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LIPA Approves a New PSEG-LI Contract

Wed, 12/22/2021 - 17:11

By an 8-to-1 vote on Dec. 15, the Long Island Power Authority’s board of trustees approved a new contract with PSEG Long Island, which operates and maintains the electrical grid on its behalf.

Supporters and critics alike called the new Operation Service Agreement an improvement over the previous contract, though the critics say it falls short, particularly in setting the utility on a path to becoming a fully public power authority operated and managed directly by LIPA.

PSEG Long Island has been under fire for its handling of the aftermath of Tropical Storm Isaias in August 2020, during which its restoration and communications system failed, leaving more than 500,000 customers without power for up to a week and unable to let the utility know. Along with its third-party contractors, LIPA, too, has been criticized for “a lack of transparency, oversight, and accountability,” as Assemblyman Fred W. Thiele Jr. and State Senator James Gaughran said in introducing legislation earlier this month that would see LIPA restructured as a fully public power authority operated and managed directly by the utility by the end of 2025.

The re-formed Operation Service Agreement, said Carrie Gallagher, director of the State Department of Public Service’s Long Island office, “delivers on stricter controls, stronger metrics, stricter reporting, and dynamic compensation mechanisms to compel improved performance and protect ratepayers.” The contract “represents a quantum surge in oversight” by the P.S.C., she said.

Under the new contract, PSEG Long Island will pay $30 million for ratepayer benefits to offset harm caused by failures during Isaias, Ms. Gallagher said, and the “new contract terms are really transformative improvements that will significantly decrease the likelihood of those type of failures in future.” The contract also puts half of PSEG Long Island’s $80 million annual compensation at risk, including automatic reductions for failures to meet minimum emergency response, customer satisfaction, reliability standards. It also sets up a state investigative process to reduce compensation for failure to provide safe, adequate, and reliable service to customers, she said.

The contract also allows for imposition of 110 new metrics across five scope areas, which Ms. Gallagher said “will ensure that numerous aspects of PSEG Long Island’s operation services are scrutinized,” and performance in all scopes improved or maintained appropriately. In addition, it stipulates that PSEG Long Island, a subsidiary of Newark-based Public Service Enterprise Group, will maintain “a truly Long Island-based management team,” which will focus on local operations by requiring all Long Island employees to report to PSEG-LI officials on the Island — “straight-line reporting,” Ms. Gallagher called it.

The contract also requires PSEG-LI to disclose issues such as cybersecurity and outage management system failures, and to provide LIPA and the Public Service Department with plans for timely address of those issues. It creates a requirement for independent verification and validation of information technology systems, and grants new rights to LIPA, in consultation with the state officials, to independently test and validate performance of all “mission-critical” systems, such as those that failed during Isaias.

The contract eliminates its automatic renewal. It “greatly enhances requirements,” Ms. Gallagher said: “It is undeniable that PSEG Long Island faces great consequences should it fail.”

As to accepting the contract, the LIPA board’s lone “no” vote came from Nancy Goroff, a 2020 candidate to represent New York’s First Congressional District, which includes East Hampton Town. “The fundamental problem here is, it’s a contract with a service provider . . . that has not delivered in the past,” she said. While the agreement is “a huge improvement over what we have now,” she said, “we still should be moving toward municipalization, and I want to express my gratitude to Assemblyman Thiele and Senator Gaughran for the legislation that they have introduced to move us in that direction.”

“But, she added, “fundamentally, I still believe we should not be entering into new contracts” with PSEG Long Island.

Mr. Thiele and Assemblyman Steve Englebright wrote to Mark Fischl, the LIPA board’s vice chairman, on Dec. 14 expressing their concerns with the contract. Their letter complained about “the timing, inadequate integration of municipalization, and the continued lack of value and accountability for ratepayers.”

“LIPA rates are among the highest in the country and ratepayers have been held hostage by PSEG-LI with its poor performance and customer service for too long already,” the officials told Mr. Fischl. “The existing contract hurt ratepayers by making them pay for bad performance.”

The revised contract, they said, “has been identified as being successful because it puts $40 million in compensation at risk for PSEG-LI; however, we view it another way. PSEG-LI stands to be rewarded with millions of dollars of ratepayer money, and a guaranteed yearly consumer price index increase, after its abysmal performance failures.”

“While we recognize that this contract is better than the prior bad contract, we think Long Islanders deserve more than that,” they concluded.


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