Public Hearing to Examine the Best Course of Action to Ensure the Residents of Long Island Receive the Electrical and Customer Service That They Deserve at Affordable Prices

Regina Calcaterra 11 26 3 Executive Director

The Moreland Commission on 4 Utility Storm Preparation & Response 5 Gil C. Quiniones 11 26

President and CEO 6 New York Power Authority 7 Robert F. Lurie 11 26

Senior VP of Strategic Planning 8 New York Power Authority 9 David Daly 91 118

Vice President, LIPA Transition 10 Public Service Enterprise Group 11 Neal Lewis 91 118

Board Member 12 Long Island Power Authority

Appearing as an appointed 13 volunteer member of the

LIPA Board of Trustees 14

Shelly Sackstein 161 186 15 Chairman and CEO

Action Long Island 16 Also, Chairman of Suffolk County

LIPA Oversight Committee 17 Also, Former Board of Trustee, LIPA 18 Cynthia Kouril, Esq. 161 186

Former Counsel, Inspector General for 19 NYC Dept. of Environmental Protection;

Former Special Assistant, 20 U.S. Attorney General,

Southern District of NY 21

Donald J. Daley, Jr. 200 217 22 Business Manager

International Brotherhood of 23 Electrical Workers, Local 1049 24 25 1

SPEAKERS:PAGE QUESTIONS 2

Tom Rumsey 200 217 3 Vice President of External Affairs

New York Independent System Operator 4

Rick Gonzales 200 217 5 Sr. Vice President and

Chief Operating Officer 6 New York Independent System Operator 7 Charles Bell 221 229

