Op Ed: need for accountability and oversight involving lipa restructuring


LONG ISLAND COMMUNITY NEWS RELEASES

   For Immediate Release: June 10, 2013

   Op Ed: Need for Accountability and Oversight Involving LIPA Restructuring

Long Island Press Releases —
Assemblyman Hennessey on LIPA Restructuring: Oversight, Rates, PILOTS:

(Long Island, NY) Govern
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Freedom Of Information Request Submitted to Moreland Commission For LIPA Restructuring Proposal


Dear Moreland Commission Records Access Officer:

Please email the following records if possible (include as much detail about the record as possible, such as relevant dates, names, descriptions, etc.): 

“All detailed records associated to the analysis, correspondence, discussions and or consultant advisory opinions of the Governors restructuring proposals, including but limited to comparisons to other alternatives, specifically full municipalization and any and all detail regarding the Internal Revenue Service.”

OR

Please inform me of the cost of providing paper copies of the following records (include as much detail about the records as possible, including relevant dates, names, descriptions, etc.). 


AND/OR

If all of the requested records cannot be emailed to me, please inform me by email of the portions that can be emailed and advise me of the cost for reproducing the remainder of the records requested ($0.25 per page or actual cost of reproduction).

If the requested records cannot be emailed to me due to the volume of records identified in response to my request, please advise me of the actual cost of copying all records onto a CD or floppy disk.

If my request is too broad or does not reasonably describe the records, please contact me via email so that I may clarify my request, and when appropriate inform me of the manner in which records are filed, retrieved or generated.

If for any reason any portion of my request is denied, please inform me of the reasons for the denial in writing and provide the name, address and email address of the person or body to whom an appeal should be directed.

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RESOLUTION OF LIPA OVERSIGHT COMMITTEE


THE LIPA OVERSIGHT COMMITTEE, HAVING CONSIDERED  AND EVALUATED THE PROBLEMATIC LEGAL, FINANCIAL, IRS, REGULATORY,AND ECONOMIC ISSUES PRESENTED BY GOVERNOR CUOMO’S LIPA REORGANIZATION BILL,  AND  THE PROPOSED AMENDMENTS TO THE OPERATIONS SERVICE AGREEMENT BETWEEN LIPA AND PSE&G, AND  HAVING ALSO REVIEWED THE STATEMENTS AND MATERIALS SUBMITTED BY THE GOVERNOR ,   THE STATE COMPTROLLER,  NEW YORK STATE ASSEMBLY MEMBERS, THE COMMENTS OF THE PARTICIPANTS AT THE PUBLIC MEETINGS  IN NASSAU AND SUFFOLK COUNTIES, AND THE MEDIA,

UPON MOTION DULY MADE ,  AND  SECONDED,   ADOPTED ON JUNE 7, 2013,  THE FOLLOWING RESOLUTION :

RESOLVED: THAT THE LIOC OPPOSES, AND RECOMMENDS THAT THE SUFFOLK COUNTY LEGISLATURE OPPOSE THE  ENACTMENT OF THE BILL IN ITS PRESENT FORM, IN THIS OR ANY FUTURE LEGISLATIVE SESSION, AND DEMANDS THAT THE BILL, AND ANY PROPOSED CHANGES TO THE OSA BETWSEEN LIPA AND PSE&G, BE AMENDED, AFTER MANDATORY ADVANCE NOTICES, PUBLIC HEARINGS, AND APPROVALS AND RULINGS,  BY THE STATE COMPTROLLER, PSC, AND IRS,  TO INCLUDE  AS CONDITIONS PRECEDENT TO ENACTMENT, PROVISIONS THAT WILL CURE THE  DEFECTS IN THE BILL, AND THE PROPOSED NEW OSA.,  PROTECT THE INTERESTS OF THE RATE PAYERS, TAXPAYERS, AND BONDHOLDERS, AND ASSURE LIPA’S CONTINUED STATUS AS A FINANCIALLY  VIABLE TAX EXEMPT PUBLIC POWER AUTHORITY.

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DiNapoli: LIPA plan doesn’t protect customers


June 5, 2013 3:19 PM   By MARK HARRINGTON Newsday

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.


EXPLORE: Employee-politician connections | LIPA salaries MORE: Report on LIPA’s Irene response | Utility ignored 2006 warnings PHOTOS: LIPA protest | Stunning scenes from Sandy


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.

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Politics of Power: Session Countdown on Long Islands Energy Future


“There’s been this insistence [on] refus[ing] to make LIPA a real utility, and the latest version just perpetuates that. LIPA employs an outside, for-profit contractor to carry out most of its operations, and has since day 1. This is totally different than the structure that 2,000 other utilities throughout the country follow. They function as full-service municipal utilities responsible for operations. LIPA has been through three iterations, trying to improve it and deal with the problems. This latest, fourth iteration the governor has proposed is not an outright privatization. It’s a camouflage privatization to try to retain some form of LIPA to have tax-exempt financing and some of the benefits of public power. I don’t think that will work very well. Having gone through this and dealt with the IRS on privatizations for municipal utilities, the IRS just won’t buy the fact that a private entity can benefit from tax-exempt financing.”
—Matthew Cordaro, LIPA trustee

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Proposed Cuomo Bill on LIPA Will Increase Electric Rates


The proposed Cuomo bill on LIPA will without question increase electric rates and no absolute rate freeze is possible for any length of time. In fact if the IRS does not approve the proposed structure, rates could increase astronomically.
Many of the benefits offered in the bill could be applied to LIPA as it now exists while pursuing a transition to PSEG as its major contractor by January, 2014. There is no emergency since progress is being made in the transition and no urgency in expanding PSEG’s scope exists.
For this reason the Governor’s bill should not be rushed through the State Legislature in the last few weeks of the session. The monumental financial impact of the proposal on Long Island is too great not to take a deep breath and step back to fully review all of its implications, as well as alternative courses of action.
Acting in haste in an artificially created atmosphere of impending doom, would be a serious mistake and produce something more flawed than the original LIPA concept. There is more than enough time to examine the full consequences of the Governor’s proposal in the next session of the Legislature. The decisions to be made are just too critical not to make every effort to get it right.
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LIPA Ratepayers Deserve A Full Review Of All Alternatives – And That Review Should Be Conducted In Full Public View


 

The LIA is calling on the governor to let the SERVCO model continue and also – in deference to the governor – continue to fully evaluate the potential for privatization.  Regrettably, the LIA does not call on the governor to fully evaluate all options, including moving LIPA to a fully municipal operation, and this can be attributed to a collective mindset that it is predisposed to the assumption that a municipal utility would not be as “efficient” as an investor owned utility.

There is a general misunderstanding of utility operations, over simplified in the minds of many, and this is especially true in context to the negative attributes of deregulation (especially the additional layers of cost that flow to ratepayers by having utility leadership with one foot in the regulated and one foot in the unregulated marketplace).

The “cost”  of the governor’s push to privatize, and the LIA’s predisposed conclusion relating to municipal utilities, will weigh heavily on the entire Long Island Community, and the business community members currently coalesced into the body and leadership of the Long Island Association will not be spared that burden.

It would seem that some of the LIA’s recommended adjustments could lead to more efficient operation of the LIPA system, especially during storm response, but LIPA ratepayers deserve a full review of all alternatives  – and that review should be conducted in full public view.

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Division Between LIPA and NG Had Spawned Confusion Over Responsibilities, Lack Of Accountability, Misaligned Incentives


Tangled: Can Gov. Andrew Cuomo Fix the Long Island Power Authority?

Written by Jon Lentz on March 25, 2013.

