State of New
York | Executive Chamber
Andrew M. Cuomo | Governor
For Immediate Release: June 19, 2013
GOVERNOR CUOMO ANNOUNCES LANDMARK AGREEMENT TO
RESTRUCTURE UTILITY OPERATIONS ON LONG ISLAND
Legislation Will Privatize Utility Operations Under Strengthened State Oversight with Focus
on High Performance
Governor Andrew M. Cuomo, Senate Co-Majority Leaders Dean Skelos and Jeff Klein, and
Assembly Speaker Sheldon Silver today announced a landmark agreement on legislation to
dramatically revamp the electric utility on Long Island. The legislation will privatize utility
operations on Long Island, focus on improving customer service, including stabilizing rates and
enhancing emergency response and preparation; reduce the cost of Long Island Power Authority
(LIPA) debt; and implement tough state oversight for the new utility company. It will also
achieve savings to allow the new utility to seek a rate freeze for 2013, 2014 and 2015.
“Today’s agreement will finally end LIPA as we know it and create a new utility company on
Long Island that puts ratepayers first,” Governor Cuomo said. “For years, LIPA has provided
lackluster service while asking ratepayers to foot the bill for its financial problems. LIPA’s
failure during Superstorm Sandy was a wakeup call for action. This legislation delivers on
performance by privatizing utility operations under PSEG Long Island to ensure it is ready for
future storms and accountable for its response. It also establishes real state oversight of Long
Island’s utility system for the first time and protects ratepayers from rate hikes in the immediate
future. I commend the Senate and Assembly for joining with us in committing to finally give
Long Islanders a utility system they deserve.”
Senate Majority Coalition Co-Leader Dean G. Skelos, said, “This legislation will bring muchneeded oversight, protect ratepayers and ensure those in charge are prepared to deal with
dangerous storms in a responsive and accountable way. I thank Governor Cuomo, Speaker Silver
and my Senate colleagues for their hard work on behalf of Long Island ratepayers and their
families.”
Majority Coalition Co-Leader and Independent Democratic Conference Leader Jeffrey D. Klein
said, “After witnessing the delays and dysfunction at LIPA in Sandy's aftermath, it's clear that
something needed to change. Long Island residents work too hard--and pay too much in their
monthly utilities bills--to have anything less than a top flight utility provider. I commend the
Governor, his staff, and my legislative colleagues for developing a plan that will finally provide
Long Island ratepayers with the service and oversight that they deserve.”
Assembly Speaker Sheldon Silver said, “Following the response to Superstorm Sandy, there has
been a clear mandate by ratepayers on Long Island to reform the way LIPA operates. Key
provisions included in this measure were developed with the essential input of the Assembly
Majority’s Long Island delegation with the intent to restore confidence in LIPA. It will protect
the interests of homeowners and businesses by stabilizing rates and implementing a
comprehensive storm response system.”
Assemblyman Robert Sweeney, sponsor of the bill, said, “Superstorm Sandy and Hurricane Irene
highlighted the need to bring more accountability and transparency to LIPA. This legislation
begins to do that by ensuring we put in place an effective storm response mechanism and
addressing key issues such rate stability and renewable energy programs.”
In response to LIPA’s failures during and after Superstorm Sandy, Governor Cuomo convened a
Moreland Commission to investigate the utility company’s response, preparation, and
management, among other utility companies. Upon completing its investigation, the Moreland
Commission concluded that LIPA’s failures were the result of a dysfunctional bi-furcated
management structure that allowed poor customer service, high rates, lackluster storm
preparations, and inadequate infrastructure to persist without being addressed.
The agreed upon legislation eliminates this failed management structure by giving PSEG full
authority over the utility’s day-to-day operations including budgeting, maintenance, storm
preparedness and response, infrastructure improvements, and energy efficiency and renewable
activities.
LIPA will in effect be reduced to a holding company with a significantly reduced staff, set at
levels only necessary to ensure that the authority is able to meet its core obligations, and with a
new board reduced to nine members. This would maintain the utility’s eligibility for FEMA and
tax benefits, but would offer the benefits of PSEG Long Island’s more efficient management
structure as a private company.
