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State recommends LIPA consider terminating PSEG contract

A car passes through damage in East Setauket

A car passes through damage in East Setauket from Tropical Storm Isaias on Aug. 4.   Credit: Newsday/Thomas A. Ferrara

A top state investigator has recommended LIPA "evaluate terminating" PSEG Long Island as the region's utility while suing to force PSEG to fulfill its contract obligations.

LIPA should then consider options such as going fully public or privatizing, wrote Joseph Suich, director of the state Department of Public Service's office of investigations and enforcement, in a letter to LIPA chairman Ralph Suozzi. The department listed 70 separate violations it found as a result of a 90-day state investigation, released Thursday, into PSEG's response to Tropical Storm Isaias in August.

Many of the recommendations are similar to those found in a LIPA task force report on PSEG's storm response that was released this week. Suich was also a member of the LIPA task force.

The state found that PSEG knew in advance of problems with a computer system that crippled its response to the storm, had serious and lingering telecommunications problems and issued "questionable and misleading" news releases and public statements during the restoration.

In his letter, Suich recommended that LIPA notify PSEG of its intent not to renew its contract beyond its 2025 expiration. He also recommends that LIPA refer its findings to the New Jersey Board of Public Utilities for further investigation. PSEG's parent is based in New Jersey.

The department recommends that LIPA explore notifying PSEG that it "defaulted on material contract obligations" in its response to Isaias, in which some 645,000 outages were reported on Long Island. It recommends LIPA consider alternatives "including municipalization or, as appropriate, privatization" of the system. Gov. Andrew M. Cuomo had previously planned to fully privatize LIPA in 2013, but settled on expanding on LIPA's previous contract award to PSEG.

PSEG spokeswoman Ashley Chauvin said the company was "carefully reviewing" the DPS report and recommendations, as well as LIPA's. She said PSEG is "committed to continuous improvement, transparency and accountability. We know that real action is needed and needed now."

She said PSEG has been "hard at work on a number of systems, process and organizational improvements, some of which have been completed with many more in progress."

The report and letter do not detail specific dollar fines that PSEG could be subjected to, as the state is recommending for other utilities that it found deficient in their storm response, including Con Edison. PSEG and LIPA are not subject to Public Service Commission jurisdiction.

At a Public Service Commission meeting Thursday, commissioner Diane Burman, a former Long Islander, said she was struck in listening to a LIPA trustee meeting Wednesday that board members were "shocked and said they had lost trust in PSEG Long Island."

"I guess I look forward to the recommendation put forward both by LIPA and DPS for some real specifics on perhaps better oversight of the LIPA board itself and DPS itself and perhaps the [Public Service] Commission as to the things that need to be in place for better regular oversight that leads to compliance."

The state report doesn’t address what some officials say is lacking: oversight of the Long Island utility.

LIPA’s board and the Long Island Department of Public Service are both charged with overseeing PSEG Long Island’s operations in managing the Long Island electric grid, including storm preparedness.

"This structure has failed Long Islanders, and is distinct from other major utilities [that] face strict scrutiny and accountability by the PSC and DPS," said State Sen. Jim Gaughran (D-Northport). "The bucks stops with LIPA, and their yearslong failure to conduct real oversight over PSEG's management and operations was on full display during the disastrous Isaias storm response."

LIPA’s task force report did indicate a need for a greater oversight role at LIPA. LIPA trustees, while some praised the current structure at a meeting Wednesday, also questioned why the problems weren’t caught earlier.

LIPA chief Tom Falcone cited lack of transparency on the part of PSEG for part of the problem. LIPA’s report found PSEG officials knew about serious problems with the outage management system months before the storm, and its report and officials took sharp aim at PSEG "absentee management" at PSEG's New Jersey parent for failing to give their Long Island branch proper priority during the restoration.

