Study of LIPA structure could take 'months'

New York Power Authority officials said Wednesday that it could be "months" before investment banking firm Lazard Ltd. completes a report on future structures for LIPA.

The revelation at a State Senate committee hearing in Albany surprised some who have been closely following the analysis of the Long Island Power Authority, which state officials said began in earnest following superstorm Sandy.

A copy of Lazard's contract with NYPA to review LIPA called for a report to be completed "no later than January 3." The contract, for which Lazard received a monthly fee of $250,000, was obtained by Newsday through a Freedom of Information Law filing. The contract terminates March 31.

Matthew Wing, a spokesman for Gov. Andrew M. Cuomo, said Lazard has produced draft reports. "We have been going back and forth with Lazard on a number of working drafts but we are continuing to ask questions, examine all models and do not yet have a final report," he said.

At Wednesday's Senate hearing, NYPA chief Gil Quiniones said the firm and a panel of experts at NYPA, which provides power to businesses and municipalities throughout the state and owns 16 power plants, are studying not only privatization but also a fully public LIPA, as well as an improved version of the current structure.

"This review and work are not yet done, and the state has not yet made a final determination which would best serve ratepayers," Quiniones said. "What the governor wants is what's best for Long Island ratepayers."

Asked by Assemb. Al Graf (R-Holbrook) what would happen if LIPA were to enter bankruptcy proceedings, Robert Lurie, a NYPA senior vice president, said, "That option is part of the analysis we are doing." He said there would be "unintended consequences" and "some unintended risks that need to be factored into that analysis."

Officials have said that a LIPA bankruptcy would ripple through the state financial system, impacting the bond ratings of other state agencies' debt because of the unprecedented move.

Separately Wednesday, the LIPA Oversight Committee of the Suffolk legislature took a formal stance "strongly opposing" privatization and backing a fully municipal model.

Returning to a private model would "result in severe financial penalties for ratepayers of Long Island," said chairman Matthew Cordaro, who stepped down Wednesday to become a LIPA trustee.

The state Moreland Commission, which is investigating utilities' responses to recent storms, has recommended privatization of the LIPA system.

Lurie said utilities such as Con Edison, National Grid and PSEG, which is "nearby and might be interested," are among potential buyers, though he did not say whether any have expressed interest.

Larry Schwartz, secretary to the governor, who was slated to address LIPA trustees and others Thursday, had to cancel the appearance because of other matters.NYPA's Quiniones said he didn't want to be pinned down to a specific time for producing the report on possible future structures for LIPA. Cuomo has said he would like to have a decision on LIPA during this legislative session, which ends at the end of June.

Sen. Kenneth LaValle (R-Port Jefferson) pressed Quinones for a date when financial models would be available.

"We don't want to rush the analysis," Quinones responded, though he eventually said it could take "maybe months."

Quiniones, asked if NYPA in its contract with Lazard had assured that the firm didn't have conflicts in the energy business, including to handle the LIPA privatization. Quiniones said, "Our consulting agreement is very clear. . . . There is no linkage for future work or assignment."

Lazard's contract with NYPA notes that it has advised LIPA on separate matters and "has also provided services to third parties regarding a possible transaction involving LIPA." The contract says Lazard cannot advise LIPA or third parties on LIPA during the term of the contact. Once the contract ends, Lazard may advise LIPA or any third party with respect to LIPA."

Several lawmakers referred to a Newsday report Wednesday about a 2010 report by a consultant indicating that privatization would increase costs for electricity delivery and require additional revenue through rate hikes.

Quionones said he hadn't fully read the Navigant report, but pointed out that the report itself acknowledged it was based on "very high level assumptions" and provided "ballpark" numbers.

Lurie said the analysis of privatization has found that about $4 billion of LIPA's $7 billion debt can be retired early, but there are penalties that would have to be paid as a result of some of that early retirement. He disputed the claim by State Sen. Carl Marcellino (R-Syosset) that the costs could spiral as high as $12 billion.

Lurie said the cost of nixing a contract with PSEG, should the decision be to sell LIPA assets, would total $7 million, plus other out-of-pocket expenses.

Neal Lewis, a LIPA trustee, said he believed that a model chosen by trustees last year that would bolster the current public-private model would be best for ratepayers. Lewis called it a "disservice" that the model hasn't been covered adequately in the news media.

With Yancey Roy