LIPA should refund full $231M

Pay it all back.

For two years, the Long Island Power Authority overcharged its ratepayers to cover the cost of power that seeps out of the electric grid. That's now a hefty pot of $231 million, and it should be returned to the customers who paid it.

LIPA's board, however, voted only to return about half, $129 million, directly to its customers. And to dribble it back over the next 33 months. That's an average of $2.85 a month this year and $1.50 a month for 2012 and 2013. The utility plans to use the remainder of the excess cash to improve LIPA's balance sheet: $111 million to pay off a loan it needed in 2003 when a decision was made to borrow money rather than raise rates, $102 million to cover last year's storm losses, and about $18 million to offset higher fuel costs.

That division of spoils made sense to the utility experts, accountants and lawyers involved. After all, LIPA has no shareholders; all of its costs are paid by us. Michael Hervey, LIPA's interim head, says not making a $36.5-million loan repayment each year for the next three years gives it the flexibility to offset possible future rate increases. So, he asks, why give it back if you are only going to have to ask for more again?

The industrywide practice of recovering the cost of power lost through transmission was begun by the Long Island Lighting Co. in 1991 at the insistence of the state Public Service Commission, which regulated the for-profit company. LIPA's overcollection, however, only happened in 2008 and 2009. An improved grid with newer cables and power plants caused less electricity to be lost, but the older formula wasn't adjusted until last year. Since the overbilling is so recent, Hervey says it's an acceptable practice for LIPA to use it as income to keep rates stable or pay other bills.

Those arguments might have made sense to the public if LIPA had a clean record of accountability. Long Islanders and its elected officials, however, are outraged over this mistake, a powerful reminder of how the public power company has lost the confidence of the public. Created in the debacle from the closed Shoreham nuclear plant, the state-run LIPA was promised as a way to lower rates and protect ratepayers from bad decision-making. But LIPA now charges some of the highest rates in the nation, and there isn't a discernible vision for its future.

That's why the shifting of funds is being interpreted as just another maneuver to insulate LIPA from scrutiny and political heat from blunders, such as more than $32 million it spent for overtime and extra crews last year for Hurricane Earl, a storm that never quite arrived on the Island. Rate increases to cover those costs might raise questions about the agency's procedures and why it miscalculated.

LIPA would be wise to start down the path of resurrecting itself as protector of the ratepayers by making a popular decision. There's no need for grandstanding legislative hearings or calls for oversight from a directionless PSC.

A quick refund, as small as it is, will be just fine.