http://www.cityandstateny.com/wp-content/uploads/2013/03/Tangled.jpg
(Photo Credit: Bruce Bennett)
It was the worst storm to hit Long Island in a generation. Torrential rains and high winds knocked out power for more than half a million customers of the Long Island Power Authority, making it the largest customer outage in LIPA’s coverage area in over a quarter century. Thousands of workers were deployed to clear fallen trees and repair downed electric lines. A week later, some frustrated residents were still waiting to turn on their lights.
In the days after the storm made landfall, Gov. Andrew Cuomo blasted LIPA and demanded that it quickly restore power. He warned that National Grid, the public utility’s private contractor, might even lose its contract. “Today, tens of thousands of Long Islanders are still in the dark,” he said. “I have also received numerous complaints about poor communication to LIPA’s customers during the restoration effort.”
What the governor failed to mention was that LIPA and National Grid were not the only figures responsible for the response on Long Island. Cuomo himself has a clear if indirect role in overseeing the public utility—and, like his predecessors, it is a role he had often neglected.
Though he has the power to fill nine of the 15 seats on the board, including the chair, prior to the storm the governor had installed only one LIPA trustee. The utility had limped along for months with the chief operating officer filling in as CEO. Lawmakers had pushed for legislation to subject LIPA to regulatory oversight, but Cuomo watered it down. A few months after taking office he had directed the New York State Inspector General to investigate the utility’s rates, but to this day no audit has been released.
Some observers wondered if the governor was deliberately steering clear of LIPA. Michael Fragin, a former trustee who had left the board earlier in the year, guessed that Cuomo was keeping the unpopular utility at arm’s length because of its electricity rates, which are among the highest in the country, and its $7 billion debt, which exceeds its assets by more than $3 billion.
“If the second floor doesn’t want to deal with those head-on, then they might be making an astute political move by allowing LIPA to kind of drift on its own for a while,” Fragin suggested in the days following the storm.
This may sound like the aftermath of Superstorm Sandy, but in fact it was Tropical Storm Irene, which hit New York in August of 2011. Despite the damage that Irene inflicted and the challenges it exposed at LIPA, the governor was able to maintain some distance from the public utility for a while longer. Board seats stayed vacant. The CEO position remained unfilled. A review of LIPA’s performance during Irene was conducted, but the utility was not required to make any changes.
But if the lessons of Irene did not spur a sufficient response, the unprecedented destruction of Superstorm Sandy just 14 months later made dealing with LIPA unavoidable. Only after Sandy slammed Long Island in October 2012 did the governor finally take a serious look at the Long Island Power Authority in search of a solution to its longtime problems.
* * *
In a cabinet meeting in the Red Room of the Capitol in early January 2013, the governor’s Moreland Commission, which was created to investigate utility storm preparedness in the wake of Superstorm Sandy, presented its preliminary findings. Cuomo congratulated his commissioners for their quick work and said that he wanted to incorporate their “big ideas” into his State of the State address that week.
Benjamin Lawsky, the state’s Department of Financial Services commissioner and a co-chair of the Moreland Commission, explained during a PowerPoint presentation that the structural relationship between LIPA, a not-for-profit government authority, and its for-profit contractor was fundamentally flawed. The division between owner and operator had spawned confusion over responsibilities, a lack of accountability, misaligned incentives and—especially during Superstorm Sandy—a breakdown in communications with customers.
The commission weighed several restructuring options, Lawsky said. One would end the relationship with the private contractor by having LIPA assume the duties it had outsourced, resulting in a traditional municipal or public power utility. Another option called for an investor-owned utility to buy out LIPA, eliminating direct government involvement.
The commissioners recommended privatization. They argued that LIPA would benefit from an investor-owned utility’s private sector expertise and “synergies,” while the privatization would also subject LIPA for the first time to oversight by the Public Service Commission (PSC), the state’s utility regulator.
Furthermore, Lawsky said, privatization would also be “more cost-effective than the ‘expand state authority’—the municipalization option.”
Cuomo left little doubt that he preferred privatization over full municipalization.
“The option that says, ‘Expand LIPA’—whatever number that was, Mr. Lawsky—if I had something to throw at the screen, I would have then,” he said. “It doesn’t work now. I don’t think any expansion for them is an option.”
In his State of the State address two days later, Cuomo made selling off LIPA a key part of his 2013 agenda.
“When it’s come to the Long Island Power Authority, it’s never worked, it never will, the time has come to abolish LIPA, period,” he said. “We want to privatize the Long Island service, which will be regulated by a new and empowered PSC that will happen simultaneously, and we want to do it in a way that protects the ratepayers and freezes the rate for a period of years.”
In the ensuing months, the Cuomo administration has struggled to sell its case for privatization.
Utility experts warn that electrical bills will go up, even if rates are frozen, while Long Island lawmakers are exploring public power and other alternatives. Some welcome the governor’s newfound interest in fixing LIPA but worry that he is being driven by politics, not policy.
And in the end, it’s far from certain that his proposal will be successful, either for him or for Long Island.
* * *
On the North Shore of Long Island, about a 55-mile drive east of Queens, a massive concrete structure of teal and gray looms over a wetland area bordering the Long Island Sound. It is here where the Long Island Power Authority’s troubles began.
In 1973 the Long Island Lighting Company, a private utility, began constructing the Shoreham nuclear power plant on the site, the first of several nuclear facilities planned for Long Island. LILCO’s project was assailed by wealthy landowners and opponents protesting the expansion of nuclear power, and plagued by delays and cost overruns. The partial nuclear meltdown at Pennsylvania’s Three Mile Island in 1979 fueled the fears of local residents.
Nonetheless, construction continued, and the plant was largely completed by 1983, but then Gov. Mario Cuomo halted the project. In 1986 lawmakers created the Long Island Power Authority, and the new state entity took possession of the Shoreham facility three years later. As part of the agreement, LIPA assumed the full cost of constructing the defunct facility, which had ballooned to more than $6 billion.
In 1998 Gov. George Pataki orchestrated LIPA’s acquisition of LILCO’s transmission and distribution system, pushing through the deal with a pledge to lower electricity rates. His administration also took the unusual step of contracting out the operation and maintenance of LIPA’s utility system to a private utility. Among the 2,000 public power utilities dotting the country, only a handful of them outsource operations.
Over the years LIPA did little to pay down its debt, a failure critics attribute to a lack of oversight, a legacy of political appointees with little understanding of the utility business and a misguided emphasis on restraining rate increases.
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A Long Island Power Authority truck in Queens on Nov. 12, 2012. More than 70,000 LIPA customers were without power that day, two weeks after Superstorm Sandy. (Photo Credit:Craig Ruttle)
The Shoreham facility, which was built so solidly that it is too expensive to tear down, now stands as a monument to the dashed hopes for cheap, reliable electricity and the ongoing energy challenges of Nassau and Suffolk counties.
* * *
Following the Moreland Commission’s presentation early in January 2013, a reporter asked why the public utility wasn’t overhauled two years earlier, when Cuomo first took office.
“There’s something called ‘political will,’” Cuomo replied. “Why haven’t a lot of things happened? Why haven’t we passed gun control in this state and in this nation, right? ‘Well, it was so obvious.’ Well, a lot of things are obvious, but you need the political will to change them, and sometimes you need an event that galvanizes public opinion to actually move the process.”
The governor had that political will, another reporter countered, as well as the opportunity to appoint trustees. So did he bear any blame for LIPA’s poor performance?
“Absolutely not,” Cuomo insisted.
Why is that?
“Because LIPA was flawed from inception,” Cuomo said. “There’s nothing you can do with the existing structure. Whether it had 10 people on the board or 14 people on the board, do you think that was a difference?”
In fact, appointing a full slate of trustees can make a difference, utility experts say. Dr. Matthew Cordaro, a former LILCO executive and a longtime LIPA critic who was appointed to LIPA’s board by Assembly Speaker Sheldon Silver last month, said the governor was directly responsible for the leadership vacuum when Sandy hit.
“He was saying, ‘LIPA this, that, it’s totally terrible, and it doesn’t work,’ ” Cordaro recalled. “And this was right after the storm. I said, ‘Well, where have you been? It reports to you.’ ”
Vacancies have continued to be an issue. In December Moody’s Investors Service placed LIPA under review for a possible downgrade, in part due to a recent exodus of trustees, including the chairman, and the failure to quickly appoint replacements. The new departures, combined with the other longstanding vacancies, meant that the utility barely had enough trustees to constitute a quorum, hindering its ability to take action for a brief period. The governor has since appointed a chairman, but today four board seats remain vacant, all of them for gubernatorial appointees.
“The inability of government officials to promptly address the expiring terms is, in our opinion, a governance deficiency, and one that could severely impede prompt decisive leadership, which we believe is needed given the challenges at LIPA,” the ratings agency wrote.
Cuomo may not have judged the political winds to be auspicious when he took office, but he could have started restructuring the utility earlier in his term. When he was elected, the trustees were asking the same question the Moreland Commission is trying to answer today. National Grid’s contract was set to expire in 2014, and the utility was weighing whether to privatize, municipalize or tweak its existing structure. A consultant deemed the decision “very important, indeed central, to LIPA’s future operational performance and strategic success.”
Had the governor quickly appointed his full slate of trustees, they would have constituted a majority and could have begun the long process of restructuring LIPA any way he wanted well before Superstorm Sandy. Instead the board went with the status quo, modifying somewhat but sticking with the dual structure criticized by the Moreland Commission.
Another key commission recommendation was to strengthen the Public Service Commission and grant it the authority to regulate LIPA.
“We empowered a Moreland Commission which said, basically, and I quote, ‘Put real regulatory and enforcement teeth into the Public Service Commission, which has for too long been a toothless tiger,’ ” Cuomo explained in his State of the State address.
But in 2011 the governor rebuffed efforts to boost oversight of LIPA, sources said. He rejected a bill that required Public Service Commission approval before LIPA could raise its rates, a provision already applied to other utilities.
“Gov. Paterson vetoed the bill, saying it would affect LIPA’s bonds, which I strongly disagreed with,” said Assemblyman Bob Sweeney, who sponsored the legislation. “Everyone I spoke with disagreed with that, but that was his position. So we dashed the bill. When Cuomo became governor, he took the same position. But he also said, ‘Can we talk about this?’—to his credit. And so we did.”
