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Was Hurricane Sandy the Last Straw for LIPA’s Status Quo?
The Moreland Commission, appointed and funded by NY Governor Andrew Cuomo, reported this week that the sustained ineptitude of the Long Island Port Authority (LIPA) has driven them to suggest privatizing the utility.
“LIPA is a mess and desperately needs to be cleaned up,” stated Nassau County District Attorney Kathleen Rice on Monday. The Moreland Commission agrees – citing poor management practices that led to slow and patchy repairs that were ultimately exposed in October from Hurricane Sandy. It took LIPA up to 21 days to restore power to its customers following the storm.
The Commission completed a comprehensive analysis of viable options for the State moving forward. There were 3 main choices the report explored, each with their fair share of benefits and risks. They go as follows:
1) Privatized/Investor-Owned Utility
i. Provides more efficient operations
ii. Creates cost savings as a result of efficiency improvements
iii. Subject to Public Service Commission (PSC) oversight of service quality and rates
i. Complex transition, would take time to execute
2) Expand State Authority – incorporate LIPA into a state-wide authority
i. Stronger accountability and clarity of operations than what currently exists
ii. FEMA support could still be available for future storms
i. Customers’ confidence in utility remain questionable
ii. No incentives for continuous improvement
iii. Limits ability to recruit high-priced executives because incapable of offering competitive market based salaries
iv. Adds more employees, as many as 2,000, to already-overburdened NYS benefit system
3) Alternate Successor – a different public authority takes over (i.e. NYPA)
i. LIPA would be run by an already established, successful authority
i. Another bureaucratic layer established, complicates processes
ii. Could spread an authority too thin, couldn’t focus enough on its own operations
iii. Budget limitations (similar to option 2)
After laying out their options, the Moreland Commission determined that privatizing the utility would be the most advantageous in terms of cost efficiency and the ability for the state to better supervise LIPA’s operations.
NYS Governor Cuomo is strongly in support of increased supervision. He sees this report as a means to further leverage the PSC towards gaining more regulatory power within the state for all utilities, especially LIPA. He laments, “[We] have an ineffective regulatory structure in this state. The utility companies are very powerful and I think the system has been skewed in favor of the [utilities]… we want to have a situation where we truly regulate them and, to truly regulate them, I believe you have to be able to terminate the (current) relationship. Otherwise, you have no ultimate sanction.”
However, the solution may not be as simple as privatization. One roadblock facing privatization is that LIPA is currently facing $7 billion in debt based on figures from NY Dept. of Financial Services Commission Co-Chairman and Superintendent Benjamin Lawsky. The authority that purchases LIPA would need to contend with soaring debt before even starting the job.
Consequently, rates would almost inevitably increase to recoup the mess LIPA left behind, much to the chagrin of LIPA customers. That is, of course, unless NYS forgives the debt in some way, shape, or form. However, Michael Fragin, who served on the LIPA board of trustees’ until 2011, doesn’t see that happening, “I didn’t see the word ‘bailout’ in the Moreland Commission report.”
Long Island has been no stranger to unsuccessful utility operations. LIPA was formed in 1985 after the now-defunct Long Island Lighting Company (LILCO) took nearly two weeks to restore power to residents following Hurricane Gloria. (Not to mention the $6 billion Shoreham Nuclear Power Plant built on the Island but was never permitted to be used) Although LIPA would not take full control until 1998, it’s difficult to ignore the gloomy parallels among the industry within the region. To throw fuel on the fire, Cuomo stated this week that “LIPA was flawed from [its] inception” – I suppose the public is seeing that clearly as ever.
As of now, National Grid has the exclusive rights to LIPA’s power lines until the end of the year, when Public Service Enterprise Group Inc (PSEG) is slated to take over in 2014.
Energy Curtailment Specialists, Inc.