LIPA accuses PSEG of working against ratepayer interests by lobbying for privatization study

The Long Island Power Authority is citing PSEG’s recent lobbying activity in accusing the service provider of failing to act in ratepayers’ interest, Newsday has learned.

LIPA charges that the New Jersey-based service provider is "actively lobbying" for a state budget proposal on the utility's structure to include an analysis of selling LIPA to a private entity, among other options.

LIPA says that was a violation of PSEG's latest contract. PSEG has denied the charge, saying its lobbying for a bill that would include "all structuring options" for LIPA was in ratepayers' interest. It also noted that the new LIPA-PSEG contract has yet to take effect. 

The issue has become a new point of contention between LIPA and PSEG, its $80 million-a-year service provider, as state lawmakers weigh funding a study on whether to make LIPA a fully public utility.

LIPA publicly noted this month that a formal state review of the privatization option could cost ratepayers millions. That’s because it would effectively lock the state authority out of the bond market for a year or more, as happened in 2005 and 2013, because of disclosures LIPA would have to provide to potential bond buyers, Newsday has reported.

LIPA trustees at a board meeting Wednesday took issue with PSEG and its lobbying efforts, calling for full disclosure of the work and saying it could lead to higher rates. They passed a resolution requiring that PSEG cease that lobbying activity and to provide written notice of all future lobbying. LIPA will also prepare a report on PSEG's lobbying activities. 

“Lobbying for privatization is particularly harmful and inconsistent with the contract” LIPA and PSEG recently agreed upon, even though it awaits final state approval, LIPA trustee and criminal-defense lawyer Elkan Abramowitz told PSEG.

Peggy Keane, PSEG Long Island’s newly named interim president and chief operating officer, told trustees, “We have not lobbied for privatization,” clarifying that “We’ve stated that we’ve requested the legislation consider all options.”

Trustee Drew Biondo interrupted her, saying, “Excuse me, but then that goes to, you do not have a fundamental understanding of how this organization operates because there have been maybe 10 or a dozen studies that have shown that this [privatization] is not the way to go, that this would increase what our ratepayers pay.”

In a fiery exchange of letters between LIPA chief Tom Falcone and outgoing PSEG Long Island president Dan Eichhorn over the past week, the leaders debated the benefit of PSEG’s lobbying efforts as state lawmakers were preparing to vote on a bill to study transitioning LIPA to a fully public utility. The Senate and Assembly have both included a municipalization study, and $2 million in funding for it, in their budget proposals. It awaits final budget approval. Copies of the letters between Falcone and Eichhorn were shown to Newsday this week.

Falcone, in a March 18 letter to Eichhorn, said LIPA recently learned that PSEG was “actively lobbying legislators, state officials and community members to include an analysis of the privatization of LIPA’s operations in pending legislation.” He noted that such an analysis “is not in the best interests of LIPA” and customers as it “threatens to increase electric rates.”

Falcone, in an earlier letter to legislators, had noted the risk of such a study after local business groups, including the Long Island Association and the Association for a Better Long Island, had requested it.

Such a study “risks LIPA’s ability to access the tax-exempt bond market for the duration of the study. To the extent the lobbying activities being undertaken by PSEG Long Island and its representatives result in LIPA being barred from selling tax-exempt bonds for a year or more, that could prove very costly to customers should interest rates increase pending the conclusion of the study,” Falcone wrote.

Falcone added that PSEG’s lobbying efforts were “not in the best interests of LIPA and our customers, as they threaten to increase electric rates, and represent a direct conflict of interest.” He charged the “intent behind your lobbying is to provide PSEG with a business opportunity to increase your earnings at our customers’ expense should the analysis result in a recommendation to privatize LIPA.”

LIPA vice chairman Mark Fischl, in an interview, called the notion of PSEG lobbying for privatization to be included in the state budget “outrageous.”

Falcone charged that the lobbying breached LIPA’s latest PSEG contract, which provides that all PSEG senior managers “act in the best interests of LIPA and LIPA’s customers.”

Falcone requested that PSEG cease its lobbying and reminded Eichhorn that staff and consulting resources paid for by LIPA “should never be used in lobbying activities that are adverse to LIPA and its customers.” He warned that LIPA would continue to monitor the work.

Eichhorn in a Monday response, reminded Falcone that the new contract between the two parties has not yet become “binding and effective,” and that PSEG could not have breached it.

In any case, Eichhorn wrote, PSEG was acting in the best interests of LIPA and customers when it met with a legislator to discuss future options for LIPA. “During one such interaction” with a lobbyist, Eichhorn wrote, PSEG understood that the legislature would review only a single option — full municipalization. The PSEG lobbyist “suggested that the legislature should consider all structuring options.”

“Presumably,” Eichhorn wrote, “doing so would be in the best interests of LIPA and its customers,” notably because LIPA itself had undertaken reviews of privatization on two prior occasions.

Eichhorn said PSEG “did not hide this suggestion from LIPA,” and a LIPA official had not only been briefed on it, but agreed it would be a “reasonable approach.” Falcone, in an email Tuesday, denied that contention and added that LIPA has “serious concerns about the intentional misrepresentation by your company.”

In any case, Falcone concluded, “to the extent that you believe privatization is in our customers’ interest, LIPA is instructing you that it is not for the reasons previously stated and directing you to cease your lobbying efforts with elected officials and community stakeholders.

In a letter to LIPA Wednesday morning, Andrea Elder-Howell, PSEG's vice president of legal services, took issue with Falcone's "serious concerns" regarding "intentional misrepresentations" by PSEG about a LIPA official's agreement a broader analysis could be "reasonable." 

"As you know, a different recollection does not constitute an intentional misrepresentation," she wrote. 

PSEG spokeswoman Ashley Chauvin explained the company "understood that the legislature intended to analyze municipalization only and suggested that the legislature should consider analyzing all structure options." She added the company "has been unwavering in its belief that maintaining a public-private partnership is the best option for Long Island."

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.