Programs Director 8 Consumer Union 9 Elizabeth Horan 221 229

Volunteer 10 AARP-New York 11 Bill Ferris 221 229

State Legislative Representative 12 AARP-New York 13 14 * * * * * 15 16 17 18 19 20 21 22 23 24 25 1 SENATOR MARCELLINO: Good morning. 2 If we could take our seats, please. 3 Good morning, ladies and gentlemen. 4 My name is Senator Carl Marcellino, and I am 5 the Chairman of the New York State Senate -- Senate 6 Committee on Investigations and Government 7 Operations. 8 Sitting to my right is 9 Senator Mike Ranzenhofer, who is the Chairman of the 10 Corporations, Authorities, and Commissions Committee 11 in the New York State Senate. 12 We are joined by our colleagues: 13 To my left, Senator Ken LaValle, 14 Senator Lee Zeldin; 15 And to our right, Assemblyman Dave McDonough, 16 Assemblyman Graf, and Assemblyman Montesano. 17 We are here for a hearing, a joint public 18 hearing, on, basically, the future of LIPA; the 19 Long Island Power Authority. 20 Governor Cuomo has made the decision -- his 21 desire clear that he would like to see a change in 22 the structure of LIPA. 23 Excuse me. There may come a time when I have 24 to pull a "Rubio," so -- 25 [Laughter.] 1 SENATOR MARCELLINO: Hopefully, I can get the 2 water a little closer than lurching for it. 3 But, he's made his desire clear to see a 4 change in the structure of LIPA. 5 He's not happy with the way it performed in 6 the aftermath, and during "Superstorm Sandy," and he 7 would like to see some kind of a change. 8 To that end, he is seated a 9 Moreland Commission to do a study for the Executive. 10 Our two committees are going to do a joint 11 study, and issue a report at the end of this 12 hearing, and after we get in some other written 13 testimony that we expect, to issue a report of our 14 own and make some recommendations to the 15 Legislature. 16 Hopefully, between the Executive and the 17 Legislature, we can come up with a position that is 18 in the best interests of the ratepayers, within the 19 LIPA perspective, which is, basically, Long Island 20 and Queens. 21 I don't believe areas -- I don't think it 22 goes into Brooklyn. 23 No, I don't believe so. 24 So, we are -- we are looking to take 25 testimony today from the people, we have panels, 1 that are seated. 2 And paperwork is at the top of the floor 3 there. If you didn't get a list of the people who 4 are seated, who are going to be testifying today, 5 you can pick it up. That's for your avail. 6 This will be taped. A video replay of this, 7 if you want to have good sleeping at night, a good 8 retape and a replay will be on the Senate 9 Investigations Committee website, the Senate website 10 as well, so that you can watch this. 11 This is being broadcast live on the Senate 12 channel and the Senate Investigations Committee 13 website. 14 You can also go to my own personal Senate 15 website and you can see it as well. 16 So, we'll replay this for the public so 17 anybody can hear it. 18 We have received written testimony from many 19 individuals and groups who wanted to do so, and, 20 testimony has been by invitation only. 21 We are concerned as to the complexity of the 22 issue, and it is an extremely complicated issue. 23 Lots of interrelated issues come into play, 24 not the least of which is, what to do, and how to 25 deal with the Shoreham debt, and what's going to 1 happen with that, that problem. That's the 2 800-pound gorilla that sits out there and affects 3 the ratepayers most. 4 So we are particularly interested in seeing 5 how we -- how this group is going to recommend, and 6 what we're going to do to handle that, and what are 7 the recommendations, and how that's going to be 8 dealt with. 9 I see that we've been joined with 10 Assemblyman Raia from Long Island. 11 We have, as I said, written testimony. 12 I would appreciate it if the people 13 testifying wouldn't read their statements. 14 They don't have to, we have the written 15 testimony. 16 Last I looked, everybody up here could read, 17 and we will be happy to go through this and read it 18 as well, but we'd like as much time as possible for 19 questions of the panels, as they go forward. 20 So that issue being done, 21 Senator Ranzenhofer, do you have any comments? 22 SENATOR RANZENHOFER: Yes, thank you. 23 Thank you, Senator Marcellino. 24 My name is Mike Ranzenhofer. I am the 25 Chairman of the Standing Committee on Corporations, 1 Authorities, and Commissions, and co-hosting this 2 public hearing with Senator Marcellino. 3 And, Senator Marcellino, I want to thank you, 4 and your staff, for your leadership in convening 5 this very important meeting today. 6 I also want to thank those who are going to 7 be appearing before us today at this public hearing, 8 for their time and thoughts and effort putting 9 together the written statements, and for being here 10 today and testifying. 11 And for also those who are here in the 12 audience, and then watching this on television. 13 This is a very important issue for the 14 ratepayers in this geographical area. 15 As Senator Marcellino said, this is a very 16 complex and complicated area; basically, proposing 17 changes in a structure that's been existing for some 18 time. 19 So, I also look forward to hearing from the 20 participants today. 21 And, Senator Marcellino, again, thank you for 22 your leadership on this issue. 23 SENATOR MARCELLINO: Any of my colleagues? 24 Senator LaValle? 25 SENATOR LAVALLE: No. 1 SENATOR MARCELLINO: Anybody else want to 2 make -- any statement you'd like to make? 3 Okay, with that, just a quick background. 4 LIPA was created to deal with, as I said, the 5 Shoreham debt, replacing the Long Island Lighting 6 Company (LILCO) that preceded it. 7 It is a holding company, in effect. It is a 8 State authority; hence my colleague's involvement in 9 this hearing. 10 It has a total of about 100 employees. 11 When you see trucks on Long Island, riding 12 around, and it says "LIPA" on it, and you see a crew 13 in those trucks, more than likely that crew are 14 employees of National Grid, because National Grid is 15 the company that provides the services and provides 16 the -- the repairs, and does all the repair work and 17 maintains the system. They also own the power 18 plants. 19 LIPA owns the lines that bring the power from 20 the power plants to your home, and from the top of 21 the mast, which is that thing that reaches up above 22 your house and connects to your meter, that's the 23 personal property of the ratepayer, the homeowner. 24 So, you own, from your house, from your meter 25 to the top of the mast. 1 LIPA controls, from the mast to the 2 transformers, to the power plant, and Grid owns the 3 power plants. 4 Now, to add to the complexity of this, in 5 2013, we're changing. 6 National Grid will be replaced. The contract 7 with National Grid will be changed and altered, and 8 we'll be taking on PSE&G, which is a company from 9 New Jersey. 10 They're gonna be replacing Grid, and 11 providing the service for our customers and the 12 maintenance of the system. 13 However, Grid, to my knowledge, will still 14 own the power plants, unless some deal was made 15 between PSE&G and National Grid so that PSE&G could 16 buy the power plants. 17 So, as you can see, this is not exactly 18 simple. This becomes even more calculated and more 19 complicated as we move on. 20 But, we will move on. 21 So with that background in mind, I would like 22 to introduce our first panel. 23 We have Ms. Regina Calcaterra, executive 24 director of the Moreland Commission on Utility Storm 25 Preparation and Response, chaired by -- set up by 1 Governor Cuomo; 2 We have Gil Quiniones, president and 3 chief executive of the New York Power Authority; 4 And Robert Lurie, senior vice president of 5 strategic planning for the New York Power Authority. 6 Ms. Calcaterra, I understand you're going 7 first. 8 REGINA CALCATERRA: Thank you. 9 Good morning, Chairman Marcellino, and 10 Ranzenhofer, and members of the Committee. 11 I am Regina Calcaterra, executive director of 12 the New York State Moreland Commission on Utility 13 Storm Preparation and Response. 14 I appreciate this opportunity to discuss the 15 commission's investigation and findings concerning 16 LIPA's response to "Superstorm Sandy," and the 17 options of how best to structure LIPA, going 18 forward. 19 The commission has conducted an investigation 20 that solicited a broad spectrum of views and 21 experiences associated with LIPA, from the public, 22 industry experts, business owners, and 23 representatives who represent critical 24 infrastructure entities, as well as from LIPA 25 personnel, National Grid personnel, and local 1 government officials. 2 The commission focused first on, among many 3 things, the serious shortcomings in LIPA's recovery 4 from "Sandy," and whether its current structure 5 contributed to those shortcomings. 6 The commission's findings and recommendation 7 in this respect were presented in the interim report 8 which was submitted on January 7th, and the two 9 findings just related to LIPA determined that the 10 ineffective manner in which LIPA addresses 11 emergency-planning preparedness and storm response 12 in its service area, and it also addressed the 13 inherent defects in the current LIPA-National Grid 14 structure that must be avoided in any future 15 alternative organizational structure that are being 16 considered. 17 The interim report provides sufficient 18 evidence that LIPA's outsourcing of most of the 19 day-to-day management and operations of its system 20 to National Grid just does not work. 21 In short, the bifurcated LIPA-National Grid 22 structure lends itself to mismanagement, a lack of 23 appropriate investment in infrastructure, a lack of 24 accountability to customers, and excessive rates. 25 The commission recommended consideration of a 1 unified structure that both owns the T&D assets and 2 is entirely responsible for serving LIPA's current 3 service area. 4 In this respect, the commission identified 5 three options for consideration: 6 The first, is the sale of LIPA's assets to a 7 qualified investor-owned utility that would serve as 8 the sole utility manager and operating -- an 9 operator to the existing LIPA service area; 10 The second option, is full public ownership 11 in operations by LIPA of the transmission and 12 distribution systems; 13 The third option, was full public ownership 14 and operation by the New York Power Authority of the 15 LIPA electric system. 16 For the purposes of this testimony, I'm going 17 to highlight a significant flaw associated with the 18 management-service agreements between LIPA and 19 National Grid, which is set to expire on 20 December 31, 2013. 21 This agreement has been set in place -- 22 there's been an MSA continuing between LIPA and 23 whoever it was that has been operating their system 24 for years, and it's changed hands over time. 25 And the present agreement is between LIPA and 1 National Grid -- LIPA as the owner, National Grid as 2 the operator of the system -- so their roles are 3 delineated in this agreement. 4 And National Grid has three primary roles: 5 The first, is to operate and maintain the 6 T&D system; 7 The third, is to repair the T&D system -- the 8 second, is to repair T&D system; 9 And the third, is to provide customer 10 service. 11 And they do these three major functions with 12 over 2,000 employees on Long Island. 13 And LIPA's role is also defined in this 14 agreement as well, but they're non-core functions as 15 opposed to what National Grid does. 16 And what their role is, to set the rates, to 17 determine and implement energy-efficiency programs, 18 to create a budget, to issue debt, and provide legal 19 compliance. 20 So it's very distinct what LIPA does with its 21 100 employees, and what National Grid does with its 22 2,000 employees. 23 So while National Grid assumed responsibility 24 for day-to-day operations in what we call "blue sky" 25 conditions -- when things are normal -- LIPA 1 specifically retained the ultimate authority in 2 control over the operations of the T&D system, 3 including the right to direct the manager in 4 connection with the manager's obligation under the 5 MSA. 6 And what this resulted in, was a problem 7 during an emergency, because in the event of an 8 emergency, LIPA even retains the right to take 9 possession of and use any or all of National Grid's 10 staff and resources, and directly manage them, even 11 though they don't do that on a day-to-day basis. 12 The commission has determined that the unique 13 relationship between LIPA and National Grid leads to 14 public confusion about the provision of customer and 15 operational service related to the fact that 16 operations are delegated to National Grid, while 17 operational oversight and approval powers are vested 18 in LIPA. 19 The relationship has been particularly 20 ineffective in the context of storm response. 21 As an example of the problem, the MSA between 22 LIPA and National Grid specifies, that: 23 "During a storm event, National Grid shall be 24 relieved of any of its obligations to comply with 25 the performance metric, and such compliance shall 1 not constitute an event of a default to the extent 2 and for any period during which the operation of the 3 T&D system is affected." 4 In other words, during a storm, National Grid 5 has no performance metrics to follow. And if they 6 fail to do what they need to do, they're not in 7 breach of contract. 8 Thus, LIPA, with its strong brand identity 9 and exclusive financial responsibility, has only two 10 choices in the context of a storm: 11 They could accept zero control over 12 National Grid's performance, due to a lack of a 13 penalizing metric, or, take 100 percent control 14 through its contract emergency powers, which is what 15 they did in "Superstorm Sandy." 16 Obviously, neither of these are optimum 17 choices. 18 Indeed, based on the testimony taken during 19 the investigation, as well as the relevant review of 20 documentation, the commission concluded that the 21 lack of appropriate contract controls and the 22 bifurcated structure between LIPA and National Grid 23 were largely responsible for the ineffective storm 24 response. 25 And the interim report, as you know, is over 1 50 pages, the majority of which does cover the LIPA 2 investigation. And there are several examples there 3 of the challenges that the bifurcated structure 4 between LIPA and National Grid creates. 5 I just highlighted one of them in 6 relationship to a storm because this is what brought 7 us here today. 8 Without getting into much detail, the 9 commission also found that these same problems 10 caused much of the ineffective day-to-day operations 11 of the LIPA-National Grid structure. 12 Restructuring the Long Island electric 13 utility service: 14 What the Moreland Commission did within the 15 short amount of time, while we were preparing the 16 interim report, was also take a look at a variety of 17 options, because you could sit there and you could 18 determine what the problem was, but it's also 19 constructive if you take a look at options, and 20 possibly make a recommendation, which is what the 21 Moreland Commission did. 22 The commission considered three options as 23 possible longer-term remedies for the current 24 inadequacy of the LIPA structure, as I mentioned 25 earlier: LIPA privatization, full public ownership 1 under LIPA, or public ownership under NYPA. 2 A majority of commission members recommended 3 privatization. 4 The commission identified potentially 5 millions of dollars in synergy benefits that could 6 be achieved in privatization to offset privatization 7 costs, including efficiencies in the areas of 8 operating and maintenance costs, power supply, fuels 9 management, and contractor fees. 10 Importantly, under this option, the new 11 utility would be subject to independent oversight of 12 the PSC, which is being strengthened by way of the 13 Governor's budget -- 14 The Moreland Commission put forth a proposal 15 to strengthen the PSC. 16 -- ensuring that any future rate requests are 17 fully justified, and adequate plans are in place for 18 storm response and any other contingencies. 19 The challenge with privatization, would be to 20 ensure that the debt plus the rates charged by the 21 new private utility would, together, be affordable 22 for ratepayers. 23 Second, public power, which is LIPA ownership 24 and operation of the T&D system, which they don't 25 have now. 1 Another alternative that the commission 2 considered is full ownership and operation of LIPA 3 by the T&D system. 4 This would entail ending the contract for 5 management and operation of the system, and moving 6 those responsibilities wholly into LIPA. 7 LIPA will become the direct employer of all 8 the employees currently providing electric service, 9 and would be directly responsible and accountable 10 for the quality of service. 11 While cognizant of the many possible benefits 12 of public power, the commission is also aware that 13 it may cause potential problems, particularly given 14 the complete loss of confidence in LIPA, the limited 15 ability to recruit qualified executives, and the 16 potential addition of over 2,000 employees to an 17 already overburdened State employee pension system. 18 The third option was NYPA ownership and 19 operation of the T&D system. 20 This structure would be similar to the LIPA 21 ownership and operation, except that NYPA would 22 assume ownership and operating responsibilities. 23 Electrical-system revenues and expenses from 24 Long Island and the Rockaway Peninsula will be kept 25 completely separate from the existing NYPA funds. 1 A potential advantage of the NYPA model 2 versus the LIPA public-power-model discussed above, 3 is that oversight of the entity would be done by 4 NYPA's successful professional energy industry and 5 financial-management team. 6 Some potential problems with this model 7 include that NYPA has no expertise in retail utility 8 operations or retail customer service, and NYPA's 9 management is a full LIPA public power effort could 10 divert considerable management attention away from 11 NYPA's historical mission. 12 To some of the commission's findings, 13 fundamental changes are essential to the provision 14 of safe and reliable electric service on 15 Long Island. 16 The interim report goes into the pros and 17 cons of each of -- option that was provided, and the 18 Moreland Commission's investigation is ongoing, and 19 we plan on issuing the final report by spring. 20 And I do know that -- I'm going to hand the 21 microphone on over to my colleagues over here, and I 22 understand, thereafter, we'll be taking questions 23 and answers. 24 SENATOR MARCELLINO: Yeah, that is our 25 policy. 1 We'll move on to Mr. Quiniones, and allow 2 them, and then we'll have questions from the panel 3 after the fact. 4 Go ahead, Mr. Quiniones. 5 GIL C. QUINIONES: Thank you. 6 Good morning, Mr. Co-Chairman, and members of 7 the Committees. 8 I am Gil Quiniones, the president and 9 chief executive officer -- 10 SENATOR MARCELLINO: Mr. Quiniones, one 11 second. I apologize. 12 We have been joined by my colleague in the 13 New York State Senate, Bill Perkins. 14 Senator Perkins is here. 15 And -- oh, I'm sorry. 16 And, also, Senator John Flanagan. 17 He sneaks in; right? He's a stealth senator. 18 I'm sorry. Mr. Quiniones, please. 19 GIL C. QUINIONES: Okay. 20 I am Gil Quiniones, the president and 21 chief executive officer of the New York Power 22 Authority. 23 And I appreciate this opportunity to discuss 24 options for ensuring that customers of the 25 Long Island Power Authority receive high-quality 1 electric service at affordable rates. 2 With me here today is Robert Lurie, NYPA 3 senior vice president of strategic planning, and, 4 the project executive for NYPA's ongoing analysis. 5 As the New York's only statewide public power 6 authority, the Governor sought NYPA's assistance in 7 reviewing LIPA's current legal and organizational 8 structure, and in providing him with options for 9 restructuring LIPA. 10 It has become abundantly clear that LIPA's 11 current structure has failed ratepayers and must be 12 overhauled. 13 The Governor indicated that the suggested 14 option should address five key objectives, to better 15 serve the customers on Long Island and in 16 The Rockaways. 17 First, he stated that there must be rate 18 stability, both in the short and the long term; 19 Second, any solution must improve the quality 20 of service ratepayers on Long Island have 21 experienced to date, and the new option provide 22 ratepayers with a level of service equivalent to 23 that which the best utilities provide to their 24 customers; 25 Third, any plan must provide for property-tax 1 stability; 2 Fourth, any resulting utility must have the 3 full confidence of Long Island residents that it is 4 highly prepared for storms and other extreme events; 5 And, fifth, the utility must have a 6 well-formulated and resourced plan for responding to 7 extreme weather events in a manner that restores 8 service quickly, and provides customers with the 9 critical information they need. 10 In short, the Governor wants a utility that 11 will provide safe, reliable, affordable, and 12 environmentally responsible electric supply on 13 Long Island. 14 In order to evaluate the restructuring 15 alternatives with the goal of achieving the 16 Governor's objectives, NYPA assembled a group of 17 highly qualified financial and legal advisors, led 18 by the investment banking firm Lazard. 19 In addition, I assigned an internal NYPA team 20 of senior executives in strategic planning, finance, 21 law, and power-resource planning to work with the 22 LIPA staff, and the -- our consulting team. 23 Lazard, along with our internal team, is 24 performing an extensive analysis of the costs and 25 benefits of various options for LIPA's transmission 1 and distribution assets, including, continuing to 2 have LIPA own the assets and have a third party 3 manage them, taking on the operation itself as a 4 municipally owned and operated utility, and selling 5 the assets to a private utility company. 6 In addition, Lazard is analyzing the 7 alternatives for dealing with the, roughly, 8 $7 billion of debt on LIPA's books, over 3 billion 9 of which is a legacy of LIPA's acquisition of LILCO 10 and the debt that utility incurred in the 11 construction of the now-dismantled, or 12 decommissioned, Shoreham nuclear power plant. 13 Their work, and our work, continues, and 14 includes an analysis of the power-supply contracts 15 in LIPA's portfolio. 16 With Lazard's assistance, we are assessing 17 different options and models that would best meet or 18 achieve the five stated goals of Governor Cuomo. 19 Part of this initial study has included an 20 analysis of the privatization which appears to have 21 the potential to meet the Governor's goals. 22 Additional review is ongoing, and needed, to 23 fully determine if privatization, or any other 24 model, will meet these goals. 25 I would like to conclude by emphasizing, that 1 this review and work is not yet done, and the State 2 has not made a final determination of which 3 restructuring option will best serve LIPA customers. 4 We are open to any plan that others may have 5 that can be clearly demonstrated to meet those 6 objectives. 7 In the end, what Governor Cuomo wants is 8 what's best for Long Island ratepayers. 9 We look forward to working with you, and your 10 colleagues, in the vital process of bringing 11 transparent, reliable, and affordable utility 12 service to the residents and businesses of 13 Long Island and The Rockaways. 14 This concludes my prepared testimony, and we 15 are now, as a panel, ready to take your questions. 16 SENATOR MARCELLINO: Mr. Lurie, are you going 17 to -- 18 ROBERT F. LURIE: I have no prepared 19 testimony. I will just take Q and A. 20 SENATOR MARCELLINO: Okay. 21 Just for record, I wanted to make sure that 22 we understood it: Lazard Group was invited here, 23 and initially accepted to testify before the 24 hearing. 25 And then for reasons, personal and otherwise, 1 pulled out of the testimony. 2 And, the Governor's Office was kind enough to 3 send Mr. Quiniones, Mr. Lurie, and Ms. Calcaterra 4 in their place. 5 I have talked to the Governor's people, and 6 told them that Lazard's testimony for this Committee 7 would be most important to us, since they are the 8 numbers people. 9 And we're most interested in the impact on 10 the ratepayers, as to how that debt is handled, in 11 moving forward, what -- as you stated in your 12 testimony, and -- both of you stated in your 13 testimony, would be the impact on customers. The 14 key element -- in fact, on property taxes, the key 15 the element. 16 Just a quick question, and then I'll turn it 17 over to some of my colleagues who may have questions 18 as well. 19 Anybody see this article in "Newsday" today? 20 My favorite newspaper. 21 [Laughter.] 22 SENATOR MARCELLINO: It is: A LIPA 2010 23 study, rate hike, likely -- likely will -- likely -- 24 likely with privatization. 25 A rate hike likely with privatization. 1 That's a key element here that we're talking 2 about. 3 Would you agree with this? 4 They cite reports done. The information for 5 this article was apparently obtained from the 6 Suffolk County Legislature's LIPA Oversight 7 Committee, through a Freedom of Information Request 8 by that committee. 9 It cites three different studies done 10 under -- by various groups and organizations. 11 I'm talking about a 15 to 20 percent increase 12 in the rates. 13 Any comments on that? 14 GIL C. QUINIONES: I did see the article. 15 I have not read the report fully, but I 16 just -- I browsed through it. 17 And I just want to point out, on page 4, it 18 says that, in this particular study that you have 19 cited, that: 20 "These results are based on very high-level 21 assumptions, and the purpose of this analysis is to 22 provide ballpark numbers for the strategic options 23 to consider." 24 My take on it, it was really done for a 25 different purpose. 1 What we are doing, which is still ongoing and 2 not yet completed, is a very detailed analysis, 3 based on the facts, and based on input from various 4 stakeholders. 5 And, so, I -- you know, it's -- to me, it's a 6 different study than what we're -- what we're 7 interested in, is get to -- to do an analysis that's 8 fact-based, and that will -- that will produce the 9 results based on what's best, in the long term, for 10 Long Island ratepayers. 11 SENATOR MARCELLINO: You mentioned the 12 preliminary report in your testimony. 13 Is that possible to receive a copy of that? 14 REGINA CALCATERRA: Absolutely. 15 It's also on our website, which is 16 moreland.ny.gov. 17 But, I certainly will make sure that your 18 office gets a copy of that. 19 SENATOR MARCELLINO: Thank you, we would 20 appreciate that. 21 And you anticipate a final report by the 22 commission sometime in the spring? Is that what you 23 said? 24 REGINA CALCATERRA: Correct. 25 SENATOR MARCELLINO: Okay. 1 In your testimony, you talked about 2 synergies, and the benefits, with privatization. 3 What synergies, and what benefits? 4 REGINA CALCATERRA: If another utility was to 5 take over the entire T&D system -- basically, if it 6 was, an IOU came in -- the strong likelihood, is 7 that they're operating somewhere else in New York or 8 somewhere else in the region. 9 So as a result of that, they've got fuel; 10 they have staff; they've got mutual aid; they have 11 other resources, polls and wires, that they're going 12 to stockpile. 13 So it's not as if it's just one entity that's 14 buying all this fresh, so they'll be able to get, 15 potentially, lower prices, because they'll be buying 16 more things in bulk. 17 So those were some of the examples with the 18 synergies that we got by way of the meeting that we 19 had with Lazard, which briefed us. 20 ROBERT F. LURIE: And I might also add to 21 that, if I could, Senator, that they're -- you know, 22 LIPA currently pays tens of millions of dollars in 23 fees to outside parties, not National Grid being 24 one, but, also, other consultants. 25 And we believe that, in combination, as 1 Ms. Calcaterra said, with another utility, those 2 fees would no longer be required. They've -- those 3 services could be performed by the existing staff of 4 that larger utility, so that there could be tens of 5 millions in savings just from that alone. 6 So, there are some examples there that, you 7 know, are going to be factored into the analysis. 8 And, really, the question that we have is: 9 Will that add up to enough to offset some of the 10 other costs, and add on to the other benefits that 11 will be factored into that analysis. 12 SENATOR MARCELLINO: Under the proposed 13 privatization plans, how would the monthly debt 14 service be handled? 15 ROBERT F. LURIE: It's useful, I think, to 16 think of LIPA's 7 billion in outstanding debt in, 17 essentially, two categories: 18 One being, the debt that -- the bonds that 19 were issued to finance or acquire the T&D system; 20 that is, the wire assets, all the equipment, and so 21 forth, that are used in the everyday operation of 22 the electric system, that's about half of LIPA's 23 debt, about $3 1/2 billion, attributable to that. 24 The other 3 1/2 billion is attributable to 25 the cost originally, it's a legacy, of having 1 acquired the Shoreham assets, which are no longer in 2 use. 3 So, that debt is not, in a sense, 4 attributable to a productive asset. 5 So, in privatization, what -- the way the 6 structure would have to work, is that the sale of 7 those assets would be done for a price somewhere 8 roughly equivalent to the $3 1/2 billion of bonds 9 that were issue for those assets. 10 The remaining debt, the $3 1/2 billion, would 11 likely need to be accounted for, or paid, completely 12 separate from the buying utility, and paid for out 13 of a separate charge that would be on ratepayers' 14 bills. 15 And by doing so, we believe that the cost of 16 servicing that debt could be brought much lower than 17 its current cost. 18 So, that is something that is not in all of 19 these studies, but is something that -- a technique 20 that we've brought into this analysis, and will be 21 included in the pros and cons that we put forth. 22 GIL C. QUINIONES: Now, if I may just add -- 23 SENATOR MARCELLINO: Go ahead. 24 GIL C. QUINIONES: -- that this analysis is 25 ongoing. We're stress-testing it. It's not yet 1 complete, but, in structure, and in form, it is how 2 Mr. Lurie described how that's going to work. 3 SENATOR MARCELLINO: All right, it's -- I 4 just have a couple more questions, and then I'll 5 turn it over to my colleagues. 6 We've also been joined by Senator Ruben Diaz, 7 and Assemblyman Chad Lupinacci. 8 Private organization, private utility, makes 9 a profit. 10 How do we transform from a publicly owned 11 non-profit organization to a privately owned 12 profit-making entity, and still not have an increase 13 in rates to the ratepayers? -- which is my prime 14 concern. You know, I think the prime concern of my 15 colleagues as well. 16 ROBERT F. LURIE: Sure. 17 The first thing that I would like to say, in 18 answer to that question, is that we're not here to 19 advocate for privatization, or any other option. 20 SENATOR MARCELLINO: Yeah, but the commission 21 did. 22 ROBERT F. LURIE: That question that you've 23 asked is one of the central questions, maybe the 24 central question, in evaluating privatization in our 25 analysis as well. 1 So if the only -- if the only factor were the 2 transition from a tax-exempt entity to a tax-paying 3 entity, then, certainly, the cost of privatization, 4 you know, would be a non-starter, and it would not 5 even be on the table. 6 But there are other factors, including the 7 synergies which reduce costs substantially, 8 potentially, and other factors that will be 9 included, that may or may not offset the costs that 10 you've rightly point out. 11 But, that's exactly what we've got to 12 determine, and we will be doing so in our final 13 report, when that's delivered. 14 SENATOR MARCELLINO: My last question for now 15 would be: 16 It's my understanding that the debt was 17 structured for Shoreham in such a way, that, 18 basically, the bondholders are guaranteed their 19 interest. 20 There are penalties, fees, and the like, for 21 the prepayment of the debt. 22 Much like a mortgage; if you have a mortgage 23 on your house, and you go to prepay it, there may be 24 a penalty that the bank charges you for prepaying 25 that balance; that they get a percentage of their 1 interest on the debt. 2 It's my understanding that this arrangement 3 with the Shoreham bondholders is significant, to the 4 tune of several billion dollars more. 5 So it's not 7 billion-plus. It could be as 6 much as 12 billion in debt that has to be dealt 7 with. 8 Is that true? 9 ROBERT F. LURIE: No. 10 No, I think -- 11 SENATOR MARCELLINO: Where am I wrong? 12 ROBERT F. LURIE: -- I believe those numbers 13 are correct. 14 SENATOR MARCELLINO: Where am I wrong? 15 ROBERT F. LURIE: There are -- I don't know 16 where the "$12 billion" number comes from, but let 17 me speak to your -- 18 SENATOR MARCELLINO: It was a number that was 19 given to us in a meeting that we held with the 20 Governor's Office, and then -- with Lazard present. 21 ROBERT F. LURIE: I'm sorry, I can't speak to 22 that number, but let me speak to the description 23 that you gave. 24 It is true that some of the outstanding bonds 25 of LIPA can only be retired prior to maturity if 1 there is a penalty paid. 2 It is not a large penalty, in some cases. 3 It's a small penalty. 4 In other cases, they can't be called at all 5 before maturity by virtue of the contractual terms 6 with bondholders. 7 In -- there are about 4 billion of the 8 7 billion dollars in bonds that can be retired 9 early. That's not to say they can be retired today. 10 As you correctly point out, if by their 11 terms, in some cases, it takes several years before 12 LIPA has the right to retire those bonds prior to 13 maturity. And they would, in some cases, in many 14 cases, have to pay at least some penalty, which 15 is -- I don't believe it's going to come close to 16 the "$12 billion" number. 