Long Island ratepayers face $401M in PSEG worker costs
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Long Island ratepayers, already on the hook for $263.5 million in unfunded pension and related costs tied to LIPA parting ways with National Grid, face $401 million in similar future costs for PSEG Long Island workers.
The Long Island Power Authority's recently released 2013 audited financial statement noted that LIPA may seek recovery of those unfunded costs through rates in the future, although not until 2016 at the earliest.
On the last page of the statement, a section termed "subsequent event" describes the new arrangement LIPA made for National Grid employees who transitioned to PSEG Long Island.
The $401 million in future payments -- for pension, retirement health care and life insurance plans -- would be in addition to the current regular retirement benefit payments that LIPA already makes as part of its $446 million annual operations and maintenance contract with PSEG.
Not during the rate freezeTom Falcone, LIPA's newly named chief financial officer, suggested that any move to collect money to fund the retirement costs would not happen during Gov. Andrew M. Cuomo's promised rate freeze through 2015.
"As previously announced, LIPA is planning to keep delivery service charges flat in 2014 and 2015," Falcone said in a written statement. LIPA "expects to discuss this liability with the board, including the potential establishment of a regulatory asset, the amortization period and a funding plan that will extend over the expected work life of the employees."
A regulatory asset is a balance-sheet item, in this case a pension cost, that can be recovered from ratepayers. LIPA already has a $41 million entry for transition costs related to PSEG taking over the system.
A former LIPA trustee who asked not to be named and is familiar with the pension matter said the $401 million represents financial analysts' best guess of how much the retirement plans would be short of funds given future potential costs, estimated market performance and current payments by LIPA for labor costs, which include some pension expenses.
"The money's got to come from somewhere," said the former trustee.
Falcone, in his statement, suggested that some of the costs could be paid through current funding of PSEG workers' pension plans, which are part of LIPA's contract, but he declined to provide specifics.
"These unfunded costs are being built into labor loadings in 2014 as they were built into labor loadings in 2013," he wrote.
The former trustee said PSEG conducted a review of the unfunded costs during 2013 to determine their impact. The New Jersey company decided against taking on the liability itself, sources said.
PSEG spokesman Jeff Weir said the company had always interpreted its contract with LIPA to assume that any liability for pension costs rested with the authority. "They were always LIPA's liability," he said, denying that PSEG had ever considered assuming them.
During the transition last year, PSEG, National Grid and union leaders agreed that they wanted to make sure that workers who came over from National Grid didn't lose the value of vested benefits from their long tenures with the previous LIPA-contracted companies.
Under LIPA's new contract with PSEG, "employees that were National Grid-transitioned employees will be provided similar employee benefit plans as those offered by National Grid."
New PSEG employees would be credited for their years of service under National Grid and prior companies, according to the LIPA financial statement. Eligibility, vesting, company matching levels and subsidies from their pasts all carry over under the new PSEG plan, according to terms of the agreement in the financial report.
The bottom line, according to the final paragraph in the annual report, is an estimated "contractual liability of $401 million as of January 1, 2014 equal to the unfunded pension and [other post-employment benefit] liability."
Falcone insisted that the accrued liability for newly labeled PSEG employees did not represent "new costs," because similar costs were being recovered under the previous contract with National Grid. "We are just recognizing them with the new service provider," Falcone said.
LIPA for a time disputed National Grid's contention that it was responsible for unfunded pension costs, which National Grid at one point said amounted to $400 million, according to LIPA. But late last year, LIPA, after a review by an outside law firm, agreed to settle with National Grid for the equivalent of $263.5 million.
Falcone explained that since the liability is a "2014 event, we plan to discuss this further with the board, and are likely to seek recovery of these costs (as there is no third party to pay them as with all labor costs) over the anticipated work period." PSEG has a 12-year contract, extendable to 20 years.
LIPA ratepayers are already scheduled to start paying a 10-year loan for $216.4 million to cover separate unfunded pension costs for prior utility employee plans under National Grid. LIPA has already paid some of those costs with a cash payment, and by forgiving a $155 million loan to National Grid.
LIPA ratepayers will begin to pay off a new $216.4 million liability tied to that transaction starting in 2016.