It is ironical that LIPA staff, in its self interest, may be attempting to keep its management structure as close to the same as possible by advocating the very mechanism put in place originally by KeySpan to retain control over LIPA’s operation. In justifying this,“Michael Hervey, chief operating officer at LIPA, said that under the new model, SERVCO, the authority would approve “100 percent of the budget,” letting it control which projects or services get priority.” The obvious question, what have they been doing for the last 13 years about approving budgets and controlling projects?
“Brattle also said costs could increase slightly if LIPA took on many of the 1,900 employees in the municipalization model.” This statement is misleading because approximately 1200 employees are unionized and have an existing contract in effect until February 2015, thereby keeping them from becoming public employees. In contrast the full 1900 employees as part of the SERVCO model would entail profit making, stockholders and a deep bonus program. Further, the SERVCO structure would require hundreds of additional employees to carry out the management and oversight functions LIPA claims it would perform under improvements to its existing structure.
All the evidence points to municipalization as opening door for an enhanced management team to take on the responsibilities and accountability of running the “New” LIPA for the benefit of ratepayers. To ensure that any potential staff bias towards maintaining LIPA’s existing structure does not unduly influence the final result, the LIPA Board perhaps should consult with an independent body of experts before making a decision.
Exploring a restructure of LIPA’s business
August 9, 2011 10:04 PM
By MARK HARRINGTON NEWSDAY
Consultants are advising LIPA to adopt a new operating structure that would leave day-to-day management of the local grid in the hands of a stand-alone company, but would give LIPA greater financial and operational control.
As ratepayers grumble about billing errors and accounting gaffes, the new model is aimed at quelling concerns that consistently put LIPA at the bottom of national customer service rankings and at the top of the costliest electric rates. LIPA’s current contract with National Grid, which manages the local electric system under a $2.3 billion, seven-year contract, expires in 2013.
LIPA trustee David Calone said Tuesday that the board continues to actively consider three separate options for LIPA: going private; acquiring managers and employees now working on the electric side for National Grid in a municipalization model; or pursuing an option that most closely mirrors the existing structure, but with improvements.
None would reduce rates, but Calone said the latter two would keep them stable, while privatization might actually increase rates 10 percent. For that reason, trustees are leaning away from a return to LIPA’s former structure as a private company.
Trustees have a little more than over a month to study the options and make a decision at a public board meeting Sept 22. A public hearing in advance of the decision is planned for Aug. 17 at LIPA headquarters in Uniondale.
After more than a year of study, the Brattle Group, a utility consulting firm paid slightly more than $1 million, advised trustees last month that an enhanced version of the public-private partnership that now exists appears best for keeping rates in check and complaints down.
The new entity would serve LIPA exclusively (National Grid currently shares some employees and operations for the natural gas side of its business), and be subjected to greater penalties or profits as service wanes or improves.
Michael Hervey, chief operating officer at LIPA, said that under the new model, the authority would approve “100 percent of the budget,” letting it control which projects or services get priority. As it now stands, if National Grid decides to “cut back on service, that goes to their bottom line,” even though it may not be best for ratepayers.
Brattle estimated that National Grid’s annual profit amounts to around $29 million a year.
Brattle criticized the idea of privatizing LIPA, an option publicly backed by LIPA chairman Howard Steinberg and former KeySpan chief executive Robert Catell.
Brattle also said costs could increase slightly if LIPA took on many of the 1,900 employees in the municipalization model.
But Matthew Cordaro, co-chairman of the Suffolk Legislature’s LIPA Oversight Committee, countered that municipalizing “opens the door for an enhanced management team to take on all the responsibilities and accountability of running the utility,” while eliminating the profit motive.