The decision on the future structure of LIPA to be made by its Board of Trustees on October 6th will affect every Rate Payer for many years. For that reason you would expect this decision to be based upon sound and accurate data.
Twenty nine days before the decision 33 pages of supporting data (Brattle Data) was released for public review and comment. Unfortunately, in spite of the $1.5 million it cost to generate this data, its accuracy is very much suspect and in some cases completely incorrect.
With no listing of assumptions, constraints and risks accompanying the data, it almost appears that it was generated to support a preconceived notion to retain LIPA’s existing
SERVCO type of structure. Perhaps a more appropriate chronicling of assumptions could have eliminated much of the data inaccuracies that are evident.
For the most part it is obvious that out of 3 possible LIPA structures, the privatization model is not viable, leaving two other options, SERVCO (basically as is) or a Full Service MUNIcipalization. But a further review of the data for these 2 options reveals several
examples of inaccurate data producing flawed conclusions.
Specifically, in the “Operations Low Case Option” it is clear that the MUNI option would be the most cost effective. Nonetheless, in the public presentation it appears that the numbers were transposed for the SERVCO and MUNI options to reflect the SERVCO option as being the most cost effective.
The Brattle data also reflects a negative impact of $10 million in property tax/PILOTS for the MUNI Option and none for the SERVCO option. This is contrary to what reasonably would be expected to be the case.
Further in the Brattle data, operational costs of the SERVCO option suggests an average labor Rate for T&D Operations Maintenance employees of $46,827. However, by using storm data costs (not including overtime) previously supplied by LIPA this figure is understated by approximately by $37,000, translating into a misrepresentation of the SERVCO costs by over $19 million.
It was stated and documented (Page 34) in Brattles’ power point presentation that the SERVCO option “requires somewhat duplicative management”. However, in the Brattle
staffing data, requirements are actually projected to be reduced with the SERVCO
option. This definitely conflicts with the increased staffing level noted for the MUNI option where duplicative management would be eliminated. The result is a $3 million penalty for the MUNI option. This includes adding positions for Human Resources which cannot be substantiated. There is no reason to staff the NEW LIPA with 44 Human resource people to support 2072 employees. Industry practice is to have one HR person for every 100 employees and not one for every 46. Furthermore, 15 additional Information technology staff were added to the MUNI option and not for the SERVCO option with no valid justification. Standard industry practice typically staffs Information Technology
Projects as a short term contract and operational support provided by in-house staff.
Finally, the Brattle Data reflects a $13 million penalty for the MUNI option because computer system costs would be 20% more due to a loss of purchasing power. On its face this sounds absurd because the MUNI option could take advantage of the buying power as a governmental entity. If anything there should be a discount reflected for the MUNI
option and a significant penalty for the SERVCO option.
In conclusion, because of the importance of LIPA’s upcoming decision on structure and the obvious questions raised by these discrepancies, it is vital that the Authority delay any action until all issues can be resolved.