In February 2012 the governor signed a weaker bill, which requires a periodic audit of LIPA’s management and operations. Under the law, the utility’s customers also can register complaints with the state’s consumer protection division.
“So the Public Service Commission does now have the ability and is required to audit LIPA on a periodic basis and produce that report as a public document,” Sweeney said. “But it doesn’t give them authority over rates or anything.”
Sweeney said he had hoped for more, but at least the law provides some oversight.
“One of the problems arguably with LIPA up until my bill was [that] nobody had any oversight over LIPA—literally, nobody,” the lawmaker said. “They could do whatever they wanted to, essentially. And there was nobody there to say ‘This is right’ or ‘This is wrong’ or to audit them and publicly provide that information.”
Matt Wing, a Cuomo spokesman, said Sweeney’s original legislation had nothing to do with the actual regulation of LIPA or holding the authority accountable when it failed to perform for customers. “It was a gimmick to claim that action was being taken against rate hikes, though in reality LIPA has never proposed rate increase at the level stipulated under the bill,” said Wing, adding that the legislation the governor ultimately signed “improved the law so that it actually resulted in new oversight for the first time.”
Wing also disputed the idea that the governor had neglected LIPA, saying it was “inaccurate” to characterize Cuomo as having any oversight since he has no role in day-to-day operations and no regulatory power to issue fines or in any way hold LIPA accountable.
“The idea that the number of LIPA trustees would have had any impact on LIPA’s abysmal performance during Sandy is absurd,” Wing said. “As the Moreland Commission report makes clear, LIPA failed to respond to the disaster because its bifurcated structure is completely dysfunctional.”
As for the delay in releasing the Inspector General’s report on LIPA’s rates, which was initiated early in 2011, Wing said that its findings were referred to the Moreland Commission and would be incorporated into its final report.
* * *
By late last month administration officials had grown cautious about the prospects of privatization. At a Senate hearing in Albany, top state energy officials testified that it was premature to identify the best structure for LIPA, and declined to say whether selling it off would increase costs or raise rates.
Gil Quiniones, who heads the New York Power Authority, repeatedly reminded the senators that an analysis was ongoing and that the governor would select whichever option would best meet several criteria, including stabilizing rates and property taxes, improving service and positioning the utility to weather the next storm.
“We are open to any plan that others may have that can be clearly demonstrated to meet those objectives,” Quiniones said. “In the end, what Gov. Cuomo wants is what’s best for Long Island ratepayers.”
Robert Lurie, a senior vice president at NYPA, described a potential privatization scenario in which LIPA’s transmission and distribution system would be sold for about $3.5 billion, leaving $3.5 billion in debt from the Shoreham facility. That debt would then be separated out and paid for as a charge on customers’ bills distinct from the actual rates.
State Sen. Carl Marcellino asked Lurie how LIPA could transition from a public utility to a private one that makes a profit without raising rates. Lurie said he didn’t know.
“If the only factor were the transition from a tax-exempt entity to a taxpaying entity, then certainly the costs of privatization would be a nonstarter, and it would not even be on the table,” Lurie said. “But there are other factors, including the synergies which reduce costs substantially and other factors that will be included that may or may not offset the cost that you rightly point out, but that’s exactly what we’ve got to determine.”
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A battle over Shoreham nuclear plant led to the creation of the Long Island Power Authority in 1986. The defunct plant now stands as a monument to Long Island’s enduring energy challenges. (Photo Credit: Daniel S. Burnstein)
Past reports exploring that question have concluded that privatization is more costly. A 2010 Navigant Consulting draft report predicted that dropping the private contractor and fully municipalizing LIPA would lower costs by 1 percent, while privatization would raise costs by 7 percent to 12 percent over a decade. “Of the strategic options under consideration, the privatization option would likely result in significant revenue requirement increases for energy delivery to Long Island electric customers,” the Navigant report found.
In October 2011 the Brattle Group issued a study that echoed the Navigant report. “Cost and rate impact analysis clearly indicates that implementation of the privatization option would result in an average rate increase for LIPA’s customers,” the Brattle report said. “This serves to remove privatization as an option at the current time.”
Wing, the governor’s spokesman, said the reports are generally outdated and have three basic flaws: overstating how much equity is needed, overestimating the benefit of tax-exempt borrowing since interest rates have fallen while municipal and corporate rates have converged, and failing to fully account for synergies with a private, investor-owned utility buyer.
Not everyone agrees. On the day of Cuomo’s 2013 State of the State, Moody’s issued a brief stating that the governor’s proposal would have no immediate impact on LIPA’s credit rating. It also predicted that the costs of privatizating would outweigh the synergies of combining with another utility.
Some of the reasons for the higher costs projected are straightforward. As a private utility, LIPA could no longer issue tax-exempt debt, and its existing tax-exempt debt would have to be replaced by taxable debt. Eligibility for FEMA assistance would be curtailed. A portion of the utility’s profits would have to be diverted to shareholders.
“It’s hard to come up with a scenario that makes economic sense to privatize the utility, because of its large debt and because of the fact that its rates now are among the highest in the country,” Cordaro said. “By bringing in a private company, that only projects higher rates in the future. Your private utility has got to refinance using taxable debt, which is 20 percent more expensive. They’ve got to make a profit for their ratepayers, which is at least a 10, 11 percent number. And they’ve got to pay taxes.”
Matt Fabian, managing director of debt research at Municipal Market Advisors, said the process would face other hurdles, like requiring the termination or rewriting of interest rate swaps.
“The problem is that it’s such a big and complicated debt structure that it’s really hard to speculate on the net impact,” Fabian said. “It’s going to be very difficult to be done at all, so I would place their probability at being able to do it as fairly low. In theory, they would only do it if they could demonstrate a neutral impact on ratepayers and a promise of better service delivery.”
Cuomo administration officials have floated the idea of issuing bonds to pay off the debt that would remain after a sale of the transmission and distribution system. Of course, the debt will still be there, and someone will still have to pay for it.
“Either it’s ratepayers or it’s not ratepayers,” Fabian said. “Ratepayers can pay through the rate structure, or they can pay through some other tax on their properties that is collected, or it can be paid by a statewide levy or a regional levy or some other money that shares the burden. It’s just restructuring how they pay. You could stretch out the terms, but LIPA’s debt is already pretty long. So stretching it out further wouldn’t necessarily be prudent.”
Given the challenges and costs of privatization, some lawmakers suggest returning to the public power model which was initially intended at LIPA’s inception. In 1986 Gov. Mario Cuomo’s “Sawhill Commission” concluded that a LIPA takeover of LILCO could result in significant savings for utility customers. A generation later, Gov. Andrew Cuomo seems intent on undoing his father’s work and having LIPA revert to being a private company, despite evidence that the elder Cuomo got it right when it comes to the costs.
In fact, Pataki made an executive decision to outsource LIPA’s operations to a private company—a decision that required no change in legislation. As such, if Cuomo wanted to fully municipalize LIPA, he could do so with relative ease.
“The traditional concept of privatization is something that has been looked at and rejected in the past because it doesn’t work financially,” Assemblyman Sweeney said. “It’s not a benefit to the ratepayers. The governor seems to think that he can avoid the pitfalls of that, but until we know the details, we don’t know whether that’s the case or not. LILCO, going back years ago, was the private utility company that provided utility services, and then it was so disliked that it ended up being replaced by LIPA. I’m not sure that the best option is to go back and forth between private and some other form. Maybe we ought to just take LIPA and look at it the way it was originally intended to be and make it work.
“It never has been a true municipal utility,” he added. “And so, from my point of view, the original concept of LIPA has never been given an opportunity to succeed.”
Despite the governor’s opposition to fully municipalizing LIPA, public power has a strong track record in the United States, where it serves 47 million people, or about 14 percent of the nation’s electricity customers. There is some evidence that public utilities provide electricity at lower rates, and proponents tout the advantages of local control.
“Another benefit is obviously that public power companies are not-for-profit, so they don’t have shareholders,” said Ursula Schryver, a vice president at the American Public Power Association. “So all of the revenue from the utility is invested back into the utility or the community, and rates tend to be lower.”
Gary Krellenstein, a managing director at the energy finance consulting firm Oxford Advisers, said that LIPA would be in far better shape if it had followed the management practices of successful public power utilities like the Los Angeles Department of Water and Power and the utility systems in Orlando and San Antonio, all of which are AA-rated.
“The argument that a private utility is inherently better doesn’t follow historical precedent,” said Krellenstein, who previously headed the utility group at Kroll Bond Rating Agency and was as an investment banker at J.P. Morgan. “Historical precedent is that both ways can work, but as a general rule municipal utilities offer slightly better service and slightly lower costs.”
* * *
In the debate over restructuring, the fate of LIPA is as likely to pivot on political considerations as on the outcome of cost-benefit analyses and financial concerns. Public utilities only garner attention when rates go up or power lines go down. Privatization may be simply the most attractive solution for a politician who wants to distance himself from a troubled state entity while demonstrating decisiveness in responding to a brutal natural disaster.
“For the most part this is a political decision,” said Fabian, the managing director at Municipal Market Advisors. “This is not being driven by economics. So in order to make it work, you may need more political intervention for it to happen, because it’s not necessarily a market-driven change or an economics-driven change.”
Krellenstein said there was little to be gained by pointing fingers regarding LIPA’s mishaps, and he cautioned the governor against getting swept up in the politics of the moment and making a rash decision as a result.
“It’s really got to be thought through, and so they’ve got to be careful of doing a knee-jerk reaction just to satisfy the public,” Krellenstein said. “You really want to do what’s in the long-term best interest of LIPA’s customers, the utility’s state, the reliability of service—I mean, electric power is so essential now. There is a health and safety aspect, not just an economic one, to doing LIPA right.”
Despite his reluctance to assign blame, Krellenstein said he did see a pattern of culpability.
“I’m afraid that New York State politicians created this problem, and now they’re blaming it on everybody but themselves to fix it,” he said.
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Testimony of David Daly, PSEG Vice President-LIPA Transition Appearing Before a New York State Senate Joint Committee


