Cuomo, Legislature reach LIPA deal
by Claude Solnik
Published: June 20th, 2013
The New York State Legislature is expected to vote today on a deal reached by Gov. Andrew Cuomo and legislative leaders to privatize the operation of the Long Island electric grid and curtail the Long Island Power Authority’s role in providing energy and overseeing storm recovery.
Cuomo, Senate co-majority leaders Dean Skelos and Jeff Klein and Assembly Speaker Sheldon Silver announced late Wednesday what they called “a landmark agreement on legislation” to dramatically revamp the electric utility on Long Island. They said it will achieve savings to allow the new utility to seek a rate freeze for 2013, 2014 and 2015.
But critics said the deal could increase costs and create an arrangement in which the new utility is subject to less oversight than other private power companies.
Although the pact won’t mean lights out for LIPA, it will transform the authority into an entity providing limited supervision and facilitating public financing.
The legislation is the culmination of concerns raised over LIPA following problems in restoring power in the wake of Superstorm Sandy, which shined a harsh light on the authority and its contractor, National Grid.
“Today’s agreement will finally end LIPA as we know it and create a new utility company on Long Island that puts ratepayers first,” Cuomo said.
Although LIPA has been synonymous with electricity across much of Long Island, it has long outsourced nearly all operations to investor-owned utilities.
LIPA’s contract with National Grid ends this year. PSEG Long Island, a subsidiary of New Jersey-based utility Public Service Enterprise Group, is set to take over next year.
The legislation calls for PSEG to essentially manage all operations, giving LIPA a limited role. A new contract based on the legislation has yet to be worked out with PSEG.
LIPA’s staff will be cut from 90 employees to about 20, and the LIPA board will be reduced from 15 to nine. The governor will appoint five board members while the Assembly speaker and Senate majority leader each will appoint two.
“The new framework represented in the legislation will result in better management and better service on Long Island, and we look forward to our new role,” PSEG spokeswoman Karen Johnson said. “We will continue to work to finalize all necessary approvals of our agreement for an expanded role on Long Island.”
Cuomo said the deal will allow continued tax-exempt financing for capital investment, a key concern of critics who note that privately owned utilities aren’t eligible for this cheaper source of borrowing.
In addition, Cuomo said the deal also will allow Long Island’s electric grid to be eligible for Federal Emergency Management Agency funds not available to privately owned utilities.
Cuomo said the legislation should improve on performance by privatizing utility operations through PSEG Long Island for future storms, ending the confusion from the earlier arrangement when LIPA and a private company shared responsibilities. The legislation includes penalties for poor performance of up to $10 million regarding the handling of storms.
But critics voiced concerns that the tax-exempt financing and FEMA funding might not be approved and costs could soar.
“This whole thing falls apart, if the IRS doesn’t approve the arrangement which, I think, is likely,” said LIPA board member Matthew Cordaro, a former utility executive. “It’s a scheme to camouflage privatization and have the cloak of a public utility to take advantage of tax-exempt status and get FEMA money.”
Critics added that the promises to hold rates down are ambiguous because it is unclear whether that would apply to all or only some charges, possibly making electricity more expensive for Long Islanders.
“It’s a slick sales job with only the positives and not the negatives,” Cordaro said. “Basically, the governor got everything he wanted in the original bill with very little compromise, if any. There’s no indication of what this will cost ratepayers.”
There are also concerns about oversight of the new utility structure.
While Cuomo and legislators said the bill brings LIPA under Department of Public Service oversight “identical” to other utilities, it only gives the department the power to recommend, not the authority to approve, rates.
And while the New York State Comptroller’s office retains the right to audit PSEG, it loses the ability to approve contracts, reducing its role to detecting fraud, rather than playing a role in crafting agreements.
“Moving forward, we must consider whether a Department of Public Service without enforcement powers will adequately protect ratepayers and control rates,” New York State Comptroller Press Secretary Kate Gurnett said.