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LIPA Reform Act hurting customers, state Comptroller Thomas DiNapoli says

New York State Comptroller Thomas DiNapoli is seen

New York State Comptroller Thomas DiNapoli is seen in this photo from Sept. 19, 2014. Credit: AP

The state's top fiscal officer is criticizing Gov. Andrew M. Cuomo's 2013 LIPA Reform Act in a report that says the law has left customers facing higher electric bills, increasing debt and less transparency from their utility.

In "A Public Authority in Transition," state Comptroller Thomas DiNapoli raises questions about provisions in the law and PSEG Long Island's contract to manage the electric grid that stripped away mechanisms for oversight of the utility, even as it created a new oversight agency -- the Long Island office of the state Department of Public Service.

"Long Island ratepayers may reasonably feel they have been taken on a roller-coaster ride with respect to their electric bills since the 2013 LIPA legislation was passed," the report states.

The LIPA Reform Act greatly expanded the role of PSEG Long Island in managing the electric grid, while creating the new DPS office and allowing for refinancing of LIPA debt by issuing new securities.

DiNapoli's report found, among other things, that LIPA customers now are facing higher bills "with new categories of charges as well as a proposed three-year rate increase, and bearing a debt burden that is projected to increase" to $8.3 billion by 2018.

"In some regards," the report finds, "ratepayers have less transparency and accountability from their electric service provider than existed under either the previous LIPA structure or its predecessor, LILCO," which was subject to oversight by the state Department of Public Service -- backed by state Public Service Commission rulings. Now, the local DPS office only has "review and recommend" authority, with no PSC jurisdiction.

The report notes that the proposed 3.2 percent three-year rate hike by PSEG and LIPA "represents the largest rate increase LIPA ratepayers have faced" since LIPA took over from LILCO in 1998.

"The goal of affordable utility service on Long Island has not yet been attained and long-standing problems persist," DiNapoli's office found.

Brookhaven Town and others had asked DiNapoli to weigh in on the rate case.

DiNapoli, in an interview, said it was no accident that the report comes during rate-hike proceedings. "I hope this report and timing of it will be used to inform what's being considered," he said.

While his office can't propose legislation, he said, "We would like this report to be weighed seriously by all stakeholders, including state legislators."

A DPS official, who has not seen the report, called the reform act "a success" for ratepayers, adding, "Contrary to what the comptroller says, Long Island ratepayers who were facing significant annual rate hikes, achieved a rate freeze between 2013 and 2015 because of the LIPA Reform Act."

The official said the department was given "unprecedented" oversight and used it "to make sure ratepayers receive the best possible service at the lowest possible rates."

LIPA spokesman Sid Nathan said, "We are proud of what we and PSEG have accomplished since" the act. "We would be the first to say that we have miles to go but we have achieved much."

A spokesman for PSEG declined to comment until he saw the report. A spokesman for Gov. Andrew M. Cuomo did not immediately respond to requests for comment.

The report cites findings by the local DPS office in reviewing the rate hike, including that fixed charges for residential customers -- one part of the utility bill separate from the charge that would be affected by the proposed rate hike -- would spike by 2018 to $20.08 per month from a current $10.95, while small business accounts would see jumps from $10.95 to $43.80.

More broadly, the report said, "If this [rate] proposal is adopted, it would cloud the rate picture and leave even further uncertainty with respect to rates for LIPA's customers."

While calling the local DPS office's work on the rate request "important to ratepayers," the comptroller noted that PSEG asked that some three-quarters of rate-plan documents filed be kept confidential. Some of those documents had been previously publicly available from LIPA.

"LIPA's ratepayers are not benefiting from regulatory oversight, access to information, and cost-control mechanisms that are as strong as those enjoyed by other utility customers in the state," the report said.

DiNapoli also noted that ratepayers starting in 2016 will begin paying an $8 million annual cost called the New York State DPS Administrative Assessment, to cover the Long Island DPS office's costs. "It remains questionable whether a DPS office with only an advisory role and without enforcement powers can adequately protect ratepayers and control rates," the report states.

DiNapoli is calling for greater powers for the DPS office, while instituting "more robust consumer protection and advocacy provisions," more local dialogue and participation, and work to "reduce, not continue to increase, the debt burden."

A large portion of the report deals with LIPA's debt load. It mentions that the comptroller's office, while it reviews LIPA debt issuances, does not have the same power to review those of a newly created Utility Debt Securitization Authority, which is refinancing some $4.5 billion of old LIPA debt.

And it notes that Cuomo's original Reform Act bill memo presented a plan to "start the process of reducing the overall debt burden borne by LIPA's ratepayers." Instead, LIPA has said it will borrow $300 million to $400 million a year over the next several years, with current debt of $7.6 billion rising to $8.3 billion by 2018.

Meanwhile, annual LIPA and UDSA debt service costs are expected to grow 12.5 percent, from $660 million in 2015 to $742 million by 2018, the comptroller found.

The debt issues "raise concerns for both the short-term and longer term impact of such costs on LIPA customers' bills, suggesting that debt will persist as a particularly challenging burden for LIPA and its customers for years to come," DiNapoli reported.

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