TESTIMONY OF

DAVID DALY

VICE PRESIDENT-LIPA TRANSITION

PUBLIC SERVICE ENTERPRISE GROUP

PUBLIC HEARING ON

THE FUTURE OF LIPA

THE COMMITTEE ON INVESTIGATIONS AND GOVERNMENT OPERATIONS

THE COMMITTEE ON CORPORATIONS, AUTHORITIES, AND COMMISSIONS

NEW YORK STATE SENATE

FEBRUARY 27, 2013

 

Good Morning.  My name is David Daly, Vice President – LIPA Transition for PSEG Long Island LLC, a Public Service Enterprise Group Incorporated (PSEG) company.  I want to thank Chairs Marcellino and Ranzenhofer, and Committee members for the opportunity to appear before you this morning.  I am the lead executive responsible for managing PSEG Long Island’s Transition and Operations Services Agreements with the Long Island Power Authority (LIPA).  As you may be aware, PSEG Long Island is scheduled to assume management of LIPA’s electric transmission and distribution system on January 1, 2014.  In the time allotted, I’d like to provide some background on my company our core competencies, and how we plan to deliver high levels of service and improve customer satisfaction for Long Island’s 1.1 million electric consumers.

PSEG is one of the nation’s largest energy companies and we’re also a neighbor.  We own Public Service Electric and Gas Company (PSE&G), New Jersey’s oldest and largest electric and gas utility company.  PSE&G serves 2.2 million electric customers and 1.8 million gas customers in a 2,600 square mile service territory similar to Long Island.  We joined New York’s business community in 1999 when our electric generation business, PSEG Power, acquired the Albany Steam Station, an aging 450-megawatt electric generating plant located just south of Albany in Bethlehem, NY, and transformed the facility into the state-of-art BethlehemEnergyCenter. In the process, we doubled the site’s electric generating capacity while making dramatic reductions in air and water environmental impacts.  We’d be happy to have you visit this facility here in the Capital District.

In total, PSEG has approximately $29 billion in assets and we employ almost 10,000 men and women.  About two-thirds of our employees are represented by unions and we are proud of our strong relationships with the unions representing our employees.  We own about 13,000 megawatts of generating capacity and we’re industry leaders in promoting and investing in energy efficiency and renewable energy.

What may be of particular importance to Long Island residents is that our work has gained considerable recognition by national, independent organizations for electric system reliability, storm response, and customer satisfaction.  We’ve been cited as America’s most reliable electric utility five out of the last eight years and the most reliable in the Mid-Atlantic region for 11 consecutive years.  The Edison Electric Institute, the industry’s national trade association, cited PSE&G for outstanding work restoring service after Hurricane Irene and Super Storm Sandy, and JD Power Associates recently ranked PSE&G second in the eastern U.S. region for residential customer satisfaction.  It is this track record and the experience and expertise associated with it that we intend to bring to Long Island.

Most of PSEG’s assets and investments are focused in the Northeast and Mid-Atlantic.  We consider New York part of our core market for business growth and investment and we viewed the opportunity to compete for the LIPA Operations Services Agreement in this context.

As you may know, LIPA selected PSEG Long island in December, 2011 after a two-year, competitive procurement process, to manage its electric transmission and distribution system and provide customer services, for a 10-year period beginning on Jan. 1, 2014.  Both the Operations Services Agreement and the Transition Services Agreement have been approved by the New York State Attorney General and the State Comptroller.  We’ve been working diligently on the transition for more than a year.

Importantly, the Operations Services Agreement is structured in a way that aligns LIPA’s and PSEG Long Island’s interests.  We will receive a flat fee for providing the management services, with a potential to earn financial incentives keyed to achieving significant improvements in customer satisfaction and other performance metrics.  For example, there are incentives in the contract – and our plan is to achieve – a first-quartile customer satisfaction ranking within five years.  Also, any cost savings and efficiencies that are achieved in the process will flow through to Long Island customers.  In short, our success will be closely linked to our ability to improve the customer experience.

PSEG has created PSEG Long Island as a separate subsidiary dedicated to managing its Long Island responsibilities.  This subsidiary, its management team, and the assets required to manage operations will be located on Long Island, an arrangement that will increase transparency and focus attention on the needs of Long Island’s electric customers.  It is also our intention to incorporate the current workforce into our Long Island operations.  Our management team will live on Long Island and will be visible and available.  PSEG and its family of companies have a long history of involvement with the community and community service and this will be a core value of our Long Island business.

As noted, we bring to this task an established record of performance, reliability, and customer satisfaction.  We’ve been hard at work in the transition and we think we understand the challenges.  We’ve identified specific areas for improvement and we are developing the plans and processes to address them.  We will be ready to make a difference on Day One.  In consultation with LIPA and subject to its approval, we’ll implement:

  • Improvements in Customer Service and Customer Satisfaction:
    • New call center and state-of-the-art customer-facing technologies
    • Enhanced customer and stakeholder communications using multiple channels of communications and all available media technologies
    • Best-in-class customer service Quality Assurance and Quality Control (QA/QC) processes
  • Proven storm restoration processes:
    • State-of-the-art outage management technology
    • Enhanced storm planning and a management structure that better consolidates and coordinates outage management and storm response
    • Logistical plans necessary to make the most efficient use of outside work crews and marshal the equipment and resources necessary for responding to a major storm
    • Best industry practices in transmission and distribution (T&D) electric system maintenance and operations
    • Data-driven analytical tools, including lean six sigma and a balanced scorecard process, to optimize T&D asset management

In the area of customer operations, we’re implementing over 80 recommendations to improve service and customer satisfaction.  LIPA has approved our recommendation to replace the existing call center Interactive Voice and Response (IVR) system and we’ve mapped plans for replacing the current Customer Information System (CIS) and for implementing a new Enterprise Resource Planning (ERP) system.

We’ve also proposed a new Outage Management System (OMS) that will more quickly and accurately assess and locate system damage, direct work crews, and provide critical information on status of repairs.

Our experience in New Jersey during Super Storm Sandy provides some guidance on how technology, processes, and planning come together to benefit customers:

Sandy knocked out electric service to almost 2 million of our utility‘s 2.2 million electric customers.  About a third of our system’s major switching stations and 40% of our substations were affected, many by significant flooding.  And about 33% of our transmission circuits were damaged.

About 1,000 out-of-state workers arrived in New Jersey in advance of the storm and that number grew to more than 4,500 during the restoration effort.  We were able to make sure that all of these workers were housed, fed, and their vehicles had fuel.  These workers knew where they were going, had work orders in hand, and were able to get on the road with little wasted time.  All of our workers had the material and supplies they needed.  We never ran out of poles, transformers, wire, or fuel.

We restored electric service to more than one million customers in three days.  Over the two-week period that included the Nor’easter that hit on the heels of Sandy, PSE&G restored power to more than 2.1 million customers.  This is more than in any storm in the history of any electric utility in the nation.  We accomplished these service restorations at a cost of approximately $295 million.

And all through this process we worked diligently to provide as much and as accurate information as possible to customers, public officials, the news media, and other stakeholders.  In particular:

  • In advance of the storm, pre-emptive calls were made to more than 700 municipal officials to provide points of contact for use during restoration
  • Daily conference calls were held that linked our electric operations divisions, regional public affairs managers, and municipal officials to provide updates on restoration planning and progress
  • Ralph LaRossa, PSE&G’s president and chief operating officer, and other senior executives, held face-to-face meetings with more than 100 state legislative leaders and mayors
  • Two conference calls a day were conducted with New Jersey Governor Chris Christie
  • Company executives held daily news media conference calls
  • Newspaper, radio, internet ads, and email blasts were used to communicate storm preparation, damage assessments, outage updates, and restoration progress
  • Social media played a key role in customer communications

It is this kind of effort –planning, logistics, up-to-date technology, proven processes and procedures, analytics, and communications – bound together by a relentless focus on the customer that PSEG Long Island is bringing to the task of managing Long Island’s electric system.  We think we know what needs to be done and we look forward to the opportunity to serve the people of Long Island.

Thank you and I’d be happy to respond to your questions.

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Transcript LIPA OVersight Committee Presentation to SUffolk County Legislature 2/27/2013


(*Excerpt ‑ Economic Development and Energy 2/27/13*)

CHAIRMAN HORSLEY:

All righty.  We will now move to talk to the Oversight Committee.  If I could ask the Oversight Committee to come on up.  Matt Cordero, Chairman.  The members are Shelly Sackstein, who I understand is testifying today in the Marciano ‑‑ Marcellino Committee Meeting in Albany, Fred Gorman, Irving Like, Joe Schroeder from our BRO, and Peter Schussler.  And Matt is the co‑chair of the Oversight Committee and, frankly, a lot of the issues that we read about in the paper were originally brought to the public’s attention and to the news media’s attention through our Oversight Committee, and they have had many,many meetings, and I just want to thank them on behalf of the Legislature for all the time.  Again, none of this is a paid ‑‑ this is not a paid position, and they are doing it because they care about Suffolk County.  And I just want to say on behalf of everybody here, all of the Legislature, that we thank you very much.  You guys do a great job, and we are proud of you.

 

So with that, I will turn it over to Mr. Cordero who is going to lead the Oversight Committee, and with particular emphasis on where do we go with LIPA?  Is the issue municipalization?  Is it privatization, as the governor has touted?  What’s right, what’s wrong, what’s your opinion?

 

Matt.

 

DR. CORDERO:

Thank you very much.  I just want to set the record straight.  Even though it’s a moot point at this stage, for the last year, I have been Chairman of LIPA Oversight Committee.

 

CHAIRMAN HORSLEY:

I’m sorry.  Thank you.

