State Comptroller Thomas DiNapoli, in a preliminary analysis of Gov. Andrew M. Cuomo’s proposal to restructure LIPA, raises questions about lessened accountability and oversight and whether the new utility would be able to maintain its tax-exempt status.
DiNapoli provided the analysis to state lawmakers Tuesday, a day before public hearings on the new legislation are scheduled to take place on Long Island. DiNapoli’s oversight role at LIPA in reviewing contracts would be eliminated under Cuomo’s bill.
Because the legislation as written would allow LIPA alone to negotiate terms of an amended contract with new system operator, PSEG, “virtually all existing laws that relate to transparency, accountability, oversight, and best practices to ensure lowest costs and protection of ratepayers would be effectively bypassed,” under Cuomo’s proposal, the analysis says.
Among those entities that normally review LIPA contracts is the state comptroller himself, who would be excluded from approving the new PSEG contract, and all future contracts. DiNapoli, noting Cuomo’s proposal considers comptroller review “redundant and unnecessary,” disagreed, saying it’s an important check. The analysis notes that because it’s still not known precisely how LIPA’s new contract with PSEG will be changed, “it is impossible to assess whether sufficient public control would be preserved to maintain LIPA’s public ownership tax-exempt status.”
“The pre-approval function of the comptroller provides a mechanism to ensure that Long Island ratepayers are protected fiscally and from a public safety perspective, and should be preserved,” the analysis says.
Further noting that the legislation would eliminate competitive bidding requirements for certain LIPA contracts, the comptroller’s analysis asserts that they should be preserved because they help guarantee better, cheaper goods and services and “greater openness and transparency.”
In a statement in response to DiNapoli’s analysis, Cuomo spokesman Matthew Wing defended the governor’s proposal.
“Unlike nearly every resident on Long Island, Comptroller DiNapoli wants to preserve the broken LIPA status quo when it has time and again failed on performance, customer service and most of all during superstorm Sandy,” he said, suggesting DiNapoli “wants to keep in place a bifurcated structure with LIPA acting as its on operator and regulator — the very structure that the Moreland Commission found was dysfunctional and ineffective. This is not an option that Long Islanders want and, especially given the response after Sandy, not an option the Governor is willing to accept.”
Wing said Cuomo “has proposed what Long Islanders have been calling for: a new utility structure that would keep rates affordable, improve performance and disaster preparedness, and create real accountability through DPS oversight, ending the accountability loophole that has allowed LIPA to avoid facing responsibility for its failures.”
The comptroller’s analysis takes issue with Cuomo’s idea of creating an entity to issue so-called restructuring bonds to refinance a portion of the LIPA debt. It notes the new bonds wouldn’t be subject to Public Authority Control Board approval, that ratepayers would be subject to new “transition charges,” atop existing rates, and that it’s unclear how much of LIPA’s debt would be restructured.
“It is unclear what regulatory or statutory mechanism would protect ratepayers against the erosion of checks and balances, transparency and accountability in the constitution and operation” of the new bond issuing entity, DiNapoli’s analysis says, “and in the shifting of debt from LIPA to the new entity. The proposal as currently structured seems to lack basic financial limitations or parameters on the issuance of restructuring bonds.”
DiNapoli’s analysis also raises questions about how LIPA budgets will be drawn up and executed, noting that they are now approved by LIPA’s board of trustees.
“It is unclear how this control and public accountability will be preserved, if budgeting is shifted to PSEG and no regulatory entity is authorized to impose restrictions on costs,” the analysis says.
The analysis takes issue with the new Department of Public Service entity that would be created to monitor the new utility’s operations, noting it has only limited enforcement powers.
“The bill does not identify a new entity to provide regulatory oversight of LIPA and PSEG, other than the new” Long Island Department of Public Service entity, “which is given power to ‘audit, review and make recommendations’ without the power to enforce such recommendations.”
It notes that while the DPS entity would review any rate increase greater than 2.5 percent, LIPA’s board could choose “not to abide” by the DPS’ rate recommendations, after public hearings.
In the end, the analysis states, Cuomo’s bill “does not provide Long Island ratepayers with the same protections afforded ratepayers in the rest of the State.”
A senior Cuomo administration official who asked not to be identified called it “unfortunate” that DiNapoli never reached out to the governor’s office for a briefing before issuing his analysis, which the official said was “full of errors and omissions.” The official acknowledged that the administration never reached out to DiNapoli either, but said it would be difficult if unprecedented given the amount of legislation that could technically involve the comptroller’s office.
The administration is near to finalizing a new term sheet for an amended contract with PSEG that will specifically outline the New Jersey company’s larger role. That document will be submitted to the U.S. Internal Revenue Service for review so that LIPA’s tax-exempt status can be maintained, the official said.
“Our lawyers believe the IRS will approve based on their expertise,” the official said. “If they don’t, the original operating service agreement applies.”
The administration has said that under the legislation, LIPA and its board would approve the utility’s budget, and that a new office of the Department of Public Service “cannot set rates” because it would violate existing LIPA bond covenants.
The only way around it would have been to privatize LIPA, a path state lawmakers objected to, the official said. “They can’t have it both ways,” he said.
Administration officials also defended the notion of removing comptroller pre-approval of LIPA contracts, saying that maintaining it would have created red tape that would have hobbled the new utility. They noted that the comptroller continues to have the authority to audit LIPA. “The only thing the comptroller is doing is maintaining the status quo and being a Monday morning quarterback,” the official said.
The officials noted that LIPA’s obligation to competitively bid contracts over $1 million, including sole source contracts, remains intact under the proposed legislation, as it does for all other state entities.
They said they believe they will have the support of the state Senate and Assembly by the end of the current legislative session.
“I believe there is going to be support at the end of day,” one administration official said. “If not, then everybody on Long Island will know that the Senate and the Assembly support the status quo. The blame will be squarely on them.”
The first of two public meetings on Cuomo’s plan to overhaul the Long Island electric utility convenes at SUNY Old Westbury Wednesday night.
The meetings will include presentations by Cuomo’s senior staff, the Moreland Commission — empaneled to review utilities’ performance after superstorm Sandy — and new system operator PSEG of New Jersey. Those interested in attending can send an email to: RSVP.LI@exec.ny.gov. The governor’s office has requested attendees to RSVP in advance, but those who have not will be allowed to attend and comment.
Ratepayers will have an opportunity to ask questions at the Nassau meeting, which starts at 6:30 p.m. in the Multipurpose Room of SUNY Old Westbury’s Student Union, 223 Store Hill Rd. The Suffolk meeting is at 6:30 p.m. Thursday at the Western Suffolk BOCES Conference Center, 31 Lee Ave., Wheatley Heights.