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New York governor announces plan to restructure Long Island Power Authority

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New York Gov. Andrew M. Cuomo released proposed legislation last week that would carry out his plan to restructure the Long Island Power Authority and allow LIPA's future utility partner, PSEG of New Jersey, to take over almost all of the Long Island utility's operations. The plan includes a three-year rate freeze.

"LIPA is broken," Cuomo said at a May 13 news conference in Albany, N.Y. The governor said Sandy, the hurricane that morphed into a superstorm shortly before it made landfall in late October 2012, "was the straw that broke the camel's back."

Cuomo has been critical of LIPA for its response to Superstorm Sandy. Earlier this year, he called for selling LIPA to an investor-owned utility. But credit rating agencies Fitch and Standard & Poor's Corp. both immediately raised questions about the feasibility of selling the Long Island utility. They said the economics of such a move would be uncertain. (See Public Power Daily, Jan. 11, 2013).

The governor's plan would reduce LIPA's role to that of a holding company, cut the utility's number of employees from more than 90 to about 20, and shrink its board of directors from 15 people to five. The proposed legislation also would refinance as much as half of LIPA's $6.7 billion in debt at a lower interest rate.

Investor-owned PSEG, based in Newark, N.J., is already set to take over management of LIPA's electric grid starting in January 2014, under a long-term contract with the Long Island utility. Under the contract, PSEG's new unit, PSEG Long Island, LLC, will operate a dedicated business unit on Long Island, tentatively called ServCo, that will provide services to LIPA and its 1.1 million customers. (See Public Power Daily, April 29.)

Kevin Law, president of the Long Island Association and a former chief executive of LIPA, said the association "supports Gov. Cuomo’s efforts to restructure LIPA and the way the electric utility services are owned and managed on Long Island and we look forward to working with him on developing any legislation needed to implement these reforms."

The governor's proposed legislation would, among other things:

• allow the state to privatize operations and maintenance of the utility system;
• amend state law to reduce the cost of LIPA’s debt through refinancing at a lower interest rate;
• place the Long Island utility company under state oversight by the Department of Public Service;
• preserve LIPA's tax-exempt status and protections of existing and future debt; and
• preserve eligibility for reimbursement for storm costs from the Federal Emergency Management Agency.

Cuomo and legislative leaders said they wanted to turn the proposal into a bill that can be voted on by the end of the session on June 20, according to New York Newsday. —JEANNINE ANDERSON


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