 

DR. CORDERO:

As you know, I have been appointed a LIPA trustee, and as a result of that, it would be inappropriate for me to continue in this role as Chairman of the LIPA Oversight Committee.  So, sadly, I must leave, but at least I had this opportunity, this last opportunity to, one more time, to address the LIPA reorganization issues.  These are my personal opinions and also the opinions of the LIPA Oversight Committee.  I’m doing this ‑‑ I do not represent the LIPA Board in any respect sitting here today.

 

The first thing I want to do is I want to thank, as you have, all the members of the LIPA Oversight Committee for their efforts and support.  They did a tremendous job in two years plus, and as a result, I feel we, as a committee, have had a significant impact and influence on many developments concerning LIPA, and those sitting up here in front with me today were very instrumental and very supportive in all the efforts of committee and gave significantly of their time, and I’m very appreciative of that and very impressed by their input.

 

To get ‑‑ to dive right into the issue, we all know that because of many issues over the years and recent performance in restoring electrical outages during Hurricane Sandy, there’s been a public outcry to reorganize LIPA.  The Governor has stepped in aggressively on this issue and taken the lead.  Although he ‑‑ the public statements indicate and those statements of the staff indicate that he’s open to any options with respect to reorganizing LIPA, he has publicly expressed a very, very strong preference for privatization, and I could understand that.  From the Governor’s point of view, I think he sees how difficult it is for the State to be involved as a ‑‑ with a retail utility, and I think he’s tempted by the fastest way out from the standpoint of his personal responsibility and the responsibility of the State for a retail utility.  I think he views privatization as that route; however, we would differ with him, and I think there are other alternatives, which I’ll bring up and discuss.

 

Personally, the ‑‑ for myself and as well as the LIPA Oversight Committee, we do not favor privatization.  In fact, we strongly oppose it because we believe it would result in severe financial penalties for all ratepayers of Long Island.  There are essentially three choices, three broad choices as far as reorganizing LIPA.  One is to keep it as is, which is not a very practical choice considering all the objections that have taken place and the experience with Hurricane Sandy, so I don’t think that that is a realistical alternative at this stage even with some of the contractual changes that LIPA has made in setting up a deal with a new contractor that would succeed National Grid in January 2014.

 

You know, as we demit this list, that alternative ‑‑ the two major alternatives are privatization and converting LIPA or modifying LIPA to function as a full‑service municipal utility.  Let me cover privatization first.  In privatization, a private company, in all probability, a utility would step in and purchase LIPA.  Such a purchase would require legislation on a Statewide basis as well as very significant financial restructuring.  And with respect to the latter, one of the biggest problems with privatization is that LIPA now holds a very significant amount of debt, tax‑exempt debt, $7 billion in bonds.  There’s also $4 billion in capital leases it holds, which the rating agencies on Wall Street consider debt obligations of LIPA.

 

There’ll be a need for a private entity, if it purchased LIPA, to refinance and restructure this debt.  It would have to convert tax‑exempt debt to taxable debt, which would add considerable cost to the revenue requirements for supporting LIPA, no matter how you slice it and no matter how you disguise it or try to come up with different schemes for stretching the transition out.  Even breaking the debt up, as some of the proposals that have been made public by Governor Cuomo’s staff with a purchase price and some debt remaining as tax‑exempt debt, would be also challenging.  I believe that the IRS would have significant problems from the standpoint of private use of funds, tax‑exempt funds, and as such would have significant problem.  It’s a big hurdle to get IRS approval for such a scheme.  I’m all too fully aware of it myself in one of my other lives and actually seriously explored privatizing a municipal utility, and I ran into this as a major obstacle, and it became evident to me, and that’s one of the reason why it never went forward beyond a certain point because of the difficulty associated with that.

 

Now, even if a ‑‑ in some way the State could swallow a certain amount of tax‑exempt debt, the private entity that would purchase LIPA would have to utilize or rely on taxable debt going forward for all capital additions and maintenance activities, and this would result in much more significant and higher costs for ratepayers than they experienced today with LIPA’s tax exempt debt.

 

Now, one thing to remember for privatization is that it’s a for‑profit ‑‑ it results in a for‑profit entity because the private company has to provide a return and investment for its investors or its stockholders.  This profit would be in the neighborhood of 10 percent, at least, or maybe something greater, and this would add to the burden that ratepayers would assume.  Also, a private entity would have to pay income taxes and pay higher employee costs than a public utility can, and this would also add to the price tag of privatization.

 

Now, in response to some of these criticisms, there’s been suggestions by those supporting privatization that among some advantages would be the fact that a private company would be more efficient.  Now, I have a problem with that because when you look at utility mergers and acquisitions and the claims of resulting in improved efficiencies, it invariably comes down to reducing workforce and reducing the number of personnel.  That’s what these efficiency improvements translate to.

 

Now, it’s a fact that right now the workers who would be taking over in a privatization, who are now employed by National Grid and in the future by public service electric and gas, are cut to the bone ‑‑ the numbers are cut to the bone.  And that, I believe, is a result of National Grid’s acquisition of Keyspan and the need to have to make up the premium they pay for acquiring Keyspan.  So the numbers of personnel have been cut seriously.  I think you saw the effects of that in Sandy, especially in the very first days of Sandy.

 

One of the other advantages that have been held up for privatization is that rates could be stabilized, at least for some period of time.  Rates could be frozen from three to five years.  I don’t accept that as an advantage.  I see that as a gimmick to get a buy‑in on the concept because freezing rates doesn’t stop a utility from, down the road, increasing rates to recover.  The dollar’s lost through freezing rates.  In fact, some of the other concepts where the State holds some tax‑exempt debt and can do that through securitization and stretch out by refinancing the tax‑exempt debt over a period of time the repayment of that debt, and the interest charges may look good on a near‑term basis, but in the long run, when you add up what ratepayers must come up with from a total cost standpoint, it results in much, much higher costs for ratepayers over time.  I think in the end, a privatization would result in at least a 20 percent increase in rates for ratepayers.  It would also require a significant amount of time to do the financial restructuring and also put the legislation in place that would be necessary to make it work.

 

The whole concept of trying to paint a better face on this by stretching out the payments over time is very reminiscent to me of all the promises made for LIPA originally when it was formed that, indeed, over time, if people were patient enough, it would result in significant savings, and sitting here today, we realize how that hasn’t worked, and it won’t work for privatization, either.

 

Let me move to the other option, which we feel is, without question, the more desirable one and the one preferred by the LIPA Oversight Committee and the organizational structure I prefer, having some experience with it.  I ran a full‑service municipal utility, the 10th largest in the country, for six years, so I have some direct experience with that.  Full‑service municipalization, or restructuring in that regard, would basically involve moving the contractor, the outside contractor, that LIPA now pays, the for‑profit contractor to perform its day‑to‑day operations and move it into the municipal utility itself.  They would be LIPA workers and LIPA employees.  This would have the effect of eliminating the middle man with the middle layer being the management of the private utilities.

 

It’s also a structure which is duplicated many, many times throughout the United States.  There are over 2,000 public utilities like LIPA who have a structure that is a full‑municipal service structure.  It’s tried ‑‑ it’s past the ‑‑ it’s tried and true.  It’s passed the test of time.  It works.  All these utilities have very affordable rates, they provide very reliable service, and they have very high customer satisfaction; all the things that are wanting today with the existing arrangement.

 

The other one big advantage of municipalization, it wouldn’t take any legislation.  It could be done tomorrow.  The decision could be made tomorrow to ‑‑ as an alternative to employing a contractor, bringing in employees to carry out the function under the umbrella of LIPA.  Now, the arguments against it ‑‑ and I go to the Moreland Commission Report when I pick these out ‑‑ are very weak.  In fact, in my estimation, I think one of the best arguments for municipalization, full‑service municipalization, is in the Moreland report.  I mean, the advantages they present for a full‑service municipal utility are very attractive, and they make a great case for it.  They, unfortunately, come up with the opposite conclusion I come up with, and they put forth some reasons for that.  One of the reasons is it would involve LIPA having to take on 2,000 employees, which are now at the contractor, and this is not a very valid argument because not many people out there realize that those 2,000 employees now work for LIPA; they just have a different label on them.  They wear a different hat.  But ratepayers pay all the costs for these 2,000 workers.  They pay their salaries.  They pay their compensation, their benefits, all costs associated; and on top of that, they pay a kicker that goes to the private company for overhead and profit, so it’s even more costly with the current arrangement.  So it’s not new that these 2,000 people would be working for LIPA.  It’s really no different.

 

There is also the possibility that if there’s a tremendous desire not to bring 2,000 employees into a government role or being hired by a government entity.  LIPA could contract directly with the union and keep these people out of government employ, per se, but they would have to pay all the costs associated with these employees, which would be pretty much exactly what it is.  Ironically, if, indeed, we could ‑‑ we could bring in these employees and put them in a government system and design the benefits to mirror what the government benefits are, the LIPA Oversight Committee has found in its studies that we could actually save money.  Roughly 15 percent of the cost could be saved and indeed they were government employees and the benefits mirrored those of what government employees received in New York State.

 

One of the other arguments against municipalization in the Moreland Report is the fact that you’re going to expand LIPA.  You’re going to make it larger.  No.  As I said before, it’s the size now that it’s going to be; it’s just that people walk around with different hats on, but the costs are the same and the numbers of people involved in providing service is exactly the same.