17 SENATOR MARCELLINO: Would that set of 18 numbers be included in the preliminary report that 19 Moreland has? 20 Or could we get a set of figures on that, so 21 that we would know what the exact -- 22 GIL C. QUINIONES: That would -- 23 SENATOR MARCELLINO: -- debt would be? 24 GIL C. QUINIONES: -- that is part of the 25 ongoing analysis that we have, not only in 1 privatization, but the other model, where we are 2 looking at various scenarios, stress-testing the 3 various models, to make sure that we all are working 4 from a shared set of facts as we finalize the 5 analysis. 6 SENATOR MARCELLINO: Now, what I would like 7 to see is, is in some place that we can get a set of 8 numbers that are consistent, so that we're all 9 working with same set of numbers, going forward. We 10 don't have to go up and down. 11 I believe we -- 12 ROBERT F. LURIE: We agree. 13 GIL C. QUINIONES: We agree. 14 SENATOR MARCELLINO: Any -- any new members? 15 All right. 16 I think Senator Boyle is sitting out there. 17 If you want to, come on up. We'll get you a 18 chair. 19 SENATOR BOYLE: I'm okay. 20 SENATOR MARCELLINO: Okay. 21 Senator Ranzenhofer. 22 SENATOR RANZENHOFER: Thank you. 23 Thank you, Chairman Marcellino. 24 I would like to address my question to 25 Ms. Calcaterra, as the executive director of the 1 Moreland Commission. 2 It is my understanding that the 3 Moreland Commission was created in November, really, 4 to do an investigation into what -- 5 SENATOR MARCELLINO: You have to talk into 6 that. 7 SENATOR RANZENHOFER: Start from scratch. 8 Did you hear what I just said? 9 Should I start from the beginning? 10 REGINA CALCATERRA: I did. 11 I got, "November", and "executive order," and 12 "investigation." 13 [Laughter.] 14 REGINA CALCATERRA: I got their proper 15 pronunciation of my last name, which I'm very 16 impressed with. 17 So, please continue. 18 SENATOR RANZENHOFER: Okay. Well, then, you 19 missed that I also thanked Senator Marcellino for 20 his questioning. 21 But to continue: 22 Obviously, you completed, or you started, 23 your investigation. You've issued a preliminary 24 report. You indicated the final report is going to 25 be forthcoming. 1 The Governor has now introduced a bill which 2 encompasses a lot of your recommendations, and 3 especially, what it does is, it gives a lot of 4 increased authority to the PSC. 5 REGINA CALCATERRA: Yes. 6 SENATOR RANZENHOFER: Some view it as 7 punitive, some view it as overregulatory. 8 But in any event, you made some 9 recommendations which have now been codified in the 10 bill. 11 And the question that I have for you is: 12 In your testimony, and a lot of what has 13 happened, dealt with the power to the electrical 14 system, but yet your recommendations in the bill 15 talk about expanding it for all utilities, which, to 16 my knowledge, you know, other the utilities did not 17 have the problems that were experienced on 18 Long Island with LIPA. 19 And I wanted to know whether or not it was 20 thought among the membership, that there needed to 21 be regulatory increases in other utilities which did 22 not experience problems, which did not have customer 23 complaints. 24 It seemed to me that it was overkill, in 25 terms of some of the recommendations, and the bill 1 that was ultimately introduced. 2 And I wanted to ask you for an explanation of 3 that. 4 REGINA CALCATERRA: The executive order 5 provides the Moreland Commission with a narrow goal, 6 and a very broad goal. 7 The narrow goal, is that we need to take a 8 look at all of the utilities around the state. 9 So, there's six IOUs, and there's LIPA. 10 If you take a look at all of them and 11 investigate their emergency plan and their storm 12 response for what is defined as "recent storms," and 13 those recent storms include, not only "Sandy," but 14 "Irene," "Lee," and the December 2008 snowstorm. 15 So even though, in the short term, in the 16 interim report, we looked at LIPA, because you're 17 dealing with an entity that's dysfunctional and you 18 need to immediately address it, our investigation 19 with the other utilities are now ongoing as well. 20 So we're using the same model we use with 21 LIPA, and investigating all of the other utilities. 22 But as we were preparing for that, we were 23 trying to figure out how best would they, for their 24 prior performance -- 25 And I can't disclose what it is that we're 1 finding, and that will be disclosed in the final 2 report. 3 -- is that, there isn't a way to penalize 4 them. 5 And the reason why is, because the PSC -- the 6 only way that the PSC has the ability to penalize, 7 is if they actually go to court, and they have a 8 very high bar to prove knowingly. 9 So as a result, they never went to court, 10 because it's an incredibly high bar to prove, so 11 they haven't -- they have very limited ability to 12 penalize internally. 13 And to penalize a utility, or to penalize 14 anyone in the market, is a way to incentivize them 15 to perform. 16 So then we started taking a look at other 17 states around this area in the northeast, and 18 elsewhere, to see what it is that they actually do. 19 So we benchmarked, to see what they do with 20 utilities. 21 And what we found is that, you know, we 22 focused on, with the recommendation, two things: 23 To take a look at the certificates, and 24 whether or not there's actually reviews that are 25 being done for -- to determine whether or not there 1 are actually -- if there are standards that are set 2 by other states that utilities have to provide on 3 "gray sky" days and "blue sky" days; 4 And we also took a look at states, to 5 determine whether or not, actually, if their 6 equivalent of a PSC has the ability to give a 7 penalty. 8 Because, otherwise, to go to court, could be 9 problematic, and it could take a long time, and it 10 could be years down the road by the time you 11 actually get a penalty. And, then, how is it that 12 you're actually going to apply it so it goes back to 13 the ratepayers? 14 So we found that, with the issue of 15 certificate and certificate revocation, that 16 10 other states have it, but they've never used it 17 before, but at least they have it as a threat; and, 18 22 other states actually have the ability to give 19 administrative penalties. 20 So it's not something that's burdensome; 21 other states have that as well. 22 And that information we can easily give you. 23 And as far as the penalties, the other 24 penalty that is presently existing, is that, if a 25 utility is not -- it doesn't comply, they're only 1 penalized $100,000 a day per event. 2 That's not a lot of money, based upon these 3 privately owned companies that are making hundreds 4 of millions of dollars. 5 So if you're going to penalize a company and 6 force them to act, you want to hold something over 7 their head, where they're threatened by it. And 8 they're not threatened by $100,000-a-day penalty. 9 So we also took a look at what other -- how 10 other states penalize utilities, and it's based upon 11 a percentage of their income, so it would vary, 12 based upon the size of the utility. 13 So these are some of the examples that we 14 looked at, as far as, benchmarking, and making the 15 recommendations, so there's stronger oversight. 16 And then also thinking that, if LIPA does go 17 private, the PSC is going to be overseeing them, and 18 what type of regulation would we want the PSC to 19 have over LIPA, to make sure that they perform -- 20 or, whoever it is that's operating that, that they 21 perform during storms, because you have no ability 22 to threaten anything, to take anything away from 23 them. 24 So that's what those recommendations are. 25 SENATOR RANZENHOFER: Okay, did you see a 1 distinction, though? 2 Because it seemed to me that some of the 3 recommendations made the PSC more of a utility 4 manager than the utility regulator. I mean, it 5 actually got into managing the business. 6 And did you see a distinction between LIPA, 7 which, obviously, had the very well-reported and 8 terrible, you know, situation that it had during 9 those storms, versus what has happened across the 10 state? 11 It seemed like you were taking a broad brush 12 and not really making a distinction, where there may 13 be a need to make a distinction between the 14 performance of LIPA and some of the other companies 15 across the state. 16 REGINA CALCATERRA: The -- that distinction 17 will be, and the comparison will be, made in the 18 final report, because, as you investigate -- as we 19 investigate seven utilities, there's document 20 production and there's depositions. 21 So, that's ongoing. 22 So, we can't -- it was too short of a window 23 to report on anything related to the other 24 utilities. 25 And based upon the legislative calendar, if 1 we're going to make recommendations for 2 consideration of what was tremendously important, 3 that's why we put forth the LIPA information. 4 So the other utilities, in comparison, will 5 be forthcoming. 6 But, actually, if you look at the -- now, we 7 learned this all during this short interim process, 8 is also learning the history of the PSC; is that, 9 the PSC was set up as a regulatory structure, and it 10 actually moved away, and drifted away, from that 11 core mission over the past few decades. 12 So some of the things that are in that -- 13 that are in the bill, and that are in the report, 14 were actually provided in the past, but were removed 15 as well. 16 And one of them, is the ability to audit; is, 17 they were doing certain types of audit, but then 18 they stopped doing those audits, and completely 19 removed the audit function, and left it up to two or 20 three people in the entire PSC doing audits of 21 utilities. 22 And audits are where we're actually finding 23 out, let's say, you take one example of mutual aid, 24 and see how it is that they're all dealing with 25 mutual aid. That wasn't being done anymore. There 1 was no comparison and contrast. 2 So some of these, we looked back at how it 3 was done in the past as they moved away from the 4 core mission, and we also looked at what other 5 states were doing as well, as a benchmark. 6 And, it wasn't as if we did it with a broad 7 brush looking at LIPA, and not the other utilities. 8 We've looked at what the other states did. 9 And, more, importantly, we looked to see if 10 the utilities in New York State actually operate in 11 those other states that have these penalties, that 12 were -- have in our recommendations. 13 And they do. 14 So they're already operating in that 15 environment; and, so, this is normal business 16 practice. 17 And if you take the PSC and compare it to its 18 sister agencies elsewhere, it is a lot weaker. 19 SENATOR RANZENHOFER: Okay, final question 20 that I have for you: 21 Obviously, on your temporary report, as I 22 said, there was a bill that was introduced, you 23 know, as part of the budget, adopting some of your 24 recommendations. 25 Are you going to have your final report -- I 1 imagine your final report might be different than 2 your preliminary report. 3 REGINA CALCATERRA: Yes. 4 SENATOR RANZENHOFER: And is your final 5 report going to be done before the legislative 6 calendar requires the budget be passed on April 1st? 7 REGINA CALCATERRA: No, it will not be done. 8 SENATOR RANZENHOFER: Okay, so there could be 9 recommendations where you change or contradict or 10 remove or add some recommendations after the budget 11 is already passed, and the budget's incorporated 12 some of your language from your preliminary 13 recommendations. 14 REGINA CALCATERRA: I'm -- I'm limited in 15 what it is that I can discuss about our 16 deliberations because, there's a certain point, it's 17 protected. 18 But what I can confidently say, is that, 19 we're finished with that part of it. 20 We're finished with the PS -- with 21 investigating the PSC's strengths and weaknesses. 22 SENATOR RANZENHOFER: Okay, thank you. 23 REGINA CALCATERRA: Thank you. 24 SENATOR MARCELLINO: So for the members' 25 edification, we have requested questions from 1 Senator LaValle, Zeldin, Assemblyman McDonough, 2 Senator Perkins. 3 Mr. Graf? 4 Okay. 5 Anybody else? 6 And Mr. Raia. 7 All right, Senator LaValle. 8 SENATOR LAVALLE: Mr. Quiniones, the -- you 9 talked about Lazard models, and my question is: 10 When will we see those models? 11 GIL C. QUINIONES: We are -- as I mentioned, 12 we are still in the process of doing the analysis. 13 We don't want to rush the analysis that we're 14 that doing. We want to make sure that it is 15 complete and accurate. 16 We are -- 17 SENATOR LAVALLE: Is it weeks? months? 18 GIL C. QUINIONES: It would depend. 19 Right now, we are also getting input, as you 20 know, led by Secretary Larry Schwartz. We are going 21 to -- we're meeting with stakeholders -- various 22 stakeholders on Long Island. We've met with the 23 Senate and the Assembly. 24 We want to get all of that input and be able 25 to model part of our analysis. 1 I hate to give you a date and then it doesn't 2 comply with that, but what I can tell you, is that 3 we are doing this in a very deliberate way, to make 4 sure that it's done in a fact-based and accurate 5 way. 6 SENATOR LAVALLE: You know, we have the 7 Brattle report, Navigant report, they're out there, 8 so that people can look at it and pick them apart. 9 We don't have anything to really have a 10 thorough discussion on the issue because we don't 11 know what these models are. 12 And, so, I -- of course you can't tell me 13 with preciseness, but are we talking about weeks, or 14 months, as your guestimate? 15 GIL C. QUINIONES: It could be months, but 16 not -- you know, again, I hate to put a date on it 17 because of the uncertainty of input that we're 18 getting, and requests of scenarios and assumptions 19 that we're getting, from the stakeholder outreach 20 that we're making. 21 And also, our own analysis; we're doing a lot 22 of stress testing of what Lazard has done, and just 23 to make sure that we're doing a fact-based and 24 thorough and complete analysis. 25 SENATOR LAVALLE: Okay. 1 After "Hurricane Irene," Senator Marcellino, 2 in Oyster Bay, held a hearing. 3 And one of the things at that hearing, was 4 trying to figure out who was in charge of the 5 day-to-day operations. 6 And I think, after pulling and tugging, I 7 think LIPA finally threw National Grid under the 8 bus, and said: Well, it's their job. 9 During the "Nemo" storm, it was very clear -- 10 and if I were to guess, I could see the Governor's 11 invisible hand -- that it was clear that 12 National Grid was in charge. 13 Clearly, LIPA had no role. 14 During "Irene," my educator personality came 15 out and I graded LIPA with an F. 16 During "Sandy," it was probably a little 17 better than an F, but not much. 18 But it's clear that the "Nemo" storm, 19 National Grid, because they were clearly in charge, 20 seemed to do a job that the general public and 21 municipalities seemed satisfied with. 22 So am I right in my assessment of "Nemo," 23 National Grid gets good grades? 24 GIL C. QUINIONES: I think that it was -- 25 there was less confusion in terms of communication. 1 It was clear to local officials and to 2 ratepayers that they were getting a consistent 3 message, and, again, less confusion in that process. 4 From that perspective, I do agree with you. 5 SENATOR LAVALLE: Just, last question is: 6 As you know, LIPA has a contract with PSE&G 7 that begins January 1, 2014. 8 So the clock is ticking as to, what do we do 9 with that contract, and other contracts that they 10 have? 11 And what is your -- I mean, what do we do 12 with the PSE&G contract? 13 GIL C. QUINIONES: It is my understanding 14 that that transition process, those negotiation -- 15 that process is continuing. 16 SENATOR LAVALLE: That continues? 17 GIL C. QUINIONES: Correct. 18 SENATOR LAVALLE: So, PSE&G -- because we -- 19 you know, we have constituents, and they want to 20 know: Well, we have a transition period. Is PSE&G 21 still going to perform their contract come 22 January 1, 2014? 23 Your guess is, yes? 24 GIL C. QUINIONES: Yes. 25 My understanding is, those negotiations and 1 transition process is continuing. 2 SENATOR LAVALLE: Okay. So, then, what 3 happens if the recommendation is, that we are going 4 to do a privatization model? 5 What then happens with that contract? 6 GIL C. QUINIONES: It depends on when -- 7 on -- you know, assuming that happens, it depends on 8 when that decision is made. 9 SENATOR LAVALLE: Okay. 10 GIL C. QUINIONES: All right? 11 SENATOR LAVALLE: So -- 12 GIL C. QUINIONES: And there has to be a 13 transition process, depending on when that decision 14 is made. 15 SENATOR LAVALLE: So I -- I mean, I -- 16 we're -- it's a work in progress, and the -- the 17 final decision will be made; 18 We don't know when we're going to get the 19 Lazard model so we can have a discussion; 20 And, we really don't know what's going to 21 happen with these contracts. 22 Okay. 23 That's it. Thank you. 24 SENATOR MARCELLINO: Thank you. 25 Senator Zeldin. 1 SENATOR ZELDIN: So I come with one, I guess, 2 complicated request, and, a very specific question. 3 And I wanted to start off, first off, by 4 recognizing, and thanking, Chairman Marcellino and 5 Chairman Ranzenhofer for doing this. 6 I think it's important for all of us to be 7 here today, to have a continuing dialogue on these 8 issues. 9 I also want to, you know, commend the 10 Governor as well, and thank him, because he has 11 encouraged a very open line of communication. 12 He has, as you mentioned, Mr. Quiniones, 13 met with the Senate delegation. I know that 14 Mr. Schwartz met with the Assembly delegation. 15 I think that it's very -- 16 SENATOR RANZENHOFER: No, half the Assembly 17 delegation. 18 SENATOR ZELDIN: Half the Assembly 19 delegation? 20 All right, well, I'll defer to my colleague. 21 But I think it's -- I think it's good to have 22 an on open line of communication. 23 And, I read the article this morning in 24 "Newsday" as well. 25 And I -- you know, you said a few things that 1 jumped out. 2 One, you -- to quote you, you mentioned the 3 high-level assumptions in what you're reading, 4 ballpark estimate, but what's most important is, you 5 said that you thought it may have been done for 6 different purposes. 7 And, I seem to agree. 8 And -- and I think we should take that study 9 in 2010 with a grain of salt, and analyze whatever 10 you propose with an open mind, with the several 11 different considerations. 12 So, I think what the Governor accomplished 13 with the Tappan Zee Bridge, for example, a lot of 14 people thought was an impossible task to be able to 15 get that project done as cheaply and efficiently as 16 seems like it's going to get done. 17 So, hopefully -- hopefully, what we read in 18 "Newsday" today about that LIPA study turns out to 19 be inaccurate. 20 So my -- my complicated request, I guess, 21 piggybacking off of Senator LaValle's testimony, in 22 questioning you just now -- 23 And, by the way, I want to recognize 24 Senator LaValle, who has been a -- you know, very 25 outspoken with regards to LIPA, since long time 1 before I was in the Senate, and I appreciate his 2 leadership. 3 And, Assemblyman Graf, who I overlap with, 4 has also been very focused on these issues in the 5 3rd Senate District where I represent. 6 -- so, in the five points in your testimony, 7 Mr. Quiniones, you discussed holding the line on 8 rates, customer service, the storm-emergency 9 response, to tax-certiorari issues. 10 Throughout the rest of your testimony, you 11 discussed dealing with the outstanding debt, the 12 value that might be obtained from any sale. 13 And these were all points that, you know, I'm 14 looking for today, to get discussed. 15 And I'm glad to hear that you're bringing 16 that up, and incorporating that into whatever plan. 17 The very specific request is, you know, 18 whatever models end up being -- being offered to us, 19 you know, we're going to be looking at all of those 20 very closely, to be able to -- because we're going 21 to have to go back to our constituents and let them 22 know that we're doing everything in our power to 23 fight for ratepayers, to be responsible with the 24 debt, to make sure they're getting the right 25 customer service. 1 That F grade that Senator LaValle gave last 2 year, that he never has to give another F grade 3 again, again, that's important. 4 I wanted to ask you to speak a little bit 5 about -- and Senator LaValle discussed the PSE&G 6 contract -- I want to discuss workforce, and it's a 7 very specific question. 8 You know, we have -- I have a lot of 9 constituents who currently are employed. They don't 10 know what their future is, and, obviously, they're 11 going to be impacted with whatever model is pursued. 12 And, also, what's very importantly, with 13 regards to the workforce, is what that workforce 14 looks like when that next storm hits, because, you 15 know, we're pulling in resources from off of 16 Long Island, to be able to have a pretty rapid -- to 17 have the fastest response possible. 18 So, if you can just speak to workforce, you 19 know, keeping in mind those people whose jobs are on 20 the line, but, also, to all those other ratepayers 21 who are worried about that next storm hitting. 22 Because that's just one topic we haven't 23 discussed yet. 24 GIL C. QUINIONES: Well, we certainly agree 25 that the workforce is extremely important. 1 As somebody who runs a utility like myself, 2 in the New York Power Authority, it's number one. 3 You have to have adequate and properly 4 resource workforce in whatever structure you have, 5 going forward. 6 That it is not a -- that it is not a question 7 that -- in our analysis. 8 In our analysis, whatever structure we're 9 considering, the line workers, the support to those 10 line workers, are critical equally in all of 11 structures that we're considering. 12 SENATOR ZELDIN: So I -- I guess, just my 13 last question on that point -- or I guess it's not 14 so much a question, as a request, just with the -- 15 all those other factors that have been discussed 16 prior to just now: 17 I would just ask that, when -- when that 18 model is released, that, you know, we have an idea 19 of what that workforce is going to look like, what 20 their numbers are, what their -- the leadership 21 structure is going to look like. 22 And, you know, I guess I would just -- I 23 would be remiss, every once in a while you find an 24 opportunity to recognize good work on the part of 25 specific individuals. 1 We see it a lot. We have a great staff here 2 in the Senate. 3 But I just want to mention, there is one LIPA 4 mid-management person who did so much to help out my 5 district, his name is Steve Trajarico [ph.]. 6 And if you could write his name down, he 7 represents the Brookhaven area, and, just a 8 remarkable job that he did. 9 So, you know, as a lot of bad publicity was 10 coming out on LIPA, there are some folks there who 11 are doing an exceptional job. 12 GIL C. QUINIONES: We agree. 13 SENATOR MARCELLINO: Thank you. 14 We've also been joined by the ranking member 15 of the Senate Investigations Committee, 16 Senator Hoylman. 17 Congratulations on your recent marriage. 18 SENATOR HOYLMAN: Thank you. 19 SENATOR MARCELLINO: Next question is from 20 Senator McDonough -- or, Assemblyman McDonough. 21 ASSEMBLYMAN MCDONOUGH: Thank you, Chairman. 22 For Ms. Calcaterra -- 23 Am I saying that correctly, Calcaterra? 24 SENATOR MARCELLINO: Calcaterra. Hard C. 25 REGINA CALCATERRA: Calcaterra. Two hard Cs. 1 ASSEMBLYMAN MCDONOUGH: Close. 2 REGINA CALCATERRA: Thanks for asking. 3 ASSEMBLYMAN MCDONOUGH: Pardon me? 4 REGINA CALCATERRA: I said, "Thank you for 5 asking." 6 ASSEMBLYMAN MCDONOUGH: Okay, well, 7 "McDonough" sometimes is mispronounced too. 8 In your mention -- you mentioned, obviously, 9 the three or four options that are available. 10 Cost is going to be a big consideration. 11 And I'm wondering, in the agreement that was 12 made with LIPA and PSE&G, which was some time ago, 13 to come in another 10 months, what is the cost, or, 14 do you know, is there a cost, if that contract or 15 that agreement is broken? 16 Is there a lot of expenditures that PSE&G 17 will now be able to come back and say: Well, we 18 still have to get this money? 19 Because I'm sure they've been doing studies, 20 or, you know, going through the whole system, to get 21 ready to come in in January. 22 Did you look at that? 23 REGINA CALCATERRA: Those are called 24 "breakage costs," when you break a contract. 25 And the Moreland Commission actually relied 1 upon the expertise of NYPA, and the staff that they 2 put together and the team of consultants that they 3 did. 4 So, I'm going to need to defer that question 5 over to Rob Lurie, if you don't mind, so you can get 6 a better answer. 7 ASSEMBLYMAN MCDONOUGH: Thank you. Sure. 8 ROBERT F. LURIE: Sure. 9 There is a fee that is due to be paid to 10 PSE&G if the contract is broken for that purpose, 11 and that fee is $7 million, plus reimbursement of 12 any out-of-pocket costs, essentially, that PSE&G 13 would have in unwinding their transition, 14 essentially. 15 Now, that's a lot of money, $7 million. 16 Now, in the context of a, essentially, 17 $7 billion transaction we're talking about, it's not 18 a huge amount of money as a percentage. 19 So, it's -- you know, it's going to be 20 important, it's going to be factored into the 21 analysis, but I doubt that that will swing it either 22 way. 23 ASSEMBLYMAN MCDONOUGH: And, finally, is any 24 information that they developed, or progress or 25 plans that they've developed, would that be 1 available to LIPA, or whoever the new -- if we have 2 a new operation, would they be required to give all 3 of that to, let's say, the private operator, or 4 whoever it is? 5 ROBERT F. LURIE: I believe so. 6 I'm not familiar enough with the details of 7 the contract, but the concept of that whole 8 agreement, is that PSE&G is, essentially, building 9 this out on behalf of LIPA, so LIPA generally owns 10 whatever it is that is part of this organization. 11 ASSEMBLYMAN MCDONOUGH: Okay. 12 Thank you very much. 13 Thank you. 14 SENATOR MARCELLINO: Senator Perkins. 15 SENATOR PERKINS: Thank you very much. 16 SENATOR MARCELLINO: You're on. 17 SENATOR PERKINS: Oh, I'm on. 18 Ms. Calcaterra -- 19 REGINA CALCATERRA: Thank you, Senator. 20 SENATOR PERKINS: -- I don't live on the 21 island. I had the privilege to -- 22 SENATOR MARCELLINO: Assemblyman Graf -- 23 Oh, I'm sorry. 24 SENATOR PERKINS: -- I live, actually, in 25 Harlem, and I represent the 30th Senatorial 1 District, but I have the privilege of serving on the 2 Committee on Corporations and Authorities, as the 3 ranking member. 4 And -- but, in that regard, you know, we're 5 very interested in the public authorities, and how 6 they are of value in terms of public needs and 7 public services. 8 And, so, this privatization model that we're 9 now discussing, raises some concerns from that point 10 of view. 11 And so I want -- I don't -- I didn't read the 12 Long Island newspaper, but I do read the 13 "Daily News," and I had the opportunity to read an 14 op-ed about this particular matter, that you may be 15 aware of it, by Andrew Freedman and -- and 16 Maya Gelman. 17 Mr. Freedman is the executive director of 18 The Center for Popular Democracy, and Ms. Gelman 19 is an energy policy consultant and advocate for 20 Energy Democracy in New York City. 21 And I just want to read a quick quote, and 22 get your response. 23 And they basically say: 24 "It's true, LIPA is a mess. It is saddled 25 with debt that comes from bailing out shareholders 1 from the last failed effort to privatize the 2 utility, then-LILCO, but the bank-like private 3 utilities to whom LIPA would be sold are not to be 4 trusted. They have a long record of lining their 5 pockets at the expense of New Yorkers." 6 How do you respond to that? 7 REGINA CALCATERRA: Well, first, I'd actually 8 like to respond to that op-ed, because what was 9 disconcerting about it was one of the earlier 10 sentences in it, which you didn't mention, but it 11 basically said that the Moreland Commission came out 12 with its interim report after holding one hearing. 13 The Moreland Commission has subpoena power. 14 We subpoenaed all of the utilities. 15 We subpoenaed LIPA, National Grid. 16 We interviewed external stakeholders, we 17 interviewed emergency managers, we interviewed 18 managers of critical infrastructure, and many other 19 players in the utility industry. 20 We interviewed LIPA and National Grid low- to 21 mid-level employees. 22 And, we had three hearings. One of them was 23 a hearing where we actually brought National Grid 24 and LIPA executives before us. 25 So, before that group should put an op-ed in 1 the "Daily News," commenting on our report, they can 2 disagree with the substance, but don't go after us 3 on the process. And don't make up the process, and 4 change what the process was, just so it makes their 5 argument sound stronger. 6 So, right away, I take umbrage with the op-ed 7 from the beginning, because they didn't read the 8 report. Because if they read the report and 9 followed all of the -- followed our website and all 10 the testimony that we have up there, they would have 11 realized all the effort that actually went into the 12 interim report. 13 So now that I've said that, the -- we have 14 six utilities in New York State that are 15 independently owned and privately operated. 16 And most of the utilities in the 17 United States are private companies. 18 They provide power, and they do it twofold: 19 One is, they provide power -- I mean, they're 20 publicly traded, and, yes, what a publicly traded 21 company's responsibility is, to make sure that their 22 shareholders are benefited from that. 23 But the balance that you have with a utility, 24 is that you have a strong PSC, because the utility 25 is taking care of the rate -- is taking care of 1 their shareholders, because they're publicly traded, 2 but you have a strong PSC that makes sure that that 3 utility is also doing what it needs to do for the 4 particular ratepayer as well. 5 And you have six utilities in New York State, 6 including Con Ed, which serves Harlem, and several 7 others as well, that are already doing this, and 8 they're doing it fine, and they didn't have the 9 catastrophe that happened on Long Island, and you 10 also have it in other states. 11 So, taking that broad-based statement that a 12 publicly traded company takes care of its 13 shareholders, yes, we are in New York State. 14 New York State has Wall Street. We benefit from 15 publicly traded companies. 16 But it is -- we will -- but if a publicly 17 traded company is a utility that's going to be 18 providing service to ratepayers, the State of New 19 York, which is performing right now, has a 20 responsibility to make sure it has a strong PSC to 21 regulate that company, to make sure it's doing what 22 it needs to do for the ratepayer. 23 And that's what the balance is. 24 SENATOR PERKINS: So -- thank you very much. 25 Let me just be clear. I'm not sure we're 1 reading the same article, because the one that I'm 2 referencing points out that -- if I may quote: 3 "Governor Cuomo's historic 4 Moreland Commission will hold only a few hearings, 5 but big changes are in the offing." 6 So they don't say, one hearing. They 7 mentioned that there will be a few. 8 I just want it for the record, in case we -- 9 I -- you know, we -- we have different stories. 10 REGINA CALCATERRA: Understood. 11 But there's a lot of other work -- then I 12 misunderstood that. 13 But there's a lot of other work that we did, 14 just -- instead of just hearings as well, that was 15 behind the scene, that led to what our findings 16 were. 17 It was an intense several months of an 18 investigation that we did. 19 SENATOR PERKINS: So -- that's good. I'm 20 glad to hear that, and I think the public is very 21 glad to hear that as well. 22 So the other concern I have is just, some of 23 the other private utilities that are possibly going 24 to be in the race for the opportunity, do you -- do 25 we have a listing of some of those that might be 1 under consideration? 2 REGINA CALCATERRA: The Moreland Commission 3 just provided our interim report, and handed it over 4 to the Governor, so I'm going to have to defer 5 anything that has to do with the present progress 6 over to my colleagues. 7 SENATOR PERKINS: Okay. 8 What are the private utilities that might be 9 in the -- 10 ROBERT F. LURIE: As you would expect -- 11 SENATOR PERKINS: -- in consideration? 12 ROBERT F. LURIE: As you would expect, you 13 know, we would -- we would think that the private 14 utilities that are adjacent to LIPA would certainly 15 be able to extract the most value; that is, be able 16 to lower costs the most. They'd be able to combine 17 systems-operations facilities the most. 18 And, then -- so that there are, you know, the 19 ones that are immediately adjacent are: 20 Con Ed; 21 National Grid, of course, has their gas 22 operations that are contiguous with LIPA's; 23 And then, beyond that, of course, just beyond 24 the New York City region, there's other utilities 25 that are just beyond that. 1 So, PSE&G of New Jersey, which is now taking 2 over the operations contract, they're nearby. They 3 might be interested. 4 Northeast Utilities, also up in Connecticut, 5 might be a candidate. 6 So, none of these are going -- these 7 companies aren't going to come out and say that 8 they, you know, are going to do this. You know, 9 they have to keep their strategy close to the vest, 10 but, you know, there's every reason to believe that 11 they would take a look at this, that they would find 12 value in it. 13 Whether they would make a decision to put in 14 an offer or not, I couldn't say. 15 SENATOR PERKINS: So, Mr. Chairman, just 16 one or two more quick questions, and -- 17 SENATOR MARCELLINO: Quick. 18 If we could emphasize on the "quick." 19 SENATOR PERKINS: Yeah. 20 So, forgive my naiveness, but -- so there's 21 going to be some sort of announcement, and assuming 22 this moves forward, and these companies will all be 23 sort of applying in some sort of competitive 24 process. Or -- and -- 25 ROBERT F. LURIE: If they choose to, yes. 1 SENATOR PERKINS: -- could you just describe 2 that -- 3 ROBERT F. LURIE: If they choose. 