LIPA should transition to a fully public utility

The cost of living on Long Island is 47% above the national average. Our energy and housing costs are among the nation's highest. But it doesn’t have to be that way.

According to the draft report by the Legislative Commission on the Future of the Long Island Power Authority, LIPA could save millions a year, Long Islanders’ electricity bills would go down, and service would improve if LIPA stopped farming out management to PSEG.

PSEG has proved massively inefficient and has clearly failed to serve Long Islanders’ interests. This winter it charged well over 20 cents a kilowatt-hour for peak residential electricity, about twice the national average. This partly reflects the legacy of the $10 billion Shoreham nuclear power plant debacle, for which ratepayers are still paying $348 million a year in interest-only payments.

But the main problem is the wasteful arrangement whereby LIPA, a public utility, contracts out its management to a subsidiary of PSEG International, a private corporation based in New Jersey. No other utility anywhere uses this middleman structure — a dubious distinction, because the structure doesn’t work. PSEG management helped make Long Island a watchword for inefficient, overpriced electricity.

LIPA (which is to say ratepayers) pays $80 million a year for just 19 PSEG managers to make decisions that determine service for Long Island customers. That’s a terrible deal for Long Island. The new LIPA commission report shows how we can strike a different one. It finds that firing PSEG and converting to a fully public utility under public management would save $48 to $78 million a year, lower electric bills, improve service and reliability, and deliver a more efficient, accountable, transparent system.

It’s not hard to see why. PSEG’s incentive is to maximize returns for its shareholders, for whom it has performed well. But it isn’t set up to perform for Long Island ratepayers. If it had competitors and ratepayers could vote with their dollars, PSEG would be forced to deliver better pricing and service or lose its market share. But that’s not the system we have had since LIPA started contracting with PSEG in 2013.

Weeks before 2020’s Tropical Storm Isaias, PSEG knew of and failed to correct problems with its computer and telecom systems that ultimately crippled storm response, leaving some 646,000 Long Island households in the dark. A LIPA task force investigating PSEG’s failures found they remained uncorrected, and recommended its contract be terminated if that didn’t change.

It has not. PSEG Long Island’s call wait times spiked over 1500% last year. It consistently ranks last in customer satisfaction among Northeastern utilities.

No business subject to competition and market forces could perform this badly and expect to keep its customers. But PSEG’s contract with LIPA shields it from market discipline. Virtually no matter what it does, PSEG will continue to sell to a captive market of ratepayers who have no choice but to put up with high prices and lousy service — as long as PSEG’s management contract with LIPA lasts, that is. That’s why it shouldn’t be renewed when it expires in 2025.

A private corporation managing a public entity delivering a necessary public good while shielded from competition isn’t really private enterprise at all; it’s a recipe for inefficiency, high prices, and low performance. The corrective is to end PSEG’s contract, stop wasting money, and align LIPA’s structure with Long Islanders’ interests by becoming a fully public utility.