 

The benefits of a municipal structure would be the avoidance of confusion, which was obvious during Hurricane Sandy and the response to Hurricane Sandy; the establishment of clearer accountability.  There’s always been a question who is responsible for what:  What does National Grid do?  What does LIPA do?  The public is really confused about that.  And having everyone working under the same flag would also facilitate coordination and teamwork, which doesn’t appear to exist today, and it does eliminate ‑‑ saves dollars by eliminating the middleman.

 

Now, one of the other arguments ‑‑ and I slough it off because I don’t think it’s that important, but it was used in the Moreland Commission ‑‑ is that LIPA has a bad brand, has a bad name, so if you kept the LIPA brand, it would do harm to a municipal utility.  Well, our answer to that is change the name.  I mean, that’s an easy thing to do, especially with a new structure and something different than what existed previously.  It’d be very easy to change the name.  Municipalization is the quickest way to achieve the reorganization of LIPA.  It’s the most direct and involves no special legislation.  You can’t dismiss the fact, though, that the Governor is intrigued or interested because privatization is perhaps the clearest‑cut path for him to divest himself and the State of responsibility for LIPA.

 

I think there’s another alternative, though, that has be addressed that would give the Governor the benefit of getting out of the crossfire, so to speak, and direct responsibility for the State, and that would be to convert LIPA from a State authority to a local authority, either a County authority or a district authority.  Now, actually, this is more in the spirit of public power and the concept of local control, and, in fact, most of the 2,000 munis out there throughout the country are organized on a County/City basis.  Now I know it may set you back being legislators representing the County ‑‑

 

CHAIRMAN HORSLEY:

It did.  I just grabbed Counsel.  I said, “You’re kidding me.”

(Laughter)

 

DR. CORDERO:

However, this would not result in any additional financial burden for the County because all the finances associated with this authority are backed up through the ratepayer.  The ratepayer has the responsibility for all the financial obligations of this authority.  You have an excellent example of an authority functioning in that manner here in the County with the Suffolk County Water Authority.  So it’s not that you’re opening the door ‑‑ you would be opening the door, not that I’m sitting here advocating this, but it’s an alternative that the Governor should consider as he thinks about what’s the best model for reorganizing LIPA and address his concern that he doesn’t want day‑to‑day responsibility for a retail utility, and I think that’s a good idea.  That was a bad thing with LIPA from day one.  The State should not be running a retail utility.  There’s nothing but negative news, and it’s the worst thing that a political entity could associated ‑‑

 

CHAIRMAN HORSLEY:

Like the County.

 

DR. CORDERO:

No, because if you look at the Suffolk County Water Authority and how that functions, when the Suffolk County Water Authority raises rates or something happens, it doesn’t immediately come back to the County because they are organized and a separate authority.  You do appoint the board members, however, and that would be the case if it was a County authority.  It might not have to be a County authority.  It could also be a municipal utility district or a bi‑county authority.  That’s another form that’s used elsewhere in the country, so that’s a way of having to assign responsibility to a particular county.

 

The other option I want to put on the table, I think ‑‑ and I’m sure that the LIPA Oversight Committee will back me up on this ‑‑ that LIPA and any successor to LIPA should be regulated ‑‑ should have regulatory oversight by the Public Service Commission.  I think that’s a good thing.  Most of the 2,000 public utilities throughout the country have some sort of regulatory oversight, and it’s healthy, it works, and it provides greater assurance for customers that at least there’s someone else looking and monitoring what’s happened.  And you have that already on Long Island, and it works very well.  You have it in Freeport, you have it in Rockville Centre, and you have it in Greenport.  They are municipal utilities, and they are regulated by the Public Service Commission, and it works quite well.

 

In the end, it’s clear to us that municipalization is really the best alternative for reorganizing LIPA.  It’s been proven through years at the other 2,000 public utilities throughout the country.  It works now on Long Island in places like Freeport, Rockville Centre, and Greenport, and it could be achieved in a much quicker fashion than privatization.  There’s less legal ‑‑ less legal obstacles and there’s less financial hurdles.  There’s less of a need to come up with new novel financial structures.  Privatization just can’t be achieved at a cost that Long Islanders can afford.

 

Now, there’s some other variations to this that at least one member of our Committee has suggested, and he may be ‑‑ Mr. Shelly Sackstein who is up in Albany right now.  He may be putting it on the table in front of Senator Marcellino right.  He’s sort of suggested that maybe we should take this another step farther and take over the power plants, too, which are owned by National Grid.  I don’t agree with that, and there are members of this Committee that don’t agree with that, and it’s also contrary to the utility restructuring movement that’s taken place in the United States since the Federal government initially adopted laws with respect to that and the State has implemented laws.  There are no substantial utilities in New York State right now that own generation, too, and if we brought generation into the equation, it would be contrary to that divestiture that exists, or that separation, that lack of vertical integration.  But it would also add a lot of complexity and cost to what we need to do to reorganize LIPA and make it less possible that we will be successful in reorganizing LIPA as a full municipal utility.

 

One of the other things brought up is that it should ‑‑ the success of LIPA should also be a gas utility.  And that’s another thing that would be complicated and involved and set back any movement to reorganize LIPA as a full‑service municipal.  First, you have to acquire a gas company, and you have to go out and do that, and you have to have a willing seller in that regard.  The other thing is that combined companies ‑‑ combined gas and electric companies, and I ran one here on Long Island.  I had responsibility for both gas and electric at Long Island Lighting Company, and I can tell you from my personal experience when that happens the gas function gets hurt significantly.  It does not get the attention it deserves.  It’s better carried out in a separate company, and here with the prospect of that, introducing all levels of additional complexity to the need to reorganize LIPA again, it’s not advisable.

 

I’m going to pass the mike to some of my committee members and ask them if they want to say anything, but before I do, I just want to thank you again for this opportunity.  I have enjoyed it immensely.  I have enjoyed working with the people at this table.  I have enjoyed working with the people of the Legislature, and I hope that there’s some other way that I can work with you again in the near future.

 

CHAIRMAN HORSLEY:

Thank you very much, Matt.  We do appreciate all of your efforts and particularly yours, because I know you’ve put so much time in this and you’re moving on, and we wish you all the luck in making this big decision that’s going to affect every one of us on Long Island, so thank you again.

 

If we just keep the statements to somewhat as short as we can make it; this way, I want to make sure that the Committee has an opportunity to ask a couple questions.

 

Irving, are you starting here.

 

MR. LIKE:

Yeah, and we also want to thank you fellows and the County Legislature for being supportive and adopting our recommendations.  My position, I have stated a number of times, I’m against privatization.  I’m in favor of fully‑municipalized LIPA with a board that is elected by the ratepayers.  That’s a very crucial part of what I think is necessary, and I’ll explain why.  I adopt Matt Cordero’s statement of objections to privatization.  I think he’s documented it and he now being on the LIPA board is a great choice, so we’re sorry to lose him here, but it’s nice to know he’s on the LIPA board.

 

Now, in my opinion, privatization is really a Wall Street‑designed corporate welfare scheme under which the stockholders, the bondholders, and top management received the profits, and the ratepayers and the taxpayers pay $7 billion Shoreham debt, that pay the dividends to stockholders and the golden parachutes to top management; that’s what it really boils down to.

 

If LIPA is allowed to continue as is, I regard it as nothing more than a crony public authority governed by a politically‑appointed board whose directors are appointed by the Governor, Speaker and Senator Majority Leader and given the power ‑‑  the power to manage the LIPA budget.  The LIPA 2013 budget is $3.597 and it is given the authority to govern the energy needs of over 2.8 million people in Nassau and Suffolk County.

 

The LIPA budget is greater than the Suffolk County 2013 budget of 2.78 billion and greater than the Nassau County 2013 budget of 2.8 billion, and each of those budgets is managed by a county executive and legislators elected by the ratepayers, by the taxpayers.

 

Population.  Suffolk County exceeds 1.5 million; Nassau County population exceeds 1.3 million; so we have a total population of over 2.8 million.  Now, it makes no sense whatsoever to exempt LIPA from control by representatives elected by the people when its budget is so much greater than the budgets of either Suffolk or Nassau, and when the total population of both counties exceeds 2.8 million.

 

 

Now, I ask you, it would be even more absurd if the proponents of privatization based on their claims of its advantages, recommended privatization of the governments of Nassau and Suffolk County subjecting their populations to governance by the Governor, the speaker, and the Senate Majority Leader.  That’s what the logic of privatization ends up meaning.

 

So you got three choices.  Should LIPA be taken over and controlled by Wall Street private investors and speculators, by institutional stockholders and hedge funds; or should it continue to be operated with its appointed directors under a long‑term management agreement?  Those two choices, I think, should be rejected.  LIPA should be fully municipalized with directors elected by the ratepayers combined with several appointed directors who are qualified in utility and financial matters but with control of the board vested in the elected directors and subject to PSE oversight.

 

Now, Matt has covered why a municipalized board has got advantages and is the best choice of the three:  the least expensive for the ratepayers because it’s exempt from Federal taxes; it can borrow  tax‑exempt rates; doesn’t have to pay stockholder dividends.  Now, here’s another important point:  It qualifies for Federal aid, such as FEMA, such as treasury financing and to stimulus moneys which are not available for private investor‑owned utilities.  Its operations are transparent because of the subject to the Freedom of Information Law, whereas a private investor‑owned utility is not.  It is accountable to the ratepayers because it’s going to be an elected board.  Private investor‑owned utility, accountable only to the stockholders and probably a few dominant institutional shareholders.

