Can the Long Island Power Authority pay performance bonuses to its employees, and can it give charitable contributions or sponsorship dollars to local civic and not-for-profit groups?

Plain-English summary

The Long Island Power Authority (LIPA), the public power authority that took over LILCO's retail electric system in 1998, asked the AG two questions about how it spends ratepayer money: are performance bonuses legal, and can LIPA continue making sponsorships and charitable contributions to local civic and not-for-profit groups?

Bonuses: yes. LIPA pays employees a base salary plus an annual incentive payment scaled to individual and corporate performance ratings. The AG read that as a permissible form of compensation under LIPA's statutory authority to fix the compensation of its employees, Public Authorities Law §§ 1020-e and 1020-f(c). State Comptroller opinions had previously approved similar performance- and attendance-incentive programs for cities and counties. The AG flagged a separate constraint, though: LIPA rates must be "at the lowest level consistent with sound fiscal and operating practices" (§ 1020-f(u)), so the size of any incentive package has to live within that rate-setting constraint.

Sponsorships and contributions: depends on purpose. The legal test is whether the payment directly relates to one of LIPA's enumerated powers, duties, or purposes. The opinion works through examples:

• National Solar Tour sponsorship. Authorized. Section 1020-g(h) gives LIPA power to "implement programs and policies designed to provide for the interconnection of . . . solar electric generating equipment owned or operated by residential customers." The legislative findings in § 1020-a direct LIPA to use renewables and energy efficiency. The Tour fits both.
• Customer-base and economic-development sponsorships. Potentially authorized under § 1020-g(g) (study means of maintaining the customer base and attracting commerce to the service area) or § 1020-g(i) (least-cost planning). The opinion stops short of categorical approval; each sponsorship is to be evaluated against the powers.
• General charitable-giving program. Not authorized. LIPA had inherited a goodwill-giving program from LILCO and kept renewing it on the theory that improving community goodwill smoothed customer relations. The AG rejected that justification on three grounds: (1) public authorities, as creatures of statute, cannot exercise powers not delegated to them by statute (Abiele Contracting v. NYC SCA); (2) under Cahill v. PSC, charitable contributions by utilities are "predominately" a private corporate-PR benefit, not a service to ratepayers; and (3) it conflicts with the LIPA Act's "sine qua non objective" of reducing utility costs for ratepayers (Citizens for an Orderly Energy Policy v. Cuomo).

The AG acknowledged that this conclusion treats LIPA differently from investor-owned utilities (which can make corporate contributions, subject to other rules), but defended that asymmetry: LIPA exists to provide low-cost reliable electric service, not to be a general civic philanthropist.

Currency note

This opinion was issued in 2007. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could LIPA save the charitable-giving program by tying it more tightly to ratepayer interests?
The AG's analysis leaves room for that approach. If a contribution directly serves a LIPA statutory purpose, like funding a non-profit that promotes residential solar installation in the service area, it can fall within the statute. The problem with LIPA's existing program was not that contributions were going to non-profits, but that the criteria turned on community goodwill rather than on a LIPA mission tie.

What about the ratepayer opt-out LIPA had built into its charitable program?
The opt-out gave ratepayers a small bill credit if they did not want their pro-rata share of the charitable expenditure. The AG did not treat that as fixing the legal problem. The question is LIPA's authority to spend ratepayer money in the first place, not whether ratepayers consent ex post.

Are bonuses for senior LIPA executives treated the same way?
The opinion does not draw an executive/non-executive line. The general rule, that incentive payments are part of compensation, applies across the board, but the § 1020-f(u) low-rate constraint pushes the Board to keep total compensation reasonable. Whether any specific executive bonus is reasonable is a Board judgment.

How is LIPA different from a regular investor-owned utility on this issue?
Investor-owned utilities can contribute corporate funds to charities (with separate constitutional and regulatory limits). They report to shareholders. LIPA reports to its ratepayers and to the State; it has only the powers the LIPA Act gives it, and "goodwill" is not in the statute as a standalone end.