4 SENATOR PERKINS: -- what did you anticipate 5 the process being, assuming this moves forward, as 6 per the Governor's -- 7 GIL C. QUINIONES: Well, I think, first and 8 foremost, we're still in the middle of our analysis 9 of all the options, so it will be premature for us 10 to say that, you know, there's one answer at this 11 point. 12 SENATOR PERKINS: Okay. 13 GIL C. QUINIONES: And -- so I think that 14 it's just premature to make that prediction. 15 SENATOR PERKINS: Okay. 16 So the last final question, which is always 17 important to the consumer, I guess, is -- at least 18 from my community's perspective, which I assume is 19 no different than anybody else's: Is this going to 20 cost the consumer more, or less, ultimately, do you 21 anticipate? 22 GIL C. QUINIONES: Again, the Governor has 23 set forth five criteria, as we analyze the various 24 options. And, we are going to stress test, and do 25 scenario analysis, and make sure that the option 1 that satisfy the best -- the five criteria set forth 2 by the Governor, will be the one that will be 3 advanced and recommended. 4 ROBERT F. LURIE: If I could just add to -- 5 SENATOR PERKINS: So the answer is "more"? 6 ROBERT F. LURIE: No, no. 7 Any process, whether it's, you -- you know, 8 municipalization, something like the status quo, 9 whether it's privatization, the process we undergo, 10 as well as the outcome, will be subjected to those 11 five criteria. 12 So, you know, any utility that would be 13 interested, any municipal authority interested, will 14 have to satisfy those five criteria. 15 SENATOR PERKINS: But can the public 16 anticipate that this model, which might be applying 17 here now, but might also be replicated in other 18 instances, do you anticipate that this could cost 19 more to the consumer? 20 Is there a -- is there a scenario that could 21 result in the consumer paying more? 22 ROBERT F. LURIE: Let me be clear: I think 23 this goes back to Senator Marcellino's question, 24 because I think he put the finger on the question, 25 which is, that we've got to be able to determine 1 whether the additional costs associated with having 2 a private company involved, are more or less than 3 offset by the savings that can be incurred by 4 combining companies. 5 We don't know the answer to that yet. 6 So, clearly, the Governor said we're not 7 going to do something that's going to cost more. 8 That's the first factor he set forth. 9 So, ultimately, the solution we recommend 10 will not have an increased cost to ratepayers. 11 GIL C. QUINIONES: And what we can all agree, 12 the status quo is untenable. It has to change. 13 And that's why we're evaluating all the 14 options. 15 We have five criterias: Stable rates, 16 predictable stable property taxes, customer service 17 and performance, storm preparation, and storm 18 response capabilities. 19 So those are five screens. We will apply 20 those exactly the same way on each of the options 21 that we are going to be looking at. 22 SENATOR PERKINS: It sounds like we want the 23 best for less. 24 SENATOR MARCELLINO: That would be ideal. 25 It is my understanding, so we can clarify 1 this, that while there has been a recommendation by 2 members of the Moreland Commission, there has been 3 no decision made as to go to privatization or not? 4 GIL C. QUINIONES: Correct. 5 SENATOR MARCELLINO: That is still up for 6 discussion; that is still up in the air; that is 7 still an open issue, and an open question. 8 Is that correct? 9 GIL C. QUINIONES: Correct. 10 SENATOR MARCELLINO: Okay. 11 GIL C. QUINIONES: Remember, the 12 Moreland Commission looks specifically on storm 13 performance and response. 14 We're talking about a utility with 15 1.2 million customers. 16 It is prudent that we do a fact-based 17 analysis, that we do a thorough and complete 18 analysis. 19 We're doing it diligently, as fast as we can, 20 but it's -- we want to do it right, and we don't 21 want to do it fast for fast sake. 22 SENATOR MARCELLINO: That's exactly the 23 charge my wife gave me this morning. 24 So, you don't want to cross my wife. 25 Trust me. 1 GIL C. QUINIONES: Thank you. 2 SENATOR MARCELLINO: Assemblyman Graf. 3 ASSEMBLYMAN GRAFF: Thank you, 4 Mr. Chairman. 5 Let me start out with a statement. 6 I'm not that happy with the Governor's lines 7 of communication because, on my side of the aisle, 8 in the Assembly, and we represent the largest 9 percentage of Long Islanders on my side of the 10 aisle, we were left out of the conversation. 11 We had no such meeting. 12 And to be honest, I'm not happy. 13 With that said, I have a couple of questions. 14 One of the things we didn't talk about today 15 in any of the testimony, was smaller municipal 16 electrics, as far as a Suffolk County municipal 17 electric or a Nassau County municipal electric. 18 And, I think we should be looking at that. 19 The other thing is deregulation, like we did 20 with the telephone companies, where you spur 21 competition, instead of selling it to one entity. 22 We saw this movie before. It was called 23 "LILCO." 24 It didn't work out too well for us. 25 Now, with that said, NYPA sells the 1 electricity to LIPA; am I correct? 2 GIL C. QUINIONES: No, we sell -- we sell 3 power to 51 municipal and rural cooperatives across 4 the state, not to LIPA. 5 ASSEMBLYMAN GRAFF: Oh, well, my 6 understanding, because I went through this. I've 7 been living this for a year and a half. Okay? 8 And, I know that 62 percent of LIPA's budget 9 is buying electricity. 10 That was from LIPA. 11 And, after going back and forth between NYPA, 12 and everyone else, it took me a while, but the 13 answers that I got from NYPA, was, yes, they were 14 selling electricity to LIPA. 15 So I don't know if that's correct. 16 GIL C. QUINIONES: It's -- this is -- it's 17 the delivery. You know, LIPA owns the wires on 18 Long Island. 19 So, for example, if we have a recharge 20 New York customer on Long Island, we have to -- LIPA 21 will have to deliver that power to those recharge 22 customers on Long Island. 23 If you mean in that manner, then that's 24 correct. 25 ASSEMBLYMAN GRAFF: Okay, we have a 1 power-generating plant in Holtsville, which is owned 2 by NYPA. 3 GIL C. QUINIONES: What was that? 4 ASSEMBLYMAN GRAFF: There's a power plant -- 5 GIL C. QUINIONES: Yes. 6 ASSEMBLYMAN GRAFF: -- in Holtsville. 7 GIL C. QUINIONES: Yes. 8 ASSEMBLYMAN GRAFF: -- that's owned by LIPA. 9 GIL C. QUINIONES: We have a 150-megawatt, 10 relatively small power plant that is under a 11 long-term contract to LIPA. That's correct. 12 ASSEMBLYMAN GRAFF: And is LIPA buying that 13 electricity from that power plant? 14 GIL C. QUINIONES: That's correct. 15 ASSEMBLYMAN GRAFF: Okay. 16 And right now, what happens is, when LIPA 17 pulls power out of the grid, we're paying 9 cents 18 per kilowatt; right? 19 GIL C. QUINIONES: I -- I don't know the 20 blended amount. 21 It depends on which power plant, and what 22 type of contracts. 23 ASSEMBLYMAN GRAFF: Okay, I can tell you, 24 we're paying 9 cents per kilowatt. 25 But if you look at Rockville Center, 1 Freeport, Greenport, and Lake Placid, who get 2 preference power, they're paying 1 cents per 3 kilowatt; correct? 4 GIL C. QUINIONES: No, more than 1 cent at 5 the -- at the preference rate, but more than 1 cent. 6 But, again, they are part of the 51 munie and 7 cooperatives that NYPA sells power to. 8 ASSEMBLYMAN GRAFF: Okay. 9 GIL C. QUINIONES: Across the state. 10 ASSEMBLYMAN GRAFF: All right. 11 Now, when we're taking power from you, is 12 there anyone throughout the state that's paying as 13 much as we are, per kilowatt, that you know of? 14 GIL C. QUINIONES: Maybe in the -- I'm not 15 100 percent sure, but maybe in the Con Ed service 16 territory. 17 ASSEMBLYMAN GRAFF: So, basic -- we're paying 18 a lot more than anyone else throughout the state. 19 Would you agree with that? 20 GIL C. QUINIONES: Again, yes. 21 ASSEMBLYMAN GRAFF: Okay. 22 And why this is important to us, is 23 electricity affects everything for us. 24 It affects our property taxes, and it affects 25 our job growth. 1 Let me give you some numbers. 2 Suffolk County's electric bill, 3 Suffolk County government, their electric bill, per 4 month, is $1,779,000. 5 The Town of Islip, per month, $330,000 a 6 month they pay for electric. 7 The Town of Brookhaven, 451,000 a month. 8 My school district, I believe, is 240,000 a 9 month. 10 So electricity is the main thing that's 11 holding back our economy. 12 And what I'm trying to figure out, is why 13 Long Island constantly has to subsidize the rest of 14 the state, and why we get treated differently, where 15 we're paying more money for energy than other people 16 are paying. 17 That's number one. 18 Number two, if you look at states like 19 Pennsylvania, you can buy your power from 20 five different companies. You have a choice, all 21 right, and there's competition there. 22 Have you looked at the contract with PSE&G, 23 to see if -- thoroughly looked at it, to see if 24 there's any "out" clauses that would get you out of 25 the contract? 1 Because I know every time the government 2 enters into a contract, there's always an "out" 3 clause. 4 Have you thoroughly looked at the contract? 5 ROBERT F. LURIE: Well, I think that was the 6 question earlier, having to do with what penalties 7 there might be if we tried to cancel the contract. 8 And there is a clause in there that allows us 9 to cancel -- allows LIPA to cancel the contract. It 10 requires a $7 million penalty and a reimbursement of 11 out-of-pocket costs. 12 ASSEMBLYMAN GRAFF: Okay. 13 ROBERT F. LURIE: So it is cancelable on 14 those terms. 15 ASSEMBLYMAN GRAFF: What if LIPA enters 16 bankruptcy and fails to exist anymore? 17 GIL C. QUINIONES: That option is something 18 that, you know, is part of the analysis that we're 19 doing. 20 I have to tell, though, that there are a lot 21 of unintended consequences to doing something like 22 that, in terms of the State's authorities, and what 23 promise they make to their bondholders. 24 So to declare bankruptcy, I think, would have 25 some unintended risks that need to be factored into 1 that analysis. 2 ASSEMBLYMAN GRAFF: Okay. 3 And, now, when you were sitting there, you're 4 looking at -- have you talked to other municipal 5 electrics to see how they performed during the 6 storm? 7 REGINA CALCATERRA: I can't disclose the 8 other work that the Moreland Commission is doing -- 9 ASSEMBLYMAN GRAFF: Okay. 10 REGINA CALCATERRA: -- until the report comes 11 out. 12 ASSEMBLYMAN GRAFF: Well, let me put it this 13 way: 14 I lived in upstate New York during the ice 15 storm. All right? 16 And Lake Placid had a municipal electric. 17 You had Niagara Mohawk, but they had a 18 municipal electric. 19 During this storm, "Sandy," you have, 20 Rockville Center has a municipal electric, Freeport 21 has a -- you know, I'd like to see how they 22 performed, and the satisfaction that their customers 23 had. 24 And, you know, I'm going more towards looking 25 at a municipal -- a smaller municipal electric, 1 which will give more control to the local, you know, 2 authorities, such as Suffolk County. 3 And then the oversight on it, is if they're 4 not performing right, then, election time, they can 5 vote them out of office. 6 So there's a little more oversight from the 7 people that are buying the electricity. 8 And just -- I'm going to leave one last 9 thing, to give people an idea of what I'm talking 10 about, when we're paying for electricity, and the 11 cost that we're paying. 12 When I lived upstate, Lake Placid had their 13 own municipal electric. This is in the Adirondacks. 14 It goes below zero. 15 And everybody up there heats their house with 16 electric baseboard heat because the electricity is 17 so cheap. 18 Let me tell you something: 19 They're doing something right; we're doing 20 something wrong. 21 And Long Island cannot afford any higher 22 electrical rates. 23 And there are ways to make it more equitable 24 for the people down here. 25 Thank you. 1 SENATOR MARCELLINO: Thank you, Assemblyman. 2 Assemblyman Raia. 3 And, gentlemen, can we -- 4 SENATOR RAIA: Very -- absolutely. 5 SENATOR MARCELLINO: -- move it along, 6 because this group has been up for about an hour and 7 a half, and I think we have four more groups that 8 we'd like to hear give their testimony. 9 SENATOR RAIA: Thank you, Senator Marcellino. 10 I will be brief, as is often the question -- 11 or, what happens when you're the last -- you know, 12 one of the last ones to speak. 13 I do want to echo Assemblyman Graf's concerns 14 that 60 percent of the Assembly delegation wasn't 15 briefed on any of these proposals. 16 However, I do have some concerns. 17 Is it true that -- under the Governor's 18 proposal, that the tax-certiorari cases are all 19 going to be frozen in the individual jurisdictions? 20 Do you know anything about that, or -- 21 No? 22 ROBERT F. LURIE: And I'm not sure what 23 [unintelligible] -- 24 SENATOR RAIA: Well, here's the problem. 25 I'm trying to figure out, in my mind, how a 1 privately-run utility, that won't be eligible for 2 FEMA funds, that won't be eligible for low-cost 3 bonding, and will not be able to recoupe any 4 revenues through tax certiorari -- pending the 5 tax-certiorari cases, could possibly survive, and 6 make a profit. 7 So -- so -- but, however, the tax-cert case, 8 that issue is very important in my district, and I'm 9 just trying to figure out if you know if whether or 10 not there is a proposal to freeze -- 11 So, you don't know, or you're not sure? 12 GIL C. QUINIONES: We don't know. 13 SENATOR RAIA: Okay, thank you. 14 Number two, I guess it was mentioned, the 15 word "synergy" was used earlier. 16 Has the commission taken a position, or 17 studied, I guess, National Grid's announcement that 18 they're not going to allow their non-electric 19 workers to participate during storm emergencies? 20 And one of my concerns is, is National Grid 21 has been very good at cross-training a lot of their 22 employees. 23 So, you could have a gas person hooking up a 24 power line on a house. 25 You see an awful lot of National Grid trucks 1 out there, that are not going to be out there after 2 2013 -- or I should say, this contract expires in 3 2013. 4 And I'm just wondering what type of impact 5 that's going to have on the delivery of services, 6 because now we're -- PSE&G is going to have to go 7 out and hire a lot more subcontractors that just may 8 not be available. 9 We still have that problem during this most 10 recent snow storm. 11 Subcontractor's equipment breaks, they're not 12 reliable, and it causes a problem. 13 So -- 14 SENATOR MARCELLINO: Assemblyman, with all 15 due respect, okay, that is an important issue -- 16 SENATOR RAIA: Yep. 17 SENATOR MARCELLINO: -- but I don't think 18 it's germane to what we're here for. 19 SENATOR RAIA: I appreciate it. 20 SENATOR MARCELLINO: We're here, talking 21 about the possibility of the fact of, privatization, 22 or the other issues, [unintelligible]. 23 If we could take your questions, and an 24 estimate, at a different -- 25 SENATOR RAIA: Absolutely. 1 SENATOR MARCELLINO: -- situation? 2 SENATOR RAIA: I'll leave it at that. 3 I guess it was more of concerns that I would 4 like the Governor's Office to be looking at, and the 5 commission to be looking at, before they release 6 their final report. 7 They're valid, and they are concerns that are 8 being raised by many groups within the Long Island 9 community. 10 Thank you, Senator. I appreciate it. 11 SENATOR MARCELLINO: Thank you. 12 We have two more members who would like to 13 question: Assemblyman Montesano, and then 14 Assemblyman [sic] Hoylman. 15 Assemblyman Montesano. 16 ASSEMBLYMAN MONTESANO: Thank you, Senator. 17 Ms. Calcaterra, I just have just -- I guess 18 it's one question, or maybe two. 19 When did the investigation with LIPA you, 20 indicated, you know, the difficulties, we didn't 21 know who was running the place during the storm 22 and -- with National Grid. 23 I guess my question would be: 24 Everything that we're hearing today is going 25 to involve some type of expense allocation which 1 can, potentially, come back to the ratepayer. 2 And I was just wondering, in your analysis so 3 far, is there any feasibility, that if we 4 restructured LIPA, from top to bottom, and corrected 5 the deficiencies in the management agreement they 6 have with, right now, National Grid, and, hopefully, 7 with PSE&G, can the model that's being used now 8 continue to be viable? Can it be salvaged? 9 REGINA CALCATERRA: The Moreland Commission 10 spent a lot of time really looking at the bifurcated 11 structure. 12 And, at the public hearing, where we brought 13 the executives before us, they, literally, sat 14 there, and we asked that. 15 We had the top people at LIPA and the top 16 executives at National Grid sitting next to each 17 other, so they couldn't point fingers. 18 They all thought the existing structure 19 actually works. 20 So if you're dealing with two entities that 21 think the existing structure works, but other 22 Long Islanders, and legislators that are here, that 23 knows that existing structure doesn't work, because 24 they experienced the back end of it, I would 25 question, and the Moreland Commission would 1 question, keeping those same parties in place who 2 don't think that there's actually a problem. 3 So, from the Moreland Commission's 4 perspective, the status quo is untenable. 5 Anything beyond that, I'm going to leave to 6 the Governor's Office -- we'll leave for the 7 Governor's Office and the Legislature to work out. 8 The status quo, as it is now, is untenable. 9 ASSEMBLYMAN MONTESANO: Okay, but you're 10 using the thought of the same parties that are 11 involved. 12 I'm just going by, if we change the parties 13 around but kept that operating model in effect, can 14 it be sustainable? 15 I mean, right now, apparently, National Grid 16 and LIPA just don't click, or don't operate. 17 But, we see that bifurcated model, and just 18 trying to spare the expense, and get the best of 19 our -- out our dollar, is there any way of 20 operating, or it has to be one way or the other? 21 I mean, how would anybody see that on the 22 panel? 23 ROBERT F. LURIE: The problem -- in -- 24 there's a problem inherent in that model, that the 25 Moreland Commission I think eloquently pointed out, 1 and the difficulty of coordination and communication 2 when you have a bifurcated structure. 3 So there's a problem with the structure that, 4 I think, has nothing -- you know, it goes beyond 5 just the parties. Okay? 6 And that's one of the -- you know, the 7 downsides of keeping a structure like that in place, 8 going forward, is you have the risk of that 9 miscommunication and lack of accountability. 10 So, that's also one of the things we'll be 11 looking at. It's one of the options that we are 12 including in our analysis, that we could go on with 13 the PSE&G structure, maybe improve it. There might 14 be -- maybe there are ways to tweak the contract and 15 make it more responsive. 16 But one of the downsides of that is what 17 we're pointing out here, is that, inherently, it 18 doesn't fix that core structural problem that the 19 Moreland Commission pointed out of the bifurcated 20 structure. 21 SENATOR RAIA: Thank you. 22 Thank you very much. 23 SENATOR MARCELLINO: Senator Hoylman. 24 SENATOR HOYLMAN: Thank you, Mr. Chair. 25 Let me just, first, turn on the microphone, 1 and add my course of thanks for your efforts over 2 the last few months. Nothing short of heroic, and, 3 I'm very appreciative. And I know I speak on behalf 4 of many of my constituents. 5 I wanted to ask a question about the 6 determination of privatization versus the other 7 options. 8 And, specifically, will Lazard be making 9 that -- making a recommendation in that regard, 10 obviously, in conjunction with your team, but, are 11 they going to be presenting a recommendation in 12 connection with that specific plan? 13 ROBERT F. LURIE: We have asked -- we have 14 asked them for a recommendation. So, that is part 15 of the work that we charged them to do, and so we 16 expect that they will do that. 17 UNKNOWN SENATOR: Now, I guess I just have 18 some concern that they're -- 19 Obviously, I mean, they're a venerable 20 institution. One of the best investment banks in 21 New York City. 22 -- but, some concern that they may have a 23 privatization bias, just given who they are. 24 How will you incorporate in -- or, are they 25 seeking, throughout their analysis, dissenting 1 voices, consumer groups, other metrics, by which to 2 judge their ultimate recommendation? 3 GIL C. QUINIONES: Let me just answer it. 4 In my testimony, I had mentioned that I also 5 formed an internal team of experts from NYPA. And 6 we are, you know, scrubbing, doing stress testing, 7 doing scenario analysis, of whatever Lazard is -- is 8 doing, and other supporting consults that are 9 feeding into that -- into that process. 10 And as I had also mentioned, we are reaching 11 out to various stakeholders all across Long Island, 12 led by Secretary Schwartz, and, we will take into 13 account input. 14 And if there are other models out there, or 15 people advocating a position, we want to see their 16 models. 17 And, take that all into account, do it in a 18 very thorough, very fact-based way, you know, before 19 any recommendation is made. 20 UNKNOWN SENATOR: And in terms of conflicts, 21 I'm assuming that Lazard has cleared all of those, 22 in terms of its business, and how it proceeds in its 23 recommendation? 24 I mean, they may be in the business of 25 energy, I don't know, but I'm assuming that's 1 something that you do routinely? 2 GIL C. QUINIONES: Yeah. 3 Well, in our agreement -- consulting 4 agreement with Lazard, it's very clear that this is 5 a discreet assignment. There's no linkage to any 6 future work or assignment. 7 This is a -- you know, we came to them. 8 "Sandy" occurred. We needed to address this 9 issue as quickly as possible. 10 We came to them, we assembled a team of, 11 both, outside consultants and internal people at 12 NYPA, to make a -- to do a thorough analysis, and to 13 be able to advise, firstly, the Moreland Commission; 14 and, eventually, as we complete our analysis, the 15 Governor's Office. 16 UNKNOWN SENATOR: And then, finally, sir, 17 will the recommendations of Lazard be shared with 18 the Legislature, or will that be part of a larger -- 19 GIL C. QUINIONES: No. 20 When everything is complete, and done, you 21 know, that's our intention. 22 UNKNOWN SENATOR: Okay. Thank you so much. 23 SENATOR MARCELLINO: Okay, that's the last 24 question that I have. 25 I wish to thank the panel for coming, and for 1 your indulgence. 2 And, look forward to receiving a copy of that 3 report, and, we'll be in communication. 4 Thank you very much. 5 We'll take about a minute break, and then 6 we'll bring up the next panel. 7 GIL C. QUINIONES: Thank you very much. 8 (Pause in the proceeding.) 9 (The hearing resumed, as follows:) 10 SENATOR MARCELLINO: All right, if we can -- 11 Mr. Technician? 12 Okay. 13 I recall the Committee back to order. 14 And the next panel will be: 15 David Daly, vice president, LIPA transition, 16 Public Service Enterprise Group; 17 And, Neal Lewis, who is the -- a board 18 member -- a sitting board member of the Long Island 19 Power Authority. 20 Mr. Daly. 21 DAVID DALY: Good morning. 22 My name is David Daly. I'm vice president, 23 LIPA transition, for PSE&G Long Island, a 24 Public Service Enterprise Group company. 25 I want to thank Chairs Marcellino and 1 Ranzenhofer, and the Committee members, for the 2 opportunity to appear before you this morning. 3 I'm the lead executive responsible for 4 managing the PSE&G Long Island's transition, and the 5 operation-services agreement we have with 6 Long Island Power Authority. 7 As you may be aware, PS Long Island is 8 scheduled to assume responsibility for management of 9 LIPA's T&D system on January 1, 2014. 10 In the time allotted, I'll make very brief 11 comments about the background of my company, and our 12 core competencies, how we plan to deliver high 13 levels of service, and improve customer satisfaction 14 for Long Island's 1.1 million electric customers. 15 PSE&G is one of the nation's largest energy 16 companies, and we're also a neighbor. 17 We own Public Service Electric and Gas, 18 New Jersey's oldest and largest electric/gas 19 utility. 20 PSE&G serves 2.2 million electric and 21 1.8 million gas customers in a 2,600-mile -- 22 -square-mile area similar to Long Island's 23 territory. 24 We joined the New York business community in 25 1999 when our electric-generation business, PSE&G 1 Power, acquired the Albany steam station, an aging 2 450-megawatt electric-generating plant located just 3 south of Albany in Bethlehem, New York, and 4 transformed the facility into a state-of-the-art 5 Bethlehem Energy Center. 6 In the process, we doubled the site's 7 electric generating capacity while making dramatic 8 reductions in air and water and environmental 9 impacts. 10 We'd be happy to have you over to the site at 11 any time. 12 In total, PSE&G has approximately 25 -- 13 29 billion in assets; 10,000 men and women. About 14 two-thirds of our employees are represented by 15 unions, and we have a very strong relationship with 16 our unions, which we're very proud of. 17 What may be of particular importance to 18 Long Island's residents and this Committee, is our 19 work has gained considerable recognition by national 20 independent organizations for system reliability, 21 storm response, and customer satisfaction. 22 We've been cited as America's most reliable 23 electric utility 5 out of last 8 years, and the most 24 reliable utility in the mid-Atlantic region for 25 11 straight years. 1 The Edison Electric Institute, the industry's 2 national trade association, cited PSE&G for 3 outstanding work after "Hurricane Irene" and 4 "Superstorm Sandy." 5 And on the customer-service front, J.D. Power 6 and Associates recently ranked PSE&G second in the 7 eastern U.S. region for residential-customer 8 satisfaction. 9 It is this track record and experience and 10 expertise associated with it that we intend to bring 11 to Long Island. 12 As you may know, LIPA selected PSE&G 13 Long Island in December of 2011, after a two-year 14 competitive procurement process, to manage its 15 electric T&D system for a ten-year period. 16 There were over 90 competitors in that 17 process. 18 The operation-services agreement has been 19 approved by the New York Attorney General and the 20 State Comptroller. 21 And very importantly, the operating agreement 22 with LIPA's structure in a way that aligns our 23 interests with LIPA's. 24 We receive a flat fee for providing 25 management services, with the potential to earn 1 incentives for the achievement of significant 2 improvements in customer satisfaction and other 3 important reliability metrics. 4 For example, there are incentives in the 5 contract, and our plan is to achieve significant 6 improvements in customer satisfaction and customer 7 operations to achieve a first-quartile ranking 8 within five years. 9 And any cost savings or efficiencies that are 10 achieved in the process flow right back to 11 Long Island. 12 In short, our success is closely linked to 13 our improving the customer experience. 14 PSE&G has created a Long Island subsidiary 15 called "PSE&G Long Island," dedicated to managing 16 its responsibilities here. 17 This subsidiary, its management team, and all 18 the assets required will be located on Long Island. 19 Our management team will live on Long Island, 20 and we will be visible and available. 21 PSE&G and its family of companies have a long 22 history of involvement in the communities we serve, 23 and it's one of our core values we intend to bring 24 to Long Island. 25 As I noted, we bring to this task a very 1 established proven record of performance, 2 reliability, and customer satisfaction. 3 We've been hard at work at the transition for 4 over a year. We understand the challenges, we've 5 identified specific areas for improvement. 6 With LIPA's approval, we will make 7 recommendations in several areas: 8 First, in improvements in customer service 9 and customer satisfaction. That will include a new 10 call center and state-of-the-art technologies, 11 enhanced customer communications, and best-in-class 12 QA/QC customer processes; 13 Second, a proven storm-restoration process, 14 that I had described earlier, has been recognized on 15 many occasions. That includes state-of-the-art 16 outage management technology, and enhanced storm 17 planning and management structures, and logistics 18 planning; 19 Thirdly, we'll introduce best practices into 20 T&D maintenance and operations; 21 And, finally, we'll bring PSE&G's proven 22 analytical tools, including Lean Six Sigma, and 23 other processes, including our balanced scorecard 24 process, to optimize team T&D management. 25 In the area of customer operations, we're 1 implementing over 80 recommendations to improve 2 service and customer satisfaction. 3 LIPA has already approved our recommendation 4 to replace existing call-center technologies, and we 5 have plans to implement a new CIS system and a new 6 enterprise resource-planning system. 7 We've also proposed a new outage management 8 system, one of the key technologies involved in 9 storm restoration, that will more quickly and 10 accurately assess damage, direct work crews, and 11 provide critical information on status. 12 Our experience in New Jersey during 13 "Superstorm Sandy" provides some guidance on how 14 technology processes, planning, and other things 15 come together to benefit customers. 16 "Sandy" knocked out electric service to 17 almost 2 million of our 2.2 million electric 18 customers. 19 About a third of our stations -- switching 20 stations were knocked out, 40 percent of our 21 substations, and 33 percent of our transmission 22 lines. 23 1,000 out-of-state workers arrived in 24 advance, and that workforce grew to over 4,500. We 25 were able to make sure all of these workers were 1 housed, fed, and their vehicles had fuel. They knew 2 where they were going, had work orders in hand, and 3 got on the road with little wasted time. They never 4 ran out of material and supplies. We never ran out 5 of poles, transformers, wires, or fuel. 6 We restored electric service to 1 million 7 customers in 3 days. 8 Over the two-week period that included the 9 nor'easter that hit on the heels of "Sandy," we 10 restored power to 2.1 million customers. 11 That is more than any storm in the history of 12 any electric utility in the country. 13 We accomplished all these restorations 14 efficiently, and I think this speaks to our 15 storm-restoration process. 16 We accomplished all of these 2.1 million 17 restorations at a cost of $295 million. 18 All through this process, we worked 19 diligently and as much as accurately possible to 20 provide information to customers, officials, the 21 news media, and other stakeholders. 22 Prior to the storm, we did 700 preemptive 23 calls with the municipal officials to establish 24 points of contact, daily conference calls with 25 municipal officials, and, municipal/bi-municipal 1 work plans were developed. 2 Ralph LaRossa, our chief operating officer, 3 myself, and other senior executives met with over 4 100 state legislators and mayors during the storm. 5 We had daily conference calls with 6 Governor Christie. 7 Newspaper, radio, Internet, e-mail blasts, 8 and social media were also part of our communication 9 strategy. 10 In short, and to wrap up, it is this kind of 11 effort, planning, logistics, up-to-date technology, 12 proven processes and procedures, analytics, and 13 communications, bound together by a relentless focus 14 on the customer and PSE&G Long Island, that we are 15 bringing to task to manage the electric system. 16 We know what needs to be done, and we look 17 forward to the opportunity to serve the people of 18 Long Island. 19 Thank you very much. 20 I'm happy to take your questions. 21 SENATOR MARCELLINO: Thank you, Mr. Daly. 22 Before we go to Mr. Lewis, I just want to 23 point out to the audience, that members will be 24 coming and going because of committees assignments 25 that are going. There are various subcommittees 1 being -- are meeting now. They have appointments 2 that have to be met. 3 We're in the budget-review process, and many 4 of them are serving on various subcommittees. So, 5 they'll be in and out of this room, as it goes. 6 In the meantime, you're stuck with me, and 7 Senator LaValle, and that's a pretty good duo. 8 Mr. Lewis. 9 NEAL LEWIS: Thank you, Chairman Marcellino, 10 and Senator LaValle. 11 I really appreciate this opportunity to speak 12 to the Committee today on this very important topic 13 of the future of the Long Island Power Authority. 14 Before I begin, let me state that I, of 15 course, do not speak here today as the official 16 representative or officer of the Long Island Power 17 Authority; but, instead, I speak as an individual 18 who is an appointed volunteer member of the LIPA 19 Board of Trustees. 20 I might point out, also, that nobody at LIPA 21 reviewed these comments. These are my words alone 22 that I have submitted to you. 23 My suggestions for the future of LIPA starts 24 with the ServCo business model. 25 As you know, this model was developed by the 1 LIPA executive team, LIPA Board of Trustees, and the 2 Brattle Group. 3 And I believe that the Brattle Group was very 4 professional, very thorough; really did a 5 comprehensive analysis. They brought utility 6 expertise to that analysis, and they were 7 unconflicted in the work that they did. 8 I think that their work should be given great 9 weight. 10 Unfortunately, the media coverage of this 11 issue since the events involving the restoration 12 after "Sandy" have really done a disservice to 13 Long Islanders by not explaining the ServCo model. 14 I hope, today, we can start to change the 15 debate, and allow this option to get fair 16 consideration. 17 I want to be absolutely clear, that I am not 18 here today to say that the old structure of LIPA 19 should be maintained, going forward. 20 I fully respect and support all those who 21 call for reform of LIPA. 22 I simply believe that the ServCo model is the 23 best reformed model that could be implemented among 24 the choices available. 25 And I also suggest some additional reforms 1 that I want to point out today. 