UPDATE 1-New York commission recommends privatizing LIPA
* National Grid operates LIPA's power system
* Commission calls LIPA management structure dysfunctional
* PSEG to operate LIPA system starting 2014
Jan 7 (Reuters) - A New York state commission on Monday recommended privatizing the Long Island Power Authority (LIPA), a state-owned entity that was slow to restore power to customers on Long Island following Superstorm Sandy in October.
LIPA, with just 100 employees, provides power on Long Island through a services agreement with UK power company National Grid Plc.
The Moreland Commission, set up by New York Governor Andrew Cuomo, found that LIPA had a "dysfunctional management structure" that led to an operational and communications disconnect between LIPA and National Grid, and an inadequate response to Sandy.
The storm left more than 90 percent of the 1.1 million LIPA customers on Long Island without power, some for more than two weeks.
"We are reviewing the report and will continue to cooperate with the state and the Moreland Commission to do what is in the best interest of Long Island's ratepayers," LIPA said in a statement.
In response to the Moreland Commission's recommendations, National Grid said in an emailed statement, "We have been a responsive participant in the Moreland Commission's efforts and will continue to be fully engaged as the process continues."
"National Grid is proud of our performance in Sandy, as well as our day-to-day to commitment to being present for our customers and investing in our energy networks in New York," the company said.
LIPA's services agreement with National Grid expires at the end of 2013. At that time, a unit of New Jersey power company Public Service Enterprise Group Inc is set to take over as the system's operator for 10 years.
"PSEG continues the work necessary to fulfill its obligations under its existing management services contract with LIPA. We welcome the efforts of Governor Cuomo and the Moreland Commission's preliminary recommendations on how best to provide Long Island consumers with the high level of service," PSEG said in an emailed statement.
Cuomo set up the Moreland Commission to investigate why it took so long for some of the state's utilities, including LIPA and Consolidated Edison Inc, to restore power after Sandy, and to make recommendations to improve the state's power sector.
The commission recommended a complete overhaul of LIPA and the system by which power is delivered on Long Island.
It recommended that a private utility buy LIPA. Alternatives, it said, include LIPA assuming management of its own operating system, or another public power authority like the state-owned New York Power Authority (NYPA) taking over responsibility for LIPA.
NYPA is a state-owned generating company that operates about 1,400 miles of transmission lines in the state.
OPTIONS ALREADY CONSIDERED
This is not the first time LIPA considered some of these options.
As part of a restructuring, LIPA in 2011 considered selling its system to another utility, assuming operation of its power system or hiring another company to continue operating its system. It decided to pick another company - PSEG - to manage its system as the lowest cost option for its customers.
Other companies in the running to manage the system included Consolidated Edison and National Grid, which has been running LIPA's power system since buying original operator KeySpan in 2007.
LIPA was created in 1985 to take over the assets of the Long Island Lighting Co (LILCO), which was harshly criticized for not restoring power quickly after Hurricane Gloria that year and for the construction of the $6 billion Shoreham nuclear power plant - which failed to win state approval.
Shoreham ultimately was sold to LIPA for a dollar in 1989 and later decommissioned, while LILCO's other power plants went to local power provider KeySpan. National Grid acquired the Long Island power plants - and the contract to operate LIPA's system when it bought KeySpan.
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