What is the Cahill case the AG relied on?
Cahill v. Public Service Com'n, 76 N.Y.2d 102 (1990), held that allowing investor-owned utilities to pass the cost of charitable contributions through to ratepayers was unconstitutional under the First Amendment because it forced ratepayers to subsidize speech they may not endorse. The AG cited Cahill's underlying view that utility charitable giving primarily benefits the utility's public-relations interests, not ratepayer service interests.

Background and statutory framework

The LIPA Act. Title 1-A of Article 5 of the Public Authorities Law (§§ 1020 to 1020-w) created LIPA after the State found that LILCO's costs, particularly its investment in the Shoreham nuclear plant, were threatening the Long Island economy. LIPA is a corporate municipal instrumentality of the State, a political subdivision, governed by a board of trustees. § 1020-c(1), § 1020-d. It is mostly outside Public Service Commission oversight, retaining PSC jurisdiction only for transmission siting, generation siting (now expired), and § 18-a assessments. § 1020-s(1).

LIPA powers. Section 1020-f grants "all of the powers necessary or convenient to carry out the purposes and provisions" of the Act. Section 1020-e authorizes the Board to hire employees, set their qualifications and duties, and fix compensation. Section 1020-f(u) caps rates at the lowest level consistent with sound fiscal practice and adequate service. Section 1020-g lists specific powers, including studying customer-base maintenance and attraction (g)(g), implementing solar-interconnection programs (g)(h), and developing comprehensive least-cost plans (g)(i). Section 1020-gg directs liberal construction.

Authority of public authorities to spend. Abiele Contracting, Inc. v. New York City School Constr. Authority, 91 N.Y.2d 1, 10 (1997), confirmed that public authorities, as statutory creatures, have only the powers given by express or necessarily-implied delegation. That is the constitutional backstop on every spending question.

Utility charitable contributions. Cahill v. Public Service Com'n, 76 N.Y.2d 102 (1990), addressed PSC policy permitting utilities to pass charitable-contribution costs to ratepayers. The Court held the practice unconstitutional and characterized utility charitable giving as predominantly serving the utility's private interests. Citizens for an Orderly Energy Policy v. Cuomo, 78 N.Y.2d 398 (1991), described the LIPA Act's purpose as saving ratepayer money by controlling and reducing utility costs.

Citations

• Public Authorities Law §§ 1020 to 1020-w (LIPA Act); § 1020-a (legislative findings); § 1020-c(1) (corporate status); § 1020-d (board of trustees); § 1020-e (employee authority); § 1020-f (powers, necessary or convenient); § 1020-f(c) (compensation); § 1020-f(u) (lowest-level-rates standard); § 1020-g(g) (customer base/attraction); § 1020-g(h) (residential solar interconnection); § 1020-g(i) (comprehensive least-cost plan); § 1020-gg (liberal construction); § 1020-s(1) (limited PSC jurisdiction).
• Public Service Law Article 4 (general PSC regulation of electric corporations, from which LIPA is largely exempt).
• Abiele Contracting, Inc. v. NYC School Constr. Authority, 91 N.Y.2d 1, 10 (1997) (public authority has only delegated powers).
• Cahill v. Public Service Com'n, 76 N.Y.2d 102, 114 (1990) (utility charitable giving predominantly serves corporate, not ratepayer, interests).
• Citizens for an Orderly Energy Policy v. Cuomo, 78 N.Y.2d 398, 414 (1991) (LIPA's sine qua non objective is reducing utility costs for ratepayers).
• Op. St. Comptr. No. 85-44 (cities may establish performance incentive award program).
• Op. St. Comptr. No. 81-107 (counties may establish attendance incentive award program).

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/2007-F4_pw.pdf

Original opinion text

Public Authorities Law §§ 1020-1020-w, 1020-a, 1020-c(1), 1020-d,
1020-e, 1020-f, 1020-f(c), 1020-f(u), 1020-g(g), 1020-g(h),
1020-g(I), 1020-gg, 1020-s(1); Public Service Law Article 4

LIPA employees may receive "bonuses" as part of an incentive compensation plan. Whether financial sponsorships of programs under the auspices of local organizations and charitable contributions are legal depends on the purpose for which the sponsorships or contributions are made.

