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Panel Proposes Dissolving the L.I. Power Authority


Calling the Long Island Power Authority’s response to Hurricane Sandy incompetent, a commission that was handpicked by Gov. Andrew M. Cuomo recommended Monday that the authority be replaced by a private utility company and placed under the supervision of a beefed-up state regulatory agency.

The high-level panel, known as a Moreland Commission, recommended that the power authority, a state agency that was created in 1985 to manage Long Island’s power grid, be dissolved. The network, which supplies electricity to 1.1 million customers, should be turned over to a utility company overseen by the same state commission that regulates Consolidated Edison and other power distributors in New York, the commission recommended.

But that regulator, the Public Service Commission, needs more resources and the power to punish utility companies with heavy fines and even the loss of their franchises, the commission said. “We’re basically recommending putting the P.S.C. on steroids,” said Benjamin M. Lawsky, a co-chairman of the Moreland Commission on Utility Storm Preparation and Response.

Those recommendations were part of a preliminary report presented to the governor in advance of his annual State of the State speech, which is scheduled for Wednesday. Mr. Cuomo, a Democrat, did not say whether he would endorse the ideas in his speech, but he bluntly declared his desire to change the relationship between utilities and the state government.

“I have a natural inclination against relationships that are impossible,” Mr. Cuomo told the commissioners. “This is, right now, an impossible relationship.”

The major changes proposed by the commission would require legislation.

After storms in 2011 and again after Hurricane Sandy cut power to 90 percent of Long Island Power Authority customers, that longstanding arrangement drew criticism from officials, including Mr. Cuomo. They blamed it for the authority’s disorganized response, which left most customers without power for more than a week in November, and some for over two weeks.

To improve the way utilities prepare for and respond to storms like Hurricane Sandy, the governor said, state regulators need a better set of potential incentives and sanctions. Most of all, he said, they need the ability to brandish the threat of withdrawing a utility’s certificate to operate.

“We have to be at a place where the relationship can be terminated if it needs to be terminated,” Mr. Cuomo said. And right now, he said, customers on Long Island want “a divorce” from the power authority.

In a statement, Mark Gross, a spokesman for the authority, said: “We are reviewing the report and will continue to cooperate with the state and the Moreland Commission to do what is in the best interest of Long Island’s ratepayers.”

Mr. Lawsky said the commission, whose co-chairman was Robert Abrams, a former state attorney general, considered other options for fixing LIPA, including expanding it or merging it with another state agency. But there were many problems with those ideas, including requiring the addition of about 2,000 state employees, the commission decided.

Placing the power grid in private hands would be the most cost-effective option and would put its operation under the scrutiny of state regulators, the Moreland Commission concluded. It would then operate as other big utilities like Con Edison do, rather than in the bifurcated way it has for more than three decades.

The power authority, which has just 112 employees, does not actually operate the system for distributing electricity on Long Island. It merely owns the grid, and oversees the work of a utility company — National Grid, which is in the final year of its contract — that it pays to keep the power flowing.

The unusual arrangement goes largely unnoticed until a storm blows in and knocks out power to large swaths of the island. Then, attention turns to the authority’s executives and the board of political appointees they answer to.

“Dysfunctional” was the word the commissioners used most frequently to describe the authority’s response.

Asked if he accepted any fault for not addressing the authority’s shortcomings sooner, Mr. Cuomo said, “Absolutely not.”

He blamed the failure to restructure LIPA and reform the regulatory regime on a lack of “political will.” He said he believed that “the system has been skewed in favor of the utility companies” and said improving the dynamic would require “legislation and legal changes that restructure dramatically the way this relationship works.”

The commission said the regulatory agency needed a larger staff and should have more engineers and auditors to monitor utilities effectively, but it provided no estimate of how much that expansion would cost.

Mr. Abrams said the commission was handicapped by the $100,000-a-day limit on fines it can impose on a utility, and a “burden of proof that is very high.” He suggested a much higher limit on fines: 0.2 percent of a company’s gross revenue, which could amount to $750,000 a day for LIPA or $2 million for Con Edison.

A more complicated financial issue is the question of how to make the Long Island grid attractive to a private buyer. The authority is saddled with about $7 billion in debt it took on to build the Shoreham nuclear plant, which was shuttered before it ever operated commercially. Mr. Lawsky said the authority had assets worth about $4 billion, which would leave it with about $3 billion of “stranded debt.” Another obstacle to privatization cited by some industry experts would be the loss of the ability to issue tax-exempt debt, which would increase the costs of paying to run the utility.

Still, Mr. Lawsky contended that the operation could be refinanced, through a “complex transaction” that had not yet been devised.