Gov. Andrew M. Cuomo on Thursday said the state would "diligently" pursue penalties totaling $137 million against three utilities for their Isaias performance, including $102 million against Con Edison for 33 violations. Cuomo said he’s working to pass legislation that would remove the cap on penalties, and codifies that penalties come from shareholders, not ratepayers. Cuomo didn’t mention any penalty against PSEG.

"I said to the utilities I’m tired of the back and forth, and I’m going to do everything I can do to make sure that New Yorkers are compensated" for utility violations and to make sure "New Yorkers are not paying for service they are not getting."

The PSC said PSEG is not facing the same state penalties other utilities are in the Isaias investigation, despite a higher level of violations, because "PSEG Long Island is not subject to PSC jurisdiction."

Nevertheless, the state agency "would expect that PSEG Long Island could face significant financial consequences" as a result of the state and LIPA’s investigation findings. "This will also be determined in the potential litigation and contract enforcement efforts we recommended to LIPA," the agency said.

In the state's PSEG report and letter, all of the findings and recommendations point to problems at PSEG, not LIPA.

PSEG Long Island’s failures to comply with its emergency response plan and DPS regulations amount to a "serious lapse in the company’s ability to provide safe and adequate service to customers on Long Island and the Rockaways," Suich’s letter states.

State investigators found that PSEG Long Island’s decision to go live with a problem-plagued computer system in advance of Tropical Storm Isaias was a chief cause of the problems.

The DPS report found PSEG’s computer system had "significant" problems tied to the company’s decision to install a major upgrade of the system in June, which it had been working on since February. It was supposed to help with timeliness and accuracy of the status of repair work, allow for integration of smart-meter data, minimize paperwork and add automation. The new system went live June 28.

Soon after, PSEG recorded more than 300 issues with the upgrade, through the end of July. Those problems were "exacerbated" by Tropical Storm Isaias, the report said.

Failure of the system led to an inability to quickly process records and process jobs for repair, the report found. It led the system to delete records it believed duplicated prior outage calls and rendered information on its outage map inaccurate by overstating the number of outages.

The main problem, DPS found, was that PSEG didn’t properly stress-test its computer system upgrade before it went live. While the company did its own level of testing, the state found it was "unclear how PSEG uses the performance testing" before going live with the system.

"PSEG should have both anticipated and prepared for the issues with its outage management system during a major event," the report notes, including having an action plan to increase real-time monitoring of problems in the event of a failure.

Also like the LIPA report, the DPS report found that PSEG didn’t have enough capacity for its communications call center, didn’t perform "any type of stress testing," failed to properly design the system beyond the service providers’ offering, and that measures to fix it well after the outage fell short.

PSEG, for instance, didn’t do enough to limit customer billing calls while it was flooded with outage calls. Its primary phone line had capacity for just 575 inbound and outbound calls, with higher capacity for storms. DPS said proper design of its telecom issue was PSEG’s responsibility, and "its failure to ensure that there was proper capacity for calls to reach its high-volume call center is a major oversight."

Recent attempts to fix the problems may also fall short, DPS indicated, saying PSEG "may still need to expand the number of lines going into and primary and backup call centers."

The report also found PSEG issued "questionable and misleading" news releases and company statements during the storm, incorrectly suggesting that customers’ difficulties in reaching the company were caused by the telecommunications network.

The releases and statements "pre-eminently singled out Verizon as contributing to its system issues," DPS states, while many of PSEG's problems "were not directly caused by Verizon."

DPS also found data provided by PSEG’s website was "unreliable," including incorrect restoration times and outage numbers.

The state Department of Public Service’s report, which also includes critical views of storm response by Con Edison, Orange & Rockland and Central Hudson, at 44 pages is less than half the length of a LIPA task force’s report.

In addition to raising issues about the outage computer system, the DPS report found PSEG failed to conduct adequate assessment of damage early in the storm, didn’t provide accurate restoration times to customers and "failed to meet its responsibility for timely and effective communication with customers."

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