Long Island power is a seemingly endless saga. With a troubled, even tragic, past, it now faces an uncertain future as a legislative commission ponders full municipalization of the Long Island Power Authority (LIPA), currently a public-private partnership.
It won’t solve Long Islanders’ power woes.
Long Island was originally served by the Long Island Lighting Company (Lilco), a private company which was part of an “unholy trinity” of life on Long Island, along with the Long Island Railroad and traffic on the Long Island Expressway.
Then came the Shoreham nuclear plant debacle, with billions wasted on a power plant that faced strong local opposition and was ultimately shuttered before producing any electricity. In addition, the company’s response to 1985’s Hurricane Gloria was sharply criticized.
That spelled the end for Lilco’s electric business, which was taken over by the legislatively created LIPA, which bought Shoreham and Lilco’s transmission and distribution lines.
Instead of becoming a fully municipalized utility and managing the electrical grid itself however, LIPA was set up as a public-private partnership, with a private utility managing the electric grid under the LIPA name. Then in 2012, Superstorm Sandy produced another catastrophe and slow response, leading to more criticism and a legislative reorganization of LIPA.
The public-private partnership continued, however, and after Public Service Enterprise Group (PSEG) took over grid operations, there was yet another failure to adeptly manage the aftermath of a major storm, 2020’s Isaias.
Today, electric rates remain high as LIPA continues to pay off debt. Three decades after Shoreham was decommissioned, LIPA’s debt has actually grown from just under $8 billion to over $9 billion – more than $8,000 per ratepayer.
It would take a hard heart not to sympathize with Long Islanders when they pay their electric bills.
And now we get a legislative commission that presumes it can fix this mess.
Proclaiming that the current model “has repeatedly failed its customers,” and has “a lack of transparency, oversight, and accountability,” the legislation directs the commission to report on the “specific actions, legislation, and timeline necessary to restructure LIPA into a true publicly owned power authority.”
This is deceptive in that there has not been a consistent model across time that could have “repeatedly” failed.
The most consistent element across time has simply been Long Island’s unique susceptibility to damage from major storms. Jutting out at a right angle to the Eastern Seaboard, it sits directly in the path of tempests that churn their way up the coast. In addition to the typical damage high winds cause to above ground power lines, Long Island’s rising shoreline exacerbates storm surges that can flood electric substations.
This doesn’t mean electrical generation and distribution can’t be better protected against big storms. But hardening them against extreme weather will be costly, and ratepayers will ultimately pay for it whether the utility is publicly or privately managed.
It also means there’s no guarantee a yet-again reformed LIPA – one with less operational management experience than a private utility – will be capable of responding any more effectively after the next intense storm.
The Legislature’s claim that LIPA lacks oversight and accountability is not serious. LIPA responded to the Isaias fiasco by requiring PSEG to return $30 million to Long Island power consumers and negotiating a new management contract that cuts PSEG’s annual fixed management fee by over 40 percent, making the remainder performance based. The agreement also gives LIPA more authority to unilaterally terminate PSEG’s contract for performance failures.
That’s exactly what good oversight looks like, and LIPA deserves credit for that. This agreement better aligns PSEG’s managerial expertise with its financial incentives, so it deserves time to prove itself.
Supporters of municipalization also claim that LIPA would save the $80 million dollars a year in management fees it pays to PSEG. But that would require LIPA to operate as efficiently as PSEG does, and public agencies are not known for their efficiency.
Just look at LIPA’s record. In addition to growing debt, its payroll has reportedly grown by 21 percent even as its staff shrank by 37 percent.
And notably LIPA almost embarked on the project of refiring shuttered power plants and paying for the building of the Caithness II power plant under the mistaken belief that power demand was going to grow on Long Island. PSEG’s analysis accurately showed capacity increases would not be needed until the 2030s, saving LIPA more than $2 billion dollars.
That kind of expertise is worth paying for. That one decision alone was worth a quarter-century’s worth of PSEG’s management fees.
And it’s worth noting that the average rates charged by the state’s public power authorities are higher on average than those for investor-owned facilities. Savings don’t magically appear just because a utility is public.
The commission created in law to reform LIPA is supposed to produce a draft report by December 31, but five months after its authorization it has yet to meet. More than a month past its statutory deadline for holding at least three public hearings it has held none. With no action to date and a tight deadline looming, the commission is unlikely to give LIPA restructuring the careful consideration required.
LIPA’s public-private partnership is admittedly unique among American utilities. But public-private partnerships work well in many other policy areas, from school transportation companies to road construction to the tourist amenities in national parks. There’s no inherent reason why it can't work in power provision. The private firm supplies the management ability while the government authority provides the oversight.
Privatization with Public Service Commission oversight – as there is for other investor-owned utilities – would be the ideal choice, but no private firm is likely to take on LIPA’s debt. That means privatization would likely require that the debt be socialized to all New Yorkers, a politically unpalatable prospect.
Given LIPA’s huge debt, and Long Island’s susceptibility to violent storms, there’s little the Legislature can do to solve the Island’s long-standing power problems.
One thing seems clear: If the power goes out under a fully municipalized LIPA, you can bet neither the Legislature nor public power advocates will accept the blame.