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.”