New York Governor Andrew Cuomo struck a deal with lawmakers for Public Service Enterprise Group Inc. to take over the operations of the state-owned Long Island Power Authority, which left thousands without power for weeks after Hurricane Sandy.
Under the agreement, which lawmakers said they’ll pass this week, the authority would become a holding company for $7 billion of debt, with no day-to-day utility functions, Cuomo said today. As much as half of what it owes would be refinanced. The authority’s rates, among the nation’s highest, wouldn’t change through 2015.
“LIPA has been dysfunctional for many years,” Cuomo said today at a press briefing in Albany. “It really came to a head with Hurricane Sandy.”
Mark Gross, a spokesman for LIPA, didn’t immediately return a phone call and e-mail seeking comment. Lindsey Puliti, a spokeswoman for Public Service (PEG:US), based in Newark, New Jersey, had no immediate comment.
Sandy hit Oct. 29, blacking out 1 million authority customers, or about 90 percent of those it served, as falling trees downed transmission lines and flooding knocked out substations. A week later, 200,000 remained without power.
Last month, Moody’s Investors Service cut its ratings on authority debt backed by customer revenue one step to Baa1, three levels above junk, with a negative outlook, suggesting another reduction to come. Scrutiny following Sandy would make it difficult for the agency to improve its finances and operations, particularly if those actions would require rate increases, Moody’s said in a statement.
The authority has “little if any cushion for the unforeseen events that seem to occur every year,” Moody’s said.
LIPA, which was established in 1985, owns Long Island’s electric lines and hired London-based National Grid Plc (NG/) to operate them. Under its divided management, the authority let consultants guide spending and failed to replace aging poles or trim trees, according to Benjamin Lawsky, who led a state probe into storm readiness.
Public Service has already agreed to take over the authority’s operations Jan. 1. Under the accord Cuomo reached with lawmakers, the company’s role would expand beyond controlling capital and operating budgets, handling storm preparedness and response as well as call centers, computer systems and customer service. Public Service said in May that it supported the governor’s plan.
Tax-exempt LIPA debt callable in nine years traded yesterday at an average yield 1.95 percentage points above top-rated bonds, data compiled by Bloomberg show. That was down from 2.24 percent on June 12, the most in at least four months.
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