New York ponders LIPA's future

Privatization in authority's future
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New York Governor Andrew Cuomo wants to shake up the Long Island Power Authority (LIPA) and what many see as an organization incapable of maintaining reliabile power, especially in the face of Mother Nature. 

Many LIPA customers were left without power for weeks in the aftermath of Superstorm Sandy.

Formed more than 25 years ago, LIPA is a non-profit entity serving Long Island's 7.5 million residents. It is under the authority of the Governor's office, but that is likely to change if regulators and lawmakers have their way.

The push to privatize LIPA comes at the reccomendation of the Moreland Commission on Utility Storm Preparation and Response. The commission was formed in November 2012 to examine the damage from Superstorm Sandy, which crippled much of Long Island and its infrastructure in late October 2012.

 There were more than two million outages and restoration times of as long as three weeks. The commission reviewed preparedness as well as emergency response of state utilities, including LIPA, subpoenaing seven utilities and holding a series of public hearings and private interviews.  

The Moreland Act was signed in 1907 and permits the governor to examine performance of any state department, board or commission.

Committee identifies myriad weaknesses

The commission commented on its proposal during a preliminary briefing last week, during which it identified numerous LIPA shortcomings, all of which contributed to its poor performance before and after Superstorm Sandy

Many of the flaws were extensions of LIPA's poor corporate structure.

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The commission's preliminary report found that LIPA's outage system is still unable to keep up with storm outages and using computer software from the 1980s. Additionally, its communications systems and procedures are outdated and inaccurate.
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"As we looked at LIPA, what we realized was the heart of where they went wrong, and the key to many if not all of their problems, was a fundamentally, dysfunctional management structure," said Benjamin Lawsky, the commission co-chairman and superintendent of the New York Department of Financial Services, speaking during a briefing in early January.

LIPA's structure -- where management and ownership divisions remain separate -- is the only one of its kind in the country. National Grid is responsible for operating LIPA's transmission and distribution system, which covers about 90 percent of Long Island and 3.4 million customers.

Governor Cuomo is ultimately responsible for managing the utility, which has faced a leadership deficit and has been without a CEO for the past two years, according to a WYNC report.

"That leads to incredible confusion, incompetence, and lack of accountability and it caused LIPA to drift from its original mission," Lawsky said. LIPA was originally formed to address debt management, not transmission and distribution of energy, he added.

The commission's preliminary report found that LIPA's outage system is still unable to keep up with storm outages and using computer software from the 1980s.  Additionally, its communications systems and procedures are outdated and inaccurate, meaning electricity customers did not get timely information about power restoration after Sandy.

Cuomo echoed the commission's sentiment during his State of the State address, noting that "Hurricane Sandy revealed systemic flaws and weaknesses in LIPA's structure."

Privatization recommendation

The commission called for a "complete overhaul of LIPA" and looked at three options: privatization, where a utility would purchase assets and act as the sole utility manager; expanding state authority and letting LIPA run itself without National Grid; and having an existing public authority (such as the New York Power Authority) overtake control.

Privatization would be a complex transaction, but transitioning LIPA into a municipality would not ensure that customers would regain confidence or encourage continued improvements. Existing control would add more bureaucracy and detract from NYPA's ability to do its job.

Still, the commission concluded that privatization would be the best option for giving ratepayers a cost-effective, transparent and regulated utility. New York Power Authority President and CEO Gil Quinones told the Long Island Business News that the agency would not take over LIPA.

Although any privatization will take significant time, the climate appears right to make a change with LIPA. Governor Cuomo is making it a priority of his administration and acknowledging that such an ineffective model cannot be allowed to endure, especially as storm frequency and severity continue to rise.  

LIPA itself is laying low on the debate, telling FierceEnergy only that it "will continue to cooperate with the state to do what is in the best interest of Long Island's electric customers."

The commission will continue to meet and investigate storm response and preparadness issues with the state's other utilities.