State reduces recommendation on scaling back LIPA and PSEG's rate hike

The Department of Public Service Monday acknowledged a "miscalculation" and said LIPA and PSEG's rate hike should be scaled back by only 37 percent compared with the department's previous recommendation of 78 percent.

DPS previously had recommended that LIPA and PSEG Long Island cut their $221 million rate request by $173.4 million to about $47.8 million. The new figures recommend that it be cut by just $53.8 million, according to a senior DPS official and new filings. That revision would leave the utilities with a rate increase totaling about $167.4 million.

Part of the problem was that the DPS review looked only at the roughly $72 million in increases the utilities planned to charge each year, rather than the cumulative total with prior-year increases.

The new figures take into account the cumulative $441 million total new revenue that PSEG and LIPA plan to collect in rates over the three years. On a cumulative basis, DPS staff is recommending that the utilities' $441 million total revenue request be reduced to $275.8 million, a cut of $165.2 million.

The revision is a blow to the first-ever rate review by the DPS Long Island office, and will likely mean that customers will pay closer to the nearly 4 percent delivery rate hike that the utilities are requesting. Hearings on the rate request will take place later this month, and LIPA trustees are scheduled to vote on it by year's end.

The department in testimony cited a "mechanical miscalculation" and two other errors that caused an understatement of $124.3 million in the revenue requirement.

In a letter Monday to administrative law judges overseeing the matter, DPS attorney Guy Mazza cited "variances" in three separate categories the department reviewed related to issues including interest on LIPA variable-rate debt, contingent "swap" interest payments and interest-based earnings.

The letter noted the "complex" nature of the rate case, which has been condensed into an unusually short period of less than a year.

But Assemb. Fred Thiele (I-Sag Harbor), who voted against the LIPA Reform Act, said he found "an error of that order of magnitude to be very, very disturbing. The consumers and public are supposed to be able to rely on them."

Brookhaven Supervisor Edward P. Romaine, who has requested that state Comptroller Thomas DiNapoli audit the rate request, said the miscalculation gives "more weight" to his request.

"An error of this magnitude calls for an independent auditor to come in and do an outside review," Romaine said.

But Assemb. Steve Englebright (D-Setauket), who voted for Gov. Andrew M. Cuomo's LIPA Reform Act, was more forgiving.

"The process of arriving at a precise determination on rates involves good faith efforts on the part of both of the agencies," he said of DPS and LIPA. "To have corrections is a sign of a healthy process."

Before the LIPA Reform Act, rate requests of 2.5 percent or greater would have required a full review by DPS to be voted on by the state Public Service Commission.

PSEG said in a statement that it "will carefully review the revised testimony reflecting the updated revenue requirements submitted by the DPS today and will formally respond on June 10."

LIPA review timeline

July 29, 2013: Gov. Andrew M. Cuomo signs his LIPA Reform Act into law, creating a Long Island office of the state Department of Public Service.

Jan. 30, 2015: LIPA and PSEG file their rate request, asking for $221 million in new revenue for 2016-18.

May 14: Department of Public Service files rebuttal to LIPA and PSEG request, saying it should be cut by 78 percent to about $47.8 million.

June 8: DPS revises testimony, saying LIPA and PSEG request should be cut by just 37 percent, to $167.4 million.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

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