Keith Murphy, a PSEG lineman, prepares his truck the day...

Keith Murphy, a PSEG lineman, prepares his truck the day superstorm Sandy hit Long Island. (Oct. 29, 2012) Credit: Tariq Zehawi

Gov. Andrew M. Cuomo is pursuing a new proposal that would give a New Jersey company nearly complete control of the Long Island electric system, replacing the LIPA brand.

Larry Schwartz, secretary to the governor, said in an interview Wednesday that state officials have begun discussions with PSEG of Newark, which already is set to take over management of the Island's electric grid in January, to consider expanding the scope of the contract.

Under this scenario, PSEG would be responsible not only for the operation and maintenance of the electric system, but also would control capital and operating budgets, storm preparedness and response, call centers, computer systems and customer service -- just about everything.

"By giving more operating control to PSEG, we'd be able to freeze the rates, we'd vastly improve customer service, and we'd significantly improve storm preparedness and response," among other things, Schwartz said. "You might be able to get the best of both worlds."

Cuomo in January outlined a plan to sell LIPA to a private utility, but that idea met with stiff criticism from Long Island lawmakers, business groups and consumers, who worried that it could lead to increased rates. Since then, Cuomo's office has been exploring options that include fully municipalizing LIPA and enhancing the PSEG contract.

Cuomo's office first signaled a willingness to examine the PSEG option in a Newsday story last week. That option would increase the cost of PSEG's current 10-year contract to manage the grid beyond the initial $3.3 billion (or $323.92 million a year), but higher costs could be offset by a reduction of some LIPA outside contracts and staff, Schwartz said.

"We'd save millions on consulting contracts" alone, Schwartz said. PSEG has much of the needed "in-house expertise. They'll just run the entire operation less costly."

A PSEG spokesman didn't respond to a request for comment.

Cuomo also envisions a greater role for the Public Service Commission in overseeing LIPA, both in ratemaking and other functions, Schwartz said. At present, LIPA customers make complaints about LIPA to LIPA, or, alternatively, to the state Consumer Protection division, which has no enforcement power over the authority.

Under the PSEG proposal, LIPA as an entity would continue to exist, albeit as a holding company of some 20 to 30 employees. Its board of trustees could serve a more limited role, if it remains at all. A new consumer advisory board made up of business and consumer leaders and lawmakers would make recommendations on rate decisions.

LIPA currently has just under 100 employees, and 15 board seats appointed by state lawmakers, including nine by Cuomo. LIPA last week named ConEd veteran John McMahon its new chief operating officer.

To help reduce the burden of LIPA's $6.9 billion debt, the proposal would still seek to "securitize" a portion of LIPA's debt, Schwartz said. LIPA would seek a lower interest rate, maintain its tax-exempt status and pay off the securitized debt over a defined period. It would require state legislation, he said.

While Schwartz said the administration has confidence PSEG can take on a broader role at LIPA, including decisions on new power generation, the administration has not ruled out the prospect that other state agencies, such as the New York Power Authority, could play a role. "We should not worry about turf," he said.

LIPA would still own the electric system, and thus be eligible for federal reimbursement for storm costs -- a concern under Cuomo's privatization plan.

Schwartz said Cuomo has not abandoned any option for LIPA other than the status quo, meaning privatization isn't entirely off the table. "Nothing's a done deal here," he said. But, he added, the PSEG plan "is an option that we're now focusing on and pursuing."

Schwartz said the plan is to meet with state lawmakers from Long Island to gauge response and iron out differences. Legislation would be required for securitization of the debt and Public Service Commission oversight of the utility, something Schwartz said he hopes could be finalized by the end of the current legislative session in June.

Neal Lewis, a LIPA trustee who as executive director of Molloy College's Sustainability Institute has advocated for LIPA to transition to PSEG, said his only qualm with the new scenario is that it could relinquish local control for renewables programs to nonlocal administrators.

"I feel pretty strongly that commitments to energy efficiency and renewables programs . . . should be retained as local public policy decisions," Lewis said.

Assemb. Robert Sweeney (R-Lindenhurst), who said he expects to meet with Cuomo's staff soon to discuss the options, expressed support for one potential element: PSC oversight.

"I can't see how we could possibly leave them [PSEG] out of the picture when we are strengthening PSC enforcement for every other utility in the rest of the state," he said.LIPA trustee Matthew Cordaro said while pursuing the new option could prove complex, it appears to give Cuomo the best elements of privatization without the downside. "In effect, they're trying to do privatization without doing privatization," he said. "In a way, it's almost good if they end up in the right place."

Jeannie Appleman, lead organizer for Long Island Congregations Associations and Neighborhoods, a grass-roots activist group, said the primary objective for consideration of any option for LIPA is that the process happen in full public view.

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