go right to them.”

LIPA, meanwhile, is waiting for the Brattle Group report, as it weighs whether to go
all in, so to speak, as a muni, back off and privatize, or refine its current structure.

Time is of the essence. LIPA’s contract with National Grid expires December 2013.

“We really need to make a decision by the end of this year,” Steinberg said. “Whichever direction we go in is going to be very complicated and will require a full 12 months to transition.”

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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
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One Response to REPORT ON LIPA’S FUTURE STRUCTURE TO BE RELEASED JULY 21st

  1. Anonymous says:

    Time to think before LIPA acts
    Sheldon R. Sackstein, C.P.A.

    The original vision of a ratepayer controlled LI electric company had been destroyed by the cobbling together of a bad deal. The GRID (formerly Keyspan) deal was structured in such a way that: 1) ratepayer’s (rather than LILCO bondholders and shareholders) were saddled with Shoreham’s debt; 2) the power plants were sold-off to a private corporation; 3) ratepayers were given the responsibility/liability for an upstate nuclear power plant; and 4) ratepayers paid the cost for repairing LILCO’s outmoded transmission and distribution system that the PSC at the time called “inadequate and in a state of disrepair”. All the benefits went to private parties and ratepayers got stuck with the bills. LIPA rates have not come under control, in fact as we all know; they have gone up constantly.

    In recent years, LIPA ratepayers have put billions of dollars into upgrading the LIPA transmission and distribution system (T&D). Former National Grid executive Bob Catell has called this system “gold plated – the best in NY State and perhaps in the country”. Should our public investment in the T&D system now go into private hands, where a private corporation will reap the benefit of every LI ratepayer’s investment? This question will be answered with “not practical” on July 21st with the release of the LIPA sponsored independent recommendation by the Brattle Group.
    Numerous objections to LIPA’s original illegally awarded Management Services Agreement (MSA) since the outset of the Pataki Administration’s “transaction” have been brought forward including major concerns with the MSA which was clearly not crafted in the best interest of LI ratepayer’s. It is also asserted that LIPA extended the MSA illegally, by once again not putting it out to bid.

    Most LIPA ratepayers don’t understand how our electricity is provided under the MSA. Do you know who is responsible when the lights go out? Who reads the meters, sends out the bills, collects the money, purchases fuel for the power plants, overcharges customers for losses in the transmission of electricity and for storm costs? Most ratepayers would respond –LIPA. But the correct answer is National Grid provides all these services and more under the MSA.

    The signing of the new MSA, which is a Long term commitment, must be slowed down. LIPA is scheduled to sign-off on the new MSA this September, if not sooner. We do not want the potential of a municipal option to be precluded or hamstrung, nor do we want a decision of privatization unduly enhanced, by the quick signing of the new MSA.

    We are once again faced with another potentially horrible “transaction” being rammed forward, where the option for Long Island ratepayers to choose the best operating structure for LIPA could be foreclosed by immediately signing a new MSA. We are not asking to “extend the MSA bidding process” but to stop the rush to sign off on the deal.

    Governor Andrew Cuomo, the NY State, Nassau and Suffolk Legislatures, NY State Comptroller Thomas DiNapoli, and other concerned organizations and ratepayers, must collectively slow down the awarding of the new MSA. Keeping the process open is essential so that a reasoned decision may be made on the future structure of LIPA.

    The author is a former LIPA Trustee, Co-Chairman of the Suffolk County LIPA Oversight Committee, and Board Chairman of Action Long Island

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