The Long Island Power Authority has long been criticized by many for high rates and poor customer service, but when Hurricane Sandy hit at the end October and left nearly one million LIPA customers in the dark, the public’s anger came to a boil over the utility’s perceived slow response in getting the power back on.
Finding LIPA’s post-hurricane service inadequate, Governor Andrew Cuomo called for the abolishment of LIPA in his State of the State Address on January 9, and said that privatization of the utility could be around the corner.
By issuing bonds to pay off more than half of LIPA’s debts and selling its distribution and transmission system, the state would relinquish LIPA to a utility company and rely on the State Public Service Commission, which regulates electric, gas, steam, telecommunications, and water utilities, to ensure that rates are justified, plans are in place for storm response, and public policies are applied consistently.
“We want to privatize the Long Island service, which will be regulated by a new and empowered Public Service Commission that will happen simultaneously,” the governor said in his speech. “And we want to do it in a way that protects the ratepayers, and freezes the rate for a period of years.”
Lawmakers, both locally and across the state, say that LIPA should instead be made into a publicly owned company, as it was originally intended to be—a government-managed and operated utility for the people. Currently, LIPA operates as part public and part private—it is a state agency that oversees the operation of Long Island’s electric system and contracts London-based National Grid to operate and repair its transmission system.
“LIPA is a crazy hybrid of a politically controlled, public authority-managed company whose actual work is done by the private sector,” said State Assemblyman Fred W. Thiele Jr. of Sag Harbor. “I don’t disagree that LIPA, how it is currently, is a failure. I just think that, basically, saying, ‘LIPA’s a failure, let’s sell it back to a private company and be done with it’—that’s how we got into this mess to begin with.”
In 1985, the Long Island Power Act was enacted to acquire the Long Island Lighting Company’s assets and securities after the company’s plans to operate a nuclear power plant in Shoreham were canceled. The plant was built, racking up more than $6 billion in debt, but was never fully operational, thanks in large part to opposition from Long Island residents.
According to State Senator Kenneth P. LaValle, who supported the Long Island Power Act, ratepayers had already been disenchanted with LILCO’s response to Hurricane Gloria, which hit Long Island on September 27, 1985. Power was not fully restored until October 8.
“The final nail in the coffin was Hurricane Gloria,” he said. “People were furious. Isn’t it ironic that we went from a private utility to a public utility over a hurricane, and now we’re suggesting we go from a public utility to a private utility [over a hurricane]?”
The Long Island Power Authority was created in 1986 by the state, and later acquired LILCO’s transmission and distribution system in May 1998.
When LIPA bought out LILCO, its trustees were not elected by the public—even though the legislation creating it called for public elections—because LIPA was a state agency, much like the Metropolitan Transportation Authority. Instead, trustees were appointed by the governor, and a private company was hired to do the footwork.
“I always felt that when the LIPA legislation was passed, it would be the people’s utility—that instead of paying dividends in their rates to shareholders, it would be able to take that money and reduce rates,” Mr. LaValle said. “It’s never quite been the people’s utility, though it’s always been my mantra and what I felt should have existed.”
Service hasn’t gotten any better either, according to Mr. Thiele, who said that National Grid, previously KeySpan, has only offered poor service to Long Islanders since it contracted with LIPA in 1998.
The agreement between LIPA and National Grid will end on December 31 of this year. LIPA recently signed a new 10-year, $3.9 billion contract with PSEG Long Island LLC. to replace the National Grid agreement.
After electric companies struggled to get the lights back on after Sandy this fall, Mr. Cuomo appointed the Moreland Commission to analyze LIPA’s effectiveness, and in a January 7 report the commission explored three solutions—privatization, full public ownership and operation, and public ownership and operation of the system by the New York Power Authority—and ultimately recommended privatizing the utility.