March 20, 2013
LIA Board Resolution - LIPA Privatization
LONG ISLAND ASSOCIATION DATE: 3/20/2013
BOARD OF DIRECTORS ACTION ITEM NO. 01-013
SUMMARY OF PROPOSED ACTION: Support for new changes to the way the Long Island Power Authority's Transmission and Distribution (T&D) system is owned and operated and to the structure and operations of LIPA.
BACKGROUND AND DISCUSSION: On January 9, 2013, in his annual State of the State Address, Governor Andrew Cuomo proposed that LIPA should be privatized (sell its T&D system to an investor-owned utility). The Governor should be commended for proposing such a bold initiative that may ultimately be beneficial for Long Island and for acknowledging that improvements to the structure of Long Island's utility are warranted. While, the LIA supports the Governor's overall objectives to ensure utility rate and property tax stability, improve customer service and communications, and increased investments in storm hardening and emergency preparedness, we cannot recommend the privatization of LIPA at this time. However, the LIA remains open-minded to the potential benefits of privatization in the future, and strongly encourages the State to continue to explore the feasibility of privatizing LIPA (and then either implement it or bring closure to its concept). Accordingly, the LIA makes the following recommendations concerning the operation and ownership of the T&D system and the structure of LIPA going forward. If these recommendations are ultimately implemented there will be more certainty and stability and better communication and accountability at LIPA than exists today and the privatization (or municipalization) of the T&D system could still be explored and implemented in the future.
Operation and Ownership of the LIPA T&D system
- LIPA should continue to proceed with the transition to its new service provider PSEG to eliminate uncertainty and to ensure reliable service continues come January 1, 2014 after its current contract with National Grid expires on December 31, 2013.
- The existing Operations Services Agreement (‘OSA') between PSEG and LIPA should be amended giving PSEG complete control of the T&D system for all storm preparation, mitigation, restoration and communications throughout the year and especially during all major weather events.
- LIPA should pursue a joint Outage Management System with PSEG to enable LIPA to improve its connectivity with its customers.
- Federal aid for Superstorm Sandy should be utilized to create ‘tree-trimmed corridors' throughout Long Island and to harden the T&D system and substations in vulnerable areas.
- The State should continue to expeditiously complete its privatization analysis which should include a competitive procurement process with investor owned utilities including, but not limited to, PSEG-if they are meeting their performance metrics on service reliability and customer satisfaction. Once completed, the analysis should be disclosed and public hearings should be held so that the business community and all Long Island residents can be heard on the matter.
- LIPA should prepare an expedited debt reduction and retirement program while ‘securitizing' LIPA's outstanding debt in order to reduce interest costs. Those savings should be placed in a ‘lock box' to pay down debt and to re-invest in a smarter, stronger and more efficient grid, rather than using the funds to reduce rates.
- LIPA should negotiate settlements of pending tax-certiorari lawsuits and reduce property taxes it currently pays by 50% over the next 10 years (5% per year phase down to soften the impact to municipalities and school districts that rely on those revenues). Those savings should be placed in a ‘lock box' to pay down debt and to re-invest in a smarter, stronger and more efficient grid, rather than using the funds to reduce rates.
LIPA Structure and Programs
Support State Legislation or LIPA Tariff changes (as may be needed) to restructure LIPA:
a. Reduce LIPA's Board of Trustees to 7 trustees (with energy, business or financial expertise) whose main role will be to oversee PSEG''s performance of the OSA.
b. Reduce LIPA's size and functions to a legal and financial role so they can act as independent staff to the new Board of Trustees. (Similar to a Budget Review Office)
c. Authorize LIPA to enter into inter-agency agreements with NYPA and NYSERDA to run LIPA's power markets, energy efficiency and renewable energy programs. Have those agencies review and revise LIPA's energy master plan for meeting the future power needs of Long Island in light of recent major storm events and climate change concerns.
d. Allow the current LIPA procurement process for new energy sources to move forward.
e. Fund LIPA's Efficiency Long Island & Renewable Energy Programs at projected levels to reduce our carbon footprint and support climate change concerns.
f. Authorize LIPA to place any annual savings on budgeted fuel and energy costs in a ‘lock box' to be used to pay down debt and to re-invest in a smarter, stronger and more efficient grid, rather than using funds to reduce rates.
g. LIPA should update its storm hardening plan in light of recent major storm events and climate change concerns.
h. State should grant waivers as necessary for any key LIPA employees who may need to be hired by PSEG to ensure smooth transition of T&D operations.
Subject LIPA rates to the New York State Public Service Commission review and approval.
LIA BUDGET IMPACTS: None
RESOLUTION: Be it resolved that the LIA supports this recommendation