LIPA and PSEG sign a new contract
LIPA and PSEG Long Island have reached an interim contract deal that would keep the New Jersey-based electricity service provider in place until at least 2025 while instituting new accountability controls and measures to address PSEG failures. during Tropical Storm Isaias, Newsday learned.
The deal, reached early Sunday morning, would also settle LIPA’s $ 70 million breach of contract lawsuit against PSEG by providing LIPA with $ 30 million in cash and credits, an amount that includes the $ 6.6 million. dollars already paid to cover reimbursements for food and medicine.
The deal would “eliminate” PSEG’s ability to automatically extend the eight-year contract beyond 2025, LIPA said.
What there is to know
- LIPA and PSEG Long Island have entered into an interim contract agreement that would keep the electric utility in place until at least 2025.
- The deal would also settle LIPA’s $ 70 million breach of contract lawsuit against PSEG by providing LIPA with $ 30 million in cash and credits.
- The PSEG would now be subject to much more detailed and rigorous performance standards, LIPA said.
LIPA, PSEG and the state have yet to develop a new contract language, which must then be voted on by the LIPA board and approved by the state.
The terms of the settlement were reached by officials at the highest levels of Governor Andrew M. Cuomo’s civil service department, including DPS Director General John Howard and Deputy Director General Tom Congdon, as well as PSEG officials. and LIPA Executive Director Tom Falcone.
In an interview on Sunday morning, Falcone, who criticized the PSEG and its officials in the wake of the storm, said the new interim pact with the PSEG offers LIPA new levels of performance pay, accountability and improved services that were worthy of reconsideration by LIPA after previously attempting to terminate the contract. He said LIPA would suspend efforts to find another supplier after months of marketing the contract to suppliers across the country.
Falcone said the terms tentatively agreed to by the PSEG meet the demands of LIPA and the Trustees.
“If we are to give PSEG another chance, we need more than just promises, but something that we can bring to the bank that would give us faith” that past failures “will not happen again”, he said. Falcone said. He added: “I think this is by far the best contract LIPA has ever had.”
Howard said, “This historic agreement ensures that PSEG Long Island customers receive the protections they so badly need, and Governor Cuomo has long made it clear that Long Island customers need better protection. The Public Service Department will ensure that PSEG Long Island meets all stringent new requirements, and we will diligently ensure that PSEG Long Island is held accountable for meeting this new regulatory standard. “
With the storm season already underway, the focus is not so much on the contract, but on PSEG’s ability to quickly resolve issues should another storm hit the region. As recently as last week, LIPA noted that although PSEG has made “progress”, it is still using an “outdated” computer system to manage and respond to storms, and a new one is not expected to be ready to install until late. of the season this fall.
Since its inception, LIPA has relied on external providers to manage the network under long-term contracts, starting with KeySpan / MarketSpan in 1998, although LIPA, a public authority, owns the network, including including cables, transmission towers, substations and equipment. National Grid took over the contract when KeySpan was acquired in 2007. National Grid, which owns most of the local power plants, was replaced by PSEG in 2014.
The move is sure to annoy the hundreds of clients and activist groups who have flooded town halls and forums with commentary demanding that LIPA immediately terminate its contract with PSEG and become an authority in its own right, LIPA. managing and operating the system itself. Some of these advocates have lost patience even with LIPA’s attempt to gauge interest in hiring new service providers.
But the state has been a consistent, albeit little-noticed, advocate of LIPA in trying to resolve its differences with the PSEG, and it has had the support of some local business groups and PSEG employees.
It was Cuomo’s LIPA Reform Act of 2012 that gave PSEG a greater management role than a LIPA previously negotiated after National Grid’s failures in Super Storm Sandy. PSEG officially took over from National Grid in 2014, and has gradually increased customer satisfaction scores.
Cuomo in a ceremony on Long Island symbolically removed the LIPA name from a service truck and replaced it with the PSEG Long Island logo, and service has improved somewhat steadily over the years since followed, although PSEG never achieved its promised 25% ranking among major utilities for customer satisfaction by JD Power.
Then came Isaias, which resulted in 645,000 outages affecting 535,000 customers and, worse, a “fog of war”, according to Falcone, which prevented customers from communicating with PSEG by phone or SMS, or obtaining restore times. accurate for days.
Falcone said the new contract would keep PSEG “on a leash,” and called the deal the business equivalent of a prenuptial agreement, with LIPA having much greater rights in terms of performance requirements, liability, budgeting and compensation than ever before. “It’s a real pay-for-performance deal,” Falcone said.
Under the new terms of the deal, most of PSEG’s $ 78 million annually in compensation would be “at risk” if PSEG did not meet the terms, up from $ 10 million per year currently.
The new contract would trigger automatic reductions if PSEG failed to meet minimum standards for storm response, customer satisfaction and system reliability metrics. The state would also have the right to institute a new investigative process that could result in further pay cuts, LIPA said.
Compared to the 24 annual service metrics that Falcone criticized as outdated, the PSEG would now be subject to significantly more detailed and rigorous performance standards, LIPA said.
The PSEG would also be required to ensure greater transparency in its use of subcontractors to perform services, and to strengthen its Long Island management team, with the President of the PSEG Long Island having “full and operational” decision-making power. for the company, with all the employees who report to it, and their remuneration linked to performance here. Currently, about 40 PSEG IT people also report at its headquarters in New Jersey.
For LIPA’s complaints about misrepresentation by PSEG officials during its months of investigation following Isaias, the new agreement requires “timely affirmative disclosure” to LIPA and the state on issues that “significantly compromise” PSEG’s ability to provide reliable service. These include issues such as service, cybersecurity, financial problems, non-compliance with laws or “circumstances that could endanger public health, safety and welfare,” according to a list of LIPA conditions.
The PSEG is also required to resolve “known” operational issues identified by LIPA or the State in “a timely manner”.
The deal would require PSEG Long Island to separate its computer systems from those of its New Jersey parent company and give LIPA new rights to test and validate their performance.
Of the $ 30 million to settle the LIPA breach of contract complaint, $ 3.9 million would come in the form of contributions to Long Island charities, $ 6.6 million includes the amount already reimbursed to customers for the food and medicine lost after the storm; and $ 19.5 million, including cash or credits, to LIPA to pay for the cost of computer system upgrades since the storm. It includes the roughly $ 3 million that LIPA would have paid in incentive pay for 2020 for PSEG to meet certain performance metrics.
Falcone said that LIPA retains “all of our rights” if the new contract does not work and LIPA decides to become a fully-fledged public service in the future. He said the contract contained “rock-solid” terms that PSEG must adhere to or that “we have retained our rights to consider our other options.”
“Either they’re going to play or at some point we have to say it doesn’t work,” Falcone said.