State starting swift review of taking New York American Water public

Gov. Andrew M. Cuomo isn’t waiting for his utility reform legislation to pass the legislature to begin a comprehensive study of taking the New York American Water system on Long Island public; he ordered a state special counsel to begin a study immediately.

Cuomo had first broached the prospect of a study of the feasibility of taking the 120,000-customer Nassau County system public last year, when he introduced broader utility legislation that also seeks greater penalties for electric utilities that, for instance, perform poorly in response to storms, among other things.

But in a statement issued Wednesday, Cuomo said the issue was too pressing to wait.

"For far too long, the 120,000 customers of New York American Water on Long Island have been plagued by exorbitantly high rates for water — this simply cannot continue," he said, announcing the study that would review all options to reduce customer costs "for this vital necessity and a basic right, including a public takeover. New Yorkers deserve access to clean, safe and affordable water and we are going to pursue every avenue to make that happen."

$1,124 vs. $196 per year

A 2019 study by Citizens Campaign for the Environment found New York American Water customers in Sea Cliff area pay an average of $1,124 per year for water, compared with the nearby Jericho Water Authority, whose customers pay about $196 a year.

Leading the study is Rory Lancman, Cuomo's recently hired special counsel for ratepayer protection at the Department of Public Service, which will hold public forums on the topic.

In an interview, Lancman said Cuomo has ordered the study complete by April 1, a date that is all the more critical because of pending New York American Water rate increases that will hike bills by up to 26%. "So there's a very, very strong impetus to act," he said, adding the impact of the rate increase, which results from more than a year of postponed increases, will be built into feasibility formulas.

Lancman said every option for taking all or part of the water company public is "on the table," and how it could work is "wide open," including "potentially the creation of a new water district or authority." He said the work will be informed by previous feasibility studies by other water districts and villages and towns, and by the expert staff of the Department of Public Service.

In a statement, Lynda DiMenna, president of New York American Water, said the "best path forward" for ratepayers is completion of the sale of NYAW to Liberty Utilities of Canada, along with elimination of a special franchise tax the investor-owned utility must pay and pass along to ratepayers.

"A public takeover would lead to an increase in the debt-service obligations of Long Island residents by hundreds of millions of dollars," she charged. "We do not believe this is a financially prudent option for our customers in the midst of a global pandemic and unemployment crisis."

New York American Water in late 2019 announced it had agreed to be purchased by Liberty Utilities of Canada for $607 million, a sale that requires state Public Service Commission approval. The company had expected the deal to close in the second half of 2020, but the PSC has held up any ruling after previously calling for proposals for a possible public takeover.

Of the potential of PSC approval of the takeover, Lancman said, "For all practical purposes, the Liberty merger couldn't possibly move forward until we decide what we're doing on municipalization. ..."

Reviewing NYAW's assets

But it's a fair bet that the valuation of the company will come in below Liberty's $607 million offer. Lancman said Cuomo has requested a review of "every piece of equipment that New York American Water has ever deployed" with the assumption that "the ratepayers paid for a good part of that. New York American Water or any utility is operating under an illusion if they think all their stuff is their stuff to be disposed of as they see fit. We bought that stuff. Long Island ratepayers bought that stuff."

At least three other public entities have studied takeover of at least part of American Water’s service areas in Nassau, including the Massapequa Water District and the Village of Sea Cliff, both of which found a takeover of just under 5,000 customers and infrastructure feasible. The Town of Hempstead also studied the prospect, and while its outside consultant found the move feasible, the Republican-controlled town government filed a statement expressing concern for the increased debt level it would saddle the town with.

Sen. Todd Kaminsky (D-Long Beach) said he’d like the special counsel’s review to take a deeper look at the prospect of Hempstead Town, which has its own municipal water district, taking over that portion of the system. "My constituents in Hempstead think it would be valuable, and the Town of Hempstead found it would be a savings to them," Kaminsky said. "I think the town should reconsider their position of not wanting to do it."

Hempstead has broached the prospect of state involvement to help fund the municipalization effort, but Lancman downplayed the notion as "not realistic" given COVID-related budget deficits.

"I think our focus is identifying feasibility with the existing framework of the water districts and authorities that exist in Nassau and the localities that exist and provide those services in Nassau," he said. "We think, and the [existing] feasibility studies show, that municipalization is probably feasible under the right circumstances without having to go to the state for additional resources."

Hempstead Water Commissioner John Reinhardt, in a statement, said Lancman’s appointment is "welcome,'' but said the PSC "has not done a good job" addressing cost and water quality issues relating to New York American Water in the past.

Reinhardt said he supported Cuomo’s intervention and the notion of state funding for any public takeover, adding, "We hope that it is the first step in the Department of Public Service improving its role as a watchdog for water customers who are served" by American Water.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.