Proposes Legislation for Privatizing Operations of Long Island Utility, Improving Performance and Reducing the Cost of Debt
Albany, NY (May 13, 2013)
Governor Andrew M. Cuomo today released legislation for transforming Long Island’s utility operations to provide new improved service, including stabilizing rates, privatizing utility operations, improving customer service and emergency response, reducing the cost of Long Island Power Authority (LIPA) debt, and creating real oversight for the Long Island utility company.
“The aftermath of Superstorm Sandy made it undeniably clear that the LIPA status quo was unacceptable and that we needed to create a new Long Island utility system,” Governor Cuomo said. “Today’s proposal will transform the utility service on Long Island by ending LIPA as we know it and creating a new structure that is designed to put ratepayers first by prioritizing better customer service, reducing the cost of debt, and placing the new utility under strong oversight. We are also pleased that the new utility company is seeking to freeze rates for three years because Long Islanders have paid too much for too little for too long.”
Jan Burman, President, of the Association for a Better Long Island, (QABLI), said, “With a membership that represents the largest group of energy users on Long Island we applaud Governor Cuomo for his efforts to create a strategic solution to the question of how best to create a rugged, cost-effective means to transmit power. Without a viable path to solve this challenge the region’s economic future is placed at risk and, with it, the quality of life enjoyed by 2.7 million New Yorkers. The Governor’s announcement starts us down the road towards protecting our energy future.”
Kevin Law, President of the Long Island Association, said, “The Long Island Association supports Governor Cuomo’s efforts to restructure LIPA and the way the electric utility services are owned and managed on Long Island and we look forward to working with him on developing any legislation needed to implement these reforms.”
Babylon Town Supervisor Rich Schaffer said, “LIPA failed the residents of the Town of Babylon and Long Island during Superstorm Sandy and it is time to instill real accountability to ensure we never see the same mistakes again. Governor Cuomo’s plan will stabilize rates, reduce inefficiencies, and ensure that our public utilities are much better prepared for the next major storm.”
Huntington Supervisor Frank P. Petrone said, “As LIPA's response to the last two major storms demonstrated, a change clearly was needed to ensure that Long Islanders do not endure the degree of suffering they encountered after Irene and Sandy. I commend Governor Cuomo for acting to reduce LIPA to holding company status and to bring PSEG's professional management to Long Island's electric system.”
Southampton Town Supervisor Anna Throne-Holst said, “Ratepayers deserve to know they are getting value for their money, and I don’t think Long Island residents have felt that LIPA’s costs are reasonable for decades. It’s time to try a new approach, and I applaud the Governor for striving to reinvent a stale organization in pursuit of providing Long Island residents with high quality and fairly priced utility services.”
Following Superstorm Sandy, Governor Cuomo established a Moreland Commission to investigate the response, preparation and management of LIPA, among other utility companies. The Moreland Commission’s investigation concluded that LIPA’s poor customer service, high rates, large debt load, insufficient and antiquated infrastructure, and failure to perform during natural disasters are a result of its dysfunctional bi-furcated structure. Under the old structure with LIPA in charge of operations, decisions on resource/capital investment were made using consultants and not utility managers actually running the system, often putting political priorities ahead of the needs of ratepayers. Additionally, since it was established, LIPA has not been subject to any State oversight with no accountability for performance.
The Governor’s plan eliminates the old structure by giving PSEG full authority to manage daily operations; budgeting, operation and maintenance of the utility system; storm preparedness and response; infrastructure improvements; and energy efficiency and renewable activities. Compensation to the new utility will be based in part on demonstrating improved performance and customer satisfaction. LIPA will be reduced to merely a holding company with a small board, reduced from 15 members to 5 members, in order to remain government owned and eligible for FEMA and tax benefits. The State is also pleased that LIPA and PSEG are seeking a rate freeze for 2013, 2014 and 2015.
The Governor’s proposed legislation will also:
- Allow the State to privatize operations and maintenance of the utility system;
- Amend State law to reduce the cost of LIPA’s debt through refinancing at a lower interest rate;
- Institute reforms to the LIPA board and limit the number of allowed LIPA staff to a minimum. Current staff of over 90 will be reduced to approximately 20;
- Place the Long Island utility company under State oversight;
- Allow PSEG to contract and procure without state bureaucratic approval;
- Preserve tax exempt status and protections of existing and future debt; and
- Preserve FEMA eligibility for storm costs reimbursement.
Addressing LIPA Debt and Tax Burden
Since the late 1990’s, LIPA’s debt of $6.7 billion has not decreased and represents almost 10 percent of ratepayer bills. Disputed property taxes on generation facilities represent an additional 5% of ratepayer bills. Under the Governor’s proposal, up to half of LIPA’s debt will be refinanced at a lower interest rate. The State will also use the transition to a new utility to find a fair and balanced solution to address the taxes that are assessed on the Long Island utility plants and power system. Lower property taxes can be used to lower rates or reduce the debt for the first time in 15 years.
Creating Real Oversight
The Governor proposes creating a Long Island office of the Department of Public Service (DPS) with the authority to review the new utility’s operations and issue recommendations. The new utility would be required to comply with strengthened DPS oversight, including a rigorous review process for proposed rates and storm response.