The transition to PSEG's operation of Long Island's electric grid is underway, marking the end of 15 years of LIPA control.
State legislative passage of Gov. Andrew M. Cuomo's LIPA overhaul bill has cleared the path for the PSEG brand to step in. While several steps, such as IRS approval of LIPA's tax-exempt status, need to be resolved, the PSEG logo is set to replace LIPA on everything from bills to trucks.
The New Jersey utility already was scheduled to take over management of the Long Island electric grid in January under a 2011 agreement with the Long Island Power Authority. The new legislation gives it additional powers: control of capital and operating budgets, storm preparedness and response, call centers, computer systems and customer service.
But those aren't the only changes in the offing. The new bill also freezes rates for two years, reduces LIPA to a skeletal staff and cuts its board to nine trustees from 15. It establishes a consumer watchdog in a new Department of Public Service branch on Long Island and paves the way to refinance about half of LIPA's $7 billion debt.
The law still awaits Cuomo's signature, but measures triggered by the bill are already being enacted. LIPA's board has just authorized Goldman Sachs and Morgan Stanley to act as underwriters for up to $2 billion in newly securitized LIPA-debt bonds.
Cuomo said customers can expect a higher level of service from PSEG than they've gotten from LIPA and its contractor, National Grid. Gone will be the "bifurcated, two-headed monster," of LIPA with National Grid operating in the background, sometimes at cross-purposes.
"You were funding two bureaucracies, two operations, and the company that was running it wasn't really competent to run it," he said.
The best-case scenario, Cuomo suggested, is that the new utility doesn't make headlines. "The ideal is, I flip the switch and the light goes on and my bill was more than reasonable. And there was a storm and the delay was tolerable," he said.
Some LIPA remnants
Remnants of National Grid and LIPA will still be around. PSEG will continue to rely on National Grid's computer systems for two years or more, according to LIPA trustees briefed on the plan. And trustees were told last week that because Grid is struggling to fix problems that began last year when converting to a new software system, a set of functions that PSEG wanted to use may not be available.
PSEG also has been working to incorporate its own storm outage management system at LIPA, at a cost of some $33 million, to better manage and report to customers on storm outages and response times.
The Cuomo administration has said that its deal with PSEG will ultimately result in as much as $60 million annually in "efficiency" savings, primarily by eliminating LIPA consultants and other redundancies. PSEG could receive as much as $25 million annually in new compensation, in addition to the $21.7 million more it will charge LIPA for taking on additional responsibilities.
One element of the new law that will become more evident in coming months is the anticipated settlement of LIPA's tax challenges to local assessments on large National Grid power plants, including Northport and Port Jefferson.
Senators have agreed to a plan that cuts millions of dollars from the annual tax payments over 10 years, in addition to dropping a claim on previous years' tax claims. Gradually, the lack of revenue will be felt in local taxing districts, but considerably less than if they had lost the tax cases in court, experts and lawmakers said.
The legislation also provides for a new branch of the Department of Public Service to be established on Long Island. It will act as a watchdog for Island consumers by fielding their complaints and scrutinizing rates, budgets, storm plans and overall service.
While opponents of the LIPA bill have expressed concern that the Department of Public Service won't have adequate power to police PSEG, one early critic of the legislation said he now believes the new watchdog will benefit ratepayers. "I'm expecting a very significant difference in what we experience," said Neal Lewis, a LIPA trustee and executive director of Molloy College's Sustainability Institute.
One set of approvals that occasionally challenged LIPA through its history, but which PSEG will avoid, is state comptroller oversight. LIPA will still be subject to the comptroller's audit, but the new law says only LIPA, not PSEG contracts, are subject to pre-approval. Cuomo said that pre-approval wasn't necessary and that PSEG believed it could operate more nimbly without it.
"PSEG's point was, if you want me to run the business, I'll run the business," Cuomo said. "But I have to run the business. . . . And PSEG was right. And having the comptroller or some bureaucrat somewhere having to approve an electrical contract that they knew nothing about wouldn't work."
Rate freeze built in
Cuomo touted the two-year rate freeze as one of the first positive developments of the bill. "When is the last time you've seen any contract that says I'm going to freeze the rate for two years?" he said last week.
The freeze, initially billed as three years, includes 2013, the administration said, and ends in January 2015. For customers, it means the delivery charge portion of bills, which hadn't risen for more than a decade since LIPA acquired the former Long Island Lighting Co. in 1998, won't increase.
But LIPA's power supply charge, which has fluctuated wildly since the utility instituted monthly fuel-cost adjustments, still is subject to change, administration officials have said.
When LIPA took over from LILCO, it cut rates 17 percent. The impact remained in effect until around 2004, when fuel surcharges essentially wiped it out. When LIPA renewed its agreement with KeySpan in 2006, it also pledged a two-year rate freeze.
"We heard that in 1998," said Gordian Raacke, executive director of Renewable Energy Long Island, which advocates for clean and sustainable energy use. "It's not surprising that the rate freeze is an aspect they are touting."
Raacke said more important are real commitments to energy efficiency measures, which can lower bills by encouraging consumers to use less energy. LIPA has a $924 million program for the measures, and the new law discusses "goals" of continuing them.
"That makes me concerned about the possibility these investments will be reduced, and that means bills could eventually go up," Raacke said.
Larry Schwartz, secretary to the governor and point man on LIPA reform, said such concerns are unwarranted.
"I don't know how many times we can say the same thing over and over again," Schwartz said. "We said . . . [green energy programs] are going to be as robust, if not more robust, than what currently exists."
With Yancey Roy