Moreland Commission: Scrap LIPA after Sandy performance

ALBANY -- The Long Island Power Authority should be shuttered and replaced with a private company after its disastrous performance in response to superstorm Sandy, a state oversight panel recommended Monday.

The Moreland Commission, empaneled by Gov. Andrew M. Cuomo to review utilities' storm performance, said LIPA had a "fundamental dysfunctional management structure" that hampered power restoration and led to poor communication with the public. However, officials acknowledged LIPA's performance wasn't necessarily worse than other utilities'.

Panel: Scrap LIPA

Still, the best resolution, the panel concluded, was to scrap LIPA and go with a private company. "It's highly questionable whether LIPA customers will ever regain confidence in LIPA," Benjamin Lawsky, panel co-chairman and head of the state Department of Financial Services, said Monday. The commission delivered its preliminary report to the governor at a State Capitol news conference.

Administration officials said it's likely Cuomo will address LIPA in his State of the State address Wednesday.

LIPA was originally created to replace a private entity, the Long Island Lighting Co., in 1985. Some critics fear privatization would lead to higher electricity rates, because a private company might have to take on all or part of LIPA's $6.9 billion debt,

LIPA spokesman Mark Gross said, "We are reviewing the report and will continue to cooperate with the state and the Moreland Commission to do what is in the best interest of Long Island's ratepayers."

The panel studied other options: placing LIPA under the oversight of the New York Power Authority and expanding LIPA to allow it to operate the Island power grid. Currently, LIPA owns the system, but a contractor, National Grid, runs the day-to-day operations.

Nassau County District Attorney Kathleen Rice, who also serves on the panel, said restructuring LIPA wasn't a practical option because it is so deeply unpopular. "I think it [LIPA] is one of the most powerful curse words on Long Island and Queens, I would venture to say," Rice said. "I don't see how you'd be able to convince people that they would get the service they deserve with a LIPA restructuring."

She added that LIPA is "a mess" and "is accountable to no one." Ninety percent of LIPA customers lost power after Sandy; some locations took weeks to restore. Poor communication fueled public anger.

Regina Calcaterra, the commission's executive director and Suffolk County deputy executive, said the bifurcated operational structure of LIPA and National Grid was fundamentally flawed. "You need to get rid of the middle man," she said."No other utility was structured the way LIPA was."

Complicating the issue, PSE&G of New Jersey is set to take over management responsibilities from National Grid in 2014. But officials noted that LIPA could invoke a cancellation clause, and then the state could solicit private bids to take over the system.

In a statement, PSEG said it "continues the work necessary to fulfill its obligations under its existing management services contract with LIPA."

LIPA was created by former Gov. Mario Cuomo -- the current governor's father -- to take over from LILCO, which had a history of service problems. Moreland Commission officials said privatizing LIPA now wasn't necessarily a return to the past.

"Just because something didn't work years ago doesn't mean it won't work this time," Calcaterra said. "Maybe LILCO didn't succeed, but many private power companies do."

Privatization not easy road

A transition to privatization would take numerous pieces of legislation. No one could provide an estimate of how quickly it could occur.

The governor didn't directly embrace privatization. But because he voiced doubts about the other options, he too seemed to be leaning that way. "Any expansion of LIPA isn't an option," Cuomo said.

The governor hasn't done much with LIPA during his two years in office. For example, four of the nine board of trustee spots appointed by governors are still open.

Asked if he shared some of the blame for LIPA, Cuomo said: "Absolutely not. . . . The structure of LIPA didn't work."

But a former state legislator said privatization would cost consumers in the end. "Privatization is a fundamental mistake for the people of Long Island," said Richard Brodsky of Westchester County, who has studied utilities and storm preparations during a long career in the state Assembly. "It will increase the operating costs."

He said a private company wouldn't have tax-free financing like LIPA and a new operator wouldn't take on LIPA's existing $6 billion debt -- which would be passed on to either state taxpayers or Long Island ratepayers.

Just because LIPA wasn't "run well," doesn't mean that public ownership should be scrapped, Brodsky said. "That would be a great mistake."

With Joan Gralla

and Mark Harrington

The options

The state Moreland Commission considered three ways to overhaul the Long Island Power Authority:

1. Privatize it

Let a private utility purchase LIPA's assets and serve as sole utility manager. This would streamline operations and put the new company under state oversight.

But it involves passing numerous pieces of legislation and handling LIPA's $6 billion debt.

2. Expand it

Allow LIPA to function not only as owner of power system but also day-to-day manager. Currently, National Grid manages. This would streamline the management system, but would require hiring an additional 2,000 employees on state payroll.

3. Replace it

The New York Power Authority would replace LIPA under this plan. The commission said NYPA has a "successful professional energy" team, but that this option would either greatly stretch NYPA's resources or require more state hiring.

The recommendation

The commission recommended privatization, saying it was more "cost effective" than the other options. Gov. Andrew M. Cuomo would have to propose legislation to make it happen.