October 9, 2007

Kevin Law
Chairman
Long Island Power Authority
333 Earle Ovington Boulevard
Suite 403
Uniondale, New York 11553

Formal Opinion
No. 2007-F4

Dear Mr. Law:

You have requested an opinion regarding certain uses of funds of the Long Island Power Authority (LIPA). First, you have indicated that LIPA currently pays bonuses to its employees based on LIPA reaching certain performance benchmarks. You have asked whether payment of these bonuses is legal. Second, LIPA makes financial contributions to local not-for-profit organizations and civic and business entities. You have asked whether these contributions may legally be made by LIPA. As explained more fully below, we conclude that payment of the bonuses to LIPA employees appears to be legal. Whether sponsorships of programs under the auspices of local organizations and charitable contributions are legal depends on the purpose for which the sponsorships or contributions are made.

Background

LIPA was established by title 1-A of the Public Authorities Law ("LIPA Act"). In creating LIPA, the Legislature made the following statement:

The legislature hereby finds and declares that:

Constantly escalating and excessive costs of electricity in the counties of Suffolk and Nassau and that portion of the county of Queens served by the Long Island lighting company (hereinafter referred to as the "service area") pose a serious threat to the economic well-being, health and safety of the residents of and the commerce and industry in the service area.

There is a lack of confidence that the needs of the residents and of commerce and industry in the service area for electricity can be supplied in a reliable, efficient and economic manner by the Long Island lighting company (hereinafter referred to as "LILCO").

Such excessive costs and lack of confidence have deterred commerce and industry from locating in the service area and have caused existing commerce and industry to consider seriously moving out of the service area.

The decisions by LILCO to commence construction of the Shoreham nuclear power plant and thereafter to continue such construction were imprudent.

The investment of LILCO in the Shoreham nuclear power plant has created significant rate increases, straining the economic capabilities of ratepayers in the service area, and likely will require further substantial rate increases if such plant is placed in service.

It is uncertain whether the Shoreham nuclear plant ever will go into commercial service, or if it does whether its reliability, cost of construction, operation and maintenance will be such as to provide sufficient, reliable and economic electric service to ratepayers in the service area. The very substantial financial strain of the investment in the Shoreham nuclear plant has required LILCO to suspend dividends on its common and preferred stock, severely threatening the continued economic viability of LILCO.

For all the above reasons, a situation threatening the economy, health and safety exists in the service area.

Dealing with such a situation in an effective manner, assuring the provision of an adequate supply of electricity in a reliable, efficient and economic manner, and retaining existing commerce and industry in and attracting new commerce and industry to the service area, in which a substantial portion of the state's population resides and which encompasses a substantial portion of the state's commerce and industry, are hereby expressly determined to be matters of state concern within the meaning of paragraph three of subdivision (a) of section three of article nine of the state constitution.

Such matters of state concern best can be dealt with by replacing such investor owned utility with a publicly owned power authority. Such an authority can best accomplish the purposes and objectives of this title by implementing, if it then appears appropriate, the results of negotiations between the state and LILCO. In such circumstances, such an authority will provide safe and adequate service at rates which will be lower than the rates which would otherwise result and will facilitate the shifting of investment into more beneficial energy demand/energy supply management alternatives, realizing savings for the ratepayers and taxpayers in the service area and otherwise restoring the confidence and protecting the interests of ratepayers and the economy in the service area. Moreover, in such circumstances the replacement of such investor owned utilities by such an authority will result in an improved system and reduction of future costs and a safer, more efficient, reliable and economical supply of electric energy. The legislature further finds that such an authority shall utilize to the fullest extent practicable, all economical means of conservation, and technologies that rely on renewable energy resources, cogeneration and improvements in energy efficiency which will benefit the interests of the ratepayers of the service area.