2 In my opinion, ServCo presents the 3 opportunity to get the best of both worlds, both 4 public and private. 5 With ServCo, Long Island will retain public 6 power, with a publicly appointed board that controls 7 policy, adopts budgets, and sets out to achieve high 8 standards of investment in the system to promote 9 high reliability. 10 The board will not be driven to increase 11 profits by selling more electricity and, instead, 12 can focus on the most cost-effective option of 13 promoting energy efficiency. 14 LIPA has, over the last decade, established 15 itself as a leader in New York State, and 16 nationally, in promoting efficiency and renewables. 17 Under ServCo, this can continue. 18 Local control over the significant 19 investments in clean energy will be retained on 20 Long Island by LIPA. 21 With public power, the ServCo business model, 22 LIPA will continue to qualify for low-interest 23 municipal bonding rates and for FEMA reimbursements 24 for major storms. 25 Also, as a not-for-profit, LIPA does not pay 1 income taxes, and can qualify for its sales-tax 2 exemptions. 3 And, finally, no payments will be made to 4 shareholders. 5 Of course, it has been well reported that the 6 Brattle Group estimated that all these different 7 savings could result in as much as 20 percent lower 8 rates under ServCo as compared to privatization. 9 ServCo also captures the best benefits of a 10 private utility without the downside of selling the 11 system off to a private company. 12 With ServCo, LIPA will benefit from the 13 talent, expertise, and experience of the managers of 14 a major private utility who has been providing -- 15 who will be providing service under contract for a 16 specific time period. 17 And I believe you just heard some of the 18 impressive qualifications that the PSE&G team brings 19 to this equation. 20 A vital factor to consider is that LIPA is in 21 desperate need of upgrading its computer systems. 22 If you consider all the upgrades that will be 23 necessary, several different systems, in the coming 24 years, the costs can be in the tens, or even 25 hundreds, of millions of dollars. 1 There are municipalities around the country 2 that have set out to purchase major computer systems 3 and encountered many expensive difficulties. 4 There are no guarantees that we will not 5 experience similar problems with our computer 6 upgrades, but having the expertise and experience of 7 the PSE&G and Lockheed Martin managements to oversee 8 those complicated upgrades substantially reduce 9 those risks. 10 And those risks was the main focus of the 11 Brattle Group analysis. 12 In my opinion, the LIPA board has done an 13 excellent job of adopting a much improved business 14 model, and choosing a highly qualified company to 15 carry out operations under the new system which 16 would begin January of next year. 17 I would like to point out that the 18 Moreland Commission, in their interim report, did 19 not consider the ServCo model as one of the three 20 possibilities when evaluating options for the future 21 of LIPA. 22 The bifurcation problem, which was the main 23 theme of the Moreland Commission report, I want to 24 say on this one, that bifurcation is not a problem 25 during "blue sky" conditions. 1 I simply don't believe that there is a reason 2 why public-private partnerships can't work. 3 However, I do agree with the 4 Moreland Commission, on page 17, where they said, 5 that: 6 "The LIPA and National Grid hybrid model is 7 simply unworkable in the context of a storm event." 8 I agree on that point. 9 During a storm, we should not have a 10 bifurcated system. 11 So during the storm, LIPA should direct that 12 the contractor steps up and speaks directly to the 13 public, to elected officials, during the time of the 14 storm. 15 The bifurcation problem, basically, will be 16 solved under the arrangements we have made with this 17 contract, and as we're moving forward, starting on 18 January 1st of next year. 19 Now, I was going to skip the rest of this 20 page 5, but I do want to point out that, in the next 21 paragraph here, the PS -- the Moreland Commission 22 report, on page 26, says that: 23 "The bulk of the owner-manager relationship 24 remains the same." 25 And one of the gentlemen from NYPA that was 1 sitting here, repeated that statement just moments 2 ago. 3 This is a mistaken assumption that the 4 Moreland Commission is making. 5 So I have three criticisms of the 6 Moreland Commission: 7 I believe, as I'm going to address in a 8 moment, that they engaged in group think on their 9 analysis of the problem; 10 I believe that they chose not to evaluate -- 11 I don't believe, but it's obvious -- they chose not 12 to evaluate the ServCo model; 13 And on this point, they're making the 14 mistaken assumption that bifurcation will be a 15 problem during major storms in the future. 16 Now, why they did this, is because they only 17 read the contract. 18 They did not read the Contract Administrative 19 Manual, in part, because it is does exist yet. It's 20 still in the transitional development phase. 21 I raised this issue at the last meeting of 22 the LIPA Board of Directors. 23 I asked that our general counsel address what 24 was stated on page 26 of the Moreland Commission, 25 and she indicated to the board that she will look 1 into this. 2 Since that meeting, I've gotten a little more 3 information, and I have a better understanding of 4 where the Moreland Commission made their false 5 interpretation. 6 Because they only have the contract, they 7 don't have these other documents that are still 8 being developed. 9 But what they're missing out on, is the many, 10 many conversations that took out -- took place 11 during the Brattle analysis process. 12 And during those conversations, there was a 13 very strongly felt feeling on the part of the 14 trustees that, in the future, the LIPA executives 15 should not be running press conferences and sending 16 out press releases during the middle of a storm. 17 That should be the responsibility of the 18 contractor. 19 And the intention is, that starting 20 January 1st, that exactly will be the arrangement. 21 I want to speak -- and the last paragraph on 22 this page does this, I want to speak to the point 23 that Senator LaValle raised about the 24 bifurcated-structure concern, and whether we saw a 25 different structure during the blizzard. 1 And my response to that is, what we saw 2 during the blizzard is very close to what would be 3 the structure for future storms, under the contract 4 with PSE&G, and under the new ServCo model. 5 LIPA would, essentially, stand down when it 6 comes to major communication efforts, and the 7 contractor would step up. 8 Again, this still needs to be worked out over 9 the period of the next several months, but, what we 10 saw during the blizzard was the scenario where 11 National Grid stepped up. 12 And I can tell you that LIPA staff was still 13 very much involved in that storm. 14 And I spoke with one of those people that 15 were very much involved, and they explained to me -- 16 he explained to me that he felt very strongly that 17 he saw improved communications of information 18 flowing through the -- through National Grid that 19 did not take place during "Sandy". 20 So what I'm saying here is, while I criticize 21 the Moreland Commission's conclusions, I do agree 22 with their point about the weakness of a bifurcated 23 structure. 24 And then, frankly, I think the board, as a 25 whole, although I hesitate to speak for the board, 1 but we did vote unanimously in favor of the ServCo 2 model, and strong opinions were expressed, that 3 going forward, during major storms, we will not have 4 a bifurcated structure. We will have a clear 5 understanding that the people doing the direct work 6 are the ones that will be communicating directly 7 with the public. 8 There was a comment, also, that it -- that 9 you couldn't solve this problem, in terms of the 10 bifurcated structure, because it has to do with more 11 than the parties. 12 Yes, it has to do more with the parties; it 13 has to do with the contract. 14 The contract is coming to an end at the end 15 of this year, and we have a new arrangement that 16 will be taking place afterwards. 17 Now, there is a misalignment of interests in 18 the current MSA. 19 There are reasons to break from the current 20 contract and go with the ServCo model, that have 21 something to do with storm response. 22 Storm response wasn't the only issue, by any 23 means, that was being considered. 24 One of the issues which was touched upon just 25 a moment ago, was the performance of the call 1 center. 2 The call center under the current model 3 creates a conflict in interests and incentives, 4 where the for-profit company has an interest in 5 running the call center in such a way to keep costs 6 down; whereas, LIPA wants to see the call center 7 provide to our customers, a good experience. 8 Those two interests are not aligned. 9 Under the new ServCo model, and it's just so 10 frustrating -- 11 And I appreciate, Chairman Marcellino, your 12 effort to explain to people, the complexity of some 13 of the aspects of this relationship. 14 -- people just don't get this, that ServCo is 15 not a continuation of the current structure. 16 It's a fundamental improvement of the hybrid 17 model, and it really will dramatically change the 18 performance of LIPA's service to the public in the 19 future. 20 So in the future, there will be no 21 incentives, where his team will be saying: Well, if 22 we cut the number of people in the call center, you 23 know, we're going to have to speed up how quickly we 24 handle calls, but we can boost our profits. 25 There will be no incentives like that in the 1 structure, because the budget for the ServCo 2 subsidiary is kept separate from the payments made 3 to PSE&G. 4 A substantial improvement under the current 5 flawed model. 6 I believe that the case for dismantling LIPA 7 has not been demonstrated, and this is where I 8 believe the Moreland Commission engaged in group 9 think. 10 The Moreland Commission interim report does 11 not contain any analysis of the facts in comparison 12 to other storms or other utilities or metrics, 13 whatsoever, to demonstrate that LIPA's rate of 14 outage restoration after "Sandy" was a failure that 15 warrants complete privatization and dismantling of 16 the operations. 17 I would like to suggest that one of the key 18 metrics to consider, is the number of repairs that 19 need to be made, not just the number of outages. 20 And we also need to take into consideration 21 that this storm occurred with a major storm surge 22 that was unprecedented in Long Island history; 23 That it came with a nor'easter during their 24 restoration effort; 25 And, that there's certain unique aspects of 1 Long Island's grid design, where wires run through 2 backyards rather than primarily along streets, that 3 make it more time-consuming to effectuate 4 restoration. 5 On the question of a metric of comparing 6 repairs, if you look at "Hurricane Gloria," what we 7 saw was, 11 days to achieve restoration and 8 9,000 repairs that were done. 9 If you look at this storm, it was 14 days to 10 receive -- to achieve 99.5 percent restoration and 11 up to, approximately, 40,000 repairs. 12 I should point out that the LIPA board is 13 meeting tomorrow, and Mr. Bruckner [ph.] is giving 14 us a report tomorrow. So this number of 40,000, I 15 think, we'll get a more firm number tomorrow. 16 But if you use those numbers, what this 17 means, is that if LILCO were still running things 18 today -- or, a few months ago, and they restored 19 power after "Sandy" at the same rate that they did 20 after "Gloria," then it could have taken about 21 45 days to achieve power restoration. 22 So where is the metrics that demonstrate that 23 LIPA's performance in restoration time was such a 24 horrendous failure that we have to throw the baby 25 out with the bath water, so to speak? 1 I want to speak to reliability. 2 There have been claims made that the LIPA 3 system was maintained in such a way that it was, 4 essentially, at the state of falling apart when the 5 storm hit, and that's why the damage was so severe, 6 rather than accepting that this was an historic 7 storm of incredible magnitude; perhaps the most 8 damaging weather event to hit Long Island in -- 9 clearly, in modern times, if not since the glaciers. 10 And please excuse me for that, Senator. 11 SENATOR MARCELLINO: I wasn't here. 12 NEAL LEWIS: Okay. 13 [Laughter.] 14 NEAL LEWIS: Let me state for the record, 15 emphatically, the LIPA grid was, either, the single 16 most, or among the most, reliable grids in 17 New York State for any above-ground utility on the 18 day that "Sandy" hit. 19 This claim by me is based upon established 20 metrics that are regularly reported to the LIPA 21 Board of Trustees. 22 I brought with me 20 copies of the PowerPoint 23 handout from the LIPA Trustee meeting from May 24, 24 2012. 25 And if, Chairman, you deem it appropriate, 1 I'd like to make this a part of the record as an 2 exhibit, and I would encourage that people look to 3 the second-to-last page, Slide Number 7, which shows 4 that three major well-established metrics -- 5 I'm sure these are metrics probably used in 6 New Jersey and other parts of the country. 7 -- three major metrics of SAIFI, CAIDI, and 8 SAIDI. I'm not sure if I got the pronunciations 9 right. They're all acronyms. 10 LIPA was number one for the time period being 11 recognized here, and this is a common occurrence 12 with LIPA's performance of the grid. 13 So, reliability has been a top priority and 14 goal of LIPA, and real accomplishments have been 15 made. 16 The former president of National Grid, 17 Bob Catell, has said at a number of public events 18 that the LIPA grid is a gold-plated system. 19 And I think that those words should echo in 20 our minds when we hear talk of selling off this 21 system. 22 I'm going to skip the issues of the flood 23 surveys, and go to the other reforms I'd like to 24 suggest. 25 The other reforms I'd like to suggest is, 1 rather than all appointments to the LIPA board being 2 in the hands of the leadership in Albany, I believe 3 that local government should have an opportunity to 4 appoint people to the LIPA Board of Trustees. 5 This will provide coordination with local 6 governments on tree-clearing on -- of roads, which 7 is a critical issue after a storm, and on other 8 issues, and on overall emergency planning. 9 I believe the county executives of the two 10 counties should have appointments, the 10 largest 11 towns should have appointments, and then the smaller 12 towns and the villages and the two cities should get 13 a certain number of rotated appointments. 14 My second additional suggestion, is that we 15 should have a unified emergency response under the 16 OEM. 17 I believe that the annual hurricane drill 18 that LIPA holds should be held at the two county 19 offices of the Emergency Management, and LIPA should 20 be more clearly integrated into the function and 21 command structure of the OEMs. 22 In my opinion, both county OEMs performed 23 well during "Superstorm Sandy," and it makes sense 24 to build upon what worked. 25 The OEMs are well equipped with 1 communication capabilities that can be relied upon 2 during storms and in other crises, and I therefore 3 believe that working with them is a good way to 4 improve communications during the next major storm. 5 I would also like to make a recommendation 6 that builds upon some of the work that came out of 7 the Senate after "Tropical Storm Irene," having to 8 do with coordination with municipalities. 9 And on this one, I recommend that we develop 10 formalized memorandums of understanding, or, 11 "MOUs," to be adopted by LIPA and Long Island 12 municipalities, that should anticipate specific 13 series of different contingencies, set out 14 responsibilities between the parties, and they 15 should be enforceable. 16 And lastly of my reforms that I'd like to 17 suggest in addition to the ServCo model, I believe 18 that we should, simply by law, provide for a PSC 19 review of LIPA, and end the debate about that issue. 20 I think it's been an overblown issue, and I 21 think that if it can bring an air of accountability 22 and improve public confidence in the system, then we 23 should simply -- we should simply do it, in my 24 opinion. 25 The -- I believe there's a strong basis to 1 believe that the ServCo business model approved by 2 the board of trustees, and the State -- this went 3 through several layers of review -- will deliver the 4 best results for Long Islanders who want reliable, 5 affordable electric service that is delivered by a 6 corporate structure well designed to respond to 7 major storms, and to advance public-policy goals, 8 such as being the leader in promoting energy 9 efficiency and renewables. 10 I also believe that the ServCo model can be 11 further enhanced, by giving local government 12 officials who work with LIPA the ability to appoint 13 trustees, by unifying emergency planning and 14 responses by LIPA with the existing offices of 15 Emergency Management, by adopting MOUs to establish 16 clear agreements for tree-clearing from roads with 17 local governments, and, lastly, by subjecting LIPA 18 to PSC review. 19 That's the end of my abbreviated version of 20 prepared comments, and I do hope my whole comment -- 21 written comments get into the record. 22 SENATOR MARCELLINO: Your comments will be 23 part of the record, as all of the comments, 24 including the PowerPoint presentation that you made. 25 And I thank you both for your testimony. 1 Just a question for both of you. 2 I'm a consumer. I live in the LIPA area. 3 My house was without power for two weeks. 4 14 days. 5 I had to call in to LIPA to tell them my 6 house was without power. 7 They didn't know it. 8 They had no idea of the fact that my house 9 was without power. 10 The cable company, whose power lines use the 11 same poles, traveled into my house pretty much the 12 same way that the LIPA lines do, can tell me if I'm 13 on their system or not; when I'm on, when I'm off, 14 what I'm watching. 15 They can fix my cable problem, if I have a 16 problem, over the phone. 17 They can deal with all of that from, I don't 18 know what distance, but they're certainly not in my 19 house at the time. 20 Yet I had to call LIPA to let them know that 21 the power line was down. 22 It took them 14 days to get to my house. 23 I'm not surrounded by a million trees. 24 The transformer, yes, it's in the rear yard, 25 no doubt about that. 1 The line was taken down by a fallen tree in a 2 neighbor's yard. 3 All that's true. 4 But the system of communication between LIPA 5 and the customer simply is nonexistent, as the 6 process goes right now. 7 There is no communication, and I don't 8 understand that. 9 Will this change under the new agreement with 10 PSE&G, or under the ServCo model that you're talking 11 about? 12 NEAL LEWIS: This is a technology question. 13 I defer. 14 DAVID DALY: Yeah, I mean, I would -- there's 15 a couple of issues that we've made recommendations 16 around, one of them has to do with technology. 17 And one of the most important technologies in 18 storm-outage situations is a system called an 19 "outage management system." 20 The system that's in place today is a very 21 old mainframe-based system. 22 It results in work being done with 23 footboards, and on a much more manual basis than 24 modern systems. 25 These types of systems bring you a couple of 1 things: 2 First, at the beginning of a storm event, 3 they give you a much more -- a much quicker and a 4 much more accurate assessment of where the damage 5 is; number one. 6 Number two, as the storm's progressing, you 7 have thousands and thousands of crews out performing 8 work. 9 Starting at 7:00 in the morning, check in at 10 1:00 in the afternoon, you check in at 10:00 at 11 night. 12 These modern outage management systems are a 13 mechanism to understand what work is getting 14 accomplished. 15 The crews are out in the field accomplishing 16 the work and statusing it, not through a manual 17 process, but in the system, comes back. 18 And, so, you have a much better understanding 19 of where to send the crews, because you know the 20 damage up front much quicker. And once they're out 21 there at their statusing work, hour to hour, day to 22 day, typically, you check in twice a day during a 23 storm event around how much progress we've made. 24 And what that gives is, the management -- 25 storm-restoration management team, realtime 1 information about where the damage is, and what the 2 status is. 3 I think that one of the issues we've seen, 4 is that with the technologies that is in place there 5 today. 6 Now, we've made this recommendation, we 7 intend to have it in place in the next 12 months, 8 is that you're at a little bit of a handicap in 9 really understanding where to send the crews, and 10 more importantly, as work is getting accomplished 11 and getting updated, being able to stand up at a 12 press conference or in a communications forum and 13 give an accurate picture of what work we 14 accomplished today; is this circuit back or not? 15 So, there is -- there is a piece of this 16 related to this outage management system, and we are 17 correcting that. 18 Secondly, somewhat driven by the availability 19 of the system, one of the processes we use at PSE&G 20 that we intend to replicate here -- 21 And by the way, we intend to replicate our 22 entire storm process on Long Island. 23 -- is a process where, for each municipality, 24 we have an individual conference-call meeting each 25 morning and we provide them with a three-day plan. 1 That meeting starts one-on-one with each 2 municipality, with: 3 How many customers are out today? 4 What crews are going to be in your town 5 today, tomorrow, and the next day? 6 So it's a story that starts with, for 7 example, and I'm making these numbers up, you have 8 14,500 customers out today. We're going to have 9 X amount of crews in your town today. By tomorrow, 10 you're going to be down from 14,000 to 12,000. The 11 next day down 8,000, the next day down to 4,000. 12 So we do a rolling three-day picture of what 13 is happening in that town, and they can watch and 14 trend this piece coming down. 15 And the combination of those two things 16 gives us a great deal of information about what 17 the current status is. 18 Just one other piece, though, which is, you 19 don't have on Long Island smart meters. 20 Smart meters, sometimes called 21 "AMI advanced meters," are the only source, when you 22 get down to the very last meter, to have the 23 information coming back automatically to the utility 24 about whether a customer is back or not. 25 I think some of the problems that you 1 experienced are not as much related to having 2 smart meters in place. And the implementation of 3 smart meters is really a public-policy issue about 4 whether or not that makes sense. 5 They make sense, they have a lot of -- they 6 bring a lot of benefits. 7 To make them work, you need to put in place 8 pricing schemes which charge people more for 9 electricity at this time of day versus another time 10 of day, so there are implications for what makes 11 them economic and make them work. 12 But, there's two pieces to your question. 13 I think the lion's share of the concern you 14 just expressed, we will be addressing through the 15 outage management system that we're installing and 16 our communications processes that I've just been 17 describing. 18 SENATOR MARCELLINO: I'm just -- you guys 19 were sitting here when I was questioning the 20 previous panel. 21 My concern is, the providing of the service 22 without a rate increase; without costing the 23 taxpayer, the ratepayer, an exorbitant amount of 24 money. 25 As you heard from Assemblyman Graf, we pay a 1 lot of money for the power. We're paying huge 2 amounts of money at every level of government. 3 The government is paying the electric bills, a 4 huge amount of money that goes into the tax base, 5 goes into the property-tax base. 6 And he's right, it's an inhibition to 7 business. 8 How are you going to change that system? 9 I understand in the PSE&G contract, there are 10 performance standards which would enhance the 11 efficiency of the system. 12 Now, how -- can you go through a little bit 13 of that? Is that -- what that system is? 14 And, Neal, I'd look to like at -- you seem to 15 be implicating that Moreland is more -- has pretty 16 much bought into private. Privatization, that 17 they're looking at nothing else but privatization. 18 NEAL LEWIS: Well, I do want to say -- 19 SENATOR MARCELLINO: I'd like to get both 20 those questions answered, though. 21 NEAL LEWIS: Right. 22 -- on the -- it's fascinating that the way in 23 which Moreland is looking at privatization does seem 24 to be different than Brattle, because Brattle said 25 that the biggest savings that comes from 1 privatization, they show some savings in certain 2 categories, and then increased costs in other 3 categories, and when it all washes out, it's a 4 significant increase. 5 Brattle was emphatic that it did not make 6 sense to continue to analyze privatization after a 7 certain point. It wasn't even a close call. 8 The -- but on the positive side for 9 privatization, the number one -- biggest improvement 10 is cutting taxes. 11 Basically what they're operating under is an 12 assumption that a private utility is going to 13 aggressively fight to reduce the property taxes, and 14 fight to reduce the pilot payments. 15 After that, they talk about labor. 16 And I think you may be hearing a little bit 17 later from some other speakers on this topic, but 18 LIPA had the -- the workforce that services the 19 electric system on Long Island -- we all know they 20 worked primarily under National Grid's name -- is 21 much smaller than what existed years ago. 22 And it's really a troubling thought to think 23 that a major way that privatization can keep costs 24 down is going to be to fight the taxes and cut 25 labor, and, how does that enhance performance during 1 a storm? 2 And those tax cuts, by the way, are going 3 to be made up for, likely, by tax increases. 4 You know, if LIPA pays less in a certain 5 community, then those communities are going to have 6 to make up for it. 7 It was the Legislature that required LIPA to 8 pay those taxes. 9 And when we compare LIPA's rates to other 10 utilities, it's often said it's among the highest, 11 but let's be clear what we're talking about. 12 If you compare it to the rest of the country, 13 50 percent of the country gets their electricity 14 from coal, which is dirty, but it's also cheap. 15 So comparing us to those is really unfair. 16 If you compare it to other public utilities, 17 the other public utilities don't pay for the 18 property taxes. 19 Our property tax payments by LIPA are larger 20 than our debt service on the debt that we have that 21 we hear so much about. 22 If you compare it to public utilities on 23 Long Island, Rockville Center, Freeport, they get -- 24 they don't pay the property taxes. And they also 25 get -- NYPA was sitting here -- NYPA sends 1 electricity to Freeport, or it's done in a very, you 2 know, complicated way, but the bottom line is, they 3 get low-cost electricity because of NYPA. 4 So comparing these prices of rates -- 5 SENATOR MARCELLINO: And LIPA can't do that? 6 NEAL LEWIS: Well, under the -- 7 SENATOR MARCELLINO: I think that was 8 Assemblyman Graf's point. 9 LIPA can't do that? 10 NEAL LEWIS: Well, just a changing of that 11 law, you know, if you guys can get that law changed, 12 it's in the law right now that none of the 13 hydropower can come to Long Island. 14 So, if we could get some of that, that would 15 go a long way. 16 DAVID DALY: And to your initial piece, on 17 the cost and on the performance, we intend to bring 18 excellence in operations from New Jersey and 19 replicate it on Long Island. 20 There are three main buckets that we intend 21 to make significant improvements in, that we think 22 will immediately begin to move the metric for -- 23 described in one moment. 24 Technology, I just described the OMS system. 25 There's a couple other customer-facing 1 technologies. 2 Number one, technology. 3 SENATOR MARCELLINO: Can you speak up a 4 little bit, please? 5 You have to speak up a little bit, or move 6 the microphone closer to you. 7 DAVID DALY: Number two -- 8 So, technology, number one. 9 Number two, replicating work processes from 10 PSE&G in customer operations in T&D. 11 Particularly in the customer operation side, 12 on our customer-satisfaction processes: 13 How we listen to the customer; 14 How we deal with customer complaints; 15 How we take that information, develop 16 targeted initiatives, dedicate resources, use 17 advanced models for developing targeted 18 initiatives. 19 How we have an approach, which is, use every 20 customer complaint as an opportunity for 21 improvement, and where we engineer out process 22 deficiencies based upon what we learn in surveys and 23 from customer complaints. 24 And then, thirdly, the storm process. 25 So, technology, some key process changes in 1 customer ops in T&D, and storm. 2 When you look at the incentive structure that 3 we have under the contract, there's 29 metrics 4 covering cost metrics, customer satisfaction, and 5 reliability. 6 And Mr. Lewis just talked a moment ago 7 about reliability on the system. 8 The assets that are in place on Long Island 9 are in good shape. They have been invested in over 10 the years, so the physical assets -- the 11 substation, the breakers, the wires -- are in 12 sound condition. 13 The employees that are in place at 14 National Grid, that we will bring over as part of 15 our company, are a highly trained, highly skilled, 16 dedicated workforce. 17 So, we have good resources, we have good 18 assets. We're going to bring process. 19 In terms of the metrics, on the cost side, 20 our intention is to keep costs flat. 21 Our challenge is to do that while taking 22 reliability and keeping it where it is -- 23 Because as Mr. Lewis just said, reliability 24 is good, based on the assets, and based on the 25 fact that you have a good workforce. 1 -- keeping reliability where it is, but 2 taking customer satisfaction from what is 3 essentially the basement today, and bringing it up 4 to top quartile. 5 You bring the customer up to the top 6 quartile, and reliability stays up there, costs, 7 relatively flat. 8 In our structure, there is a gate that we 9 have to get through to earn any incentive 10 compensation. Regardless of what happens with 11 reliability and customer service, if we don't make 12 our budgets, we get no incentive compensation. 13 So that is a gating function at the beginning 14 of the incentive structure, that they must be 15 accomplished no matter what happens on the other 16 two. 17 So, we're very confident that -- we're not 18 going turn this aircraft carrier around on a dime. 19 We have a one-year plan, a three-year plan, a 20 five-year plan. 21 Within five years, we will have a utility 22 on Long Island that is a best-in-class utility 23 across all areas of cost, reliability, customer 24 service. 25 And we're very confident we'll get there, and 1 we think the incentives are set up to get us there 2 without raising cost significantly. 3 As I said, we're going to keep reliability 4 where it is, move customer, keep costs flat. 5 NEAL LEWIS: If I could add one other point 6 regarding rates, it's unlikely the rates are 7 going to come down, although, it's just, sort of, 8 keep them from going up further. 9 But one thing we can do, is reduce bills. 10 So, a business that's struggling to pay the 11 high rates we have for electricity on Long Island 12 can reduce its bills, and that's what really matters 13 to them. 14 And the way to do that is through the 15 efficiency programs. 16 And LIPA has an efficiency program, which if 17 you look at the chart for funding of it, it just 18 goes up rather dramatically. 19 This year, we're at $120 million. It's 20 perhaps the strongest efficiency program of any 21 municipal utility in the country. 22 And as the years go forward, it's going to 23 be that much stronger, and it's going to gear more 24 and more into the commercial sector. 25 So with the strategy that you just heard, 1 about how we can keep the rates steady where they 2 are, and then combine that with efforts to provide 3 incentives to help commercial customers improve 4 efficiency at their operations, they can see 5 significant reductions in their bills, not in 6 their rates. 7 And this is, I think, the right strategy to 8 deal with the issue of the high rates that we pay 9 for electricity on Long Island. 10 SENATOR MARCELLINO: I have just one last 11 comment, and I'll turn it over to my colleagues. 12 My criticism of LIPA, it's legion, but in my 13 mind, they've done a lousy job in maintaining their 14 own infrastructure. 15 There are poles in my neighborhood where the 16 bottom is -- the base of the pole is just rotted 17 away. It's being held up by the wires, not by the 18 pole. 19 So when they cracked, when they broke down 20 during Sandy, no big surprise. 21 When the tree that took them down, it was 22 their own weight and the weakness of the pole. 23 Minimal putting stuff underground. You can't 24 put it all underground, I understand that, that's 25 not a panacea by any means, but a lot of it can go 1 underground, and should be. 2 The tree trimming, it's almost non-existent. 3 What they do is almost cosmetic, at best, 4 along certain avenues, but they don't get into back 5 yards, they don't get into people's -- and I know 6 that's not simple, but it's not being done in any 7 effective way. 8 You can walk down any -- go down any street 9 in any neighborhood you want, and you can see 10 trees hanging over lines, sitting there, where a 11 strong wind or an aging branch with some snow on it 12 is going to take the whole system down. 13 They're not doing that now. 14 So, there's a lot of that that I would look 15 to see, if PSE&G does take over, and then, if this 16 whole thing moves forward, under whatever system, 17 that that sort of thing has to go forward. That 18 there has to be some uniformity. 