Ryan: Hit the bankruptcy switch at LIPA
Long Island will never achieve economic health as long as it is saddled with the debt on the long-shuttered Shoreham nuclear power plant. If the principle and interest are ever paid off, the combined cost to the Long Island ratepayer will have reached some $16 billion.
Even before superstorm Sandy, Gov. Andrew M. Cuomo indicated that the Long Island Power Authority should be dismantled, and the recent Moreland Commission report that calls for privatization is no surprise. But no matter how the governor dissects LIPA, the Shoreham debt isn’t going away, and its ability to harm our competitiveness remains immense.
Care to harden the electrical grid for future storms? Put the tab on top of the Shoreham debt. Time to replace obsolete generating equipment with efficient turbines? Put that cost on top of the debt. Virtually everything required by LIPA to improve our energy grid will be in addition to the cost of the Shoreham legacy.
Whatever road the governor chooses for LIPA, he will surely calculate how it will affect his national political aspirations. Privatization should come with financial penalties if the winning bidder fails to meet performance requirements in the event of severe weather. That would be good for every ratepayer. Another option is to break up the very concept of a single regional electrical grid and create individual energy districts that mirror utilities currently serving Freeport and Rockville Centre. The new entities could vie for a larger share of neighboring communities based on performance and rates.
But simply changing the nameplate wouldn’t change the underlying debt. And then there is the stunning finding, by a report commissioned by LIPA from the financial consulting firm Brattle Group in 2010, that privatizing could result in a rate increase of up to 20 percent.
It’s time to finally exorcise the ghost of Shoreham. As the fiduciary holder of the bonds, LIPA should investigate declaring bankruptcy. This would force a reordering of how generations of customers repay the debt.
It is not an unprecedented action. According to the Centre for Research on Globalization, an independent research and media organization in Montreal, some 42 American municipalities have declared bankruptcy since 1981 — and so have at least two utilities — only to emerge on the other side with a rational debt structure that protects their future and that of the taxpayer.
Let’s be clear. The state would be aghast at this prospect. Such an action proclaims to the financial community that a state agency has the capacity to default on its debts, and the aftershocks would be enormous. But so too would be the economic ruin of Long Island.
Bankruptcy isn’t a “get out of jail free card” and LIPA would still have debt obligations. But the move would compel a restructuring of how and who gets paid under the supervision of a judge. While there’s no way to project how much debt would be shed, it would give LIPA a far better negotiating position to get numbers down and a new schedule for payment that would be rational for the ratepayer.
Look to other utilities to create a LIPA bankruptcy road map. In 2001, Pacific Gas and Electric Co. in California filed for bankruptcy protection after the energy crisis left it with a $9 billion debt and no viable solution to protect the ratepayer. Back in 1992, El Paso Electric in Texas filed for protection because of the debt created by the construction of a nuclear power plant. In both instances, bankruptcy was painful, the legal process was uncertain, and the markets were very unhappy. But it was the right course of action to move past debt that was devastating to customers.
Even the threat of such an action by LIPA would force elected officials to recognize that the current situation is untenable. By asking, “Whose interest is paramount, the consumer or the creditor?” we can begin to examine other issues, such as the policy of LIPA power plants sitting idle while providing the surrounding community with tens of millions of dollars in payments in lieu of taxes — yet another huge burden shouldered by the all ratepayers. We need to appreciate that no matter how many utility poles are replaced or how many trees are pruned, we are in crisis without restructuring the Shoreham debt.
As the leader of an organization whose members collectively represent the largest ratepayer on Long Island, I can safely say that a projected 20 percent increase in energy costs in the event of privatization, on top of the Shoreham debt, is untenable. If we don’t look at creating a legal circuit breaker to separate ourselves from this crisis, those of us who are left will be reading our LIPA bills by flashlight.
Desmond Ryan is executive director of the Association for a Better Long Island, a Hapauge-based developer's group.