LIPA seeks to recoup COVID, bad-debt, PSEG costs through bill 'adjustment'

LIPA is proposing a set of rule changes that would allow it to recoup costs tied to bad customer debt, non-storm emergencies such as COVID-preparedness and PSEG pension and benefit costs by expanding an annually updated surcharge on customer bills, according to a recent filing.

The changes, if approved by LIPA’s board after public hearings, would add those potential expenses to an annually fluctuating surcharge on PSEG bills called the delivery service adjustment. At present, the delivery service adjustment, or DSA, lets LIPA recoup over-budget costs for storms, debt and interest rate-related expenses. The mechanism, which has no cap and is adjusted annually, also requires the utility to return to customers amounts for those expenses that come in under budget.

LIPA says the move is needed because if those costs expand or contract wildly, in a volatile economy, ratepayers could face more erratic electric bills. Bad-debt expenses for 2020 are being budgeted at record levels, LIPA said.

LIPA in 2020 budgeted $20 million for bad-debt expenses tied to write-offs for customers who likely won't pay their electric bills. In 2021, it plans to budget $30 million for bad-debt expenses. Any costs beyond that $30 million would be shifted to the future DSA charge; any amounts less than $30 million would be returned to customers in the future. LIPA's 2020 expenses for COVID have been under $10 million, and up to 75% could be reimbursed under federal emergency recovery programs, the utility said.

LIPA chief executive Tom Falcone on Monday said the proposed change would work to smooth volatility in customer bills in part because costs pinned to the delivery service adjustment can be recouped over time, rather than as rate increases in its annual budget.

The delivery service adjustment is already expected to increase as LIPA faces a hefty bill for tropical storm Isaias — around $87 million of the up to $350 million cost of the storm, after the federal government’s anticipated reimbursement of 75% of that bill. Customer arrears are also causing bad-debt allowances to spike, Falcone said.

Following its last rate case with the state Department of Public Service in 2016, the authority was given the ability to implement a DSA to recoup costs that fell outside its annual budget for expenses related to storm restorations and debt and interest rates.

Falcone pointed out that all LIPA expenses, with the exception of those funded by federal or state grants, are paid for by customers, so the change in the DSA rules doesn’t mean customers will pay more. LIPA is expecting bills for 2021 to remain relatively flat compared to 2020 levels, he said. LIPA’s 2021 budget will be released next week.

Keeping bills below a 2.5% increase threshold means that LIPA won’t have to submit its budget and expenses to a lengthy review by the Department of Public Service.

The proposal to add new categories to the adjustment comes as LIPA customers experiencing arrears have increased to record levels. State law prevents utilities from shutting off services if customers' financial straits are tied to COVID-19.

LIPA trustee Mathew Cordaro said he was examining the rule changes to make sure shifting the expenses doesn’t obscure what makes up LIPA rates. "We’ve got to be very transparent about what makes up the rates we ultimately pay," he said. "If this obscures that then I have a problem with it. Whatever changes we make have to be transparent, so customers will know what’s responsible for any increases."

Falcone said LIPA’s budgets and filings already make it more transparent than most public utilities and investor-owned utilities.

"We’re trying to keep the customer bill flat," he said. "You don’t need to file a rate case if that’s what your goal is."

No date has yet been set for a public hearing.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.