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Editorial: PSEG takeover a welcome move away from politics

Gov. Andrew M. Cuomo removes a LIPA sign

Gov. Andrew M. Cuomo removes a LIPA sign from a truck and replaces it with a PSEG sign after affixing his signature to the LIPA reform bill he created which abolishes LIPA on July 29, 2013. Credit: Steve Pfost

It's finally lights out for LIPA.

In just over a week, the task of providing electricity to the region will be handed off from National Grid to PSEG-Long Island. Just as important, responsibility for management and oversight, maintenance and communications, marketing and planning, and storm recovery and damage prevention will move from the Long Island Power Authority to PSEG.

And there's one more thing PSEG will inherit: history. An unkind one.

The powering of Long Island, particularly over the past 15 years, makes for an ugly tale. There is the $7-billion debt incurred when taxpayers had to soak up shareholder-owned Long Island Lighting Co.'s losses on the never-opened Shoreham nuclear power plant, which led to LIPA's creation. That debt still sits on the books and making payments on it accounts for about 9 percent of every bill, sapping both ratepayers' wallets and investments in utility upgrades.

PSEG also inherits an operation run as much with an eye on politics as on operations.

There are the monthly bills, among the highest in the nation.

There is the system's poor physical state, with poles waiting to topple, untrimmed limbs threatening lines and computer systems that do hardly anything at all.

And the one piece of LIPA's past that is very much our present is its most recent poor record of storm response, which began with Tropical Storm Irene in 2011, then became far worse after superstorm Sandy. The resulting customer anger led to the big changes afoot.

For many Long Islanders, the power company, no matter what it is called or who runs it, will always be an expensive irritant at the best of times and a frightening example of incompetence when trouble strikes.

But there are reasons for optimism: PSEG has a proven track record of top customer service and competent storm response in its home state of New Jersey.

LIPA will still exist as a legal entity, but legislation passed in Albany reduces its role. Its new contract with PSEG has been purged of the perverse incentives that plagued the deal with National Grid, which derived more profit when it spent less on operations. PSEG's deal calls for a flat management fee, so it cannot fatten its own purse by scrimping on tree trimming or equipment replacement. David Daly, who will lead PSEG here, has been working on the transition for two years. He knows LIPA's backstory and has a grasp of customer priorities: reliable service, competent storm response and reasonable prices.

But the biggest advantage PSEG has over the LIPA-Grid structure is that it's being given the resources necessary to get the system in shape. That's a positive, but the way they're being provided serves as a reminder that problems with electricity on Long Island have often had politics at their core.

National Grid had a budget of $290 million in 2013 to run the LIPA grid. PSEG will have $446 million in 2014. The extra money is clearly needed to improve a system where maintenance and reinvestment have lagged, computer systems are in disarray and communications and storm management are badly lacking. But the increase in funds comes with an assurance that delivery charge rates will freeze for three years. How can you hike investment and freeze rates? More debt.

LIPA budget documents show it expects to end 2014 with debt of $7.8 billion, a jump of about $1 billion in 12 months. Some of that borrowing is short-term, and some of the expense will be lessened by the refinancing of other LIPA debt at lower interest rates.

But at least $700 million of it is a real, additional burden on ratepayers, with interest expense slated to rise $21 million next year. To freeze rates while borrowing more smacks of a public relations attempt to make customers happy even if the method isn't prudent. It's that kind of decision-making that's created so many problems in the past.

If politics again becomes more important than best practices, nothing will get better. After everything they've been through, Long Island's ratepayers deserve powerful improvements in their electricity provider.