LIPA: HARD TIMES? LOW DEMAND? LET'S RAISE RATES!

By David Lion Rattiner

Here's what New York State Assemblyman Fred Thiele said about LIPA's recent rate increase: "LIPA has failed totally to demonstrate the need for a rate increase. LIPA states that more than 50% of their costs are fuel related. Oil prices have now dropped to $42 a barrel and are continuing to fall from a high of $140 just a few months ago. Why is the decline in oil prices not being passed on to consumers the same way increases were? The impact to the local economy would be devastating."

Turning on the lights, turning on an electric heater and having a refrigerator running are all things that we take for granted - until we get our electric billS.

The Long Island Power Authority, Long Island's provider of electricity, said just days before Thanksgiving, that in a recession and at a time when oil prices had record drops, that they would raise rates by 4.8% to all electricity customers. This would be formalized at a scheduled meeting on December 11.

The public outcry was enormous, even though many were distracted by the holidays - a tactic Thiele said, "Stinks."

The outrage became so great that state lawmakers Fred Thiele and State Senator Kenneth P. LaValle asked State Comptroller Thomas P. DiNapoli to audit LIPA to determine the actual costs of building power lines underground in Southampton. The project was estimated at $8 million, but LIPA announced that the actual cost would be $12 million. Thiele and LaValle requested the State Comptroller to determine if the extra $4 million increase was justified, and whether any portion of it should indeed be charged to ratepayers.

Even Governor Paterson took the stage, telling the Long Island Association in Woodbury that LIPA needed to reconsider the rate hike, suggesting that they "go back and sharpen their pencils."

But after all the outrage, LIPA still raised rates, by 3.2% rather than the initial 4.8, even as they listened to complaints at the December 11 meeting, even as oil prices have been cut by more than half in just months.

LIPA CEO Kevin Law listened to comments at the meeting, imposing no time limit to speakers and, according to LIPA's Vice President of Communications, Edward Dumas, was "impressed" with what was said.

LIPA agreed to cut costs on postage (postage?), which would apparently save the company $2.7 million next year. They also factored in revised fuel forecasts and planned to defer capital projects, not including alternative energy projects. Yet even with the reductions they maintained they had to increase rates.

Despite a reduction to the initial increase, people are dissatisfied with the result. With fuel costs down, few can wrap their heads around why rates would increase when oil, the source of electricity, has come down in price so much.

The reason for this is that LIPA's CEO is responsible for growing revenue. Ironically, it was the high cost of electricity that caused revenues to fall in the first places. The fact that electricity prices have become so astronomically high has caused consumers to act differently about how they use energy, and thus usage has been significantly reduced, which has cut into LIPA's profits. The solution to the problem? Increase rates. In other words, instead of decreasing rates to increase usage and therefore increase revenues, LIPA is increasing rates (assuming usage will be maintained) in order to increase revenue.

This logic of course doesn't go very far with products people can do without. But people need their lights, so LIPA is finding the price point that requires customers to pay a higher rate so that they can see in the dark, and LIPA can see revenues grow.

There's one argument that if LIPA continues to move forward with this business strategy, the cost of turning on a lamp in your house will be $100 an hour. It sounds ridiculous, but it's a valid theory based on LIPA's current practice.

Unlike oil companies, which reduce the price of oil when demand goes down to increase demand, LIPA is doing the opposite. Interesting, yes. Easy on the wallet of consumers, no.

Another hefty line item for LIPA is investing in renewable energy, which nobody wants to cut out of the company's expenditures. Ironically, LIPA contributes $27 million to the state's voluntary renewable fund.

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