As Published on www.platts.com
Public relations fallout from Superstorm Sandy continues to batter the Long Island Power Authority, as one group pushes for its bankruptcy and another blames the utility for a fire that destroyed 130 homes.
The Association for a Better Long Island, an economic growth group, last week called for LIPA to consider bankruptcy protection from lingering debt. The 25-year-old organization argued that LIPA cannot respond adequately to storms because it shoulders too much debt remaining from the shutdown of the Shoreham nuclear plant in 1989.
Meanwhile, a New York City law firm filed a complaint on behalf of homeowners who say a fire that swept Breezy Point resulted from LIPA’s failure to shut down power to the neighborhood before the storm hit. Seventeen homeowners seek $1million each in damages.
LIPA came under strong criticism from Long Islanders for failing to restore power to some homes for weeks after the late October superstorm. LIPA’s storm performance led Governor Andrew Cuomo earlier this month to call for a complete remaking the state comptroller’s office. Debt service consumes about 16% of LIPA’s revenue.
ABLI points to precedent from other utility bankruptcies, including a filing by Pacific Gas and Electric in 2001 following California’s energy crisis and Texas utility El Paso in 1992 because of nuclear plant debt. “In both instances it was painful, the legal process uncertainand the markets were very unhappy, but it was the right course of action in moving past a debt that was devastating to the ratepayer,” said Desmond Ryan, executive director of ABLI, which says it represents the largest group of electric customers on Long Island.
Gary Lewi, ABLI spokesman, said that a 20% electric rate increase “would effectively shut down” job creation on Long Island. But Matthew Cordaro, a former utility executive and now chairman of the Suffolk County Legislature LIPA Oversight Committee, called the bankruptcy idea “very naïve.” “Everyone wishes you could just take out an eraser and change things. It’s not that easy,” he said.
Rate increases aside, the authority has other ways to improve its financial picture, he added, such as cutting spending on renewables, energy efficiency and other discretionary programs.
On the other hand, bankruptcy could cause ratepayer harm because it could increase the utility’s cost of debt, said Cordaro, who was once a senior vice president of Long Island Lighting,
CEO of Nashville Electric Service and later CEO of the Midwest Independent Transmission System Operator. LIPA would be best served, Cordaro said, by abandoning its unusual operating structure. Most of its day-to-day operations are handled by a third party, now National Grid.
Beginning next year, Public Service Enterprise Group takes over operations under a $3.9 billion 10-year contract it won through a competitive bid. A special commission set by Cuomo to investigate utility storm performance came to a similar conclusion in early January. The Moreland Commission’s interim report said that LIPA’s bifurcated management structure “lends itself to mismanagement, a lack of appropriate investment in infrastructure, a lack of accountability to customers and excessive rates.” The commission called for privatizing LIPA, arguing that it could be managed more efficiently, particularly if it were bought by an another utility that would share staff and other resources.
Separately, the Breezy Point homeowners last week submitted a notice of claim to LIPA, a perquisite to filing a lawsuit in the SupremeCourtofQueensCounty. The notice alleges that LIPA could have averted an electrical fire in the neighborhood if it shut down power before the superstorm flooded the area. The filing compares LIPA’s actions to that of Consolidated Edison, which serves nearby New York City. Anticipating flooding, Con Edison suspended service to lower Manhattan and parts of Brooklyn, including areas immediately north of Breezy Point, said the filing by New York law firm Sullivan Papain Block McGrath & Cannavo.
The New York City Fire Department found the cause of the fire to be sea water coming into contact with electrical systems,according to the filing. About 1.1 million LIPA customers lost power from the late-October storm.
Electric Utility Week February 4, 2013
Copyright © 2013 The McGraw-Hill Companies