Cuomo bill to look at public takeover of NY American Water in Nassau County

Gov. Andrew M. Cuomo on Wednesday unveiled sweeping utility-reform legislation that also calls for the state to review the prospect of a municipal takeover of New York American Water’s Nassau County infrastructure, even as the company prepares for a $607 million sale to Liberty Utilities.

The bill is part of a broader set of utility reforms that also calls for steeper penalties for inadequate utility response in storms and an easier path to revoking a utility's right to operate in the state. It calls for the state Public Service Commission to conduct a study of a public takeover for American Water’s Nassau infrastructure by April 1, and to hold three public hearings.

Earlier this month, the state pushed until Dec. 31 the time for local governments and water districts to offer proposals for such municipal takeovers. Public hearings on New York American Water’s sale to Liberty Utilities are set to start next week.

New York American Water for years has been the subject of withering criticism by ratepayers and public officials, and the subject of multiple investigations over soaring bills, poor customer communications and rate-case irregularities.

In a statement Wednesday, company president Lynda DiMenna said, "We believe a study would demonstrate that we can best deliver safe, reliable water service to our customers," noting its recent "excellent" storm response, water quality compliance and infrastructure investment. "The study would also demonstrate that the special franchise tax unjustly placed on our customers is the real issue impacting affordability."

The company has previously argued "full or a piecemeal sale of our systems to public entities would take several years, cost taxpayers millions of dollars and lead to gaps in service."

Language in Cuomo’s bill cites the investor-owned water system that is "fragile and subject to episodic deficiencies of varying magnitude," including service disruptions and "drastic price variations."

In a news briefing, Cuomo cited the "astronomical" differences between American Water's rates and those of surrounding municipal utilities, along with "significant issues about the safety and quality of the water" the company provides to some 125,000 Nassau ratepayers, from Lynbrook to Sea Cliff.

His bill would set a framework for distinguishing between utility and customer-owned assets when a utility's operating franchise is revoked by the state. The bill also would remove the cap on penalties utilities such as PSEG Long Island/LIPA pay for failed performance, limit how much utility executive pay can be funded by ratepayers, and make it easier to revoke a franchise.

Utilities in the state "are not too big to fail and they are not going to bully consumers," Cuomo said. "It's over."

State Sen. John Brooks (D-Seaford), who has spent four years pushing for reforms at the water company, said the legislation provides "the path for what we want to do," including for public water. He said he believed the planned purchase of the company by Liberty Utilities isn't likely to go forward.

"For New York American Water, I think the show is over at the end of the day," Brooks said. He added: "We've got to make sure the PSC makes use of its new tools to protect consumers."

State Sen. Jim Gaughran (D-Northport), who will sponsor the senate legislation, called the measure a "real game changer," and said he'd work with Cuomo to get it passed. "It's the beginning of the end of people having to pay exorbitant water rates," he said. "We need public water for everybody."

State Sen. Todd Kaminsky (D-Long Beach), said ratepayers "have had it up to their eyeballs with utilities that refuse to be held accountable." He said the compensation-cap element of the bill specifically would add a "layer of transparency" for "outrageous CEO salaries" — pay levels he's seeking to have publicly disclosed through a separate bill.

In its study of New York American Water, the Department of Public Service will examine whether a municipal takeover "will better protect the aquifer and provide better and safer service to the residents of Nassau County."

It will look specifically at the ability of local governments to "safely provide service alone or in coordination with any other entity currently providing service," or identifying "new providers" that can do so. It also will look into the ability of local governments to provide water service "at lower cost to customers due to their tax-exempt and not for profit status, and the impact on municipal revenues."

Hempstead Town, the Village of Sea Cliff and the Massapequa Water District have already undertaken such studies, and Massapequa found it would be feasible.

Cuomo acknowledged that PSEG isn't subject to Public Service Commission authority, but said the new law "will be binding on LIPA and therefore will pass through to PSEG."

LIPA, in a statement, said Cuomo's proposed bill is "another mechanism to hold PSEG Long Island, and any future service provider, accountable for repeated failures to fulfill their obligations to LIPA’s customers. PSEG Long Island’s response to Tropical Storm Isaias was unacceptable."

LIPA said it would issue a 90-day report in November with "more of our findings on PSEG’s preparedness and response to the storm."

PSEG Long Island, in a statement Wednesday, said the company has been "hard at work making improvements based on lessons learned during Tropical Storm Isaias. We are aware of the legislation proposed by Governor Cuomo today and we will review it once presented."

Cuomo's bill would lift caps on penalties for utilities to make fines more commensurate "with the damage done by the utility company," the governor said. At present, he noted, penalties are shrugged off by utilities as "a cost of doing business."

Cuomo said passing the bill won't be easy. "This is going to greatly disrupt the utilities and they are going to push back very hard," he said.