Pols: On Cuomo LIPA plan, key questions remain

Photo of the stacks from the LIPA plant

Photo of the stacks from the LIPA plant in Northport. (Oct. 28, 2010) (Credit: Newsday / Thomas A. Ferrara)

After a day poring over new legislation to revamp LIPA, elected officials Tuesday gave Gov. Andrew M. Cuomo's latest plan a better-than-even chance of passing, but said key questions remain.

Several state and local officials expressed disappointment the legislation didn't include specific language that would address hundreds of millions of dollars in tax challenges that LIPA has filed over the value of power plants -- money that is important for some local school budgets, but which also weighs on LIPA electric rates.

Others wondered why the three-year rate freeze promised in several public appearances wasn't codified in the bill.


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"I think there are still a lot of blanks to be filled in and this is definitely a work in progress," said Assemb. Robert Sweeney (D-Lindenhurst), who nevertheless gave it a better than 50-50 chance of passing.

Cuomo's plan would switch day-to-day control and planning to a private operator, New Jersey-based PSEG, instead of LIPA, which would be reduced to a 20-employee financial holding company. The plan would place PSEG under control of a state regulatory board, refinance LIPA's debt and freeze electric rates for three years.

The bill would put a first-time 2 percent cap on the so-called payments in lieu of taxes that LIPA makes to local municipalities for properties it owns in their districts -- ending tax challenges that LIPA had planned. The caps would take effect in 2015.

State Sen. Kenneth LaValle (R-Port Jefferson), who called the bill a "step in the right direction," said he hopes an agreement also can be reached on tax challenges at the National Grid power plants, including one in his district. "You can't just deal with the [LIPA-owned properties] and not the generation" plants, he said.

Administration officials called that aspect of the bill a "work in progress," and didn't rule out a resolution before the bill is set for a vote next month.

The bill would shrink LIPA's current 15-member board of trustees to five, with three appointed by the governor and one each by the Assembly speaker and State Senate majority leader. It would require trustees to have utility, finance or corporate board experience.

The bill would require a three-year rate plan but doesn't mention the three-year rate freeze Cuomo has promised in public appearances. An administration official said that's because LIPA trustees ultimately have the authority to set rates.

Nevertheless, he said, a new contract with PSEG will work to address it, including a "goal" of stabilized power supply charges, which have been fluctuating wildly in recent months.

The bill would create an entity charged with issuing new LIPA "restructuring bonds," overseen by a separate board of three trustees. Legislators have been told that about $3 billion of LIPA's $6.9 billion in debt would be securitized under the plan, at lower rates, resulting in annual savings of $20 million to $30 million.

Cuomo administration officials confirmed those numbers and said savings from refinancing the debt were integral to the plan.

The bill would allow the administration to sidestep state law that would have required LIPA to rebid the $3.3 billion PSEG contract that Cuomo plans to vastly expand under his new structure for LIPA. The administration officials said that also would obviate the need for state attorney general and state comptroller approval.

The moves are designed to speed the transition to a new LIPA, but one critic expressed reservations. "This is a very complex transaction," said LIPA trustee Matthew Cordaro. "Why should we rush to put this together in two or three weeks? We could pick it up next year and do it right."

Administration officials also have been assuring legislators that they are confident that the IRS will allow the downsized LIPA to keep its ability to issue tax-free debt. Dianne Besunder, an IRS spokeswoman, said, "We are not allowed to talk about any taxpayer organization that would include a municipality."

While the bill puts a number of LIPA's operational and financial processes under the scrutiny of the state Public Service Commission and its administrative staff, the PSC has a largely "review and recommend" function, including on LIPA rates.

The administration officials said the review of LIPA, including for storm preparedness and performance, rates and operations, will be just as rigorous as that for other state utilities, but final approval must remain with LIPA trustees for bond-covenant purposes.

There will be a new PSC office on Long Island, and LIPA ratepayers won't pay an extra fee to finance it, the bill says.

LIPA under the law would also be relieved from paying the state franchise tax, a savings of some $25 million a year. Private utilities in the state pay no such tax.

Local officials expressed disappointment that the bill, in its present form, doesn't address power plant tax challenges.

"We want the tax [challenge] situation addressed in the legislation and we'll lobby our state delegation very strongly to have this addressed because its an issue of critical importance to the people of the Northport-East Northport school district," said Mark Cuthbertson, a Huntington Town councilman.

Added Edward Romaine, Brookhaven supervisor, "We're obviously concerned . . . about what impact that will have on the tax base for the school district and the village."

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