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Legislators skeptical of LIPA privatization plan

Power lines seen at sunrise in Melville on

Power lines seen at sunrise in Melville on Jan. 11, 2013. Credit: Newsday / Karen Wiles Stabile

State legislators from Long Island who are skeptical of Gov. Andrew M. Cuomo's plan to privatize LIPA are urging consideration of turning the authority into a public utility.

In the wake of Cuomo's call for the sale of the Long Island Power Authority electric system during his State of the State address this month, several influential legislators said they remain unconvinced it will solve the utility's problems and lower rates.

Their call for a thorough analysis of the privatization option, and the notion of making LIPA a 100 percent public utility, comes with some leverage: Cuomo has publicly conceded that his plan for LIPA will require state legislation.

Legislators say a fully public utility could retain the few indisputable benefits of LIPA -- tax-exempt borrowing and eligibility for federal reimbursement of storm restoration costs -- while eliminating the "dysfunctional" decision-making that the Cuomo-empaneled Moreland Commission found had dogged the utility during Sandy and earlier.

Even before Cuomo formally announced the plan to sell off LIPA's assets to a private company and make LIPA merely a "holding company," longtime LIPA watchdogs in the legislature said a fully municipalized LIPA needed to be explored seriously. In the days since, the option appears to be winning advocates.


'Fair chance' sought

"It does work in other places and it has never really been given a fair chance with LIPA," said Assemb. Robert Sweeney (D-Lindenhurst), noting that the law that created LIPA envisioned a fully municipalized utility. "Given the past history, this is certainly something we need to put back on the table."

Sen. Kenneth LaValle (R-Port Jefferson), a sponsor of the original LIPA Act, said, "I believe today what I believed back when the LIPA law was passed -- that if we truly made it the people's utility that it would be responsive and responsible to the ratepayers and the people that it serves."

Under the fully public model, the utility would hire its entire field and office workforce. It would own all the equipment -- repair trucks, computer systems, tools -- and most local offices. Currently, National Grid employs the more than 2,000 workers who operate the system on LIPA's behalf, and owns the resources such as computers to run the system. National Grid owns most major local power plants; LIPA owns the wires, transmission towers and substations.


Caution urged

Even as Cuomo prepares to release a budget this week that could include provisions for launching the privatization of LIPA, lawmakers are urging caution and public hearings to fully air the debate. That suggests that any resolution to the LIPA question could be months, or even years, away. And while it's unclear that any legislator is preparing for a full-frontal battle with Cuomo, many are stepping up to declare their preferences.

"In an ideal world, I would prefer that LIPA be municipalized," said Assemb. Charles Lavine (D-Glen Cove), who pointed to the Moreland Commission's 58-page interim report as proof it could work. "When we look at the report, there is a good case made for municipalization. It certainly should be further explored."

Assemb. Al Graf (R-Holbrook), said that instead of simply selling LIPA's assets, the state should explore breaking it up into smaller municipal electric companies -- perhaps by county. He noted the possibility that Nassau and Suffolk could get access to cheaper power.

"Do we want to give the counties an opportunity to create their own municipal electric utilities?" he asked. "It's a discussion that has to be had."

Assemb. Fred Thiele Jr. (I-Sag Harbor) said Albany should "permit local governments to operate true municipal power companies," like Greenport, Freeport and Rockville Centre already operate -- at considerably lower costs than LIPA.


Municipalization support

The Suffolk Legislature's LIPA Oversight Committee has long endorsed the idea of municipalizing the utility, saying it would eliminate the private company's profit motive, saving tens of millions of dollars annually. It has dismissed the concern that it would enlarge state pension liabilities, noting that LIPA customers already pay those costs.

"There's going to be real pushback on privatization," said oversight committee member Irving Like, an attorney and former LIPA trustee. He said he believes a fully municipalized LIPA with elected trustees is the only option, and recommended seeking federal stimulus funds to help cover some of the costs. Privatization, he said, "is the worst idea yet."

A 2011 LIPA study on the topic considered municipalization the second-best option to an expansion of the existing public-private partnership, but said LIPA could eventually become fully public. Privatization could increase rates 15 percent to 20 percent, the report said.

The Moreland report says making LIPA fully public would "theoretically solve the problem of the lack of accountability and clarity in the lines of management communication" by removing the outside contractor, National Grid. At the same time, the commission noted, a fully public utility would preserve LIPA's ability to issue tax-exempt debt, keep its eligibility for federal reimbursement of storm restoration costs and provide a "healthy yardstick competition" to other private utilities in the region.


Pros and cons

The commission found the problems could outweigh the advantages. The report warned about continuation of the damaged LIPA brand, and "conflicting political and economic interests" within the prospective public power company.

The commission also said a fully public utility wouldn't have the ability to recruit high-level talent from the private utility field because of lower salaries.

Cuomo himself has said making LIPA a fully public entity isn't in the cards. "It doesn't work now. I don't think any expansion of them is an option," he said in a briefing by the Moreland Commission before his address.

The commission declined to comment for this story.

In an interview Saturday, Larry Schwartz, secretary to the governor, said the administration will completely examine the prospect of a fully public utility, along with other options, but he expressed doubts that a "public bureaucracy" would work.

"We're not ignoring the option of public versus private," he said. "I'm just not sure having a government-run utility will accomplish the goal of affordable rates and better preparedness when it comes to an emergency."


Rate hike issue

But if the privatization plan contains any hint of rate increases beyond the rate freeze that Cuomo has promised for the first few years, it will certainly meet with stiff resistance.

Sen. Carl Marcellino (R-Syosset) said he was "not at all" convinced that privatizing LIPA is the way to go.

"I think there's a lot more work to do," Marcellino said. "I don't want to see anything that would send rates through the roof. If you privatize, you add a profit margin in there. What do you do after that period of freeze? People have to see something and it has to be for real."





Remain the same: The current public-private partnership has National Grid operating the system under a $224 million annual contract set to expire in a year, when PSEG of New Jersey takes over. LIPA can issue tax-exempt debt and remain eligible for federal disaster assistance. Gov. Andrew M. Cuomo has ruled out this option, saying LIPA is beyond repair.

Become a fully public utility: An entity like LIPA would hire the approximately 2,000 employees it takes to run the local electric grid, buy or lease all the offices, trucks and other equipment and still be able to issue tax-exempt debt and retain eligibility for federal storm reimbursement money. Cuomo also opposes this option because he doesn't want to enlarge LIPA.

Become a privatized utility: The existing LIPA assets -- wires, poles, transmission towers, substations -- would be sold to a private company; proceeds would be used to halve LIPA's $7 billion debt; the remainder would be converted to new state-backed debt, to be repaid over 20 years by ratepayers. Electric rates would be frozen for three to five years. Cuomo is pursuing this option.





What LIPA would owe PSEG if the New Jersey utility's contract were terminated in:

2014: $7 million

2015: $6 million

2016: $6 million

2017: $5 million

2018: $4 million

2019: $2.5 million

2020: $0

2021: $0

2022: $0

2023: $0

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