In the August 17th presentation of the Brattle Group on restructuring to the LIPA Board, it was startling to hear that there is $2.6 billion in unamortized debt for the abandoned Shoreham Plant. What happened to the other $3 billion plus that LIPA has been collecting in rates over the years and why does the total Shoreham debt remain basically unchanged?
The answer to this lies in a failure of LIPA’s management and structure to deal with the problem; basically the same management and structure that LIPA is attempting to retain as it considers restructuring.
The Brattle Group after a year of effort has concluded that the most economic options for restructuring LIPA are full-scale municipilization, where the utility directly employs all workers, and a SERVCO option, which is very similar to how it now operates using a major private contractor. With the cost of each option essentially the same, the decision comes down to preferences and potential risks.
Usually after spending well over a million dollars on a consultant you would expect at least to get a final report 2 or 3 inches thick. So far, however, the Brattle Group has only produced a power point presentation. This was questioned by attendees at a public meeting on August 17th and LIPA’s answer was that a more detailed power point presentation would be provided followed up with a white paper.
This is simply not acceptable. When a major decision such as the restructuring of LIPA hangs in the balance, the public needs to see all the data presented in a detailed report. This is especially critical in this case because apparently a decision is going to be made based on preferences, risks and gut instincts. Without question no action should be taken by the LIPA Board until a final detailed report is produced and the public has had an opportunity to review it.
On the basis of just the power point presentation, it is not surprising that the LIPA staff has apparently embraced the SERVCO option because it essentially keeps things as is and retains their jobs. They justify this by much hand waving citing more transition risks for municipalization. It is hard to take their word for this because it is very difficult to see much difference in the transition risks for each option. Both LIPA in the municipal option and the contractor in the SERVCO option would be hiring many of the same National Grid employees now doing the job. Both would also be acquiring facilities, equipment and materials to do the job. And both would have to develop new information technology systems from scratch, acknowledging the well-known fact that off the shelf systems just do not work.
The LIPA staff also appears to penalize the municipal option because more people would have to be hired to supervise a larger organization. But they forget that to make the modified SERVCO option work, LIPA would have to also hire many people to provide the management and oversight that has been absent at the utility since its inception. In fact during the Brattle presentation on August 17th, Mike Beck one of the consultants mentioned that for SERVCO “ of course oversight will be put in place”.
To be honest, with exceptional people in place, almost any organization structure can be made to work. But with 3 iterations of the SERVCO approach over the years failing, this does not appear to be the case at LIPA and may explain why no other public utility in the country relies on this management structure. Enough experimentation, it is time to employ the tried and true full-scale municipal approach at LIPA and enhance its management capabilities.