PSEG will manage daily LIPA operation under Cuomo plan

New York Gov. Andrew Cuomo released legislation May 13 that would effectively “create a new Long Island utility system” to replace the Long Island Power Authority (LIPA).

The state would give a Public Service Enterprise Group (PSEG) (NYSE: PEG) subsidiary full authority to manage daily operations; budgeting, operation and maintenance of the utility system; storm preparedness and response; infrastructure improvements; and energy efficiency and renewable activities.

Cuomo said PSEG would be allowed to contract and procure without state bureaucratic approval. The governor’s legislation would allow the state to both “privatize operations and maintenance” of the utility system while placing the Long Island utility under state oversight.

Since the late 1990s, LIPA’s debt of $6.7bn has not decreased and represents almost 10% of ratepayer bills. Disputed property taxes on generation facilities represent an additional 5% of ratepayer bills. Under the governor’s proposal, up to half of LIPA’s debt will be refinanced at a lower interest rate.

“The aftermath of Superstorm Sandy made it undeniably clear that the LIPA status quo was unacceptable and that we needed to create a new Long Island utility system,” Cuomo said. “Today’s proposal will transform the utility service on Long Island by ending LIPA as we know it and creating a new structure that is designed to put ratepayers first by prioritizing better customer service, reducing the cost of debt, and placing the new utility under strong oversight.”

Cuomo also said the new utility company is seeking to freeze rates for three years.

Compensation to the new utility will be based in part on demonstrating improved performance and customer satisfaction. LIPA will be reduced to merely a holding company with a small board, reduced from 15 members to 5 members, in order to remain government owned and eligible for FEMA and tax benefits. The state is also pleased that LIPA and PSEG are seeking a rate freeze for 2013, 2014 and 2015, Cuomo said.

The proposed LIPA shakeup comes less than a month after LIPA named a new chief operating officer.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.