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LIPA, PSEG should slash rate hike to $48 million, says state

PSEG Long Island crews work to transfer power

PSEG Long Island crews work to transfer power lines to new utility poles along Montauk Highway in West Islip on Thursday, July 10, 2014. Credit: Newsday / John Paraskevas

LIPA and PSEG Long Island's three-year, $221 million rate-hike request should be slashed by nearly 80 percent to only $47.8 million, a state regulator said.

The Long Island office of Department of Public Service, after months of review, has determined that LIPA and PSEG's three-year rate-hike request overstated its inflation allowance, underestimated interest savings from refinancing, and under-projected electricity sales.

The utilities' proposal for three years of nearly 4 percent rate hikes should be trimmed to increases of 0.6 percent in 2016, 0.5 percent in 2017 and 1.2 percent in 2018, for a total 2.3 percent, the state agency said.

DPS Long Island director Julia Bovey called the agency's filing "a landmark event in terms of improving public transparency and accountability while demystifying the rate-setting process on Long Island."

Among the proposed reductions, DPS argues that the utilities can trim a total of $4.44 million in proposed advertising spending, $4.8 million from smart-meter computer and staffing expenses, $19.3 million from a proposed tree-trimming budget and $6.2 million for pole inspections over the three years.

The department also argued that the utilities may have boosted their inflation expense by more than $17.6 million. It also argued that lower interest rates tied to the refinancing of old LIPA debt can bring greater savings -- $109 million than LIPA had previously forecast.

DPS also found the utilities had undercut its three-year revenue forecast by $29.6 million.

In addition, DPS is recommending that LIPA alter the way it accounts for depreciation on its books in a way that will allow the authority to pay off about $2 billion of remaining Shoreham debt by 2025 instead of a planned 2032. Savings from capital expenditures, including new state energy initiatives, would allow the utilities to save $8.1 million more than planned, DPS said.

PSEG spokesman Jeff Weir, in a statement, said the company "will carefully study and review today's proposals and testimony and will formally respond on June 4." He said the company remains "committed to an open and transparent rate planning process."

LIPA didn't immediately respond to a request for comment.

DPS also found double counting of some expenses, including a one-time employee bonus that results in a $2.1 million cost reduction, and a double-counted Nine-Mile Point decommissioning cost, saving $3.39 million.

The department also found that funding for pension and other post-employment benefits was insufficient during the rate plan and is recommending that it be increased by $12.4 million in 2017 and $25.4 million in 2018. (2016 spending for the costs would decrease by $88,000).

In addition to the financial findings, the department is also taking issue with the way PSEG is seeking to implement the increase, through a three-step hike in the fixed service charge. The utilities propose increasing the charge from $10.80 now to around $20 by 2018 for most customers. Instead, DPS is recommending the increase be built into the overall delivery charge.

DPS's Bovey credited the DPS staff, including deputy director Wayne Brindley, for the work on the filing and said, "We are committed to determining the best way to maximize reliability and resiliency at the lowest cost possible to Long Island ratepayers."

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