Editorial: Can Gov. Cuomo's new plan fix LIPA?
A new plan to fix the Long Island Power Authority can make ratepayers feel they've stepped into a time machine. Is the proposal by Gov. Andrew M. Cuomo déjà vu all over again? Or has he finally found a fix for the problems that have bedeviled the delivery of electricity here for decades?
What's on the table is no longer the full privatization the governor began arguing for almost before the winds of superstorm Sandy had ceased. That may well be the best idea on a purely financial basis because 99 percent of LIPA functions are already handled by for-profit concerns. But once again the politics of power on Long Island make that outcome unworkable.
Full privatization means upsetting the apple cart of excessive tax payments by LIPA for a handful of power plants that benefit a few communities at the expense of all ratepayers. It means the politically connected would lose patronage jobs, contracts and other goodies. It means telling workers their dream of a fully municipal utility, which would bring costly health and pension benefits, will never be realized. And, for the elected officials -- some of whom originally voted to have the state take over from the Long Island Lighting Co. -- such a dramatic reversal is too fraught with the terror of the unknown.
With so little initial support for full privatization, the governor appears to be walking back from that idea without a full airing of the studies the state commissioned to analyze the concept. That's regrettable. Given the full facts, both ratepayers and politicians might see advantages. Even if it doesn't all add up, the hard numbers would, as the Long Island Association business group phrased it, "bring closure" to the privatization concept.
So on the table instead is a "hybrid." The governor's top deputies are intensely negotiating with PSEG of New Jersey -- which already is set to replace National Grid in the management of the Island's electrical grid on Jan. 1, 2014 -- to take full responsibility for every aspect of the business. The remainder of LIPA would be shrunk to essentially a holding company, with around 20 employees responsible mostly to manage payment the public authority's debts. (LIPA now has about 100 employees, up more than 50 percent since 2001.) Cuomo thinks the hybrid model would accomplish his goal of having professional and accountable management under review by a beefed-up Public Service Commission while preserving some benefit of public ownership.
Can this hybrid work? That depends on the still unknown details. It must:
Pay down the $7 billion debt. That idea was first generated when LIPA bought out LILCO and bailed out its shareholders for the Shoreham nuclear power plant debacle. But it never happened. The debt now constitutes 9 percent of every LIPA bill. Under the Cuomo proposal, the debt would be securitized to lower rates. That must be paired with an ironclad schedule for retiring the Shoreham debt.
Reduce excessive property tax assessments. The taxes LIPA pays are just too darn high on major generating plants, such as the ones in Northport and Port Jefferson. Overall, taxes account for about 15 percent of each LIPA bill. The new LIPA plan must include a detailed time frame for right-sizing these assessments, one that is fair to ratepayers but lets the affected school districts, municipalities and libraries adjust for the lost revenue.
Keep the "public" part of LIPA to a mere shell. The employee ranks in LIPA's plush Uniondale headquarters have swelled in the past 15 years, mostly with high-paid positions for the politically connected. Five employees might do.
Chop down the size of LIPA's board. The current 15-seat board should shrink to seven, and all members should be required to have financial and corporate board experience. This is a utility, not an advocacy organization.
Improve the infrastructure. The horrific communications and customer service after Sandy were mostly the result of disorganization and poor management. That's relatively cheap to fix. The expensive need is to harden the system. We must have a modern, high-tech grid where outages are self-reported and crews and customers know in real time what is being done.
The two major arguments against full privatization and for keeping vestigial public oversight are tax-free borrowing and access to federal funds after a disaster. While taxable bonds are low-cost now, the governor's office argues the cost could go higher in the future. Supporters of privatization say the other savings would equalize the cost.
Another argument for keeping LIPA is its access to federal assistance after disasters like Sandy. After past catastrophes, private utilities have sometimes received federal relief, and successful power companies in hurricane alleys haven't suffered from their for-profit status.
During the six weeks left in Albany's legislative session, Long Islanders need to see the exact wording of the law that would create the successor to LIPA. They also need to know the cost and details of any new contract under negotiation with PSEG. And they need time to review all the details.
The all-too-familiar promises made before were broken. But after Sandy, we know there is no choice but to try again.
Cuomo says a mostly private but-still-a-little-public hybrid is the only politically feasible configuration that can deliver what Long Island needs.
Now he has to prove it.