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The Fate of LIPA- Senator Ken Lavalle

June 24, 2011 @ 12:00 am EDT


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The topic – Was LIPA worth doing?


Senator LaValle was scheduled to be at the meeting today and discuss the LIPA as it was conceived, how it has performed, and where do we go from here. Mr. LaValle called Thursday afternoon and said he was stuck in Albany on unfinished business. Dr. Mathew Cordaro was scheduled to introduce the speaker, and he was quite able to give us information that would be different from the political aspects we may otherwise have heard from the senator, but no less complete. Dr. Cordaro was Vice President of LILCO, President of several other electrical entities and the President of a municipal power company in Nashville Tennessee


Cordaro opened his remarks with an opinion offered from the senator "LIPA has been a disappointment and it is dysfunctional." He stated that Senator LaValle wants to see oversight of LIPA by the PSC. Cordaro is on the Suffolk County Oversight Commission and agrees with that idea.


We then discussed the possibility of repowering Port Jefferson. Dr Cordaro has long been a proponent of repowering of old plants. The benefit of having existing connecting infrastructure already on-site and the fact that the site is already an approved power plant location weighs into his reasoning.


The cost of the power output of LIPA varies from month to month depending on fuel costs and other factors. The Edison Institute tells us it ranges from the highest cost power in the nation to the third highest cost at best.


The question of whether LIPA is being properly managed has recently been investigated and the results of that study were disturbing. He gave as an example the gearing up for hurricane Earl. (the storm that never materialized) cost many millions of dollars, and when the costs were put under scrutiny, they proved to be excessive and in some cases totally unnecessary. There have also been investigations of billing errors that go back 10 years. Overcharging for fuel was one of those transgressions. LIPA’s investment practices have also been criticized


LIPA presently has new operating contracts out to bid. There are three remaining bidders to choose from, National Grid, Con Edison, and PSE&G., but there are other possibilities. One of those alternatives is a private entity. That would be repeating what we had as LILCO. You can give that one the buzzer. Or we could create a full municipal entity, something like what Matt managed in Tennessee. The third option is to continue as we are now, which is a hybrid. That keeps the debt in the municipal bonding arena, but purchases all the power, and services from a for-profit company such we have now with National Grid. I pointed out to Dr. Cordaro that we would have had a true municipal power company when we created LILCO. All we got out of that deal was the aging outdoor infrastructure and $7 billion in debt. In other words, we got screwed. By the way, the debt is still $7billion.


Cordaro stated that municipal power companies do have many advantages over investor owned power companies, and they can be run at less cost. Among the cost savings are the ability to finance using municipal bonds, as we presently have with LIPA, but there is also no dividend payments to stockholders, nor are there excessive salaries, bonuses, and stock options for the executive class. There are also tax preferences, although public power companies often do pay real estate taxes.


Customer satisfaction was discussed and LIPA did not fare well on that one either. During the Q&A Cordaro brought up the cost of demand charges which are about $500 million year. Standby plants that are hardly ever brought on line create about $200 million in demand charges. Better management of that factor would save significant money. Cordaro closed on the thought that the entity needs oversight. Amen!