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Editorial: Don't duck tax issue in reorganizing LIPA

Power lines seen at sunrise in Melville on

Power lines seen at sunrise in Melville on Jan. 11, 2013. Credit: Newsday / Karen Wiles Stabile

The downfall of the Long Island Power Authority has been decisions made for political rather than operational reasons. The most daunting thing about Gov. Andrew M. Cuomo's plan to restructure LIPA is that it is headed down that same path.

It's no surprise that any plan to fix the utility has to accommodate political realities, but this deal has to etch any improvements in stone to avoid pitfalls.

Cuomo's plan would refinance half of LIPA's $7-billion debt to create savings, freeze rates (excluding fuel costs) for three years, shrink LIPA from 90 employees to 20, assign the state Public Service Commission a beefed-up advisory role in overseeing the utility, and give control of all operations and budgets to New Jersey-based PSEG, which already is due to take over management of operations in 2014.

The idea of full privatization, originally favored by this page and by Cuomo, was dropped because of politics. And the greatest stumbling block to a better, less debt-ridden LIPA -- outrageous taxes paid by the agency to keep certain constituencies happy -- also is not solved in the governor's new legislation.The dream for LIPA is that a reorganization would bring swift improvements. Ratepayers want lower rates, fewer outages and quicker repair times.

But no shake-up will result in really cheap electricity. Nothing is cheap here. Nor can all outages be prevented. Weather strikes and equipment breaks. Still, LIPA's response to Sandy was dismal, with poor communications and a response system based on paper work orders and outdated maps.

For LIPA customers, a monthly bill has two main components: infrastructure costs and the price of fuel, which varies with the market. Ratepayers have a right to expect a holding pattern on rate increases for the operation of the system, but no one can control the cost of fuel. They can also demand responsible debt maintenance, and that property taxes paid on plants and other equipment reflect their value.

Long Islanders need wise storm preparation, competent disaster response, effective communications and a modern grid that can self-identify outages. So Cuomo's promised rate freeze, meant to soothe customers, makes little sense for a utility that so badly needs equipment upgrades and storm hardening.

In contrast, PSEG got approval for a smart way to upgrade the infrastructure in New Jersey. Instead of giving back nickels and dimes for small reductions in fuel costs, the utility will put them toward improved equipment.

Would the governor's plan guarantee customers what they deserve? Not all of it, not yet.

Cuomo's bill creates a level of scrutiny, audits and recommendations by the state Public Service Commission on operational matters. An existing level of oversight would disappear with this deal, though; the state comptroller would no longer have oversight of LIPA contracts. Even with this reform bill, the state Public Service Commission wouldn't be able to control rates; bond covenants for LIPA's $7-billion debt say LIPA must do that.

This new PSC oversight makes sense, but state Comptroller Thomas DiNapoli should review the expanded deal with PSEG now being negotiated. His office reviewed the management contract to replace National Grid, and now that it is being revised without a new bid process, letting DiNapoli scrutinize it is the best move. Details need to be disclosed before any vote on LIPA legislation.

Debt constitutes about 9 percent of every LIPA bill, and taxes 15 percent. What Cuomo's plan fails to do is define how the property taxes on four generating plants owned by National Grid will be brought down to a fair level at a pace that would allow host communities time to adjust to the loss of revenue.

Taxes on plants in Northport, Port Jefferson, Island Park and Glenwood Landing (the last is being decommissioned) are based on outrageously high assessments, and paid by all LIPA ratepayers, but that revenue goes to only a handful of municipalities and school districts. About $75 million is paid on the Northport plant, for example, a number that LIPA officials claim is 10 times too high.

Members of the State Senate and Assembly from those districts fear voting for a reasonable plan to wean communities off this income. They hope to procrastinate by passing a new LIPA restructuring law now -- and promising to fix the assessment problem later. That's what happened when LIPA was created from the carcass of the Long Island Lighting Co. We can't afford that mistake again.

Another contentious issue is that communities with plants want the old generators to be updated with new equipment, not shut down. But that may not be the cheapest way to produce power. Written rules to address this, as well as the future of renewable power on Long Island, would help Cuomo's plan vastly.

Even the districts and towns that benefit from the huge payments can't risk not negotiating now. National Grid, which still owns the plants, is challenging the tax assessments in court, and a win for it would mean an immediate, crippling cash loss for schools and municipalities.

Communities that do not benefit from the high taxes on the old plants are victimized by high rates. Their Assembly and Senate representatives need to be as strong in defense of their residents as the ones who benefit are. The victimized ratepayers need to demand action in Albany.

LIPA needs to be fixed. The proposed bill addresses many of its problems. But unless the tax assessment issue is settled firmly and fairly, it will still be an electric company powered by politics.