FOR RELEASE:

LIPA'S Actual Spending On Its Own Operations Grew Twice As Fast As Budgeted Spending

Authority Does Not Report Its Spending In A Way That's Easy For Public To Understand

LIPA Agrees To Implement Budget Reforms

In its budget reports, the Long Island Power Authority in several ways has been hiding its actual spending, both its internal spending on its own operations and total spending, including the costs of delivering electricity, according to a report issued today by State Comptroller Alan Hevesi. The Authority hides its internal spending by mixing it with total spending and only reports to the public on its budget, not on its actual spending.

This first ever review of LIPA's internal spending found that:

• LIPA does not clearly identify spending for its own internal operations. Instead, those internal costs are mixed in with the cost of delivering power, which is handled under contract by KeySpan.
• Actual spending on internal operations grew 66 percent to $184.5 million in 2002 from $110.9 million in 2000, even though there was virtually no increase in the number of customers served.
• Actual spending grew more than twice as fast as budgeted spending. Over the same period, the budget grew only 32 percent.
• LIPA staff grew nearly 70 percent to 79 in 2002 from 47 in 1999.
• The number of staff members making more than $100,000 more than doubled to 24 from 11. Seven staff members make more than $200,000.

"LIPA has the most control over its own internal spending, but it has not been reporting on that spending to the public in a clear and easy to understand way. The Authority's prime reason for existing is to keep electric rates on Long Island down. LIPA should work to keep that spending down, so funds can be used to hold down electric rates. I am pleased that LIPA has agreed to implement the budget reforms we recommended and has taken the first steps in its most recent budget," Hevesi said.

In 2002, LIPA's total spending amounted to $2.4 billion. However, most of that was for fuel, purchased energy, taxes, interest and other costs over which LIPA has little control. LIPA relies on KeySpan to provide day-to-day management of the electricity transmission system and other activities, for which KeySpan was paid $782.5 million in 2002.

This review focused on LIPA's internal operations, which amounted to $233.5 million in 2002. After adjusting for one-time costs related to the emergency repair of the Y-50 cable which brings electricity to Long Island from Westchester and repairs to cables bringing electricity to Fire Island, spending for the year was $184.5 million.

But even in its reports on its total spending, LIPA's reports hide important information. Until now its public budget reports have only shown the amount budgeted each year. Generally, budget reports should show comparisons between the amount budgeted and what was actually spent. LIPA said that while this data is not available in its budget documents or on its website, it was available upon request and was presented at meetings of LIPA's Board and of its Finance and Audit Committee. Initially, LIPA staff told the Comptroller's staff that meetings of the Finance and Audit Committee were not open to the public, which would violate the State's Open Meetings Law. Later, they changed their position and said meetings were open.

"Actual spending by the end of the year almost always differs from the budget presented at the beginning of the year. But when reporting to the public, government bodies usually compare planned spending for the new year with what was actually spent in prior years. For LIPA, that information has only been available if you know it's missing and know where to look. That makes it difficult for ratepayers to know how well LIPA is controlling its spending. Misleading budgeting is not acceptable," Hevesi said.

LIPA released its proposed budget for the 2004 fiscal year on January 22, 2004. It calls for a 4.5 percent increase in overall rates. Public hearings on the LIPA budget begin on Tuesday, January 27. The report notes that the authority repeatedly failed to comply with State law that requires it to submit actual receipts and expenditures to state officials 60 days before the end of its fiscal year and did not provide the public with adequate time to review its proposed budget before it was adopted.

The Comptroller's report covers 2000 to 2002, and does not include a detailed analysis of this recently issued budget. However, the Comptroller's Office provided a draft of the report to LIPA and some of the recommendations from this report are reflected in the new LIPA budget.

"LIPA officials were very cooperative in the course of conducting this review, and officials agreed with most of our recommendations for improvements and promised to implement them. For example, the just released budget includes some estimates of 2003 revenues and expenses, as suggested by my Office, and a five-year projection that lays out LIPA's future plans," Hevesi said.

"Additionally, our study found many areas that LIPA should explore to cut costs and to provide assurances that it is providing ratepayers with the best value possible," Hevesi said.

The review of spending practices found:

• Budgeted and actual expenses varied widely in many departments, with differences of as much as 98 Percent. For example, in 2001, spending by the corporate department, a catch-all for costs that don't fit in other categories, was budgeted at $49 million, but was actually $97 million. Finance department spending was budgeted at $5.8 million, but was actually $14.8 million. Clean Energy program spending was budgeted at a total of $60 million for the two years 2001 and 2002, but actually totaled almost $93 million.
• Consultant costs increased from $17.7 million in 2001 to $21.3 million in 2002, including a payment of LIPA's acting chief financial officer Anastasia Song, who was personally paid more than $580,000 from May 2002 to July 2003.
• LIPA spent $700,000 in 2001 for headhunters to fill several positions.
• From 1999 to 2002, the total salary cost associated with staff earning more than $100,000 more than doubled, increasing from $1.5 million to $3.4 million. In 2002, with other benefits such as incentives and vacation buy-back payments, the 24 individuals making more than $100,000 were paid more than $4 million, and represented almost a third of the Authority staff.
• In 2002, LIPA spent more than $2 million on advertising, not including money spent for advertising-related consultant services, and spent more than $400,000 on sponsorship of special events. Included in this spending was a $5,000 sponsorship for the Belmont Stakes, for which the Authority received ten preferred grandstand seats, a table for ten in the North Shore Terrace, and Clubhouse admission.
• The Authority spent more than $200,000 on travel in each year of 2000 through 2002, although much of the travel is done within the Nassau, Suffolk and Queens County service areas.
• In 2002, LIPA paid $108,537 for leased vehicles for 12 of its 79 staff members, an average of nearly $754 per vehicle per month, which included fuel. LIPA officials stated that employees with leased vehicles are not required to pay for fuel because they are on call 24 hours per day.

The report included a number of recommendations, including:

• LIPA should implement changes to make its budget process more open and accountable, including publicizing Finance and Audit Committee meetings in accordance with the Open Meetings Law, providing the budget to the Governor by November 2 of each year, as required by law, releasing schedules of its internal operating budget and spending, and allowing 30 days between public release of the proposed budget and its adoption. The report noted that the 2003 budget was not released until December 20, 2002, and that the 2004 budget was not publicly released until January 22, after the beginning of its fiscal year.
• LIPA should compare the proposed budget to actual operating results in its budget presentation for the public.
• LIPA should make a concerted effort to control costs by reducing its administrative spending and reporting to ratepayers on its specific cost cutting initiatives. When planned initiatives are delayed or budget expenses are not incurred, LIPA should return the surplus to ratepayers by applying it to offset excess costs of fuel and purchased power.

The Comptroller's Office conducted an initial review of LIPA in July 2003 after it was revealed that LIPA's public opinion polls included many questions of a political nature. An audit issued in 2001 concluded that LIPA needed to improve oversight of its contract with Keyspan.

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Click here for a copy of the Comptroller's report.

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