A prescription for Long Island: fixing the sins of privately owned utility operators with more privatization

What about a fully public LIPA?

The Moreland Commission interim report laid out just such an alternative for reforming LIPA, which would end the subcontractor relationship with National Grid and make LIPA a fully public entity, complete with a unified management structure and its own employees. (In a variation on this option, the Moreland Commission also suggested that LIPA could be made fully public but also placed under the supervision of the New York Power Authority, a state entity that generates electricity from hydroelectric and gas power plants.)

The report, though, ultimately rejected a fully public option — without an explanation as to why beyond stating that there has not been any recent experience in the United States with the one particular type of fully public utility that the Commission considered (one chartered at the state level).

Cordaro, for one, is unpersuaded: “The clarion benefits of public power,” he said, “are obvious,” and include lower borrowing costs due to tax-exempt financing, not having to pay dividends to investors, and “more local control.” In general, he added, the approximately 2,000 publically owned utilities throughout the country “will more earnestly pursue [their] mission and maintain [their] objectives.”

Abrams and Lawsky declined to respond to the emailed question as to whether they felt there were examples of successful fully public electric utilities in the United States and on Long Island.

The Moreland Commission said that, in contrast to privatization, keeping LIPA as a standalone operation would mean forgoing opportunities to achieve economies of scale (“synergies”) that would result from the purchase of LIPA by a utility that could “share staff, facilities, and systems” with it. But the advantages of economies of scale to “affordability” are uncertain. “There is no question that economies of scale of integrated utility systems exist,” Tyson Slocum said, “The question is, are those efficiencies maximized for consumers or shareholders?

The American Public Power Association (APPA), the public power trade association, drawing on data from the U.S. government’s Energy Information Agency, has reported that public power agencies offer lower rates to residences (per kilowatt hour). On Long Island, residents in Rockville Centre, Freeport, and Greenport pay rates that are significantly lower than LIPAs, and Crain’s Business Observer has argued that if a privatization deal goes through it would certainly mean a rate increase for LIPA customers. (The lower rates for the village-owned utilities on Long Island stems in part from their ability to buy cheap power from NYPA and from not servicing the debt LIPA customers must service.)

Paul Pallas, of Rockville Centre, suggested that though “the costs per capita, per customer should go down in theory [with a larger utility],…you need a certain number of people to work on the lines, etc. you can’t spread them out too thin, you still need boots on the ground. I mean, an electric utility is not an Internet business, you’ve got to have somebody to work on the poles and wires.”

How reliable can public power be?

As to reliability, the record seems to suggest that public power is easily as good as investor-owned utilities. A comparison of outage data compiled by researchers at the Ernest Orlando Lawrence National Laboratory (which examined investor-owned utilities) and by the APPA suggest that public power has about half as many outages (such data, however, must be used cautiously, as record keeping and the types of systems operated by power companies can vary dramatically).

Furthermore, though the Moreland Commission did not suggest that LIPA could become fully public and also receive oversight from the PSC, according to Cordaro, “There is no reason why [LIPA] has to be privatized to regulate it. In fact, I would advocate that.”

In 2008, then-Governor David Paterson vetoed a bill that would have required LIPA to be subject to regulatory review by the PSC for rate increases, because, he argued, making LIPA subject to PSC rules would “impair and diminish” the value of agreements with bond holders. Gov. Cuomo, in February 2012, signed a bill that made LIPA subject to management audits every five years, but some legislators and critics suggested that the law did not go far enough in establishing oversight. In an emailed question to Larry Schwartz, the governor’s secretary and key staffer assigned by the governor to “engage elected officials” to “form a consensus” on the “best option” for LIPA, Remapping Debate asked, “If an oversight entity, such as the Public Service Commission could be made effective in respect to a private utility operator, as Gov. Cuomo proposed in his State of the State address, why couldn’t it be made effective with respect to a fully public electric utility?” Schwartz did not reply.