Nov. 14 (Bloomberg) -- The chief operating officer of the Long Island Power Authority resigned after Governor Andrew Cuomo of New York, where 2 million homes and businesses lost electricity in superstorm Sandy, ordered an investigation into the performance of the state’s utility companies.
An investigatory commission will examine how providers such as LIPA, the second-largest U.S. municipal electric utility by revenue, responded to Sandy, which struck Oct. 29, and to storms last year, according to a statement yesterday. The commission will have the power to subpoena and question witnesses under oath, the Democratic governor said.
“I believe LIPA has been beyond repair for a long, long time,” Cuomo, 54, said yesterday. “I don’t believe you can fix it. I believe it needs to be overhauled and you need a new system.”
The resignation of Mike Hervey, chief operating officer and acting chief executive officer of the state-owned utility for the past two years, was announced late yesterday by the agency’s chairman, Howard Steinberg.
Steinberg said he accepted Hervey’s resignation, effective at the end of the year, “with regret.” Josh Vlasto, a Cuomo spokesman, declined to comment on the announcement. LIPA’s public relations department didn’t immediately respond to telephone calls and e-mails after business hours in an attempt to reach Hervey for comment.
LIPA is overseen by a 15-member board of trustees, nine of whom are appointed by the governor. Four of those nine seats are vacant and two members, including Steinberg, continue to serve even though their terms have expired. In almost two years in office, Cuomo has appointed only one trustee.
Long Island residents and lawmakers have called for a shakeup of LIPA as thousands of customers remained without power two weeks after Hurricane Sandy. The authority and National Grid Plc, which operates its electricity network, were sued yesterday by customers accusing them of failing to properly maintain and update an “outdated, obsolete” system.
About 10,136 customers still lacked power as of 10 a.m. local time yesterday, according to a statement on the utility’s website. An additional 35,000 customers were blacked out due to property damage that makes it unsafe for them to reconnect, LIPA said in a statement.
National Grid operates, maintains and repairs LIPA’s power lines under an agreement that ends Dec. 31, 2013. Last year, the authority picked Public Service Enterprise Group Inc., owner of New Jersey’s largest utility, to take over the contract in 2014.
“The silver lining of this storm is that the Legislature understands we have to overhaul the power-distribution system in this state,” Cuomo said yesterday at a press briefing in Manhattan. “I don’t think we have a choice.”
Sandy knocked out power to more than 8 million homes and businesses in 21 states. As utilities struggled to get the lights back, they were criticized by Cuomo, New Jersey Governor Chris Christie, a Republican, and thousands of customers, some of whom are still without power.
Cleaning up from the storm may hurt LIPA’s finances, Moody’s Investors Service Inc. said in a report last week. While the utility can recover costs by raising rates, it may face challenges doing so “if storm responsiveness turns out to be a major political issue,” Moody’s Vice President Laura Schumacher said in the report.
Cuomo said Nov. 8 that LIPA’s management had failed, and he pledged to “make every change necessary to ensure it lives up to its public responsibility,” including removing management.
“We certainly understand the frustration,” Hervey said Nov. 11 at a news briefing. The storm was unprecedented and left utilities along the East Coast calling for help from a limited number of linemen and tree-trimmers, he said.
The commission established by Cuomo will review the overlapping responsibilities of what he called a “labyrinth” of regulatory bodies, agencies and utilities, including LIPA, the Public Service Commission and the New York Power Authority. The goal is to determine what went wrong and how best to reshape the system, he said.
Cuomo said those overlapping responsibilities contributed to a dysfunctional system that also brought down gasoline distribution and communication networks.
“Such sustained disruption of the power supply and its cascading damage to other critical systems” has “jeopardized the health and safety of New Yorkers,” Cuomo wrote in the order establishing the commission.
Consolidated Edison Inc., which serves New York City and suburban areas, has restored power to more than 1 million customers who lost it during Sandy and a nor’easter that struck Nov. 7. The restorations don’t include 16,300 in flood-ravaged areas of the city involving homes and businesses that are too damaged, according to the company’s website.
“Con Edison looks forward to working with the commission to discuss the company’s preparation and response to Superstorm Sandy,” Chris Olert, a spokesman, said in a statement. “We will continue to work with all parties to review new technology and infrastructure options that would benefit New Yorkers.”
Cuomo has been faulted by lawmakers, including Senator Carl Marcellino, for not exerting the power he wields over LIPA.
“I don’t think you can have an operation that isn’t fully appointed,” Marcellino, a Long Island Republican who heads the senate’s investigations committee, said before Cuomo’s investigation was announced. “Terms expired and seats are empty. More has to be done in that area.”
Cuomo said it doesn’t matter who’s in charge of LIPA because the authority is broken.
LIPA was formed in 1985 by state lawmakers because of a “lack of confidence” in Long Island Lighting Co.’s ability to supply power in a reliable and economic way after its investment in the ill-fated nuclear plant near Shoreham, on Long Island Sound, about 70 miles east of New York City. Shoreham, the most expensive nuclear power project built in the U.S., was shut in 1989 after the state raised questions about the ability to evacuate Long Island in the event of a radioactive release.
In 1998, LIPA bought the remaining lighting company assets, including its power lines and power plants.
The authority has about $7 billion in debt, according to a May report by Moody’s. Since 1998, LIPA has issued $1.8 billion to finance capital projects, according to a June offering statement. In a report Nov. 12, Fitch Ratings said the effects of Sandy will challenge LIPA’s finances and frustrate the authority’s efforts to improve its financial performance.
“Given the intense political pressure surrounding LIPA’s storm response and the authority’s historic objective to moderate already high electric rates, Fitch believes that LIPA’s willingness to increase rates may be limited,” the report said.
That political pressure was already growing, even before Sandy. In a June report requested by Cuomo, the Public Service Commission found that LIPA fell short in its preparation and response to Tropical Storm Irene. The authority, which isn’t regulated by the state commission, didn’t provide accurate and timely power-restoration estimates, according to the report.
“Communication with the public should be as high a priority as restoration,” according to the report, one of three released June 28 on utility preparation and response to the 2011 storms. “Had better communications been achieved with customers and local officials, this criticism might have been dampened and the positive aspects of the storm response efforts could have been better appreciated.”
After Sandy, it was clear that LIPA and National Grid were still struggling with communication, according to residents.
“It wasn’t just the fact the power was out,” said Ellen Schlank, a Plainview resident who still lacked electricity as of noon yesterday. “It was a devastating storm; everyone understood that. It’s the lack of communication. We just want to know when the power will come back. That’s the worst part about it.”
Should Cuomo try to overhaul the system, he’ll probably find support among lawmakers, Senator Michael Gianaris, a Queens Democrat, said yesterday.
“Governor Cuomo is a master at using whatever leverage is available to him to get results,” Gianaris said. “I would expect receptive ears on the issue of reforming utilities.”
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