Public Authorities Law § 1020-a. LIPA became responsible for the provision of electric service to its service area in 1998.

LIPA was created as a corporate municipal instrumentality of the State, a body corporate and politic, and a political subdivision of the State. Id. § 1020-c(1). It is governed by a board of trustees, one of whom is designated as chairman. Id. § 1020-d. The board is authorized to hire employees required for the performance of LIPA's duties without regard to any personnel or civil service law, rule, or regulation of the State but in accordance with guidelines adopted by LIPA, id. § 1020-e, and to prescribe their duties and qualifications and fix and pay their compensation, id.; see also id. § 1020-f(c).

In addition to specific grants of power, LIPA has been granted "all of the powers necessary or convenient to carry out the purposes and provisions" of the LIPA Act. Public Authorities Law § 1020-f. The provisions of the LIPA Act, "being necessary for the prosperity of the state and its inhabitants," are to be "liberally construed to effect [its] purposes." Id. § 1020-gg.

LIPA is generally not subject to oversight by the Public Service Commission, the state governmental entity that regulates the provision of service by electrical corporations in New York. Public Authority Law § 1020-s(1); Public Service Law article 4.

Analysis

A. Payment of Bonuses to LIPA Employees

You have asked whether the current practice of paying bonuses to LIPA employees, which, according to your letter, depends on "whether certain performance benchmarks are met by LIPA", is legal. We understand that LIPA has adopted an incentive compensation plan whereby the performance of LIPA employees and of LIPA itself are evaluated annually in terms of whether certain benchmarks, established beforehand, have been met. Each employee and LIPA are rated on a scale from one to five based on the success of the employee and of LIPA in meeting the benchmarks. An employee's total compensation for the year includes a base salary and an incentive payment determined by combining the employee's personal rating with LIPA's corporate rating. An employee who fails to perform satisfactorily may receive no incentive payment in addition to his base salary.

We believe that this payment of bonuses to employees of LIPA falls within LIPA's authority to fix the compensation of its employees. Completion of the requisite goals is a condition of the employment agreement between LIPA and its employees upon which the employees' total compensation is paid. The State Comptroller has opined that performance incentive programs may be established by local governments under their authority to fix the compensation of their officers and employees. See Op. St. Comptr. No. 85-44 (city may establish performance incentive award program for its employees); cf. Op. St. Comptr. No. 81-107 (county may establish attendance incentive award program). Likewise, we conclude that a performance incentive payment program may be part of a compensation package for LIPA employees.

Your letter suggests that the size of the bonuses paid as part of the incentive program, rather than the mere fact of the bonuses, may be of concern. We note that the rates to be charged by LIPA are to be "at the lowest level consistent with sound fiscal and operating practices of the authority and which provide for safe and adequate service." Public Authority Law § 1020-f(u). The compensation packages of LIPA employees should satisfy this standard.

B. Financial Contributions to Local Organizations

With respect to your second question, you have indicated that LIPA sponsors programs organized by local civic, business, and not-for-profit entities and makes charitable contributions to not-for-profit entities, and have asked whether such payments are legal.

An example of a program sponsorship is LIPA's participation in the National Solar Tour. LIPA partners with Renewable Energy Long Island, a not-for-profit organization, to host this program locally. Under the program, homes and businesses on Long Island that have solar features are opened so prospective solar energy-users can see how solar features are installed and used.

Examples of payments that have taken the form of charitable contributions can be found at the LIPA website. We understand that LIPA's charitable giving program was initially implemented by LILCO. LIPA decided to continue the program upon its acquisition of most of LILCO's retail electrical system, in order to smooth the transition in service responsibility from LILCO to LIPA, to promote and preserve customer goodwill, and to further the well-being of the Long Island community. See Long Island Power Authority, Minutes of the 113th Meeting Held on May 3, 1999, at 17-18. Originally approved as a two-year program, it has been re-adopted every two years since. It was most recently adopted to "enable LIPA to participate appropriately in the enhancement of the well being of the Long Island community, and to preserve and promote customer good will." Long Island Power Authority, Minutes of the 172nd Meeting Held on Dec. 15, 2005, at 29-30.

