Insight into high LIPA rates

The side deals that greased the politically arranged marriage of the Long Island Power Authority and KeySpan Energy Corp. in 1998 are now coming to light as these costly arrangements are finally being unwound.

Unfortunately, tax-exempt LIPA had been paying millions in sales taxes on purchases and services, as well as on carrying and warehousing charges, because the private utility that operates its transmission and distribution system controlled those operations.

Those costs were passed back to the ratepayers.

When LIPA was created from the carcass of the Long Island Lighting Co., there were fears that the switch from private to public would be too big of a sales-tax hit on Nassau, Suffolk and state coffers. An "informal understanding" that LIPA would continue to pay sales taxes for the first five years stretched to 13 years.

The total amount of taxes paid isn't known, but LIPA is estimating that its tax-exempt status could now save up to $11 million annually.

The bright side of the revelation is that it emerged from an ongoing LIPA strategy to take back key aspects of its operations -- such as the call center and computer systems -- that had been run by KeySpan and National Grid, its successor. This will give LIPA more flexibility and clout in awarding a new management contract this fall.

There are now demands that LIPA, a creature of the state, recoup taxes it paid to the state. Yet another round in Long Island's expensive mix of politics and power.