Public Service May Expand LIPA Role After Sandy Failures

Public Service Enterprise Group Inc. (PEG) may take over operations of the Long Island Power Authority, leaving the state-owned utility a holding company with no day- to-day responsibilities after thousands of its customers were left in the dark for weeks by Hurricane Sandy.

The expanded role for the owner of New Jersey’s largest utility was discussed at a cabinet meeting with New York Governor Andrew Cuomo in Albany today. No final decision was made. Public Service, based in Newark, New Jersey, was awarded a 10-year contract in 2011 to manage the authority’s power lines and distribution systems starting next year.

Under the proposal, Public Service would control capital and operating budgets, storm preparedness and response, call centers, computer systems and customer service, Richard L. Kauffman, a Cuomo adviser on energy issues, said at the meeting. The move is meant to improve customer service and response to storms, he said.

Cuomo, a Democrat, has criticized the authority’s response to Sandy, saying in November that its management failed. Chief Operating Officer Michael Hervey resigned from the authority two weeks after the storm, which caused the largest power restoration effort in Long Island’s history. The governor formed a commission to investigate utility actions before and after the storm.

Proposed Solution

The authority, which has about $7 billion in debt, would maintain its tax-exempt status under the proposal. Public Service takes over operations at LIPA from National Grid Plc (NG/), based in London.

Public Service Chief Executive Officer and Chairman Ralph Izzo said yesterday the utility was in talks with New York to take on an expanded role at LIPA. New York officials approached Public Service about taking over more management functions, Izzo said during a conference call with analysts.

“There is a proposed solution that we are all working towards,” Karen Johnson, a spokeswoman for Public Service, said in an e-mail today. “It’s still a work in progress and under discussion.”

LIPA didn’t immediately respond to e-mails and telephone calls seeking comment.

The proposed plan would put LIPA and PSEG under the oversight of the New York State Department of Public Service. LIPA currently operates outside of that oversight. It would also create a structure, still to be determined, that would securitize LIPA’s debt in an effort to lower its borrowing costs.

“We think that this plan, if we’re able to complete it, will privatize operations while getting meaningful operations synergies,” Kauffman said.

The state still needs to reach an agreement with Public Service and may also need legislation to enact some of the changes at LIPA, Kauffman said.

To contact the reporters on this story: Freeman Klopott in Albany at fklopott@bloomberg.net; Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net; Susan Warren at susanwarren@bloomberg.net

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