Under the charitable giving program, a not-for-profit corporation can apply to receive funds from LIPA for non-discriminatory, non-religious purposes to be served within LIPA's service area. Grants are awarded by a committee of LIPA employees in accord with general guidelines. In the past, the program has been authorized to distribute up to $125,000 each year. A ratepayer who does not want to participate in the program has been able to opt out and receive a credit of $0.15 on his or her electric bill for his or her pro rata share of the annual expenditure.

In our opinion, the legality of a payment such as those described above, whether in the form of a sponsorship or a charitable contribution, depends on whether it directly relates to a power, duty, or purpose of LIPA. Therefore, for example, we believe that participation in the National Solar Tour is authorized by Public Authorities Law § 1020-g(h), which grants LIPA the power to "implement programs and policies designed to provide for the interconnection of . . . solar electric generating equipment owned or operated by residential customers." See also id. § 1020-a ("The legislature further finds that [LIPA] shall utilize to the fullest extent practicable . . . technologies that rely on renewable energy resources, cogeneration and improvements in energy efficiency which will benefit the interests of [LIPA's] ratepayers.").

Other grants of power to LIPA that may authorize particular financial contributions include Public Authorities Law § 1020-g(g), which authorizes LIPA to "study means of maintaining the customer base in, and attracting commerce and industry to the service area," and section 1020-g(i), which authorizes LIPA to "develop, with public participation, a comprehensive least-cost plan which shall consider practical and economical use of conservation, renewable resources, and cogeneration for providing service to its customers."

In the event, however, that a financial contribution does not directly relate to one of LIPA's powers, duties, or purposes, then we believe it would fall outside LIPA's authority to give. As a creature of statute, LIPA lacks powers not granted to it by express or necessarily implicated legislative delegation. Abiele Contracting, Inc. v. New York City School Constr. Authority, 91 N.Y.2d 1, 10 (1997). While we recognize that the LIPA Act is to be liberally construed to effect its purposes, Public Authorities Law § 1020-gg, its purposes must in fact be served in order for LIPA's acts to be authorized.

With respect to the charitable giving program, we find nothing in the powers, duties, or purposes of LIPA that renders improving community goodwill or the well-being of the community unrelated to the provision of electrical service as part of LIPA's mission. Moreover, while LIPA has "all the powers necessary or convenient to carry out the purposes and provisions" of the LIPA Act, Public Authorities Law § 1020-f, we believe that increased goodwill is neither necessary nor convenient for complying with the provisions of or achieving the purposes of the LIPA Act. "Indeed, the beneficial corporate public relations generated by the largesse made in the name of public utilities essentially advances predominately the private interests of the utility corporations . . . and are too peripheral to the service interests of the ratepayers." Cahill v. Public Service Com'n, 76 N.Y.2d 102, 114 (1990) (emphasis in original). Furthermore, the charitable contribution program appears to conflict with the "sine qua non objective" of the LIPA Act, "to give LIPA the authority to save ratepayers money by controlling and reducing utility costs." Citizens for an Orderly Energy Policy v. Cuomo, 78 N.Y.2d 398, 414 (1991). For these reasons, we are of the opinion that the charitable contribution program is not authorized.

We recognize that our conclusion that LIPA is not authorized to make payments to business, civic, and not-for-profit entities that do not directly relate to LIPA's mission contrasts with the corporate sponsorships and charitable contributions that investor-owned utility corporations may make. It has been suggested that our conclusion will result in disadvantaging or penalizing worthwhile organizations and causes that, were they located in a community that was serviced by such a shareholder-owned utility corporation, could receive corporate funds. While we do not doubt that these organizations provide worthy services, support of these services is not why the State created LIPA.

Very truly yours,

ANDREW M. CUOMO
Attorney General