DiNapoli: LIPA plan doesn't protect customers

State Comptroller Thomas DiNapoli, in a preliminary analysis of Gov. Andrew M. Cuomo's proposal to restructure LIPA, raises questions about lessened accountability and oversight and whether the new utility would be able to maintain its tax-exempt status.

Because the legislation as written would allow LIPA alone to negotiate terms of an amended contract with new system operator PSEG, "virtually all existing laws that relate to transparency, accountability, oversight, and best practices to ensure lowest costs and protection of ratepayers would be effectively bypassed," the analysis says.

Among the entities that normally review LIPA contracts is the state comptroller himself, who would be excluded from approving the new PSEG contract and all future contracts. DiNapoli, noting that Cuomo's proposal considers comptroller review "redundant and unnecessary," disagreed, saying it's an important check.

The analysis notes that because it's still not known precisely how LIPA's new contract with PSEG will be changed, "it is impossible to assess whether sufficient public control would be preserved to maintain LIPA's public ownership tax-exempt status."

"The pre-approval function of the comptroller provides a mechanism to ensure that Long Island ratepayers are protected fiscally and from a public safety perspective, and should be preserved," the analysis says.

Cuomo spokesman Matthew Wing defended the governor's proposal.

"Unlike nearly every resident on Long Island, Comptroller DiNapoli wants to preserve the broken LIPA status quo when it has time and again failed on performance, customer service and most of all during superstorm Sandy," he said in a statement, suggesting DiNapoli "wants to keep in place a bifurcated structure with LIPA acting as its own operator and regulator -- the very structure that the Moreland Commission found was dysfunctional and ineffective. This is not an option that Long Islanders want and, especially given the response after Sandy, not an option the Governor is willing to accept."

Kate Gurnett, a spokeswoman for DiNapoli, responded: "As a lifelong resident of Long Island, State Comptroller DiNapoli knows that change at LIPA is overdue. But LIPA ratepayers deserve all the facts and some level of assurance that they don't end up with a bigger problem later. Fully disclosing the plan, having robust oversight and weighing long-term consequences of actions are smart government."

Wing said Cuomo "has proposed what Long Islanders have been calling for: a new utility structure that would keep rates affordable, improve performance and disaster preparedness, and create real accountability through . . . DEPARTMENT OF PUBLIC SERVICE oversight, ending the accountability loophole that has allowed LIPA to avoid facing responsibility for its failures."

The comptroller's analysis takes issue with Cuomo's idea of creating an entity to issue so-called restructuring bonds to refinance a portion of the LIPA debt. It notes the new bonds wouldn't be subject to Public Authority Control Board approval, that ratepayers would be subject to new "transition charges" atop existing rates, and that it's unclear how much of LIPA's debt would be restructured.

"It is unclear what regulatory or statutory mechanism would protect ratepayers against the erosion of checks and balances, transparency and accountability in the constitution and operation" of the new bond issuing entity, DiNapoli's analysis says.DiNapoli's analysis also takes issue with the new Department of Public Service entity that would be created to monitor the new utility's operations, noting it has only limited enforcement powers.

It notes that while the new entity would review any rate increase greater than 2.5 percent, LIPA's board could choose "not to abide" by the rate recommendations after public hearings.

The administration has said the Department of Public Service "cannot set rates" because it would violate existing LIPA bond covenants. The only way around it would have been to privatize LIPA, a path state lawmakers objected to, said a senior Cuomo administration official who asked not to be identified. "They can't have it both ways," the official said.