Consultant: LIPA runs cost-efficiently

LIPA may rank low in customer satisfaction, but it is operating cost-efficiently, a consultant told the utility's trustees Wednesday.

William Zarakas, a principal of The Brattle Group, the consultant advising LIPA on ways to restructure itself, said the utility's costs to produce and distribute electricity are close to the national average and below the state average.

LIPA produces and distributes energy at 1.91 cents per kilowatt hour, compared with an average of 1.87 cents per kilowatt hour nationally and an average of 2.77 cents per kilowatt hour in the state. Factors such as debt drive up rates.

Zarakas briefed LIPA trustees about potential options for restructuring the agency.

The cost comparison makes one possibility, privatizing, unlikely. Potential buyers, he said, would not find enough costs to cut in LIPA's operation to turn a profit. Indeed, because any private company would have to absorb LIPA's debt, build in a profit margin and pay federal taxes (LIPA is exempt from those taxes), Brattle estimated that privatizing would lead to a double-digit rate increase.

Rates would stay steady, if other factors stay the same, under two other options: absorbing workers from National Grid, which services LIPA's business and customers, so the utility could provide those services itself, or keeping the current public-private partnership but taking on more control over budgeting and priorities, according to the consultant's report.

LIPA now contracts with National Grid, but with the agreement set to expire at the end of 2013, LIPA trustees are expected to pick the new organizational structure on Sept. 22.

LIPA this year ranked sixth from the bottom among 144 utilities in a national survey on customer satisfaction by J.D. Power and Associates.

LIPA chief operating officer Michael Hervey acknowledged Wednesday that LIPA needs to improve its customer service.