19 I don't necessarily agree with Bob Catell 20 that this was -- that this is a gold-plated system. 21 It may have been at one time, but I don't 22 think it is anymore. 23 So I think there's -- there's a tremendous 24 amount of work, going forward. 25 But key element of this whole thing, and I 1 know that may not be the simplest thing: 2 We have an excellent workforce, they do a 3 job. I'm glad to hear that you would bring them 4 over and keep these people, and I'd hate to see the 5 fact they would go away. 6 I'd also hate to see the fact, going forward, 7 that we be looking at the closure of more power 8 plants, going forward. 9 We're -- there's two in my district that are 10 going. 11 I know Senator LaValle has a problem in 12 Port Jefferson, other areas as well, where tax 13 certioraris being filed where they want to close 14 power plants, that impact on school districts, on 15 municipalities, towns, and villages, is huge. 16 So that poses problems, going forward. 17 I'd like to see, you know, in any plant, some 18 forward-thinking as to what's there, what's going to 19 happen to these plants. 20 The youngest of the big ones is North Port, 21 and I think that the youngest power plant you've got 22 of its size was built in 1978. 23 So, we have an aging infrastructure, and I 24 think we have to look at that as well. And that has 25 to be taken into consideration of any plan, going 1 forward. 2 DAVID DALY: Just to -- on the -- certain 3 programmatic -- aside from capital investments in 4 the substation-part asset, certain programmatic 5 expense items, including pole inspections and tree 6 trimming, are two characteristics of best-in-class 7 utilities. 8 Poles, typically, are inspected on an 9 eight-year cycle. You go out and do an inspection, 10 and you assign a condition assessment. Poles that 11 are in the worst condition get replaced immediately, 12 but there is a rigorous adherence to an 13 eight-year cycle. 14 Similarly with trees, on our system it's a 15 four-year cycle. We employ one of the best-in-class 16 practices in the industry on trees, where we 17 don't just take our system and divide it by four, 18 and then trim a quarter of the system every year, 19 but we have vegetation-optimization models which 20 understand, where the growth is, what the outage 21 history has been in those areas, and we target the 22 investment. 23 So one of the characteristics of excellence 24 in operations is sticking very rigorously to 25 preventive maintenance, programmatic-type 1 programs, pole inspections, tree trimming, 2 et cetera. 3 And you can count on the fact that that's how 4 we run our operation. 5 NEAL LEWIS: And if I could just add on the 6 issue of the old power plants, Paul DeCotis, one 7 of LIPA's vice presidents that deals with power 8 markets, went through a very extensive process, 9 very professionally conducted. 10 There were some people who disagreed. 11 Some of the environmental groups said, you 12 know, they didn't want to see a strategy to do 13 anything with old power plants. 14 But, he brought that process through, and it 15 provides -- it's a complicated thing, but it 16 provides a series of what they call "off ramps," 17 where a series of decisions will be made about 18 repowering. 19 I think the board has at least got a major 20 accomplishment in the sense that that contract was 21 completed. It may not have been approved by the 22 State yet, but it was, at least, the new PSA with 23 National Grid was completed, and it sets in motion 24 opportunities for repowering and evaluating these 25 old plants, which I think is long overdue. 1 I do have real concerns, under 2 privatization, what happens to repowering. 3 Repowering is not free. 4 So, I could see a private company choosing 5 not to repower the old plants, and just sort of 6 running them until they're completely too old to be 7 worth continuing. 8 So, I do think the repowering issue is one of 9 the issues that needs to be addressed in this 10 privatization discussion. 11 SENATOR MARCELLINO: Senator LaValle. 12 SENATOR LAVALLE: Thank you. 13 Mr. Daly, you heard discussion that we had 14 with the prior panel. 15 DAVID DALY: Yes. 16 SENATOR LAVALLE: And it seemed that Moreland 17 talked about privatization. 18 You are involved with a contract, although, 19 if it is negated, you come away 7 million to the 20 good. 21 But, right now, you are proceeding as if you 22 are going to be part of the ServCo model and begin 23 operating in January of 2014? 24 DAVID DALY: Yes. 25 And just -- I actually need to correct the 1 previous speaker on the question of the termination. 2 Under the contract, there is no 3 "termination for convenience" clause. 4 There are two reasons that LIPA could 5 cancel this contract: 6 One of them is, if we were in breach of the 7 contract. And there's six or seven events of 8 default that put us in breach. 9 But LIPA did include in the contract a 10 provision that said, if at any time over the 11 ten-year period they went to privatization, or to 12 municipalization, that they could terminate the 13 agreement without any penalty. 14 And that the only issue that would come up 15 then, is that we would be paid -- PSE&G would be 16 paid any unpaid cost to date, which would be -- 17 because we're being paid on a monthly basis, would 18 not amount to much, and any unwinding costs. 19 The $7 million -- I wish there was a 20 $7 million fee, but I'm afraid there isn't. 21 The $7 million fee that was being referred to 22 is actually in another section of the contract which 23 involves, if PSE&G had the change in control, then 24 LIPA has the opportunity, within 30 days, to 25 terminate the agreement. 1 If they do, we have to pay a $7 million fee. 2 That fee occurs in 2014, and it actually 3 ramps down all the way to zero by 2020, but that's 4 a fee that we pay LIPA if we have a change in 5 control. 6 So just to be clear, LIPA did have the 7 thought that they might move to municipalization or 8 privatization, and they can terminate the agreement 9 with no penalty; just, paying us our out-of-pocket 10 costs, and making us whole, which would amount to -- 11 wouldn't amount to very much. 12 With respect to your question: 13 Absolutely, we are -- we've been there for a 14 year. We had a two-year transition. 15 The first year was focused on understanding 16 how work is getting done today, and what we need to 17 do to implement, to bring the PSE&G -- to replicate 18 the PSE&G process in 2013. 19 So, that was our due-diligence phase. 20 We have a very detailed work plan, and we are 21 implementing -- I mentioned, for example, in the 22 customer-operations area, in my testimony, that 23 we're implementing 80 recommendations to improve 24 customer service in 2013. 25 But, we are marching on that plan, and we'll 1 be ready on January 1, 2014. 2 SENATOR LAVALLE: As you know, we're -- we're 3 at a point in time where there's a lot of discussion 4 about privatization. 5 It has come to my attention that a lot of the 6 utilities, including your own, have been approached 7 for, "Are you interested in privatization?" 8 Some of the utilities have -- I mean, this is 9 all rumor, of course -- have said no. 10 Where are you in all of this? 11 I know you've been approached. 12 DAVID DALY: And if you would forgive me, you 13 know, we are concentrating on the transition to be 14 ready. 15 With regard to the privatization, as I think 16 one of the previous speakers says, you know, from 17 a strategic point of view, we evaluate all 18 opportunities, but, I'm really not in a position to 19 discuss, you know, our position on that. 20 But -- so I would appreciate it if you would 21 forgive me, but -- 22 SENATOR LAVALLE: Yeah, but you have been 23 approached? 24 I mean, I'm right about that? 25 DAVID DALY: Depends on what -- what do you 1 mean by "being approached"? 2 SENATOR MARCELLINO: It's the definition of 3 is? 4 [Laughter.] 5 SENATOR MARCELLINO: It all depends on what 6 the definition of is, is? 7 Okay. 8 [Laughter.] 9 DAVID DALY: I mean, I would say that we've 10 had conversations which probably went like this 11 one, which would say, you know: 12 We're concentrating on what we're doing. 13 We do understand that there's a public-policy 14 discussion going on that we are not involved in that 15 is happening in parallel. 16 We're not letting it distract us. 17 To the extent it results in a change in the 18 structure -- as I said, the contract allows for 19 that -- we would evaluate it. 20 And -- but I'm really not at liberty to say 21 much more. 22 So, yes, I would say we've had, you know, 23 discussions about the fact that this is happening in 24 parallel. 25 SENATOR LAVALLE: Okay. 1 Just skip to another issue: 2 I know -- I don't know whether you yourself 3 were at the meeting at Stony Brook, where we had a 4 discussion with LIPA, National Grid, and you had 5 representatives at that meeting, dealing with 6 communication. 7 And Senator Marcellino is absolutely right, 8 he doesn't realize the depth of the problem. 9 Certainly, your people do. 10 At that meeting at Stony Brook, with people 11 from B&L, and those discussions are continuing, on 12 how we can improve the communications system. 13 I remember making a comment, that it reminded 14 me of days gone by when my brother and I were 15 young, and we played around with tin cans and a 16 string that we waxed, and we would communicate 17 between rooms. 18 It is -- it is, really, very, very bad. 19 And it depends -- the system as it exists, 20 depends on Senator Marcellino and other ratepayers 21 calling up -- 22 DAVID DALY: Yes. 23 SENATOR LAVALLE: -- and saying, "I've got a 24 broken wire." 25 And, in the age of sensors, and he 1 adequately described what is done, and we've all 2 experienced that with Cablevision, that you can -- 3 that they know what's going on and can fix it with 4 the individual who is the complainant. 5 So this requires, on your part, a big 6 investment, I would imagine? 7 DAVID DALY: It's a very significant 8 investment. It's called "advanced metering 9 infrastructure." 10 Two years ago, there was 13 million 11 customers in the United States on that type of 12 system. Today there's about 40 million. It's 13 probably going to double in the next three or 14 four years. 15 But, it's a very significant investment. 16 It's probably between 500 million and a billion 17 dollars. 18 So, it really becomes a public-policy 19 issue. 20 We -- it brings benefits, as I said 21 earlier. 22 It is very hard to make them -- to make the 23 economics work on those systems if you do not 24 implement it along with what's called "time-of-use 25 pricing." And that has a lot of concerns -- 1 raised a lot of concerns in a lot of areas. 2 But, it's a technology that is very 3 expensive, that's coming, it's growing. And, it's 4 certainly an option on the table. 5 And we did, as part of our transition work, 6 put together an assessment of what that might look 7 like, what it would cost. 8 And, so, it's something that could be 9 considered, but, it really is something that needs 10 to be decided, from a public-policy point of view, 11 first and foremost. 12 SENATOR LAVALLE: Right. 13 DAVID DALY: Because you're absolutely right, 14 we -- the system that is there, these -- now, as I 15 said before, the outage management system that you 16 have versus the one that we're going to put in, 17 which is probably more of 20- or 30-million-dollar 18 investment, not 500 to a billion, will get you a 19 very, very big improvement in your communications 20 today. 21 But, what you're talking about is -- is, that 22 kind of investment, and it was principally 23 implemented in California, initially, and now it's 24 been growing around the country. 25 SENATOR RANZENHOFER: I would hope that you 1 would monitor the meetings that are going on. I 2 know you have people -- 3 DAVID DALY: Yes. 4 SENATOR LAVALLE: -- that are in attendance 5 at Stony Brook, with B&L. 6 I was glad to hear, because, you know, part 7 of any system, the strength of the system depends on 8 its employees. 9 And, there may be management problems, and 10 wrong protocols, but I would say that, and 11 Senator Zeldin pointed out, one of many people who 12 really did a great job. 13 DAVID DALY: Yes. 14 SENATOR LAVALLE: And we don't give enough 15 attention to the people who are up on the buckets, 16 fixing lines, and at some peril. 17 Repowering is critically important -- 18 DAVID DALY: Yes, it is. 19 SENATOR LAVALLE: -- to the membership of the 20 Long Island delegation, I could say that. You know, 21 it's very, very important. 22 And, I just want to remind everyone that, for 23 a couple of years, and there were vetoes there, 24 there was a LaValle-Sweeney bill, or, a 25 Sweeney-LaValle bill, to enhance the oversight by 1 the PSC, with LIPA. 2 And you indicated you favored -- 3 NEAL LEWIS: Yes, I do. 4 SENATOR LAVALLE: -- that. 5 NEAL LEWIS: Yes, I do. 6 I think the concern over the years has 7 been, that LIPA's ability to do rate increases 8 without that oversight has helped when it goes to 9 the bond market, to keep its bonds lower, because 10 those people buying the bonds see that LIPA has 11 the ability. 12 SENATOR ZELDIN: Right. 13 NEAL LEWIS: But, I just -- I just think from 14 all the conversations I've had with people, and 15 the meetings I sat through, that I think that's just 16 an overstated benefit, and it doesn't overcome the 17 downside of the perception that the board, and LIPA 18 as a utility, is not subject to oversight. 19 And, so, I think that the advantages 20 outweigh that. 21 So I absolutely agree with your bill, and I 22 think that that's the way we should go as part of a 23 package. 24 And, frankly, on a point that 25 Senator Marcellino made, if we could somehow, I 1 think -- you know, if we could resolve some of these 2 other big issues so we could all start to move 3 forward, and have a five-year plan to be a 4 best-in-class utility, that, to me, makes a lot of 5 sense, so the other big issues, maybe trying to 6 resolve some of these certioraris, as a package, and 7 let's get these issues moving forward. 8 And the day that you do a repowering of any 9 existing plant, you immediately cut in half the 10 greenhouse-gas emissions coming out of that plant 11 for the same amount of electricity it generates. 12 So, I'm with you on that. 13 SENATOR LAVALLE: Well, the reason we have 14 hearings, is to have an open discussion and a 15 dialogue, and, we need to hear more, and there will 16 be people who will be testifying. 17 But the ServCo model, you know, people have 18 to go out and advocate for that, and show that we 19 can have reliability. 20 NEAL LEWIS: Right. 21 SENATOR LAVALLE: We can have stability in 22 our rate structure. 23 But you have to go out, and other people on 24 the island have to go out, and -- and do that. 25 NEAL LEWIS: Yeah. 1 SENATOR LAVALLE: And I commend 2 Senator Marcellino for this hearing, because it 3 gives people an opportunity, Mr. Daly, to hear 4 from you, and what you hope to achieve as part of 5 that ServCo model, I think puts something on the 6 table that needs exploration, maybe some 7 fine-tuning, so -- 8 And thank you for testifying. 9 DAVID DALY: Just on your comment on the 10 employees, I did mention, and I mentioned to 11 Senator Zeldin at the break, we have assessed the 12 employee population that we'll bring over, 13 approximately 2,200 employees. And they are very 14 well trained, very well skilled, dedicated 15 employees, so we're very happy to bring them over. 16 And it is -- one of the parts of our 17 culture is the importance we place on the employee, 18 and their safety, and their well-being. 19 So, we're looking very forward to working 20 with them, bringing over both the IBEW 1049 21 workforce, management. 22 Senator Zeldin mentioned some folks at LIPA 23 itself. 24 There are some talent there that we intend to 25 put to use, and put some good leadership, and some 1 good structure, some good processes, a little bit of 2 technology, and we put it all together, and we have 3 a best-in-class utility. 4 SENATOR LAVALLE: Thank you. I appreciate 5 that. 6 SENATOR ZELDIN: Well, if I could actually 7 pick up right where we're leaving off: 8 Do you have an idea of -- I mean, you 9 mentioned 2,200 people coming over, but what do you 10 envision, if we were to move to privatization, what 11 does the workforce look like in total numbers? 12 DAVID DALY: I haven't looked at the 13 privatization. 14 What -- so, the number, just to be clear, 15 Senator, was the -- we're setting up a separate 16 entity called "ServCo," and that's an entity that 17 has between twenty-two and twenty-three hundred. 18 The privatization model, I have not looked at 19 that model in detail. 20 SENATOR ZELDIN: I guess then, generically, 21 how -- what size a workforce do we need? 22 I mean, what -- one of the problems that we 23 are experiencing, is that, when we get hit hard, 24 like "Sandy," where you have as many people without 25 power as there were, is it -- there just aren't 1 enough -- there just aren't enough people. 2 And if, you know, we're trying to pull -- 3 support from, you know, the Hudson Valley or the 4 city or New Jersey or Connecticut, and they're 5 getting hit as well, then you have to reach even 6 further, and that might take some time when they're 7 driving from Alabama or, you know, California, to 8 get across the country. 9 So, like, what's the stabilized workforce? 10 I mean, what should we be advocating for? 11 DAVID DALY: Yeah, twenty-two, 12 twenty-three hundred is the stabilized workforce. 13 That's in the range. 14 By the way, when we put that organization 15 design together, we benchmarked it, and it 16 benchmarks at top quartile in terms of staffing 17 level. It's right at the top quartile measure. 18 It's not top decile. It's right on the 19 border between the first and the second quartile. 20 So, we designed it to a top-quartile staffing 21 level, and it's just under 2,300. 22 So -- but to get to your question on the 23 storm, you need a lot more than I mentioned. 24 At PSE&G, during "Sandy," we had up to 25 5,000 employees. 1 We're going to replicate our storm process, 2 and that involves, in terms of people, and 3 staffing, making use of our skilled resources within 4 that group, the balance of that 2,200 group, and 5 then alliances with local and regional 6 contractors; and then, lastly, the mutual aid 7 between utilities. 8 So it's a combination of those factors that 9 get put together, pre-plan, particularly in the 10 contract side, right-of-first-refusal 11 arrangements. And, we're very confident that we 12 don't have any issues with resources. 13 SENATOR ZELDIN: I mean, is that a -- that, 14 2,200-, 2,300-person number, is that a -- it seems 15 to be a reduction from where we were, say, during 16 "Hurricane Gloria." 17 DAVID DALY: During where, Senator? 18 SENATOR ZELDIN: I mean, if you go back, 19 looking historically, you know, looking back to the 20 '80s, you know, when we got hit by 21 "Hurricane Gloria," the workforce was probably a lot 22 higher than that. 23 DAVID DALY: Yeah, I -- just to be clear, the 24 twenty-two, twenty-three hundred is your "blue sky" 25 steady state staffing. 1 During any storm event, the most important 2 aspect of an effective storm response is very 3 quickly assessing the damage up front. 4 That's what the outage management system 5 helps you do. 6 With a very quick assessment of what the 7 damage is, you can understand, communicate to 8 people, a realistic expectation of response times, 9 and you can then plan how many resources you need: 10 Do I need 3,000 more on top of the 2,200, or do I 11 need 6,000 more? 12 So, part of the storm process is, very 13 quickly, getting the damage assessment, not running 14 out and starting to put things up first. 15 Just take your time, in terms of getting it 16 right, in terms of what the damage is within the 17 first 12 to 24 hours, and then you plan from there. 18 So, the 2,200 is your steady state. And 19 depending on the size of the storm, it all -- it 20 will flex, from -- from -- anywhere from, getting it 21 done with the twenty-two hundred, up to, you know, 22 four or five thousand, six thousand, additional. 23 And that would be very storm-dependent. 24 SENATOR ZELDIN: You discussed the 12 to 25 24 hours after a storm hit. 1 And, you know, I have -- I've had a unique 2 perspective with these storms in the last couple of 3 years, in that, you field complaints from 4 constituents who just want to get their power back 5 on, but then you're also coordinating, you know, 6 with LIPA. 7 And, you learn where the assets are at that 8 particular time, and, you know, they might be 9 driving from Alabama, or they might be working at a 10 substation. 11 And I mentioned substations because, you 12 know, it is a -- the best source of getting the most 13 amount of people up in the quickest amount of time 14 is to get some of these flood substations going 15 again. 16 And I get it. 17 One of the problems with that is -- and 18 it's -- and I'm -- you need to do that, and you need 19 to do that right away, because you need to get as 20 many people up running right away. 21 The only problem with that to keep in mind, 22 and wanting additional assets, is because people 23 on the street aren't seeing trucks. And you have 24 to explain to all of them that -- you know, that 25 they are working. 1 And the -- you know, the perception is, it is 2 reality. 3 And I think that, moving forward, while it's 4 very important to have all of the resources you need 5 to be getting the substations up and running, you 6 have to have additional assets on top of that. 7 You need trucks moving around, because when you 8 wait, you know, two or three days before people 9 start seeing trucks in their neighborhood, they 10 think you're ignoring them, and then they get really 11 pissed off. 12 And, then, just one other small point is: 13 The -- LIPA chose to give assets to the 14 towns, and let the towns give discretion as to 15 where in the town those assets should go. 16 It causes problems for us on Long Island 17 where we have so many villages. And some of our 18 villages may not, you know, have the best 19 relationship with the town. 20 I mean, they, essentially, petitioned to 21 break away from the town. 22 So, you just have to keep that in mind, and 23 making sure that, if for whatever reason that that 24 is continued, that you're also considering the fact 25 that it may not be going to hardest-hit area. 1 I represent the village of Mastic Beach, for 2 example, hit very hard during "Sandy," and they were 3 lobbying the Town of Brookhaven to get them assets, 4 and they shouldn't have to, to the extent that they 5 were. 6 And I think that, you know, that could -- you 7 could help that part of the process. 8 And then, communication, is just -- it's so 9 important. 10 Customer service: At the end of the day, 11 once you work at all of the economics, as far as 12 whatever model we go to, I think that the real 13 success -- I mean, when I say "working out the 14 economics," rate -- the rates being held, but, 15 customer service and response time, people feel -- 16 people have felt like calling LIPA is a waste of 17 their time, where they're getting someone on the 18 other end of phone who's saying, "We don't know." 19 And, that's -- they're calling you up -- 20 they're calling LIPA up -- they were calling LIPA 21 up, helpless. They haven't seen -- you know, 22 they're, five, six days without power. 23 The last thing they want to be told is, 24 "We don't know." 25 So, I think that if we can get better at that 1 too, that can almost -- almost guarantee success. 2 So if you work out the economics, and you 3 had good customer service, we're in great shape. 4 DAVID DALY: Yeah, and as I said, the very 5 first step in effective storm response is 6 understanding the damage so that you can provide an 7 accurate restoration time; number one. 8 And then, number two, the process I described 9 where, municipality and village, town, by town, we 10 provide, every morning, a three-day look ahead, that 11 tells them what resources are going to be in their 12 town that day, and what their numbers are gonna 13 look like, coming down. 14 We don't necessarily, under our process, 15 allocate resources all over the place. We do a 16 prioritization. 17 We obviously have hospitals. 18 One of the things that we're very proud of 19 is, during "Sandy," there was not one hospital that 20 had to evacuate. We had all the hospitals back. 21 But, we operate under a hierarchy, to get 22 everybody back in the fastest possible way. 23 But the combination of giving accurate 24 restoration, which is a function of damage 25 assessment, and the function of that technology, 1 and, giving ongoing updates on a three-day 2 look-ahead, that are accurate. 3 Even if after three days, I'm only going 4 from 14 to 12, to 8, the fact they can see the 5 slope, and then maybe it's flat for a day, and then 6 it -- but that information being accurate is a huge 7 driver of customer-satisfaction improvement. 8 And we will definitely be bringing that as 9 well. 10 NEAL LEWIS: And, Senator I, would add that, 11 as a trustee, I would think that there needs to be a 12 real fresh look at this whole question of tree 13 clearing from roads after a truly major storm. 14 So I think that, when we're not talking about 15 storms on the scale of "Superstorm Sandy," it's a 16 different issue. 17 But when it's on that scale, I absolutely 18 agree with the villages and towns that complained 19 about the fact that they need to get trees out of 20 the road. It's a hazard. 21 You know, people need to be able to get down 22 the road, all the emergency reasons, and whatnot, 23 and they have a wire in the road, and they need a 24 professional to be able to say, "That wire is dead 25 and it's safe to move the tree." 1 We have to come up with a better way to 2 handle that kind of situation. 3 And, what Mr. Hervey [ph.] came up with 4 after "Irene," and implemented in this storm, was an 5 attempt. 6 I feel we haven't had a real good evaluation 7 of what was good and bad about that. 8 It did seem to work a little bit better in 9 some towns; but, obviously, clearly, did not work 10 at all, really, as an improvement in other towns. 11 And I believe that, as trustees, we have to 12 raise an issue about: Look, we can't allow trees 13 sitting in roads just because there's a dead wire 14 next to them, for days on end. 15 That's not acceptable. 16 And maybe you don't -- you clearly don't need 17 a linesman, as a really highly trained person that 18 can do the repair, to be able to come out and say, 19 "That line is dead, so you can clear the road." 20 So I think we need a better strategy for how 21 to handle those; and, that, I believe, needs to be 22 developed in communication with the towns. 23 And that's why I'm suggesting the idea that 24 there should actually be formal MOUs with the 25 towns, with the villages, with the county, to really 1 work out, at: 2 At this level of damage, this is the 3 strategy; 4 At this higher level of damage, this will be 5 the strategy. 6 And, I hope that we can build on, you know, 7 the lessons learned from these last two storms 8 and come up with a better answer, because I don't 9 think it's satisfactory where we are right now, with 10 the notion that trees lay in streets for several 11 years because -- for several days, because there's 12 a wire alongside of them or intertangled with them. 13 SENATOR ZELDIN: Well, I thank you both for 14 being here. 15 You just brought new -- I just had a 16 flashback, when my wife was pregnant, and I was in 17 Iraq, and she was making me read, "Know What To 18 Expect When You're Expecting." 19 And, it helped prepare me, I guess, to be a 20 parent. 21 But towns and villages need to also know what 22 assets are available when the storms's about to 23 hit, and they know who they need to call, and they 24 don't need to be making deals a couple days later. 25 So, thank you. 1 SENATOR MARCELLINO: And, again, I thank you 2 for testifying. 3 But just a reminder, that a lot of the 4 questions we're asking, a lot of the comments 5 about communication, I remember, because we held a 6 hearing after "Irene," and then the very same 7 questions, and the same type of answers, Yes, we'll 8 improve communication. Yes, we'll have better 9 response time. -- it didn't happen. 10 I saw a T-intersect -- a top part of a pole 11 dangling over a road, held by the wires, for three 12 days. And it was a major north-south intersection 13 in the town of Oyster Bay. 14 So, three days it was hanging. 15 Can't do that. 16 Took them 2 1/2 days to clear 17 South Oyster Bay Road, which is another major 18 north-south road in the town of Oyster Bay, with a 19 tree lying right across the road, with cars having 20 to go over the tree. 21 I mean, there were tangled lines in there. 22 Three days, they couldn't get clearance that the 23 lines were dead. 24 It caused the traffic over it to get 25 north-south, people had to get to work and get out 1 of the community. 2 So, clearly, there are serious problems with 3 this. 4 I don't know if privatization clears that 5 up or not, or your ServCo clears that up, but it's 6 the same kind of problem we had with "Irene." 7 It doesn't seem we're learning. 8 So, whatever goes on, we'd like to see a 9 learning curve on your parts improved. 10 You know what I'm saying? 11 It's got to happen that way; otherwise, the 12 consumers are going to turn on you <snaps fingers> 13 like that. 14 Again, I thank you for your testimony. We 15 appreciate it. 16 SENATOR MARCELLINO: Can we have the next 17 group up, Shelly Sackstein and Cynthia Kouril. 18 Our next speakers are: 19 Shelly Sackstein, chairman and CEO of 20 Action Long Island, Chairman of the Suffolk County 21 LIPA Oversight Committee, and a former board of 22 trustee member of LIPA; 23 And, Ms. Cynthia Kouril, Esq., former 24 counsel, Inspector General for New York City 25 Department of Environmental Protection; former 1 special assistant, U.S. Attorney General, 2 Southern District of New York. 3 Ms. Kouril. 4 Again, can we summarize as much as possible, 5 as I see a very thick tome in front of you. 6 CYNTHIA KOURIL, ESQ.: Oh, no. This is in 7 case you had questions. 8 I'm not going to read it all. 9 SENATOR MARCELLINO: I have questions, but 10 you're scaring the heck out of me with the thickness 11 size of that book. 12 [Laughter.] 13 SENATOR MARCELLINO: Go right ahead. 14 SHELLY SACKSTEIN: I began my career as 15 capital construction council for the New York City 16 Parks and Recreation, where I gained experience in 17 government procurement and construction contracting. 18 Thereafter, I was recruited to be counsel to 19 the Inspector General for the New York City 20 Department of Environmental Protection. 21 Most people think DEP is the tree-hugger 22 agency. 23 It is not. 24 DEP is a municipal utility. It's actually 25 two municipal utilities: the water department and 1 the sewer department. 2 Utilities have special problems when dealing 3 with contract partners, because those contractors 4 believe they have a negotiation advantage because 5 the utility fears an outage. 6 Consequently, they're not as fearful as they 7 should be of cancellation of their contracts. 8 While at DEP IG, we made more than our fair 9 share of administrative, civil, and criminal cases. 10 The Attorney General of the United States 11 issued a finding that I possessed unique expertise 12 in public construction, public-benefit contracts, 13 and procurement not found within the Department of 14 Justice, and cross-designated me to be a Special 15 Assistant United States Attorney in the 16 Southern District of New York where our criminal 17 cases would be prosecuted. 18 When my DOJ commission expired, I was 19 promoted to the position of examining attorney in 20 the New York City Department of Investigations. 21 In private practice, I advised contractors on 22 how to comply with the terms of complicated 23 multi-million dollar public-improvement contracts, 24 and I also do independent private-sector Inspector 25 General audits, investigations, and reviews. 1 Over the course of a more than 25-year 2 career, I have immersed myself in the world of 3 contract compliance, and the detection and 4 prevention of waste, fraud, and abuse. 5 It is this perspective, that, and living on a 6 cul-de-sac that borders on nature preserve, and 7 where the power seems to go out every time a 8 butterfly flaps its wings, that informs and colors 9 my view about LIPA and its future. 10 Some things about the infrastructure: 11 As Governor Cuomo said in his State of the 12 State message, quote: 13 "New York's grid is aging. 59 percent of the 14 state's generating capacity and 84 percent of its 15 transmission facilities were put into operation 16 before 1980, and 40 percent of the state's 17 transmission lines will require replacement within 18 the next 30 years. This need represents an 19 opportunity to upgrade the transmission system to 20 distributed smart-grid network." 21 What is a "smart grid"? 22 A "smart grid" is an electrical grid that 23 uses information and communications technology to 24 gather and act upon information, such as information 25 about the behavior of the suppliers and consumers in 1 an automated fashion, to improve the efficiency; 2 most importantly, the reliability, the economics, 3 and the sustainability of the production and 4 distribution of electricity. 5 It can level peak demand by turning off power 6 to non-essential devices, like washing machines, 7 during -- and turning it back on when demand eases. 8 A self-healing smart grid, if built with 9 redundant overlap, can be analyzed to -- analogize, 10 rather, to a traffic circle with several entrances. 11 If one route is blocked or broken, electricity can 12 still enter through the other routes. 13 A smart-grid brownout can prevent the sort of 14 demand cascade blowouts that you sometimes see 15 during heatwaves. 16 Importantly, there are federal matching funds 17 that can mitigate almost half the cost of 18 implementing smart-grid technology. 19 Governor Cuomo also endorsed microgrid 20 technology in his State of the State message. 21 A "microgrid" is when you have small cluster 22 of users around a small generation facility. 