Since the late 1990s, LIPA’s debt has not decreased and represents almost 10% of ratepayer
bills. Escalating property taxes have also contributed to high rates. To provide relief for
ratepayers, the Governor’s legislation will reduce the cost of LIPA’s debt, by refinancing up to
half of the $6.7 billion debt at a lower interest rate, and a 2% annual property tax cap will be
established for the transmission and distribution system. It will also eliminate state gross receipts
tax to save ratepayers $26 million per year. As a result of these and other expected savings in the
Governor’s legislation, LIPA and PSEG Long Island are seeking a rate freeze for 2013, 2014 and
2015.
Under the legislation, utility performance and rates would be subject to tougher state oversight
under a new Long Island office of the Department of Public Service (DPS) which will have the
authority to review PSEG Long Island’s operations and issue recommendations to the LIPA
Board for implementation. Proposed rates would undergo an independent review by DPS that
would include public hearings. DPS would also perform independent reviews of PSEG Long
Island’s storm preparedness and performance. This oversight process will include reviewing
whether PSEG Long Island has met performance metrics and the appropriateness of storm costs,
and make recommendations to adjust compensation accordingly. Capital planning would also be
subject to DPS review on an annual basis, and the State Comptroller would retain the auditing
powers that it currently holds.
The new Long Island utility will also remain committed to renewable energy and becoming more
energy efficient. Under the Governor’s legislation, the new utility will not only design and
administer efficiency and renewable programs, and continue recently approved renewable power
procurement programs; it will also be required to produce a new capital and operating plan. The
plan will include recommendations for energy efficiency, smart grid solutions and distributed
generation to give customers more value and reliability from their service.
The Governor’s office has also secured an agreement between National Grid and PSEG to make
additional workers available to help with power restoration efforts during storms. National Grid
has trained some of its IBEW gas utility workforce to perform various storm response tasks for
the electric system, including storm damage assessment and restoration work. The agreement
will allow these workers to be included in PSEG’s storm response plan, which means hundreds
of additional IBEW workers will be available to PSEG during storms providing more resources
for a safe and rapid recovery.
More information on the benefits of the privatized structure according to today’s agreement is
below:
State Ownership: Investor Owned Utilities vs. New Structure
Investor Owned
Utilities
New Structure
Earn a rate of return on
capital investments?
Yes
No
Tax exempt financing
for new capital
investments?
No
Yes. System will remain
under public ownership.
Eligible for FEMA
reimbursement for
major storm costs?
No
Yes.
Rates subject to
professional DPS
review?
Yes
Yes. Rate review process
will be identical to IOUs,
including stakeholder
involvement and evidentiary
hearings.
Who approves final
rates?
PSC – a 5member board
appointed by the
Governor; rate
decisions are
Reduced LIPA Board –
Rate decisions are based on
the record established by the
DPS
based on the
record
established by
the DPS.
If final decision differs
from DPS’s
recommended decision,
is there further public
process?
No
Yes. If the Board amends or
modifies the DPS
recommendation, it must
hold a public hearing to
explain its actions
Can DPS perform
regular management
and operations audits?
Yes. DPS
recommendations
to PSC for
action.
Yes. DPS recommendations
to the Board for action. If the
Board does not accept
recommended actions, then
it must hold hearing and
explain basis.
More information on state oversight for the new structure according to today’s agreement is
below:
State Oversight: Status Quo vs. New Structure
Status Quo
No. LIPA
proposes and
sets its own
rates.
New Structure
Yes. DPS staff will review
proposed rates.
Transparent rate making
process?
No. 3-month
closed
process
Yes. 9-month process with
public hearings and reviewed
by independent DPS staff.
Storm Plan subject to
independent review?
No
Yes. First storm plan must be
filed in February 2014, under
same standards that other
utilities must meet.
Storm performance and
costs subject to
independent review and
penalties?
No
Yes. Based on DPS
recommendation, the Utility
can be found liable for up to
$10 million for incurred costs
Can contract be
terminated for poor
performance?
No
Yes
Does DPS have access to
PSEG-Long Island
financials and other
information to ensure
No
Yes
Independent review of
proposed rates?
compliance with contract
terms and standards?
Independent review of
capital planning?
No
Yes. PSEG-Long Island will
submit annual updates to a 5year capital expenditure plan
for DPS review. First capital
plan will be submitted in
January 2015.
Can State Comptroller
audit LIPA?
Yes
Yes. OSC retains its auditing
powers.
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New York State | Executive Chamber | press.office@exec.ny.gov | 518.474.8418