DiNapoli OKs LIPA grid contract with PSEG

State Comptroller Thomas P. DiNapoli on March 14, State Comptroller Thomas P. DiNapoli on March 14, 2012. Photo Credit: Newsday / Audrey C. Tiernan

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State Comptroller Thomas DiNapoli Wednesday approved the Long Island Power Authority's $3.9 billion contract with PSEG to manage the regional electric grid, at the same time urging LIPA to "accelerate" a plan to achieve a top customer service rating within five years.

Separately, LIPA said it will cut bills another 0.8 percent next month as natural gas prices fall -- a reduction that will put another $1.22 back in the average residential customers' pocket each month for at least the next three months.

The contract approval was the final official hurdle LIPA needed to begin formal transition of the local grid to New Jersey-based PSEG, from current operator National Grid. The Internal Revenue Service and state attorney general previously approved the contract.

In a letter to LIPA Wednesday, DiNapoli's office said its review of the contract showed LIPA properly engaged in a competitive bidding process and awarded it to the lowest-cost, highest-scoring utility in PSEG, which takes over on Jan. 1, 2014.

DiNapoli's office noted that the contract doesn't mandate that PSEG achieve the top-level rating for customer satisfaction in the first five years of the 10-year contract. LIPA's customer satisfaction rating is considered among the worst in the nation.

"LIPA should seek cost-effective ways to accelerate achieving the desired performance levels while maintaining a commitment to and enhanced focus on meeting its statutory mission of lower rates for its customers," the letter states.

In an interview, LIPA chief Michael Hervey and PSEG vice president Dave Daly, who is leading the transition, said there are incentives for PSEG to move to the top level quicker.

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"We would all like to see it happen sooner," Hervey said.

Added Daly, "I think we're confident we can deploy our process and tools and improve customer satisfaction at least along that [five-year] line and we'll be working to accelerate that as well . . . I'm going to challenge my team to move that line on a more aggressive trajectory."

LIPA and PSEG had been working on the transition even before the comptroller's approval. But there are perceived hurdles, including the computer system. LIPA has already broached the prospect of leasing the existing system from National Grid for a year or more beyond the PSEG start date.

Because of the complexity and cost of building a new system from scratch, Hervey said it's likely LIPA and PSEG will have to lease that National Grid system. It will handle things like billing and customer histories for some period, while new systems are started, with some overlap at first.

The letter also notes that LIPA and PSEG have yet to formulate work plans for budgets, storms and emergencies through the 1.5-year transition period.

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"These plans and budgets will provide LIPA with a further opportunity to address persistently high rates, lackluster customer satisfaction results and issues related to storm and emergency response that remain of great concern to Long Island ratepayers" and the comptroller.

Hervey said that is part of the transition process, and that the companies are moving to complete it by the middle of next year.

The letter notes that under the current structure, about 1,900 jobs are involved in managing the electric grid under National Grid, and that under the new contract PSEG has committed to offer jobs to unionized National Grid employees.

PSEG is also obligated, it says, to negotiate a new collective bargaining agreement with the employees once the current agreement expires in 2015.

"LIPA and PSEG must work together to ensure that sufficient work crews are maintained and jobs are preserved on Long Island, collective bargaining agreements are honored, and that disruption to service and employment is minimized," the letter states.

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Said Hervey, "I expect things will go very well with unions," including maintaining contracts and work levels.

Daly said PSEG expects to employ the same workforce of "around 2,000" employees to operate the grid, including much of National Grid's dedicated electric operations -- union and management. The challenge, he said, is in extricating operations that are currently combined gas/electric at National Grid.

LIPA has agreed to keep open a call-center on Long Island, as well as walk-in customer service centers. It's unclear if they'll stay in the same locations but LIPA currently has 11 walk-in centers that employ dozens of workers.

Hervey said the bill decrease is part of LIPA's commitment to adjust the power supply charge on customers' bills quarterly in line with fluctuations in fuel prices.

"Promise made, promise kept," he said. LIPA expects to move to monthly adjustments in October.

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