 

Pension plan funds.  Matt has pointed out the argument, the flimsiness of the argument about pension costs being higher.  The flip side of that is that the pension plan funds of a fully municipalized‑elected LIPA are less likely to be allocated at LIPA’s expense to excessive National Grid or PSE&G management compensation.  Do we know what the pension plan costs are of National Grid that are being allocated to LIPA?  No.  I have never seen the numbers; I don’t think they’ve been made public, but I’m willing to bet that their plan probably has a component which gives pension ability or pension coverage to top management.  Look at their SEC plan and you’ll see that the top management gets top salaries and they are part of the pension plan.

 

Now, here’s a point that has not been made, except very briefly by Matt, and that is that the history of privatization of public utilities such as those engaged in providing critical services of electricity, water, sewer, waste management debunks the privatization myths.  And I want to hand in and ask that it be made part of the record a report that was done by the organization known as “In the Public Interest,” which follows very carefully the progress or the lack of progress of privatization, whether it’s the privatization of a road, a wastewater plant, a sewer plant, a stadium, parking meters, privatization is a hot item right now, and there’s no doubt on my mind that the Wall Street vultures are looking for every opportunity to privatize public service.

 

I’m going to close, again, by asking you to come out as a committee in support of full municipalization with an elected board controlled by the ratepayers, and the district from which the elected board can be determined or selected should be districts which are designed to maximize effective response to storm damage and disasters.  In the final analysis, the people of an elected district who have their representatives in office are going to be the ones who are the most alert and diligent in dealing with disasters of that kind.

Thank you very much.

(Applause)

 

CHAIRMAN HORSLEY:

Thank you very much, Irving.  Gentlemen?  Peter, you going to roll here; you good?  Joe?  And Joe queried me.  Joe is an employee of Suffolk County, but is he is speaking as a representative of the Oversight Committee.

 

MR. SCHROEDER:

Thank you, Legislator Horsley.  Just briefly, because I know this has been a sensitive issue for most elected officials that I’ve discussed this with, and that is to suggest that there has been a lot of talk about the negative ‑‑ potential negative impact of pension liabilities on the State Pension System, and that, at the very least, this body or, if not through the State representatives, should request clarification on what those potential negative impacts are beginning with and including LIPA’s proposal to continue a seamless continuation of the existing employees’ pension systems ‑‑ or pension status as new employees of whatever the new organization should become down to moving all the employees over to a Tier IV municipal employee status.

 

There are a number ‑‑ significant number of defined pension holders still employed over at National Grid that would be the future LIPA employees in a fully‑municipal entity.  There are also a number of those employees that are cash‑balance pension subscribers, and certainly there could be some differences between defined‑state pension and some of the cash‑balance scenarios, but no one knows what those numbers are, and there should be a definite and deliberate attempt made to determine what those impacts might be before a decision is made, because I believe it’s being used as a boogie man to scare officials away from the municipal model.  And, personally, and we’ve looked at this, we don’t believe that such an impact exists.  So at the very least, that’s the recommendation from this body on that point.

 

CHAIRMAN HORSLEY:

Thank you very much, and you know that I’ve asked you that question before because it is a concern for many elected officials that we’re increasing the numbers of pensioners through the system and how that would affect it.

 

Maybe I’ll start off the questions, if I may.  Thank you very much, Joe, for your comments.

 

I have a ‑‑ the main issue that seems to be brought forth by elected officials and others about the concerns of privatization is the alleged $7 billion that is owed for past debt.  And, Matt, you touched on it just quickly, that if you look at the credit agencies that review and ‑‑ or have oversight in some way or form of LIPA that they have contracts well into the future that account for billions more dollars in debt and that, along with the pensions and the like, we’re talking, I think, upwards of $12 billion.  You know, if the Governor, to me, said, “You know, we can spread this debt out across all of New York State,” maybe that might be something that we would certainly smile at, and then privatization might make more sense in that matter.

 

Is this debt ‑‑ is this debt issue in any way something that could be amortized over a longer period?  What ‑‑ you know, how do we get beyond that issue?  Because that seems to be the stumbling block for most people that are looking at the issue.

 

DR. CORDERO:

Yeah, you’re correct in your observations about that.  The total debt obligation is $11 billion.  Seven billion of that is in bonds, long‑term bonds, which have come from abandoning Shoreham, taking no responsibility for Shoreham, as well as purchasing the T&D system of Keyspan/LILCO back in time.  Four billion of that is ‑‑ over four billion is associated with long‑term contracts that LIPA had to enter into for power supplies, and those long‑term contracts obligate LIPA to pay capacity payments on some fixed basis over many, many, many years, and the total obligations add up to something in excess of four billion.  Probably what would happen and what’s being envisioned at the State level for trying to come up with a scenario for making privatization acceptable would be for the private company to assume ‑‑ potentially to assume the four billion in debt ‑‑ the $4 billion in obligations for power because the Long Island consumer is still going to need the power.

 

CHAIRMAN HORSLEY:

We’re going to need that power no matter what.  We’re contracting it out, right.

 

DR. CORDERO:

Right.  Directly, there’s no issues of being tax‑exempt in that component of the debt obligation because it isn’t financed with tax‑exempt debt.  It’s just contractual obligations, which, when the rating agencies look at it, view it as similar to any kind of debt obligation because they are required to make a significant payment over a period of time.  It’s viewed as a capital lease.  And the seven billion, however, is more problematical.  One of the concepts the Governor is looking at right now is perhaps selling the T&D assets to a private utility for three‑to‑four billion dollars and retaining a certain amount of tax‑exempt debt, again, three‑to‑four billion dollars of tax‑exempt debt, perhaps refinancing it as tax‑exempt debt that’s securitorized (sic).

 

Now, that’s the way it’s defended in public, but no one explains what they mean by “securitization.”  What securitization means is that the ratepayers are obligated to pay it back over a certain period of time.

But the advantage of that is they can extend the period over which it has to be paid back.  So on a day‑to‑day basis, it appears it doesn’t have a significant impact on rates, but when you look at the cumulative amount of dollars paid or associated with that, over time it’s going to be much, much, many times greater than it is in its current value.

 

CHAIRMAN HORSLEY:

Right.  Thank you.  I actually understood that.  That was good.  We have this contract ‑‑ and this is my second question, and then I’m going to defer to my colleagues.  We have a contract with PSE&G that’s going to start in ‘014; is that when it starts?  How ‑‑ you know, we’re looking at all these options now.  Can we fire PSE&G?  Is that something that is, you know, we just say, “Well, never mind,” and how does that work when we’re looking at privatization model or municipal model?  Do you just accept the contract, or what do you call those people that are now running it?  I’m confused how that works when we’re so close to the deadline when they are going to be moving in and taking over the electrical maintenance operations.

 

DR. CORDERO:

The contract entered into with PSE&G has off‑ramps to it that envision the potential for LIPA maybe deciding at some point in time it wants to be a muni ‑‑

 

CHAIRMAN HORSLEY:

Does “off‑ramps” mean lawsuits?

 

DR. CORDERO:

That means paying them off and having cancellation terms.  It’s costly to do depending on how long the contract’s in effect.  If they cancel next year, it will be very costly; if they cancel five years from now, it would be less costly.  But the contract does, indeed, include consideration of scenarios where PSE&G can be ‑‑ the contract can be walked away from.

 

CHAIRMAN HORSLEY:

And I’m sure that’s in the factoring of all things that we’re considering here today is the letting ‑‑ off‑ramping, is that the ‑‑

 

DR. CORDERO:

A way out.

 

 

CHAIRMAN HORSLEY:

I got it.  I understand.  I was just ‑‑ I like the term.  You know, it’s a nicer way of saying “you’re out of here.”  “Firing,” I thought worked for me, but off‑ramping is interesting.

 

Tom Cilmi, I understand you have a question.

 

LEG. CILMI:

I could probably spend two hours on questions.  Just to follow up on your question, Legislator Horsley, with regard to the cost of getting out of the PSE&G contract, so there is a cost associated with that at this point?

 

DR. CORDERO:

Yes.

 

LEG. CILMI:

Any idea what that cost would be?

 

MR. SCHUSSLER:

About $30 million.

 

LEG. CILMI:

Wow.  $30 million.  All right.

 

CHAIRMAN HORSLEY:

Tom, could I interrupt?  Would that also be the same for privatization?  I just want to get that down for the record.

 

DR. CORDERO:

Either way.  Whatever results in PSE&G’s services not being required anymore to operate utility, that would result in setting off the payment provisions in the contract.

 

LEG. CILMI:

Unless, I suppose, that PSE&G was somehow included in the privatization equation or possibly ‑‑ I guess they wouldn’t be included in the municipalization equation.

 

DR. CORDERO:

Actually, there is a role for them to play.  If I were the skipper trying to steer my way through municipalization right now, one way to do that is to take advantage of the work that PSE&G is now doing to reorganize and transition from National Grid into a separate operating entity totally devoted to the electric service business and not shared with the gas business.  A good way to do that would be take advantage of that work.  Let them proceed to do that and set it up, but at some point, basically acquire that ‑‑ what they call a “serv‑co corporation,” which is a wholly‑owned subsidiary, acquire that and incorporate it in the municipal utility and become part of the utility structure.

