LIPA trustees debate merits of three-year rate freeze
LIPA trustees Thursday vigorously debated the merits of Gov. Andrew M. Cuomo's promised three-year rate freeze as part of his plan to reform the embattled authority.
Trustees are scheduled to have a long-awaited meeting with Cuomo officials Friday, and the rate freeze will be brought up, they said.
At issue is just what the administration means by the term "rate." Cuomo's office, in a Newsday story last week, confirmed that the rate that would be frozen is the portion of customer bills known as the delivery charge. It constitutes from 40 percent to 50 percent of the average bill, and has increased only moderately during LIPA's 15-year history.
The other half, known as the power supply charge, fluctuates month to month, sometimes in excess of 25 percent, based on changes in the price of fuel. The administration has said it has a "goal" of keeping that charge stable, but no guarantee.
LIPA trustee Neal Lewis asked LIPA's chief financial officer Mike Taunton just how much the delivery charge has increased in the authority's history.
It has changed only twice: a 1.8 percent increase in March 2011, and a 1.9 percent jump in March 2012, Taunton said.
"So in 15 years, that's around 3.7 percent," Lewis said, noting that it amounts to 0.25 percent per year in that 15-year period and that's what "we're talking about freezing?"
One other problem with the freeze is that the math that will eventually make it happen hasn't been finalized, at least on LIPA's part.
"That's part of the analysis that's ongoing right now," Taunton told trustees, when asked what happens after the three-year freeze. "We haven't come to the point yet where we've closed the gaps for the first two years of that promise. That's what we're trying to figure out, is whether or not we could do that."
He said LIPA will "hopefully identify then what would be the change in the third year if we were able to close that gap. So, as we sit here right now I don't have those answers for you. We are working on that."
Trustee Gemma de Leon raised the point that LIPA in past years has used reserves in the delivery charge to help absorb unforeseen costs such as spiking fuel or storm restoration costs.
"Wouldn't the pressure to freeze rates prevent us from being able to do things like that, to the benefit of the consumer?" de Leon said.
Answered Taunton, "That is one of the risks, absolutely."
The plan to freeze rates is not included in Cuomo's proposed LIPA legislation. Instead, administration officials have said the freeze would be built into an amended and expanded contract with PSEG, which is scheduled to take over LIPA operations in January.