23 Similar infrastructure demands are sometimes 24 made on housing developments or large industrial 25 facilities that are not capable of being serviced by 1 existing water-treatment plants. 2 Sometimes, in order to secure a needed 3 variance, the developer must agree to build a 4 water-treatment plant to service new construction. 5 You could make a similar requirement in 6 microgrid electricity transmission, and that will 7 become more and more doable as solar and wind 8 generation become more efficient. 9 Privatizing LIPA: 10 The call to privatize LIPA without more 11 detail makes absolutely no sense. 12 LIPA was originally created as a mechanism to 13 save a private company. 14 Additionally, right now, most of the things 15 that we are complaining about, with respect to the 16 current system, are the effects of having a private 17 company, National Grid, that is, essentially, 18 running roughshod over LIPA, and not really subject 19 to sufficient oversight from LIPA. 20 In 1998, LIPA assumed ownership of the 21 electric transmission and distribution systems that 22 had previously been owned by privately held LILCO. 23 This occurred because of the financial crisis 24 in LILCO caused by LILCO not operating the Shoreham 25 nuclear plant. 1 LIPA began its life $7 billion in debt, which 2 was the cost of the assets plus assuming the debt 3 from Shoreham. 4 Simultaneously, KeySpan hired the former 5 LILCO employees, and took over national gas 6 operations from LILCO and Brooklyn Union Gas. 7 LIPA entered into two major contracts with 8 KeySpan: 9 One, the power-supply agreement, which paid 10 KeySpan, both, for the electricity it generated, and 11 for keeping over investor-owned power plants so that 12 LIPA can meet certain peak-capacity thresholds; 13 And, two, the management-services agreement, 14 under which KeySpan was to manage the former LILCO 15 employees as they operated the system, including 16 billing and customer relations. 17 The power-supply agreement causes LIPA to pay 18 rates at a cost-plus basis, and also to pay property 19 taxes and other costs of operating these plants, to 20 the benefit of the private investors. 21 The whole idea behind LIPA, was for LIPA to 22 be able to borrow money at a -- much more 23 inexpensively because it could issue government 24 bonds. 25 The problems with LIPA are several: 1 One, the contracts currently in existence -- 2 not the new ServCo, but the existing contracts -- 3 are drawn in such a way as to give a subsidy to the 4 investors in the generators, and do not provide 5 enough detail in the performance standards for 6 KeySpan; 7 Two, LIPA began its life as a funding 8 mechanism to raise debt, and not much thought was 9 put into how LIPA would manage or oversee KeySpan; 10 Three, LIPA became a patronage mill largely 11 staffed with people with no experience running a 12 utility, no experience with contract compliance, and 13 no experience with forensic audit. 14 In the early things -- in the early years, 15 things drifted along by dint of routine. The same 16 individuals who had been LILCO employees reported to 17 the same work locations and did the same work they 18 had always done. 19 Momentum and habit carried things for a few 20 years. 21 Also, the people administering the contract 22 for KeySpan lived here on Long Island and were 23 affected as anyone else by the performance 24 standards. 25 However, in 2007, KeySpan was acquired by 1 National Grid and, suddenly, the decisions were 2 being made in London. 3 The decline of tree trimming and tree 4 maintenance was observed by me, anecdotally, almost 5 at once. 6 After "Hurricane Irene," LIPA hired 7 Vantage Consulting to do a study of why things went 8 so badly. 9 Vantage -- the Vantage reports stated that 10 one of the main reasons for the failure in 11 communications and was not having accurate outage 12 information was the faulty outage management system. 13 And there was a lot of discussion about that 14 in the previous panel, so I'm going to skip the rest 15 of this. 16 On January 7, 2013, "Bloomberg Business 17 News" reported that LIPA's debt was still 18 $7 billion, with assets of $4 billion. 19 "Bloomberg" also reported that, quote: 20 "In October 2011, strategic review of LIPA by 21 the Brattle Group concluded that privatization may 22 raise costs by 438 million a year because an 23 investor-owned utility can't issue tax-exempt bonds. 24 Cost of capital for the privatized utility would be 25 10.73 percent compared to LIPA's current cost of 1 capital of about 5 percent, it concluded." 2 The same Brattle Group report examined four 3 possibilities: 4 One, maintain the status quo; 5 Two, privatize; 6 Three, a full municipalization; 7 And, three -- 8 SENATOR MARCELLINO: Excuse me. 9 Sir, would you mind? 10 CYNTHIA KOURIL, ESQ.: -- And, four -- 11 SENATOR MARCELLINO: No. Go back and sit 12 down, please. 13 CYNTHIA KOURIL, ESQ.: -- competitive 14 outsourcing, which it dubbed "ServCo." 15 The status quo was rejected because, pretty 16 much, everybody is miserable with the status quo. 17 Privatization was also rejected as 18 economically nonviable. 19 Full municipalization was considered 20 desirable, but Brattle determined that LIPA 21 currently lacked the in-house expertise and 22 experience to run the system directly. 23 The ServCo model emerged as the default 24 winner, because it would give LIPA the time to 25 develop or hire in-house experience and expertise, 1 paving the way to a future successful transition to 2 a full municipal utility. 3 Why would you want to municipalize? 4 According to the January 2013 issue of 5 "Public Power Magazine," municipal power companies 6 have consistently provided power at much lower rates 7 than privately owned power companies since this 8 magazine began keeping records in 1946. 9 The LIPA Board of Trustees approved the 10 ServCo model as an interim step towards 11 municipalization, and I agree with that decision. 12 PSE&G has won the bid, and that ServCo 13 contract is out there, waiting to begin at the end 14 of the year. 15 Additionally, there's a second contract, 16 which was discussed by the last panel. It's a 17 two-year transition contract. 18 In order to privatize, you're, essentially, 19 going to undo all the work that's been done for a 20 year, and have to start a new two-year transition 21 period in order to privatize. It's going to result 22 in chaos. 23 Some recommendations: 24 LIPA needs it's own IG. 25 In my extended written remarks, which I have 1 also submitted for the record, I recount multiple 2 examples of fraud, waste, and abuse personally 3 observed by me. 4 Testimony taken in the Nassau County 5 Legislature after "Hurricane Irene" contains more 6 examples. 7 An audit conducted by the State Comptroller's 8 Office after "Hurricane Earl" has even more 9 astonishing examples and the dollar amounts are 10 staggering. 11 After Hurricane -- oh, I'm going to leave 12 this out. 13 I had a section in here about logging in the 14 Welwyn Preserve. It turned out those were not LIPA 15 crews. 16 In all these events, where are the civil 17 litigations to recoup the money from the fraud, 18 waste, and abuse? 19 Where are the criminal cases to provide 20 accountability and to deter future wrongdoing? 21 Unless LIPA tasks and empowers an 22 inspector general to preserves evidence and build 23 those cases, you're not going to have them. 24 An IG can also design procedures and 25 strategies to deter waste, fraud, and abuse before 1 they occur. 2 Second: LIPA needs a compliance unit. It 3 actually needs two compliance units; one unit to do 4 the day-to-day compliance work with the new PSE&G 5 ServCo contract, and another devoted to storm outage 6 and other emergency contracts. 7 Obviously, these units will have to work 8 collaboratively and symbiotically with the new IG. 9 Most importantly, LIPA needs a CEO. 10 This position has been vacant for years, and 11 an interim, or acting, CEO does not have the clout 12 needed to make real, change, or even to enforce an 13 existing contract. 14 The CEO position must be filled, and filled 15 promptly. 16 The new CEO must be a person who's committed 17 to contract compliance, transparency, and 18 accountability, and full communication with the 19 rate-paying public in collaboration with local 20 governments. 21 He or she must have a vision for the 22 modernization and hardening of the transmission and 23 distribution system to meet that future. 24 I have other and much more prosaic 25 recommendations in my extended written remarks, 1 which I have omitted in the interest of time. 2 SENATOR MARCELLINO: Thank you. 3 Mr. Sackstein. 4 SHELLY SACKSTEIN: Yes? 5 SENATOR MARCELLINO: You're on. 6 SHELLY SACKSTEIN: I want to thank you for 7 holding these hearings, Senator, and I'm delighted 8 to be here. 9 I think we need to just focus our attention, 10 as best we can, on the issue of the structure of 11 LIPA. 12 There are a lot of issues that we can look 13 back at, in terms of the storms, storm hardening, 14 but the structure of LIPA is the issue that's on the 15 table at the present time, and I think that's where 16 the focus needs to really stay. 17 The folks from the Moreland Commission had 18 come up with the recommendation of privatization for 19 LIPA. 20 I think that, earlier today, Ms. Calcaterra 21 had made a comment about the $100 million worth of 22 profits that would be going to a privatized 23 organization, so that the $7 million that was going 24 to be some sort of an upset fee would be minuscule 25 in relation to the profits that would be realized. 1 We all understand what the value is of a 2 structured municipal-type entity for LIPA. 3 We've all learn the same things, like, no 4 dividends; no taxes; lower-cost borrowing; a whole 5 host of issues that are very, very important when it 6 comes to running LIPA as a full municipal entity. 7 But for the moment, it appears as though the 8 only thing that we're looking at is LIPA under its 9 current structure, which is only owning the 10 T&D system. 11 Now, the T&D system is, as Neal pointed out 12 previously, in quoting Bob Catell, "gold-plated," 13 and probably the best in the state of New York, if 14 not in the country. 15 And we must not lose that T&D system, and we 16 well could. 17 So, a lot of money has gone into it. 18 And now we're hearing that, under a 19 privatized model, the possibility exists that there 20 will be a sale of that. 21 And I think what Mr. Quiniones said was, 22 there would be no rate increase. 23 But I think it's important to note that you 24 can accomplish that objective, and they may well be 25 looking at that, by reissuing bonds that could 1 encumber our children and grandchildren for the next 2 40 years. 3 So I don't think that that making a promise 4 of keeping the rates lower, but saddling our kids 5 for a long time, is necessarily the approach that 6 I'd like to take. 7 I'd like to think that we would -- could 8 consider instead, a model that would include LIPA 9 owning, not just the T&D system, which is a very 10 valuable asset, and I'll come back to that later, 11 but owning, also, the generating capacity that is 12 currently in the hands of Grid, under a municipal 13 entity, and the gas part of the system. 14 We talk about bifurcating the system, 15 creating a problem, which it may well. 16 So I think we ought to look at taking under 17 the umbrella of LIPA, in a municipal approach, the 18 entire system. 19 Now, certainly, LIPA can do that by getting 20 into negotiations with Grid and acquiring it, but 21 LIPA also enjoys the benefit, being a municipal 22 entity, of having the condemnation powers of the 23 State of New York, which they could exercise. 24 Now, under those condemnation powers, the way 25 Steve List [ph.] wrote the LIPA statute, LIPA can 1 enter into this condemnation procedure, and then it 2 goes into the courts to determine the value. 3 But if LIPA doesn't like the value that is 4 determined by the court, LIPA can walk away from 5 that finding, in terms of value. 6 So I think what we need to look at is, not 7 this current asset that's owned, which is the T&D 8 system, this very valuable T&D system, but we need 9 to look at taking over the entire system under a 10 reconstituted management team at LIPA that can 11 run as a company. 12 Now, LIPA has, in my opinion, over the years, 13 been a wasted asset, as far as the ratepayers of 14 Long Island are concerned. 15 It could have done things and run things a 16 lot better, but, as you had pointed out, it never 17 had a CEO. 18 Now, I say it never had a CEO because, while 19 I worked with Ritchie Kessler when I was a LIPA 20 trustee, he was not a utility person. 21 Kevin Law was not a utility person. 22 The company has never been run as a company. 23 It doesn't have to make a profit, but it does 24 have to run more effectively. 25 And the easiest way to bring it un -- in 1 under control, is to have it under one entity, LIPA; 2 one system -- transmission, distribution, generating 3 and gas and electric; all tied together under a 4 municipal structure. 5 That is the only structure that has never 6 been tried on Long Island. 7 We've tried privatization under LILCO, we've 8 tried a ServCo-type model with LIPA, and we've never 9 had a fully municipalized system. 10 I believe that that would probably be a 11 system that would work most effectively. 12 Now, let's come back to the T&D system for a 13 second. 14 There have been some rumored, or at least 15 things that you can see in the newspaper, that 16 suggested the sale of the system could bring in 17 $3 1/2 billion. 18 $3 1/2 billion is probably less than the 19 ratepayers have already invested in the system. 20 But let's not lose sight of something, 21 because everybody is starting to talk about a 22 smart grid. 23 Let's not lose sight of the potential revenue 24 stream that may be coming from that T&D system later 25 down the road when they start to transmit data 1 through that system. 2 A revenue stream that hasn't even been 3 considered at this point because the technology is 4 just emerging. 5 Why should we give up a system that we 6 invested, that the ratepayers now own, and give up a 7 future revenue stream, just try to bail out 8 something at this particular point in time, into a 9 model that we've tried previously, which is 10 privatization? 11 So I'd like to think that we can broaden our 12 scope, increase the horizon. It's a much bigger 13 lift, but it's the one model that has never been 14 tried; and it's a fully municipalized system here on 15 Long Island. 16 So I think that's something to consider. 17 And, frankly, I pay for that system. 18 You pay for that system. 19 Everybody on Long Island pays for that 20 system. 21 Why shouldn't I own what I'm paying for? 22 And perhaps, under that structure, we could 23 no longer have a system that creates an environment, 24 where the folks who are working there, the 1049, and 25 all the other folks, are pawns in a process, that 1 not -- it's got to end. 2 We own it, we keep it. 3 Now, you talk to -- we heard things about 4 repowering just as well. 5 If LIPA owned that system, the entire system, 6 not just the T&D, but the transmission and 7 distribution, the generating, and the gas system, 8 under a repowering scenario that we can envision, we 9 could repower those power plants. 10 Those power plants would be owned by the 11 ratepayers who are paying for them. 12 Those power plants could be leased out under 13 a bid process to independent power producers, who 14 could come in there then, to try and bid. And the 15 lowest bidder would get those power plants under a 16 lease, that would be property owned by LIPA. 17 We finally have, for the first time on 18 Long Island, competition, not privatization. 19 So there are lot of different directions that 20 we need to look at, but the focus has got to be on 21 structure. 22 And the old structures didn't work. 23 The only structure that hasn't been tried is 24 a fully municipalized structure. 25 I'd like to also think that maybe, Lazard, 1 that is doing this study to determine whether or not 2 we should privatize, should be excluded from any 3 potential financing opportunities that would -- that 4 might emerge from their recommendations. 5 I think that would, perhaps, be a very 6 important consideration. 7 So, a unified structure, competition through 8 ownership by the ratepayers. 9 We, probably -- 10 And I say this a great deal of respect for 11 the folks with PSE&G. 12 -- wouldn't need someone to come in from 13 New Jersey to manage our system, or somebody from 14 California to come in and manage our system. 15 We need to put people in place at LIPA in a 16 management structure that can run that system. 17 That's never happened [unintelligible]. 18 I think we need to look at it from that 19 perspective. 20 Look, I could give you 20 pages of testimony, 21 but I'm only going to give you 25 years of 22 experience, having worked on this issue, and paying 23 for it, as we all are, very dearly. 24 And it shouldn't be that way. 25 I'm going to read something to you that I 1 think is very interesting, because it also speaks to 2 the issue of privatization. 3 It will take just a minute, because we all 4 want to get back and finish the rest of our days. 5 "The emergency restoration manuals were 6 fraught with inconsistencies and inaccurate 7 information. 8 "Emergency restoration manuals failed to 9 adequately address the special needs of segments of 10 Suffolk County's population and neighborhoods. 11 "Plan testing is deficient, and the only 12 thing that -- that was only an in-house exercise. 13 It totally failed to provide area-specific 14 information to the public and the media and 15 government at entities." 16 Then it says: 17 "LILCO must do a much better job of 18 communicating with its customers." 19 And on the cover it says: 20 "The Report of the Suffolk County Commission 21 established, per legislative resolution" da da da, 22 "to study Long Island Lighting Company's response to 23 'Hurricane Gloria.'" 24 So how much have we learned? 25 Now here's a real concern, because here we 1 talk about what currently exists today. 2 And I'm looking now at a 3 current --"current" -- restoration manual. 4 "The procedure specifies the means by which 5 notifications are to be made to LIPA and KeySpan 6 personnel who staff the restoration information 7 center." 8 "KeySpan personnel." Current manual. 9 Who's reading the current manual? 10 And, last, but not least, it says, that: 11 "If a staging area is needed for off-island 12 crews" -- 13 Okay? 14 -- "for off-island crews, the Roslyn 15 substation should be utilized, and you should call 16 the following telephone number." 17 This is from the current restoration manual. 18 And it says, "Call XXX-XXXX." 19 [Laughter.] 20 SHELLY SACKSTEIN: There's no number. 21 So what I'm saying is, if this is what we're 22 operating under today, if this is what we operated 23 under before, what lessons have we learned, and who 24 is reading the current restoration manual? 25 Because Carl Marcellino said at our meeting 1 on January the 27th, "There will be another storm. 2 It will come. Mother Nature will repeat herself." 3 Who's watching the store? 4 The ratepayers care. 5 And I think this is the first chance that the 6 ratepayers have to win, because the ratepayers have 7 lost over and over again. 8 They talk about us being run over by the bus 9 the first time, backed over by the bus the second 10 time. 11 And you know it; it was an illegal 12 management-services agreement that got extended. 13 And here we sit today with what actually 14 Long Island had said was going to happen. We bid 15 the contract out, and it cost us less money, years 16 later. 17 And so I say to you: Carl, this is not an 18 easy one, but the structure has to change to a model 19 that has never been tried on Long Island. 20 And I would say that, "we," meaning, actual 21 Long Island, have taken that public position to 22 fully municipalize the system. 23 We have met with the folks from the 24 Long Island Progressive Coalition, and they agree 25 with us. 1 We're pretty sure that the folks from the 2 Sierra Club, who are part of our coalition, will 3 come on board. 4 I'd like to think that the folks from the 5 AARP will join us just as well. 6 And we are intending to hold informational 7 meetings, with your help, on Long Island. We'd like 8 to cohost those meetings along with our Albany 9 delegation. And we'd like the public to come in, 10 and let's start a process of informing them of what 11 really went on all these years. 12 What is LIPA? 13 What did it do? 14 What could it have done? 15 And let's get them involved in the process, 16 because Larry Schwartz should not have to come to 17 Long Island to find out how we feel. 18 We should be calling from Long Island to let 19 the Governor know how we feel. 20 Larry Schwartz and the Governor work for the 21 people of Long Island. 22 And I'm delighted that the Governor 23 recognizes that there is a problem with the current 24 structure. 25 We don't necessarily agree with privatizing, 1 which is what I hear the Governor wanting to do, but 2 he's only thinking in terms of the T&D system. 3 Perhaps when he hears about the broader 4 concept, he might look at it, and say: You know, 5 that might be something that I can buy into and 6 support. 7 And with the support of our delegation, and 8 with the support of the residents and the ratepayers 9 of Long Island, letting him know how we feel, 10 perhaps we can get the Governor to come on board 11 with us, and say: That's the approach I want to 12 take for the residents and the ratepayers of 13 Long Island. 14 It's time for the ratepayers of Long Island 15 to win. 16 And I thank you for taking the time. 17 SENATOR MARCELLINO: Shelly, this model that 18 you're talking about, municipalization, bringing the 19 entire structure, from the utilities, the plants, 20 the gas generation, all the rest that, under one 21 entity, LIPA, isn't free, even if you do the 22 condemnation process. 23 There is a value to these things that would 24 be determined, either through some -- probably by 25 the courts, because I would assume they would 1 resist. I don't know that National Grid would want 2 to sell it or give it away, so there would have to 3 be some kind of an evaluation. 4 How do we pay for that? 5 SHELLY SACKSTEIN: Well, you know, I agree 6 with you, there's a cost, but at the same time, 7 we're paying for it today. 8 We're paying for those plants, we just don't 9 own them. 10 We're paying for those gas systems, we just 11 don't own them. 12 We've already paid for the T&D system, we do 13 own it. 14 SENATOR MARCELLINO: We'd still continue to 15 pay for the municipalization because they charge us 16 for the use of the power, so we'd still be paying a 17 bill. 18 It wouldn't be free just because we owned it. 19 SHELLY SACKSTEIN: Correct. 20 SENATOR MARCELLINO: In addition to that, 21 you'd have to pay the company; you'd have to pay 22 Grid for its gas entities, you'd have to pay them 23 for the power plants. 24 You'd have to pay somebody. These guys 25 aren't going to give this stuff away. 1 How would we fund it? 2 SHELLY SACKSTEIN: Well, financing it, we 3 know the answer to that question: That goes on the 4 backs of the ratepayers via bonds. 5 But let's come back to the issue of, how do 6 you determine -- 7 SENATOR MARCELLINO: In addition to the 8 Shoreham debt, which still has to be dealt with. 9 SHELLY SACKSTEIN: That's the first time we 10 get run over by the bus. 11 SENATOR MARCELLINO: Yeah, but, that bus is 12 still running. 13 SHELLY SACKSTEIN: It's still there. 14 SENATOR MARCELLINO: The wheels are still 15 turning. 16 SHELLY SACKSTEIN: It's still there. 17 [Laughter.] 18 SHELLY SACKSTEIN: And the Governor is 19 proposing to refinance that debt, because he's 20 not -- nobody is going to walk away from it. We 21 can't go bankrupt. It's there. 22 And, again, we look at refinance; it will get 23 stretched out over 40 years, and my children and my 24 grandchildren are going to pay for it, and your 25 family's going to pay for it. 1 But let's come back to the question of value, 2 how much will we have to pay for those plants? 3 When the original deal was struck, there was 4 an option to purchase those plants built into the 5 original agreement, but there was no dollar amount. 6 At the time the price was put on the table, 7 we walked away from it, meaning LIPA. 8 I was no longer a LIPA trustee, because had I 9 been, we would have gone through the condemnation 10 20 years ago, because that's what we put on the 11 table with Ritchie at the time. 12 When the option was walked away from, they 13 extended the option period, and, again, no price was 14 agreed on. 15 And we walked away from the option again. 16 I have not had conversations with 17 National Grid. I would be delighted to, to find out 18 how much they would want for it, but let the 19 negotiations begin with the condemnation, and we'll 20 figure out the rest. 21 But let me ask you this, Senator: 22 We would be delighted to try and determine 23 what the costs would be. Will somebody help us? 24 Because, you see, I know what's happening 25 here today. 1 This is a whole new kettle of fish that I've 2 just laid out on the table. And, please don't 3 expect me to have all the answers, but I'd be 4 delighted to go into them. 5 And let's have NYPA go looking into it, 6 because NYPA's only looking at that little kernel: 7 the T&D system. 8 Let them -- they're not even considering 9 municipalization. 10 And now let's talk about municipalization in 11 the broadest of possible senses, because all of the 12 benefits that enure to the people, that we've all 13 learned to tick off one at a time, in terms of the 14 benefits of a municipal entity, minus the 15 $100 million that Ms. Calcaterra was talking about 16 this morning, all of those benefits could extend, 17 should extend, will extend, to an overall 18 consolidated system under the umbrella of one 19 central management not looking to make a profit. 20 And I'd be delighted to find out what it 21 would cost us. And I'd ask them to do the same. 22 SENATOR MARCELLINO: It's a question pose to 23 the both of us, to this Committee here, and -- and 24 to the Moreland people, to let them consider that, 25 because I don't think they have. 1 But, they seem to be pushing towards the 2 privatization aspect of it. That seems to be the 3 Governor's recommendation. 4 I don't know if it's hard-and-fast, but that 5 seems to be his leaning. 6 At the very least, he wants a change in the 7 basic structure of LIPA, we all know that. 8 SHELLY SACKSTEIN: Correct. 9 And, you know, I wouldn't agree necessarily 10 that what he said was, hard-and-fast, and you said 11 it also, on privatization. 12 Rather, he reacted to that situation that 13 took place on Long Island, and he basically said: I 14 got to change something. The structure has to 15 change. 16 And for that, I would say: Thank you, 17 Governor, because we would have said that 20 years 18 ago, the structure had to change. 19 Now let's think of it in a broader sense, 20 because all the benefits -- 21 SENATOR MARCELLINO: Shelly, do you think 22 under municipalization there would be a lowering of 23 rates, or -- 24 SHELLY SACKSTEIN: Lower the rates? 25 SENATOR MARCELLINO: Would they be lower, or 1 would they just be flatlined? 2 SHELLY SACKSTEIN: You know, it depends upon: 3 How you structure the transaction; 4 How far out you spread the deal; 5 How inexpensively you can issue the bonds. 6 I don't have an answer to that. 7 But what I would say is, what I've heard LIPA 8 say for -- even LILCO: I want to decrease the 9 increase in the increase. 10 SENATOR MARCELLINO: Yeah, I understand where 11 you're going. 12 But my concern -- 13 SHELLY SACKSTEIN: It's bizarre. 14 SENATOR MARCELLINO: Yeah, it is bizarre, but 15 my concern is, the whole thing is bizarre. 16 But as I said, my concern is, that we have a 17 level of bonds that have to be dealt with, the 18 Shoreham debt. That doesn't go away under any 19 system. 20 So we're dealing with that. 21 Your end of it is going to be funded through 22 bonds issued. It's the only way it's going to 23 happen. 24 So, there would be another level of bonding 25 brought into the play. 1 So now the ratepayers are going to be paying 2 off two levels of bonding in the rates, in addition 3 to the cost of power, in addition to the maintenance 4 of the system and paying the utility workers. 5 So, we seem to be building costs into the 6 system, and I don't see the situation where we're 7 lowering costs. 8 If you disagree with me, jump in, either one. 9 CYNTHIA KOURIL, ESQ.: If I may, there were 10 two comments that were made in the first panel that 11 I thought were very telling. 12 One was this notion that privatization was 13 somehow going to bring these synergies from being 14 able to ship things, you know, when you have two 15 companies near each other. 16 Well, if that were true, we would be seeing 17 that already, since National Grid already exists 18 nearby in Massachusetts. If this synergy of 19 shifting, buying telephone poles and cable in bulk, 20 and shipping to the northeast in bulk, was going to 21 happen, it would have happened already. 22 So you're not going to see any additional 23 cost savings from these phantom synergies. 24 And the other thing I found very telling, was 25 this notion that, if it's privatized, and the State 1 gets left holding the bag with the LIPA bonds, the 2 notion -- because we keep conflating two different 3 things: the bill that the customer gets versus the 4 rates. 5 And they make this promise, Oh, well, we'll 6 freeze the rates for X amount of years. 7 But the gentleman at the end in the first 8 panel said something very telling: You're going to 9 put a surcharge on the bill. 10 You can keep the rates the same, but your 11 bill's gonna go through the roof because there's 12 going to be surcharges to pay those orphan bonds. 13 So, the cost to the customer is going to go 14 up dramatically, and there's nothing in the 15 privatization plan that's going to solve that. 16 The other thing, and I alluded to this in the 17 beginning of my remarks: 18 The Moreland Commission's analysis was of the 19 existing disaster; that is, the National Grid 20 contract. 21 And that contract has -- and I almost feel 22 like the LIPA people have given up, because it's 23 almost over. 24 You know, they're limping to the finish line 25 of that contract, and I think they've put their 1 hopes in the new contract that begins January 1st. 2 If you only analyze the existing 3 National Grid contract, of course you say, Oh, we 4 can't do this anymore. Public-private doesn't work 5 because that contract is a disaster. 6 And the renegotiation of that contract in 7 2006, took a bad contract and made it a zillion 8 times worse. 9 And the settlement agreement in 2006 was a 10 travesty. 11 And the analysis of those documents, my eyes 12 almost fell out of my head. 13 So to say, Well, we don't want to continue 14 the status quo, I don't think there's anybody, 15 anywhere, that wants to continue the status quo, 16 because the current situation with the National Grid 17 contract is an abomination. 18 The ServCo contract and, admittedly, the 19 manuals aren't written yet, but there are -- at 20 Exhibits 4 and 5, there are the outlines of what's 21 going to go into those manuals. 22 And if you look at the topics in those 23 manuals, it looks like there is a possibility of 24 writing good oversight and good contract compliance, 25 and good waste, fraud, and abuse prevention into 1 those manuals. 2 And those -- that's something that's 3 happening now. 4 Additionally, if you look at Exhibit -- 5 Appendix 8, which is the metrics by which PSE&G will 6 be compensated, the gentleman from PSE&G is correct, 7 the their incentives are better aligned with LIPA 8 and ratepayers in this contract. 9 There is some fairly complicated math hoops 10 you have to jump through to figure out how the 11 metrics work, but they're actually there, where 12 they've never been there before. 13 So if you wanted to do meaningful contract 14 compliance, the tools are there in this new 15 contract, where they were never there before. 16 Before, there were just goals -- these are 17 the things you have to do -- but no explanation of 18 how you get there. 19 Now there's very detailed explanations of, 20 how we will determine whether or not you're getting 21 there, and whether you're getting there by the right 22 path. 23 So if you had a meaningful contract oversight 24 by LIPA, and people at LIPA who knew how to do 25 contract oversight, you actually could force good 1 production out of this contract. 2 SHELLY SACKSTEIN: You know, the real dilemma 3 also is, as you said before, the clock is ticking. 4 "The clock is ticking." 5 The storm -- the next storm will come. A 6 contract will expire, the contract will begin. The 7 computer system has to get put in. 8 We have to make some decisions, and I'd like 9 to think that we probably could be in a position to 10 make those decisions based upon the studies that 11 have been done year after year after year by 12 experts. 13 Now, taking nothing away from Moreland, but, 14 that's not the same as the Brattle folks who got 15 paid a lot of money, and put a lot of time in 16 specific issue of structure. 17 Not response to the storm, but structure. 18 We really -- it's -- I don't want to be 19 precipitous, but we have to move with all dispatch 20 because time is of the essence. 21 This needs moving on, and -- and we're 22 caught. 23 And, you know, once, again, the ratepayers 24 are going to get stuck, and it's sad. 25 I would start with you tomorrow, if you could 1 help us to put the resources in place, to start to 2 look at this issue of full municipalization, and 3 something that's in the best interests of the 4 ratepayers. 5 What does it cost? 6 How long would it take? 7 How do we do it? 8 I don't know. 9 But I know, but I know it's certainly worthy 10 of exploration, because it's the only untested model 11 that exists in the energy history, and would be 12 writing the energy future of the island. 13 And that's important. 14 SENATOR MARCELLINO: I hear you. 15 CYNTHIA KOURIL, ESQ.: To bolster what Shelly 16 just said, it's not just Brattle Group. It was FTI 17 in 2005. It was Navigant in 2010. 