 

LEG. CILMI:

Okay.  So moving on to some of the questions I had, but before I continue, let me just say for the record that while I certainly respect, Mr. Like, your experience and your legal counsel and certainly your advice in this matter, I really have to say that I found your colorful and disparaging remarks towards Wall Street very offensive.  You know, the folks on Wall Street employ a lot of people, certainly a lot of residents in Suffolk County.  They make a lot of us a lot of money in the markets, and they generate a lot of revenue to the New York State economy, certainly toward the New York City economy, and no doubt to the Suffolk County economy.  So to characterize people on Wall Street as “vultures” I think is just wrong.

 

Be that as it may, your point in terms of the fact that, you know, the profit motive would be first and foremost in a privatization effort are certainly well‑taken.  First question I have is who actually gets to make this decision?  Wayne.  Who said Wayne?

 

(Laughter)

 

DR. CORDERO:

In all probability, it will be the Governor and the State Legislature that will make the decision.  The Governor will make a decision, make some proposals for the State Legislature.  Some new laws will have to be developed to allow this all to happen.  I was at my first meeting or indoctrination session with the board of trustees and one of the members ‑‑ the LIPA Board of Trustees ‑‑ said, “Well, we would still have to pass on the disposition of all the assets, sign the papers as a board, as a LIPA board.”  Well, that’s true, but the decision to be made on what direction you go really come from up high.  The board will just basically implement the decision.

 

LEG. CILMI:

Does either municipalization or privatization have any impact on the cost of power?  And how much of a role in the overall cost of service to the ratepayers, how much of a percentage is the cost of power generation in that?

 

DR. CORDERO:

The power supply and purchase component of the rates is roughly 50 ‑‑ it varies.  It could be higher than 50 percent, it could be 60 percent certain months, so it’s roughly half and half.

 

LEG. CILMI:

Right, so it’s certainly very, very significant.  So do we get any benefit one way or the other, municipalization versus privatization in terms of the cost of power that we purchase?

 

DR. CORDERO:

Yes, I think so.  There are certain advantages in being a municipal utility:  having more access to low‑cost hydropower, for example, and having the political inside track to that.  I think, in fact, that’s one of the things that the existing local municipal utilities are quite concerned about on Long Island.  One reason that they’ve stayed pretty silent in this argument, they don’t want to get involved in the crossfire and potentially lose some of their access to low‑cost hydropower, having that redirected somewhere else.  In the total ‑‑ from a total cost perspective, though, we evaluate the municipal option to be cheaper, much cheaper than business as it is right now under the existing structure, and much, much cheaper than privatization would be using what exists now as a base.  Privatization would be 20 percent plus more expensive, a total cost; that includes everything.  And municipalization would be anywhere from a few percent or greater cheaper than what exists right now.

 

LEG. CILMI:

Do you think that ‑‑ it seems to me that fear plays a role and perception, public perception plays a role in possibly the governor’s proposal that privatization is the better way to go because many members of the public have this perception that bureaucracies tend to get bloated and ineffective, and certainly there’s ample example of that, but there are, as you said, examples of the exact opposite.  So you mentioned the fact that there are 2,000 or so public authorities or utilities throughout the country.  Do any of them serve an area with similar demand to ours, and can we use those as examples of utilities that are successful in the different metrics that you talked about:  affordability, customer satisfaction, customer service, et cetera?

 

 

DR. CORDERO:

Yes, there are a number of them.  I headed up one of them.

 

LEG. CILMI:

Can you site, you know, three or four for us?

 

 

DR. CORDERO:

Well, the easiest ones to look at are the ones right here on Long Island.  Look at their rates, look at their customer satisfaction, and the controversy that surrounds them.  There’s an absence of controversy that surrounds them.  They work very, very well, and they’re regulated too at the same time.

 

LEG. CILMI:

But they serve far fewer ratepayers.

 

DR. CORDERO:

And they serve smaller ‑‑ but you take this all the way to Los Angeles, Los Angeles Water and Power ‑‑ Department of Water and Power, which is bigger than LIPA.  It’s the largest in the country ‑‑ LIPA is like number two ‑‑ and they have much lower rates than we have here on Long Island, much, much; maybe fifty percent, roughly.

 

LEG. CILMI:

Fifty, 5‑0 or fifty, fifteen?

 

DR. CORDERO:

No, 50, 5‑0, may be cheaper than it is here, at least the last time I looked, and I looked some time ago admittedly.

 

LEG. CILMI:

And to what do you attribute that?

 

DR. CORDERO:

The proper management, access to cost‑effective power supplies, a history of efficiency, and oversight.  It’s a very complicated public system, by the way.  Talk about regulatory oversight, they have a board that oversees the operation, but anything that board does has to be approved by the City Council.  If you know anything about Los Angeles politically, it’s a real hot bed.  It’s a very controversial ‑‑ the city council there is very, very controversial, so to get anything approved is quite a task, so it’s a very effective oversight.

 

LEG. CILMI:

So the last, sort of, pre‑planned question I had was with respect to your and Mr. Fischer’s suggestion or Mr. Like’s and Mr. Fischer’s suggestion that trustees of this new entity would be elected, I guess, by the ratepayers ‑‑ I mean, we’ll all run this year.  We’ll get, maybe, between 23 and 25 percent voter turnout.  You are going to have ratepayers ‑‑ I don’t know when you would have the election, if you’d have it the same day as Election Day, then you would have to have voters sort of, you know, learning more about these issues so that they could appropriately vote for individuals or else it becomes a campaign just like any other campaign.  And certainly there are elected people in all kinds of jurisdictions who we would all sort of wonder how they got there.

 

So why do you think that an elected ‑‑ I mean, clearly they would be more accountable to the ratepayers, but that doesn’t necessarily mean that they are better, right?

 

MR. LIKE:

I’d like to take a shot at answering that question.  The original LIPA stature created a system which had 21, I believe, ratepayer districts.  The idea of having that number of ratepayer districts was to avoid putting too much power into a few districts running the entire service area, and the idea was advanced by David Wilmott, who, at the time, was publisher of Suffolk Life.  That particular methodology was never put into action by Governor Mario Cuomo, and then when he was replaced by Governor Pataki, the whole elected board concept was junked.

 

It’s true, as you have observed, that you have to have districts created, and the candidates would be presented for each district.  It could be made a special election day or it could be done concurrently with the November election for other County officials.  The beauty of having districts and designing their boundaries properly is that you then can maximize the vigilance and the energy of the people in that district when it comes to dealing with storms and so forth, because they are going to be the ones that are going to be calling up and making sure that things are done.

 

Now, even if you went with the model of LIPA working together with PSE&G, you’re better off having a LIPA‑elected board looking at PSE&G and making sure its meeting its obligations than to have an appointed board, because we already know that, from the experience of the last few years, that the appointed LIPA board was unable to avoid some of the abuses that have been documented on the part of National Grid.

 

So, again, I have a lot of faith in elected representatives, and I use the example of the County as an example of a vibrant system where the constituents come before you at hearings, they complain, they call you, and there’s no reason why that kind of democratic rule can’t be applied in the case of whatever choice you make.

 

I’d like to go back to one other thing, if you’ll permit me.

 

LEG. CILMI:

Before you do, let me just ask you one other question, if I could.  Do you concur with Mr. Fischer’s seemingly very simple or simplistic explanation of how you could do that?  I mean is it as simple as the County Executive or the Legislature sort of requesting that we have an elected board and all of a sudden, it happens?  It sounds like that’s what he’s suggesting is.

 

MR. LIKE:

I haven’t professionally as an attorney looked into the legal basis of that.  He has spoken to me.  It’s an interesting idea.  Whether it can be accomplished, I think, is going to depend on getting a good qualified legal opinion, and I’m not in a position to give you that today.

 

But, if you’ll permit me, one of the things that’s puzzled me is why the Moreland Commission did not look into the sources of financing through the treasury which could result in refinancing the Shoreham debt at lower interest rates.  They also did not look into the sources of stimulus money, which could be used, and if you look at what’s been happening around the country, there are examples where communities, which were hard‑up because of financial constraints did go and get money to aid them locally in meeting their obligations.  So there’s no reason in this situation why there isn’t an opportunity for LIPA, if it remains fully municipalized, to take some appropriate action to determine where the sources of lower financing are, and I believe the treasury is one of them and the stimulus is another one.

 

DR. CORDERO:

I just wanted to make one comment on the elected board.  When we started out with the LIPA Oversight Committee on this issue, Irving and I were on polar opposite sides.  I was favoring a professionally‑appointed board, and Irving was favoring the elected board as per the original statute calling for that.  I think as more discussion ensued, we came together and compromised on a combined elected board with some professionally‑appointed members, so that’s pretty much what the recommendation of the committee is.

 

LEG. CILMI:

So I’m done with questions.  I just wanted to compliment the entire committee on a very, very comprehensive presentation, and it raises many more questions, and I think that’s a good thing, and I look forward to further discussions with you.  Thanks.  Thanks for the work that you have done.  I really appreciate it.

 

CHAIRMAN HORSLEY:

Thank you very much, Legislator; and, gentlemen, let me echo Legislator Cilmi’s comments.  You guys have been very important to us, frankly, getting out the word on the details of this very complicated issue, and we appreciate you guys doing it.  And, Matt, I want to wish you the best of luck particularly in light of what Mr. Like just said about the LIPA board and being on the board, and now that you are one of the board, good luck to ya, buddy.  Gentlemen, thank you very much.  We do appreciate you coming down today.

 

 

(*End of Excerpt*)

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