A look at the pros and cons of LIPA becoming a fully public utility

With the potential end of PSEG Long Island’s contract with LIPA by Dec. 31, 2025, state lawmakers and consumer activists are beginning work to ensure LIPA’s next act is as a fully public utility with lower rates, better service and its fate locally determined.

Long Island Power Authority trustees on Dec. 15 approved a new four-year PSEG contract costing $80 million a year.

The agreement gives LIPA new authority to end the contract if PSEG doesn't perform up to standards, or if the utility decides to take on management of the Long Island electric system itself, LIPA chief Tom Falcone said.

Some who have pushed for a fully municipal LIPA say the pact could provide for a transition to public power, with a four-year window to prepare.

Critical work between now and then, if pursued, will determine how a fully public utility would operate and be governed.

"I’m hopeful the new and improved contract with PSEG leads to a more productive relationship," LIPA’s acting chairman, Mark Fischl, told Newsday.

"But in the event that doesn’t happen, I feel the new contract puts us on a glidepath to full municipalization," Fischl said. PSEG has said it "remains committed to being the service provider" for the region and that the current public-private arrangment is the "best option for customers."

This year's brush with the fully public option, which was considered by LIPA until a last-minute deal was brokered with PSEG, wasn't the first time such a plan has been discussed.

LIPA initially was envisioned as a public power utility.

But Republican Gov. George Pataki made a deal to hand the contract to operate the LIPA-owned assets to an outside company that was an amalgam of the old Long Island Lighting Co. and Brooklyn Union Gas.

The new company, originally known as MarketSpan, eventually became KeySpan before National Grid acquired it in 2007.

Robert Catell, the utility executive who operated those companies and worked with former LIPA chairman Richard Kessel to create the public-private model, said pitfalls remain, even though the political will may be on the side of full municipalization of LIPA.

"My concern is LIPA would have to take over all the functions that PSEG currently does for them -- that's a major undertaking," Catell told Newsday.

Catell, chairman of Stony Brook University’s Advanced Energy Research and Technology Center, also said a fully public utility would "have to pay senior management more" than the current top-level LIPA salaries of about $320,000 a year, to attract top candidates.

And LIPA also may have to contract out many of the jobs PSEG currently handles. "It's an awful lot of work, and in addition, they have to keep the lights on," Catell said.

Catell said LIPA should study all the options, including selling off the system to a private entity, an option LIPA and former Gov. Andrew M. Cuomo ultimately found unfeasible.

In 2012, Cuomo established a Moreland Commission to study new options for LIPA after National Grid’s highly criticized performance during Superstorm Sandy.

In creating the panel, Cuomo threw cold water on two plans that would have established a fully public LIPA, including one with the New York Power Authority in charge.

The panel's chief concern was that a municipal utility would further tax an overburdened state pension system by bringing on more than 2,000 new employees.

Commission members ultimately recommended against LIPA’s taking full control of the utility. They cited "loss of confidence" in the old LIPA, concerns about the influence of political and economic interests and a "lack of incentives for continuous improvement."

Like Catell, panel members also expressed concern about "difficulty" in recruiting qualified executives because of competition from the private sector.

The current mode for PSEG management leaves operational assets and employees under a separate company known as Servco, with benefits and other costs funded by LIPA.

Falcone has said LIPA technically could operate Servco with the same union contracts, pensions and benefits as PSEG, while not bringing workers into the state system. He suggested it might require a change in the LIPA Reform Act to make LIPA or a subsidiary an eligible service provider.

Peter Schlussler, a former member of the Suffolk County Legislature’s LIPA Oversight Committee who supports full municipalization, said he and the committee at the time the Moreland Commission report was released in 2012 believed the obvious path for LIPA was to become a fully public utility.

"This is a defining moment, and a full-service municipal utility seems to be on everybody’s mind," said Schlussler, a former LILCO manager and KeySpan software engineer who is a computer-systems director for Suffolk County.

Proponents of a fully public LIPA acknowledged pitfalls for which the utility must plan.

LIPA in the past was a state agency in which the politically powerful could wield influence over contracts and hiring.

State Assemb. Steven Englebright (D-Setauket) said a fully public LIPA would have options to make sure history doesn't repeat itself.

"One way to do it would be to make many of those positions Civil Service, so they would have to be subjected to a test available to everyone," he said.

LIPA could also enact strict bylaws "that set a standard for hiring based on strict experience provisions," Engelbright said.

Assemb. Fred Thiele (I-Sag Harbor), who with state Sen. James Gaughran (D-Northport) recently introduced a bill that would create a legislative commission to review and implement a fully public LIPA plan, said a publicly elected board of trustees would protect against outside influence.

"That accountability directly to the public is certainly one of the ways to address the issue of patronage," Thiele said, saying the elections must be "nonpartisan."

LIPA’s 2021 options analysis report takes note of some of the same concerns that the commission did, but ultimately found the LIPA-run public power model would be beneficial. It found local management of LIPA would lead to "purity of mission," increased transparency, greater responsiveness, and a more direct form of local governance. The new board, LIPA's report said, "Will have the authority, information and direct oversight necessary to hold management accountable."

LIPA also noted that nonprofit public power entities across the nation have a "strong record" of performance, customer satisfaction and reliability, with typically lower rates. It found public power on Long Island "financially attractive," noting that several functions now held by PSEG are duplicated at LIPA and can be consolidated.

About $15 million to $20 million in annual costs paid to PSEG for human resources, procurement, power management and computer staff "can be provided at a lower cost under a LIPA management model."

LIPA calculated it could save more than $100 million a year in management and other fees paid to PSEG to run the system, a figure that "more than offsets" the estimated $25 million in new labor and external sourcing costs of going fully public.

LIPA estimated there would be up to $90 million in one-time costs to transition to a new public power model, including around $15 million to take over the computer systems. In the end, annual savings would amount to $75 million to $80 million. It estimated that making the switch for 2022 would save customers about $920 million by 2033, and that the work could be done in under two years.

The recently announced Thiele-Gaughran legislation puts a December 2025 end date on any plan for full municipalization. Thiele said he’d welcome the transition happening sooner, after a legislative commission and an outside advisory committee are formed. The bill also sees a role for the state comptroller in reviewing the plan.

Activist groups that envisioned greater involvement of communities, experts and academics envision a future fully public LIPA that relies on an "observatory model" for expertise and access to public opinion to make a future LIPA more democratic.

"There are a lot of community needs that are unmet" with LIPA in its current form, said Ryan Madden, sustainability organizer for the Long Island Progressive Coalition. "There needs to be more dialogue." The model would work for a more fully democratized LIPA, while providing expertise from academia to inform decisions such as demand reduction, solar expansion and wind-power transmission. The head of the observatory could have a seat on LIPA's board to assure that voice is heard.

"LIPA has the chance to remake itself for the moment -- it's perfect timing," said Michael Mensor, professor of environmental psychology at Brooklyn College who is part of the Reimagine LIPA Coalition. "We can build a much more competent and accountable LIPA that's fully public."

Still, LIPA's task force noted the challenges.

"Undertaking a significant change in business model would require the full support of our state’s elected officials, regulators, stakeholders, and most importantly customers, as well as a transition plan that adequately mitigates the risks involved in hiring a new management team, shifting 2,500 employees to a new organization, and migrating certain [computer] systems," the report concluded.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

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