18 It's not the opinion of one consultant. This 19 is -- and there were more in between those. 20 This is consultant after consultant after 21 consultant has rejected privatization. 22 So, to suddenly bring this out as some sort 23 of panacea, defies all logic. 24 SENATOR MARCELLINO: I hear you. 25 Thank you for your testimony. 1 I do appreciate your time, do appreciate you 2 coming. 3 We will be in touch. 4 CYNTHIA KOURIL, ESQ.: Thank you. 5 SHELLY SACKSTEIN: Thank you. 6 SENATOR MARCELLINO: Thank you very much. 7 Will the next panel come up, please: 8 Donald Daley, Tom Rumsey, and Rick Gonzales. 9 We're going to take a one-minute break. 10 And I mean, one minute. 11 (Pause in the proceeding.) 12 (The hearing resumed, as follows:) 13 SENATOR MARCELLINO: Okay. Can we call the 14 meeting back to order, please. 15 Everybody take their seats. 16 Mr. Technical Man in the booth, are we okay? 17 THE TECHNICIAN: Yes. 18 SENATOR MARCELLINO: Thank you. 19 Okay, we are back. 20 Unfortunately, we are moving to the end, and 21 I appreciate the fact that you guys have been very, 22 very patient, and, we are interested in hearing, 23 obviously, everything you have to say. 24 I have to be at a meeting at four. 25 We have two panels left to go. 1 Because, I'm sharing another committee that's 2 meeting, and has to issue a report. 3 So, if we could can proceed afoot, and if we 4 could get through a summary of your positions, I 5 would appreciate that. 6 Our next testifiers are: 7 Donald J. Daley, Jr., business manager of 8 The International Brotherhood of Electrical Workers, 9 Local 1049. 10 These are the people who man the trucks and 11 do the work during the worst of conditions; 12 Tom Rumsey, vice president of external 13 affairs, I'm assuming, Local 1099? Same? 14 TOM RUMSEY: No. 15 Actually, I'm with the New York ISO; 16 Independent System Operator. 17 SENATOR MARCELLINO: Okay. 18 DONALD J. DALEY, JR.: We don't get dues from 19 him. 20 SENATOR MARCELLINO: You don't get dues from 21 him? 22 [Laughter.] 23 SENATOR MARCELLINO: You got to work on that. 24 And, Rick Gonzales, chief operating officer 25 of the New York Independent System Operator. 1 Okay? 2 Gentlemen, who's going to be up? 3 DONALD J. DALEY, JR.: I'll start. 4 Thank you, Senator. I really appreciate you 5 bringing this very critically important topic to 6 light here. 7 In addition, I hope I -- this is the first of 8 many forums that speaks about this. 9 Some of the decisions that are going to be 10 made out of this are critically important and have 11 great consequences. 12 So, again, I thank you for that. 13 As you said earlier, my name is Don Daley. 14 I'm the business manager of Local 1049. I represent 15 2,600 utility workers that work for National Grid, 16 as well as the contractors that work on the utility 17 system in -- on Long Island. 18 And I did submit a prepared oral statement. 19 You have it. 20 If you have any questions, I'd be glad to 21 answer those. 22 But in addition to that, I did supply you 23 with some additional information that really just 24 speaks to the same topics. It just expands a little 25 bit more on it. 1 Most of the conversation to date has been 2 about what the future model is going to look like on 3 Long Island. 4 And we're discussing a private utility, a 5 municipalized utility, and a public-private 6 partnership. 7 And you've heard the pros and cons of all. 8 I'm sitting here, I don't have a position on 9 which model, but I am saying that the conversation 10 needs to go deeper than just what the model is. 11 Currently, the ratepayers, both on gas and 12 electric side, benefit from, both, synergy savings, 13 and also the number of people who work on the 14 utility during storms. 15 All the people for National Grid are fully 16 cross-trained to work during storms. Okay? 17 SENATOR MARCELLINO: Now, what do you mean by 18 "cross-trained? 19 DONALD J. DALEY, JR.: "Cross-trained"; our 20 gas people will go out and do two-man restoration. 21 They'll actually hang services. 22 I'll go -- I think your question will be 23 answered through this, if you can just hold one 24 second? Is that alright? 25 SENATOR MARCELLINO: Sure. Be very quick. 1 DONALD J. DALEY, JR.: But I also believe you 2 need to start, and look at the history. 3 And I gave you a chart. 4 It was brought up earlier, 1985, it was 5 5,900 utility employees at that time. 6 In 1998, when the changes came about with a 7 merge between Brooklyn Union and LILCO, there was 8 approximately 4,600 workers. 9 In 2006, when National Grid came aboard, 10 there was 3,650 workers. 11 Today, we have about 3,400 workers. That's 12 unionized and management employees. 13 So, when we had a storm like "Gloria," there 14 was 750,000 outages. We had 5,900 people readily 15 available and prepared and working on that storm 16 before it actually hit. 17 When "Sandy" hit, we had 3,400 workers 18 working on that storm. 19 The system on Long Island is much bigger. It 20 was 750,000 on the electric side. It's now 21 1.2 million. 22 The gas system has grown as well. There was 23 250,000 gas customers back then. There are 500,000 24 now. 25 So, we had 1 employee for every 1 170 gas/electric customers in 1985. 2 Currently, we have 1 employee for 500 gas and 3 electric employees [sic] right now. 4 That needs to be looked at. 5 And if we're looking at some of these models 6 where there may be thought of saving money on labor, 7 I can tell you right now, by these charts, the facts 8 are here, there's no fat on the bone. 9 You asked about: What do they do? What are 10 they cross-trained to do? 11 Okay? 12 Our non-electrical storm workers work in 13 two-man restoration. They actually string wires. 14 They're trained and qualified to string service 15 wires. 16 We also deliver material. A lot of the 17 material is delivered by non-electric people using 18 National Grid equipment: National Grid forklifts, 19 National Grid pickups, National Grid pole trailers. 20 All this stuff will not be available in the 21 next storm post 1/1/14 if we don't have one 22 workforce where, at a minimum, an agreement to 23 utilize those people, that have always been 24 cross-trained and experienced to work storms, 25 continue to do that 1/1/2'14. 1 In addition to that, we have foreign crew 2 support. We had almost 14,000 people come here from 3 off-island. Takes a lot of resources to make sure 4 that they're -- they got the proper bedding, and all 5 their other needs are met, their equipment, their 6 kits, everything that they need. 7 That's all done by non-electrical personnel 8 today. 9 Our call center: 10 We heard a lot of issues surrounding 11 communications. 12 Typically, in our call center, we have 13 175 call center representatives. 14 During the storm, we had over 300, because we 15 were able to utilize the National Grid gas and 16 generation and shared employees to answer phones of 17 emergency phone calls. 18 Also, our fleet services worked on both gas 19 and electric trucks. 20 So, again, if we're talking about just 21 carving out a number of employees, that's the first 22 I heard today that it was 2,200. That's the highest 23 number that I've heard. 24 All the numbers that I heard prior to today 25 were, sixteen and seventeen hundred workers. 1 But if you take almost half that workforce 2 out, they will not be available during storms. 3 We have a survey of workers, all 4 non-electrical workers: crew guides, physical 5 assists. 6 We actually load the poles from our gas side 7 of the business, bring them and deliver them to 8 where it's needed, dig the holes, are all done by 9 our gas personnel. 10 They will not be available during the next 11 storm post 1/1/2014. 12 Our facilities' people work on making sure 13 that our low-lying areas are sandbagged. 14 Stuff like that, all done by our generation 15 folks. 16 Again, not available in the next storm. 17 Wire watching, traffic control; all these 18 things people don't think about. 19 When you think about a storm, you're thinking 20 about hanging wire. 21 A lot goes into it before you hang the wire. 22 The reality is, we have 3,400 utility workers 23 now that respond before the storm's here, right here 24 on Long Island. 25 If you carve out -- I heard 2,200. If you 1 carve out 2,200, and that's the number, there's 2 still 1,200 people that are cross-trained to work 3 storms, that are experienced, and been doing it for 4 many, many years. 5 What's going to happen is, those people are 6 going to be sitting home during the next storm. 7 That makes absolutely no sense. 8 I heard, Plan B is to get contractors. 9 We're not putting a Lego set together. We 10 really need to know what we're doing out there. 11 We have certain work practices, safety rules. 12 You can't just do line work, and hire Joe Contractor 13 who's never done it before, and have an experiment 14 the next storm, while 1,200 trained people are going 15 to be sitting home. 16 There's a big problem with this. 17 Whatever model you go to, if you don't have 18 the full workforce that you have right now at least 19 available during storms, that's a big problem here. 20 We're not meeting the expectations now. 21 If we take it and carve it in half, what are 22 we going to look like then? 23 We talked about, "Hurricane Earl," bringing 24 in the 1,600 crews, off-island, sitting there. 25 We saw "Newsday." 1 The front page of "Newsday," all the trucks 2 sitting at the airport. Not one outage, 3 $30 million, because we relied on outside help to 4 help us. 5 Now we're going -- now the plan is, to take 6 the inside workforce, cut it in half. 7 You're going to be more reliant on outside 8 crews. 9 Not only that, it's not only the big storm 10 that we deal with. These 3,400 people deal with all 11 those little storms, so you don't need to call 12 anybody. 13 Okay? 14 So, going forward, half the workforce is a 15 big deal. 16 In addition to that, we have daily synergies 17 because we're all one workforce. 18 We have synergies in warehouse, our fleet 19 services, facilities, clerical, meter reading, 20 collections, call center, IT, billing, service 21 connect and disconnect. 22 Currently, the ratepayers on Long Island 23 benefit from one man or woman coming to the house, 24 when they want their service disconnected, to do 25 both the gas and electric. 1 Now we're going to have two, with two 2 appointments, to do that. 3 Project management, legal, real estate, 4 accounts payable, human resources, purchasing, 5 claims, communications, public affairs, payroll, 6 environmental services, security, training, health 7 services. 8 These are daily synergy savings that both our 9 gas and electric ratepayers benefit from today, that 10 we're going to lose if the workforce is broken in 11 half. 12 So I ask that you continue these hearings, 13 and that we have some open dialogue, other forums, 14 informational forums. 15 Our ratepayers, your constituents, need to 16 know how the change in the workforce is going to 17 impact their rates, both on the gas and the electric 18 side. 19 SENATOR MARCELLINO: Thank you. 20 TOM RUMSEY: Good afternoon, 21 Chairman Marcellino. 22 I'd like to start by thanking you for having 23 the New York Independent System Operator here to 24 testify. 25 We did supply a more detailed written 1 testimony than I intend to go through today, and in 2 that was a map that may be easier for you follow 3 along when Rick gets on that map here in a few 4 minutes. 5 My name is Tom Rumsey. I serve as the 6 vice president of external affairs for the New York 7 Independent System Operator, or, "NYISO." 8 With me today is Rick Gonzales. He is a 9 senior vice president and chief operating officer 10 for the NYISO. 11 And his teams are responsible for operating 12 the bulk electric system, New York's wholesale 13 energy markets, as well as the short- and long-term 14 planning for New York. 15 I think it's important, there's a distinction 16 between what we'll discuss today, in that, where we 17 talk rates and energy prices, it's at the wholesale, 18 not retail, which would be a shift from what we've 19 heard earlier today, as well as the bulk system 20 versus the distribution system. 21 I'd like to start by providing a short 22 overview of our organization, and how the 23 Long Island Power Authority plays within that 24 framework. 25 I want to ask Rick to provide a high-level 1 overview of the current status of our electric grid, 2 LIPA's unique position, and a quick discussion of 3 the impacts of "Hurricane Sandy" on the Long -- 4 excuse me, on Long Island's bulk electric system. 5 The NYISO is an independent and 6 non-for-profit corporation that carries out three 7 key functions for the state: 8 Our primary mission is to reliably operate 9 New York's bulk power system in accordance with all 10 national, regional, and state reliability 11 requirements. 12 With the exception of the control center, the 13 NYISO does not own any physical assets of the 14 system; 15 Additionally, we develop and administer 16 New York's wholesale competitive market for 17 electricity, to satisfy both actual and reserve 18 electrical demand requirements. 19 In conjunction with our stakeholders, we 20 conduct extensive system-planning processes to 21 determine the power demands of the future, and do so 22 within a time frame that will allow market solutions 23 to meet identified needs; 24 Finally, we do participate as a technical 25 non-voting member of the New York State Energy 1 Planning Board, and we've provided technical 2 assistance to the Governor's Energy Highway Task 3 Force. 4 We operate under federal tariff agreements 5 approved by the federal Energy Regulatory 6 Commission, and are regulated by the New York State 7 Public Service Commission. 8 We conduct our grid operations and system 9 planning functions in compliance with all national, 10 regional, and state reliability standard 11 organizations that oversee, and also audit, our 12 processes. 13 The NYISO is governed by an independent board 14 of directors, and a committee structure comprised of 15 representatives from every market sector, 16 transmission and generation owners, other suppliers, 17 end-use consumers, public power, and environmental 18 parties. 19 The Long Island Power Authority is among the 20 market participants participating in our shared 21 governance as part of the public power and 22 environmental sector. 23 LIPA is an owner of high-voltage power lines 24 which are operated through coordination between our 25 control center and LIPA's local control center on 1 Long Island. 2 Although LIPA meets most of its power needs 3 through contract agreements with power plants on 4 Long Island, it also buys and sells a portion of its 5 electrical needs through the NYISO's wholesale 6 electricity markets. 7 LIPA participates in the NYISO short- and 8 long-term planning processes which determine the 9 amount of generation capacity that must be located 10 on island to reliably serve its forecasted peak 11 demand plus required reserves. 12 These processes also determine the future 13 electric needs of the state, including Long Island, 14 over a ten-year horizon. 15 That's a very brief introduction of who we 16 are, and how Long Island fits in, in respect to your 17 time. 18 I'd like to turn it over to Rick, and he can 19 give you an equally high view of the grid, and how 20 it works, and Long Island's position in that. 21 Thank you. 22 RICK GONZALEZ: Thank you, Chairman. 23 [Visual presentation begins.] 24 RICK GONZALEZ: And today's first use of the 25 prop here will -- should -- should help us. 1 The objective of my presentation is just to 2 show how the Long Island Power Authority and the 3 Long Island electrical needs are part of the larger 4 state needs. 5 And starting there, the geography of 6 New York State complicates the operation of the 7 grid. 8 Obviously, Long Island is an island. 9 Most of the demand of New York State, over 10 50 percent is in the Long Island and New York City 11 metropolitan areas, so, there's is a very high 12 concentration of demand in those two areas. 13 As far as resources, the supply resources, 14 statewide, are very diverse. 15 We have New York Power Authority's 16 hydroelectric resources at Niagara Falls and on the 17 St. Lawrence River, and their pump storage unit. 18 There's coal-fired generation on Lake Erie 19 and on Lake Ontario. 20 And, there's a nuclear units complexes in the 21 Rochester area, and an Oswego complex. 22 Those resources are typically more efficient 23 to operate than gas-fired generation or oil-fired 24 generation such as on Long Island. 25 There's also interconnections to the west of 1 New York. That power is scheduled on, to move to 2 New York if it's more economic, the provinces of 3 Ontario, the provinces of Quebec. 4 The larger interconnection to our south, 5 what's commonly called the "Pennsylvania-New Jersey 6 interconnection." 7 And then to the east, we have the New England 8 interconnection, although, their generation fleet is 9 much like Long Island's or eastern New York's. 10 What this all means, is that power flow is, 11 typically, from the western part of our state, to 12 the east; and from the north part of the state, to 13 the south; and it all tries to meet the electrical 14 needs of Long Island and New York City. 15 There's been -- there's been, over the past 16 20 or 30 years, historical bottlenecks to moving 17 that economic power to the load centers. 18 One is east of Utica. More recently, one has 19 developed south of Albany. 20 But there's always been historical 21 bottlenecks moving power into New York City, and on 22 to Long Island. 23 With respect to Long Island, there is 24 seven interconnections to get to Long Island: 25 Four are to the mainland New York system in 1 Queens and Westchester, two are to Connecticut, and 2 one is to New Jersey. 3 During "Hurricane Sandy," all the 4 interconnections to the other states were lost, but 5 reliability was maintained at the bulk power level 6 through the main interconnections back to the 7 New York -- back to Queens and Westchester. 8 The point of these -- this discussion about 9 the interconnections, is those historical 10 bottlenecks have limited Long Island's access to the 11 state's diverse resources. 12 From a planning perspective, the State 13 requires 17 percent installed reliability margin. 14 That means we need to have 17 percent more 15 resources than our forecast demand; 16 And, both New York City and Long Island have 17 locational requirements. 18 New York City proper has an 86 percent 19 locational requirement; 20 But Long Island has an even higher one, at 21 105 percent, which indicates the more restrictive 22 transition limitations moving to Long Island. 23 In our planning perspective, there is 24 sufficient supply on Long Island, whether or not 25 it's as economic as the other resources that are 1 throughout the state. 2 So, there are no reliability issues that we 3 see in the Long Island area. 4 And, statewide, we don't have any resource 5 supply issues until 2019. 6 If there was a reliability issue, we would 7 manage it through either the ISO's process, or LIPA 8 would manage it directly and report that to us. 9 And that concludes my prepared remarks. 10 SENATOR MARCELLINO: Thank you very much. 11 If the State, as it looks to the future -- 12 [unintelligible] information, doing their thing, the 13 Governor's made his -- his thoughts known, you've 14 heard the testimony of the prior panels, what are 15 the major issues that you think we should be looking 16 at? 17 TOM RUMSEY: From our perspective, the energy 18 industry is one that is a very long-cycle industry. 19 And whether it's EPA restrictions or new 20 regulations, or it's an energy highway, it's a very 21 complex and interrelated system. 22 The biggest concern I think that we would 23 have, is that we need to make sure that there's 24 enough time and thought put in, to understand all 25 the potential, tertiary, secondary, effects, and 1 make sure that we plan through those. 2 DONALD J. DALEY, JR.: A big concern of ours 3 is, as you saw from the charts, is the staffing 4 levels. 5 We've gone down, from 5,900 employees, to 6 3,400 employees. There's a big concern in regards 7 to service, and providing -- well, the ability to 8 get people back on during a storm. 9 The working staff is a big problem. 10 SENATOR MARCELLINO: Have you guys had any 11 conversations with PSE&G, as to staffing levels? 12 DONALD J. DALEY, JR.: Yes. 13 Yes, I've had numerous conversations with 14 PSE&G. They're not to the point right now where we 15 started identifying exactly the people that they 16 feel they're going to need to run their T&D system. 17 SENATOR MARCELLINO: Do you think that 18 "twenty-two, twenty-three hundred" number that they 19 were talking about works? 20 DONALD J. DALEY, JR.: It's the highest 21 number I've heard so far. 22 May be twenty-three tomorrow. 23 SENATOR MARCELLINO: That's not quite what I 24 asked. 25 DONALD J. DALEY, JR.: I believe that, 1 sufficiently, on the electric side of the business, 2 yes. 3 But, again, the ratepayers are not going to 4 benefit from the synergies that they benefit from 5 today. 6 SENATOR MARCELLINO: What if -- if LIPA's PSA 7 contracts are not approved before the current ones 8 expire, does NYISO feel they can coordinate 9 enough -- get enough power to supply LIPA on the 10 open market? 11 RICK GONZALEZ: There would have to be some 12 form of PSA that would continue to supply the 13 Long Island generation into the markets. 14 There isn't enough transmission capability to 15 support Long Island without local generations. 16 So, that has to be a continued expectation. 17 TOM RUMSEY: I think the locational 18 requirements need a little definition. 19 That means, that you have 105 percent of 20 their peak demand in generation and local resources 21 available to serve their load, and that you don't 22 rely up to that number on long lines of 23 transmissions. 24 So that local-generation requirement is 25 105 percent in the New York area, in Long Island 1 itself. 2 SENATOR MARCELLINO: What are your thoughts 3 on privatization? 4 TOM RUMSEY: I think it's a policy decision, 5 and not really something that we view one way or the 6 other. 7 SENATOR MARCELLINO: Wouldn't impact your 8 ability to provide the power or serve it? 9 TOM RUMSEY: We have a number of structures 10 in our market participants today, so, again, I don't 11 think we view any specific direction as being an 12 overly strong challenge or advantage. 13 SENATOR MARCELLINO: How would your members 14 feel? 15 DONALD J. DALEY, JR.: Currently, under the 16 existing model, they benefit from certain things 17 they're not going to benefit in the private sector, 18 many of the costs, the fixed costs. 19 The variable cost is labor. 20 And is always -- my concern is that, in 21 privatization, there's going to be pressure to 22 reduce labor costs. 23 SENATOR MARCELLINO: Do you think there would 24 be more of reliance on outside crews? 25 DONALD J. DALEY, JR.: I would say at the 1 "2,200" number, during daily business, maybe not. 2 SENATOR MARCELLINO: What about when the 3 storm hits? 4 DONALD J. DALEY, JR.: When a storm hits, 5 we're down to 1,200. 6 We starting 1,200 down, so... 7 SENATOR MARCELLINO: Okay, thank you. 8 Appreciate your time, appreciate your 9 testimony. 10 Next panel, please. 11 Charles Bell, program director for 12 Consumer Union; 13 Elizabeth Horan, a volunteer for AARP; 14 And, Bill Ferris, the state legislative 15 representative for AARP. 16 ELIZABETH HORAN: Good afternoon, 17 Senator Marcellino. 18 SENATOR MARCELLINO: Good afternoon. 19 ELIZABETH HORAN: My name is Elizabeth Horan, 20 and I'm an AARP member, and a lifetime resident of 21 Long Island. 22 I'm one of over 600,000 members in AARP. 23 And with me today is, Bill Ferris, 24 AARP-New York State legislative representative. 25 And... 1 I've lived through many hurricanes, but last 2 October, I saw "Superstorm Sandy" devastate and 3 decimate much of Long Island, the Long Island I know 4 and love. 5 I live in Sound Beach on the north shore on 6 Long Island, and my home was spared, but we were out 7 of electricity for 12 days. 8 Because the nor'easter quickly followed 9 "Sandy," it got very cold very fast. 10 I had to leave my home. 11 When the temperatures reached the 50s, I knew 12 it was time to go. I returned every day or two to 13 check the power status, as calls to LIPA got nothing 14 but a phone message. 15 As I said, I'm one of the lucky ones on 16 Long Island, but I know so many people who lost so 17 much. 18 Many didn't get their power back for weeks. 19 As a resident of Long Island, and a member of 20 AARP, I would publicly like to thank you, 21 Senator Marcellino, for holding this hearing, and 22 for all your work and leadership to help the people 23 on Long Island. 24 It is my understanding that the Senate is 25 trying to get the issue surrounding LIPA done right, 1 and in the best interests of the Long Island 2 ratepayers. 3 And I thank you for making that a priority. 4 There is no question that LIPA must be 5 reformed. 6 AARP agrees with state leaders that LIPA's 7 performance during "Superstorm Sandy," and its 8 aftermath, was nothing short of disastrous. 9 However, it is AARP's position that a change 10 in ownership is not necessarily the only way to 11 improve the service for LIPA customers. 12 AARP has not yet taken a position for or 13 against reprivatization of LIPA, because the 14 association does not yet have all the facts 15 regarding the impact on ratepayers' pocketbooks if a 16 decision is made to reprivatize LIPA. 17 However, AARP has a very simple view on this 18 issue, which I support as an AARP member: 19 How will privatization, at the end of the 20 day, benefit the ratepayer, and how much will they 21 pay on their future monthly energy bills? 22 If privatizing LIPA is ultimately the road we 23 take with no uncertainty, it should include a clear 24 benefit to Long Island's ratepayers. 25 It is my understanding from being briefed by 1 representatives from AARP, that published reports 2 from rating organizations, like Fitch and Moody's, 3 believe that privatization of LIPA could be 4 expensive and may not result in ratepayer benefits. 5 In addition, AARP has identified a report 6 from 2010, that was prepared for LIPA by an 7 organization called "Brattle Group," which found 8 that privatizing would result in a rate increase, 9 from 15 to 20 percent. 10 As you know, Senator Marcellino, last thing 11 Long Island needs is a double-digit rate increase, 12 now, or in four years, when a proposed rate freeze 13 would be lifted, a proposal I have read about in the 14 news. 15 AARP believes that we should be looking at 16 other publicly owned utilities to see how the rates 17 and storm performance of publicly owned and operated 18 utilities, in fact, run their own operations compare 19 with utilities that are investor-owned. 20 AARP strongly believes that we need to keep 21 examining the pros and cons of privatizing, as the 22 Senate is doing here today, before any deal is 23 struck on the future of LIPA. 24 I would also like to touch on the need for an 25 independent consumer advocate office in New York. 1 The State continues to grapple with the 2 aftermath of "Superstorm Sandy," and we need for 3 residential ratepayers to have representation. 4 It is critical, as, potentially, hundreds of 5 millions of dollars in rate hikes and accountability 6 of utilities are being discussed. 7 More than 40 states and the District of 8 Columbia have independent State offices charged with 9 the mission to represent residential utility-service 10 customers in cases before state and federal utility 11 regulatory commissions. 12 In a recent "New York Times" article, the 13 Governor's spokesman mentioned that they are 14 thinking of an independent consumer advocate office 15 for Long Island. 16 AARP strongly believes that an independent 17 utility consumer office should be created, not only 18 for Long Island, but for all New Yorkers. 19 Again, thank you for allowing me to speak 20 today. 21 We need to keep examining the pros and cons 22 of privatization, as the Senate is doing here, 23 before any deal is struck on the future of LIPA. 24 Please make sure that the ratepayers get a 25 fair deal in any plan that moves forward on 1 improving LIPA, and ensuring that all New York 2 residents benefit from the establishment of an 3 independent consumer advocate office. 4 Thank you. 5 SENATOR MARCELLINO: Thank you. 6 CHARLES BELL: Hi, I'm Chuck Bell, programs 7 director at Consumers Union, and we're the 8 non-profit organization that publishes 9 "Consumer Reports," based in Yonkers. 10 I know it's been a long day, so I just want 11 to say: 12 We strongly agree with the points that have 13 been made by AARP. 14 In my written statements, we emphasize that 15 we think consumer and ratepayer interests should be 16 at the center of any decisions that are made about 17 LIPA restructuring. 18 And, we are particularly concerned about the 19 possibility that restructuring could drive rates 20 even higher, because of the higher costs of 21 borrowing in the private markets, the need to pay 22 return to investors, and the higher salaries for 23 executives of these companies. 24 We also feel that ratepayers are 25 underrepresented in State policymaking. 1 If we were in any other state, we would 2 probably have the state utility advocate here 3 testifying about LIPA restructuring. 4 New York has allocated less, on a per capita 5 basis, to support our state utility advocate. 6 So, for example, in New Jersey, much more, 7 $7 million, is advocated; whereas, in New York, only 8 about 2 million is advocated for those activities, 9 even with all the issues that we have. 10 I also emphasize the affordability concerns 11 of Long Island ratepayers. 12 You have an energy affordability gap of about 13 $115 million there, which is what the amount that 14 households are paying over the recommended 6 percent 15 guideline for their income. 16 They should not be paying more than 6 percent 17 of monthly income for electricity. 18 And that's truly a statewide problem that we 19 have. 20 And, so, we feel if we can increase the 21 amount of resources devoted to utility advocacy, 22 both, in the state at the state level, and by 23 non-profit organizations, like the Public Utility 24 Law Project, that that would be of great benefit to 25 ratepayers. 1 At the state level, we had, at one point, 2 over 30 people in the Consumer Protection Board 3 developed -- devoted to utility-rate intervention, 4 in the 1990s. 5 And, today, we have maybe four or five people 6 devoted to that function. 7 So, we, as a non-profit, Consumer Groups see 8 that as a huge loss. 9 And, so, we hope that under whatever scenario 10 is contemplated here, we can begin to rebalance the 11 scales for consumers. 12 And, we thank you for having this oversight 13 hearing, because the issues you brought out today 14 really need to be heard and discussed by the people 15 of New York before any decisions are made in this 16 matter. 17 Thank you. 18 SENATOR MARCELLINO: Thank you. 19 BILL FERRIS: I just wanted to add one thing, 20 from AARP's perspective. 21 We're hearing more and more from our members 22 on Long Island about the concerns of what they're 23 seeing in the paper, what they're hearing about, 24 what's going on with LIPA. 25 And, we've heard already from them, that 1 they -- that paying their bill is a problem with 2 many of our members. 3 So, the issue of LIPA is becoming more and 4 more front and center for them. 5 And, you know, again, from AARP's 6 perspective, we'd like to thank you for holding this 7 hearing. 8 It's very important to AARP, very important 9 to our members on Long Island. 10 So, thank you very much, Senator. 11 SENATOR MARCELLINO: Thank you. 12 Do you folks have any thoughts about 13 privatization? 14 BILL FERRIS: From AARP looking at 15 privatization, we referenced in our testimony, in a 16 report that we issued, that there -- and I think you 17 heard it earlier today, there's been numerous 18 reports, I believe, that LIPA actually contracted 19 for, that there are concerns over privatization, 20 especially on the aspect of the potential rate 21 increase for the residential ratepayer. 22 And that's what our concern is. 23 We're very concerned about the increase in a 24 monthly bill. 25 As you know, many of our members are on a 1 fixed income, social security. And, that increase, 2 whether it's $2, $5, $10, it's an increase. It's 3 just part of an overall budget that many of our 4 members, you know, moving forward, can't afford. 5 So, we've looked at some of the studies, and 6 we -- and I think you've mentioned it today, you 7 know, the Senate's looking at those studies, the 8 Brattle report, and other -- I think there was a 9 study that came out today in "Newsday," referenced 10 another study that raised concerns about 11 privatization. 12 So, we're looking at that. 13 But, overall, we have not taken a position, 14 but we do have a major concern, if the decision is 15 to privatize LIPA, that there needs to be something 16 done for the residential ratepayer, in that process. 17 SENATOR MARCELLINO: Okay. Thank you very 18 much. 19 Appreciate you coming, appreciate your time. 20 Thank you. 21 BILL FERRIS: Thank you. 22 SENATOR MARCELLINO: That concludes the 23 hearing. 24 We will refer it back. We're going to read 25 the notes. 1 If you want to look at this thing, as I said 2 earlier in the meeting, a video of this entire 3 hearing process, if you -- I suggest, later at 4 night, after dinner, you can look at this, and 5 you'll sleep well. 6 [Laughter.] 7 SENATOR MARCELLINO: The idea -- it's 8 available on the website: the Senate website, 9 Committee's website. 10 And I thank you for attending. 11 I thank the -- my -- the camera crew that's 12 videotaping this whole thing; and, my staff, 13 Debbie Peck Kelleher and Rob Parker, for putting 14 this whole hearing together. 15 Meeting's adjourned. 16 Thank you. 17 [Applause.] 18 19 20 21 22 23 24 25 1 (Whereupon, at approximately 3:14 p.m., 2 the public hearing held before the New York State 3 Senate Standing Committee on Investigations and 4 Government Operations and the Senate Standing 5 Committee on Corporations, Authorities, and 6 Commissions, concluded, and adjourned.) 7 8 ---oOo--- 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25