Governor Paterson Vetoes LIPA Rate Regulation Bill

Grasping a fresh pen full of ink, Governor Paterson vetoed 49 separate bills on September 5th. While some of these bills may have had questionable merit in these difficult economic times (such as the creation of an “I Love NY Baseball” program and the appointment of a dog control officer in Salamanca), one veto victim was unnecessarily sacrificed. Among the legislation that won passage overwhelmingly in both houses of the New York State Legislature and made it to the Governor’s desk was a law to require Public Service Commission approval of major Long Island Power Authority (“LIPA”) electric rate increases.

Assemblyman Robert Sweeney (D-Lindenhurst) and Senator Kenneth LaValle (R-Port Jefferson) teamed up as sponsors to have A.6164/S.3410 approved in each house. Simply put, the bill required any attempt by LIPA to increase customer rates by more than two and a half percent in any 12 month period to be approved by the PSC prior to implementation. This is the same standard that has applied to investor owned and other municipal utilities for decades if not a century. PULP couldn’t have agreed more with the need for this legislation.

Governor Paterson’s Veto Message on September 9th stated several reasons for the veto.

Impairment of Bonds?
First, the Veto Statement stated that PSC approval requirements could “unconstitutionally impair and diminish the value of financial covenants and other commitments that LIPA made to bondholders in resolutions under which LIPA’s bonds have been issued. . . .” The Veto Message, however, gives no citation to any actual language in a LIPA bond covenant that would be violated by the new law. Even if a bond did have such language, LIPA had no power to promise its bondholders that the Legislature would not act in the future to provide for a review of its retail rates.

Fixing utility rates at a level sufficient to provide coverage of bond payments and to maintain efficient access to capital markets is standard regulatory practice. Yet the Governor argued that the bill is “ambiguous,” adding “[c]onsequently, enactment of this bill could cause uncertainty about LIPA's ability to timely and effectively recover costs and comply with its bond covenants, diminish LIPA's ability to market new debt, and cause the ratings assigned to LIPA's bonds to be lowered, thereby increasing LIPA's borrowing costs. This, in turn, could make larger rate increases for LIPA customers more likely than might otherwise be the case.”

Retail rates and contracts of many municipal utilities are already subject to PSC review, and the New York State Power Authority is subject to FERC jurisdiction over reasonableness of its rates. There is no evidence that regulatory scrutiny to protect consumers has impaired their credit ratings or bond payments.

The notion that the PSC would set rates so low that LIPA would be at risk of defaulting on bond payments, or impair its credit ratings, is a major stretch. It is unclear to PULP how this parade of horrors, premised on an implicit assumption of irresponsible PSC action to lower bond ratings or risk default, could be a showstopper.

Cost of Regulation?
The Governor’s veto message indicates that he was concerned that the “laudable” aspects of the bill could actually raise costs for LIPA’s customers. It is true that the cost of PSC regulation is added to customer bills. That cost, however, is capped by Section 18-a of the Public Service Law at one third of one percent of utility revenue. Applied to a customer’s bill of one hundred dollars, the maximum cost of PSC regulation would be one third of one cent on that bill. Thus, even if the PSC scrutiny of a proposed rate increase led to no reduction of the rates adopted, the added cost of the state agency regulation would be minimal.

Power to Modify Rates?
The Veto Message went on to state that the bill did not include the ability to “modify, condition, monitor or enforce an increase.” The greater power to approve or deny a rate increase implicitly carries with it the power to approve or deny it in part or otherwise to modify it. If there were any serious doubt, the commission and the courts could resolve the issue in a declaratory ruling, and the legislature could pass a corrective amendment. Instead, the entire benefit of the law was scuttled.

Burden on Customers of Other Utilities?
The PSC apparently advised the Governor that the cost to provide “effective regulatory oversight over LIPA” would exceed $5 million a year. The Veto Message claims that the PSC does not have the authority to assess LIPA now and so any costs incurred to oversee it would need to be recovered from assessments of other utilities and ultimately their customers.

There was no reason to address the LIPA regulatory assessment in the bill, however, because Public Service Law Section 18-a, on the books for decades, clearly states that any corporation or person subject to the Commission’s regulation can be assessed by the PSC. The new law would now make LIPA “subject to the Commission’s regulation” with respect to major rate increases, and so LIPA could be assessed. Thus there is no lack of power to fairly assess LIPA the cost of the new PSC oversight.

Why was the Bill to Protect LIPA Customers Vetoed?
So, why was this bill vetoed? Was it because it would provide the protection of independent PSC review of major rate increases, putting LIPA’s customers on the same plane as other utility customers in the state? Was the PSC opposed? Was there a disinformation campaign that caused this important bill to fail?

Hopefully it can be re-introduced in the next session so that Long Island utility customers can finally enjoy the same rights and protections as the rest of New Yorkers already do.

Lou Manuta.