Consultants for the Long Island Power Authority may have used the utility as a personal piggy bank in the past few years, all on the dime of beleaguered ratepayers. Now, as LIPA reform is promised yet again, we must make sure history doesn't repeat itself.
The state Moreland Commission appointed by Gov. Andrew M. Cuomo to investigate LIPA's poor performance during Sandy was followed up a few weeks ago with a disturbing final study. It described exorbitant billing practices and other unexplained expenses, generated primarily by Navigant Consulting Inc. and a handful of other consultants.
Between 2008 and 2011, Navigant, the utility's prime consultant, received more than $28 million, with some senior experts getting up to $500 an hour. One senior Navigant adviser billed LIPA for more than 3,500 hours in 2008, while reportedly working for other clients, too. Meanwhile, at the low end, consultants got reimbursed for $15 cash tips to chambermaids at hotels whose room costs exceeded state policy.
Making the cozy relationship with Navigant appear even worse, the commission found that Michael Hervey, LIPA's former chief operating officer and interim chief executive, personally approved $15 million of Navigant's bills between 2007 and 2012. In 2010, he signed a $23-million contract to ensure Navigant would stay on as a LIPA consultant for the next five years. Hervey resigned in mid-November amid the fallout over LIPA's poor response to Sandy. At the time, he said he had been considering leaving since August, when it was clear Cuomo wasn't going to appoint him to the top post. In January, he began working for Navigant.
The Moreland findings were referred to federal prosecutors to determine whether these and some other business practices were acts of woeful mismanagement, or crimes. There's no evidence that the work performed by Navigant, regardless of cost, didn't meet professional standards, or that Hervey's actions violated any law.
Last week, however, without giving a specific reason, LIPA's board delayed a vote to select a preferred candidate to build a new power plant. The plan is to eventually sign a 20-year contract, worth billions of dollars, to buy power from the winner.
The two finalists are Caithness Energy, which proposed a 706-megawatt gas-fired plant adjacent to its existing one in Yaphank, and J-Power USA, which proposed a 377-megawatt gas plant in Shoreham, where it already operates a smaller plant. Navigant played a key role in LIPA's evaluation of the 45 or so bidders on the project, which included firms that proposed generation from renewable sources as well as fossil fuels. The bids were sent directly to Robert Kendall, the Navigant top executive who attracted the Moreland Commission's ire for charging more than $4.5 million over five years for his services. On Tuesday, LIPA said that, in light of the commission's report, it was suspending its use of Navigant to review the proposals.
The reform of LIPA includes a new, smaller board of trustees, with nine members rather than the current 15. They are yet to be chosen, but their first order of business should be to set a policy on the use of consultants that includes strict guidelines for supervising their work and auditing their expenses. While LIPA has already cut down on the use of outside consultants, the board must make it clear such services are to be used for very specific projects and for a limited time.
The new board should also institute "revolving door" rules so that top LIPA officials can't turn around and work for the same outside firms to which they directed millions of ratepayer dollars.
Although the money paid to Navigant and other consultants is minimal compared to LIPA's expenditures for fuel and system operations, LIPA spends billions based on the advice of its consultants.
That's why LIPA's decision to enter into a new billion-dollar power-supply contract should wait until the new board can review the selection process, and federal prosecutors have checked to see whether Navigant's work on that process passes the smell test.