The LIPA Power Plant in Northport is shown in this...

The LIPA Power Plant in Northport is shown in this aerial picture in July 2019. Credit: Newsday/John Keating

Major Long Island business groups are pressing state legislators to broaden the mandate of a proposed study of a fully public LIPA to include the options of selling the utility to a private entity or keeping the existing operating model.

The legislation's authors are pushing back, announcing state Assembly and Senate budget bills calling for $2 million in appropriations to create a commission to study and implement a fully public LIPA.

The Long Island Power Authority also has weighed in against studying the sale of the utility. LIPA says such a review could temporarily lock the agency out of the tax-exempt bond market, as happened twice in the past.

"Inclusion of this commission in the Senate and Assembly … budgets is the first step to municipalizing Long Island's power grid and bringing affordable, reliable power to the island," said Senate sponsor Jim Gaughran (D-Northport).

Backers said the commission proposal would be part of negotiations over the final state budget, which is scheduled to be approved by April 1.

Gov. Kathy Hochul's office has said she would review the LIPA commission proposal if both houses approve it.

The coalition of nine business groups, including the Association for a Better Long Island, the Long Island Association and the Long Island Builders Institute, said the commission must study all three options for LIPA.

Coalition members say they want to, "ensure that Long Island ratepayers don’t fall victim to incomplete analysis, costing billions and negatively impacting the region’s long-term economic viability."

State Assemb. Fred Thiele (I-Sag Harbor), who first proposed the commission, said the suggestion that the bill include a full study of privatization was "ill-considered and redundant."

The final legislative bills do not include the business groups' request for a deeper look at privatization or the public-private model.

"Not only have they been reviewed many times, but we have decades of real-life experience with both options," said Thiele, who argued it’s "only the municipal option that has never been given a fair chance."

Previous studies by LIPA and the state have shown that selling off LIPA’s assets to a private company would cost ratepayers money because LIPA no longer would be eligible for federal reimbursement for storm costs.

In a letter to the commission bill’s sponsors, LIPA chief executive Tom Falcone warned a study of privatization could have consequences including locking LIPA out of the tax-exempt bond market for the study's duration.

That’s because LIPA, as a government entity, must disclose to potential bond buyers that the "facilities financed are expected to be used for governmental purposes throughout the term of the bonds," Falcone wrote.

A state evaluation of LIPA’s sale to private entities "and the possibility that such a sale might be recommended would make such representations challenging," Falcone said.

Falcone noted studies of privatization in 2005 and 2013 each locked LIPA out of the bond market for more than a year while the reviews were undertaken.

Kyle Strober, ABLI's executive director, which includes some of Long Island’s largest developers, downplayed concerns about bond offerings.

"While a comprehensive study might theoretically delay LIPA's ability to enter the bond market, an incorrect decision on the future will cost ratepayers tens of billions of dollars, far exceeding this short term risk," Strober said in a statement.

"History has demonstrated that the decisions made by those responsible for our power grid have cost the ratepayers billions," Strober said.

Questions about the future of the utility, and its relationship with PSEG Long Island, arose after PSEG failed to respond effectively to Tropical Storm Isaias in 2020.

While exploring numerous options for its future, LIPA last year opted to negotiate a new contract that puts around half PSEG’s pay at risk if it fails to perform.

The contract also creates nearly 100 new performance metrics to measure the New Jersey contractor’s progress.

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