The Long Island Power Authority is challenging PSEG Long Island's claims that state recommendations to reduce PSEG's requested rate hike violate the New Jersey-based utility's contract and the LIPA Reform Act.

In recent filings with the state, PSEG said that if the New York State Department of Public Service rejects PSEG Long Island's rate proposals, "and if the LIPA board accedes to that result, the resulting budgets will not provide the necessary support PSEG LI believes is required to attain the goals" of its contract with LIPA.

PSEG is seeking a three-year rate hike that would bring in a cumulative $387.1 million in new revenue by the end of 2018. An advisory committee of the state Department of Public Service has recommended the total be limited to $324.6 million. In dispute are amounts that would affect PSEG's programs to trim trees to prevent storm-related outages and inspect aging utility poles.

LIPA in its filing said it "cannot endorse the position expressed by PSEG" on the issue of whether the state rate process violates PSEG's contract with LIPA and the LIPA Reform Act. LIPA disputed PSEG's argument that the state's lower revenue figures "violate" the LIPA contract, saying PSEG had enough budgetary discretion to manage the electrical grid cost effectively and still hit performance targets.

PSEG has "the right -- indeed the responsibility -- to apply expenditure dollars, both operating and capital, according to prudent management priorities," LIPA wrote. "Prudent management also consists of utilizing resources most effectively and efficiently."

As part of its contract with LIPA, PSEG can receive millions of dollars in incentive payments beyond its contractual management fee if it hits certain performance targets. Under the contract, the management fee next year will rise to $73 million from a previous $45 million. The fee covers management salaries and other corporate costs.

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LIPA has been largely in lock step with PSEG on many elements of the rate case. Indeed, PSEG in its recent filing said it was "disappointed that LIPA staff has declined to support the budgets the utility jointly submitted with PSEG."PSEG's latest filing also takes Brookhaven Town to task for criticizing flaws in the rate-hike proceeding and demanding that the state comptroller conduct a full audit.

"That Brookhaven fundamentally misunderstands and misconstrues the entire process is due to Brookhaven's refusal to engage in it -- nothing more," PSEG said.

Rob Calica, an attorney for Brookhaven, said Monday that the town's filing "obviously struck a raw nerve with PSEG."

"Rather than defend the flimsiness of this receord, they're attacking both the merits of the town's filing and the integrity of what the town did," he said. "It's without merit."