The Sage Commission was formed to perform a comprehensive review of New York State government by offering recommendations of improving government efficiency. As part of the report a recommendation was put forward with regards to restructuring the Long Island Power Authority to a privatization model…… However it appears that all of the elected state officials on the commission voted no on this recommendation.
Below is the specific excerpt from the report
Privatization of the Long Island Power Authority
LIPA was created under the New York Public Authority Law in 1985 as a financing vehicle to acquire the assets of the Long Island Lighting Company following the closure of its Shoreham nuclear power plant. LIPA’s primary responsibilities are to oversee a contract with National Grid, a private utility, that uses the transmission and distribution network owned by LIPA to provide electricity to 1.1 million Long Island customers, and to service debt related to the closing of the Shoreham plant. LIPA employs only 112 people, while the operations are handled by about 2,000 National Grid employees.
Following the dysfunctional response of many electric utility companies to Hurricane Sandy and earlier storms, Governor Cuomo established a commission under the Moreland Act to study and investigate the response, preparation, and management of New York’s power utility companies to such storms. Because LIPA’s performance was especially poor, the Moreland Commission directed its initial focus to reviewing the organizational structure and performance of LIPA and to addressing problems with the State’s utility regulation and overlapping activities of the State’s various energy-related agencies and authorities.
On January 7, 2013, the Moreland Commission released its Initial Report and, among other findings, concluded that LIPA’s outsourcing of most day-to-day operations of the system was inherently flawed and did not work. Specifically, it found that the bifurcated LIPA-National Grid organizational structure led to mismanagement, a lack of appropriate investment in infrastructure, a lack of accountability to customers and excessive rates.
To address these shortcomings, the Moreland Commission identified three options for consideration:
• Sell the assets of LIPA to a qualified investor-owned utility (IOU) that would operate in LIPA’s ser vice territory (“privatization”);
• Take full public ownership and operation by LIPA of the transmission and distribution system (“municipalization”); and
• Combine LIPA under the management and control of the New York State Power Authority (NYPA), with LIPA remaining a separate subsidiary within NYPA.
While the Moreland Commission identified specific benefits and risks with each alternative, it recommended privatization as the preferred path.
The Moreland Commission also recommended that new oversight and enforcement mechanisms be considered to permit the Public Service Commission (PSC) to make the public utilities it regulates more accountable and responsive. One of the drawbacks of LIPA’s current structure is that it is not regulated by the PSC. Under the privatization proposal, LIPA would come under the PSC’s jurisdiction once transferred to private ownership. (A challenge of privatization is that LIPA’s assets have a book value of about $3.5 billion, while it has approximately $7 billion of debt. Selling the assets for less than the debt outstanding would result in “stranded” debt that would need to be repaid over time. However, the analysis of the Cuomo administration suggests that due to efficiencies related to privatization, a private utility will be able to charge rates consistent with or even less than those projected by LIPA and still repay this stranded debt over time.)