LIPA Ratepayers Still Burdened by High Costs, Increased Debt
New York – July 27, 2015 – (RealEstateRama) — New York State Comptroller Thomas P. DiNapoli today recommended improvement of oversight of the Long Island Power Authority (LIPA) after a report by his office found that previous reforms have not reduced costs for ratepayers and debt levels continue to rise.
DiNapoli noted that concerns regarding the cost and reliability of electric service on Long Island have driven repeated reform efforts by the state. In 2013, state legislation was enacted in a renewed effort to stabilize rates, improve service and increase accountability for LIPA ratepayers.
“Despite repeated reform efforts, LIPA’s long-standing issues continue to plague both residential and commercial customers,” said DiNapoli. “Costs for ratepayers remain too high and an increasing debt load will burden customers well into the future. Both the LIPA board and state policymakers should consider further action to improve oversight and accountability, strengthen consumer protections, and provide much-needed relief for customers.”
While the 2013 law created a new Long Island office of the Department of Public Service (DPS), it was only given certain review and recommendation powers with respect to LIPA and Public Service Enterprise Group (PSEG). As a result, ratepayers do not benefit from regulatory oversight, access to information, and cost control mechanisms that other New York utility customers have, according to DiNapoli.
DiNapoli proposed strengthening the powers of the Long Island office of DPS to include more robust consumer protection and advocacy provisions, as well as increasing local dialogue and participation. He urged DPS to maximize its existing authority to require annual reporting by LIPA and PSEG, review all financial records, and inspect LIPA and PSEG facilities. The report also suggests LIPA’s board should prioritize efforts to limit and reduce costs for ratepayers and ensure more reliable service.
The 2013 legislation directed the renegotiation of LIPA’s Operations Services Agreement with PSEG, eliminating the review and approval of the Office of the State Comptroller. Consequently, many of the consumer protections built into the original contract were modified or eliminated in the renegotiated agreement. These include budget oversight and cost control mechanisms, performance metrics, storm cost provisions and compensation terms.
Electricity prices for LIPA customers have not declined and continue to outpace those of other utilities. DiNapoli’s report revealed that LIPA’s average retail price for residential electricity was more than 22 percent above the New York state median and 78 percent above the national median in 2013. LIPA’s commercial average retail price was even further out of line, nearly 92 percent above the national median.
In addition, the report shows LIPA’s debt burden and associated costs remain an ongoing challenge. The 2013 reform effort authorized the one-time restructuring of LIPA’s debt by a new public authority, the Utility Debt Securitization Authority (UDSA), however, the 2015-16 State Enacted Budget removed the “one-time” limitation and in its place capped the total amount of debt that could be issued by UDSA at $4.5 billion. UDSA previously issued $2 billion in debt in December 2013.
DiNapoli noted that all costs associated with UDSA debt will be borne by LIPA’s ratepayers until the debt is paid off. In 2014, LIPA reported total debt (including UDSA debt) of nearly $7.6 billion, up 11 percent since 2010. LIPA projects this debt load will reach approximately $8 billion by 2018.
Additional findings include:
According to Moody’s Investors Service, from 2011 through 2013, LIPA’s average debt ratio was 137 percent, roughly double the median figure for comparable large public power utilities in the United States.
From 2006 to 2012, the authority’s actual storm costs (excluding Superstorm Sandy) exceeded budgeted amounts by an annual average of 239 percent, a strong indication that LIPA’s storm cost projections are not well-founded. DPS expressed concern with how storm costs were being tracked by LIPA and PSEG and recommended improvements.
Total employee compensation reported by LIPA for 2014 was nearly $7 million. However, over the course of 2014, LIPA reduced staff in response to provisions of the 2013 LIPA legislation, which required authority staff to be “kept at levels only necessary to ensure” LIPA could meet its obligations and oversee the service provider. As of March 31, 2015, LIPA indicated a staffing level of 40 full-time and part-time positions.
To read the report, visit:
For access to state and local government spending, public authority financial data and information on 50,000 state contracts, visit Open Book New York. The easy-to-use website was created by DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.