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State audit raises issues about PSEG's practices, LIPA transparency

Auditor found that PSEG "may not provide adequate information" to customers and officials on big construction projects.

PSEG Long Island crews are seen in 2014.

PSEG Long Island crews are seen in 2014. Photo Credit: Newsday / John Paraskevas

PSEG Long Island doesn't “consistently provide” customers and officials with information about high-risk construction projects, while LIPA’s transparency “could be further improved” and its rates are “relatively high” compared to other utilities in the state.

Those are some of the conclusions of a 455-page management audit of LIPA and PSEG operations by an outside consultant for the state Department of Public Service. The two-year, $1.6 million audit by independent contractor Northstar provides a detailed and mostly positive view of how PSEG has improved service since taking over management of the LIPA system from National Grid in 2014.

Last week, Newsday reported that the audit found LIPA had "relaxed" performance targets when PSEG took over the system in 2014, compared with those under which National Grid operated. PSEG can get more than $9 million in extra bonus pay each year by meeting the targets. 

In a separate finding that critics say confirms their view that PSEG started big utility-pole projects in Port Washington, East Hampton and Eastport with too little notice, Northstar found PSEG “may not provide adequate information” to customers and officials concerning such projects.

For instance, PSEG’s public meeting and open-house notices are too "generic" and “do not provide customers with details of the projects,” the report found. 

In addition, PSEG held “only a small number of public meetings” about these projects, the report found. The budget for public meetings for a controversial steel-pole project in Eastport, for instance, was $11,342 between 2015 and 2017. The actual spending ballooned to more than $104,000, reflecting meetings with officials and customers after some began complaining about the project.

In addition, outreach letters don’t “consistently provide customers with specific details regarding when construction will occur or the details on road closures and traffic issues,” the report found.

Assemb. Fred Thiele (I-Sag Harbor), a frequent critic of LIPA and PSEG, said the state's findings show the utility made a "deliberate attempt to hide the impacts of controversial projects from the communities they affect." He urged LIPA to correct PSEG's missteps.

PSEG Long Island president Dan Eichhorn said the company "is not trying to hide anything" and said it has worked closely with towns and residents on projects, including a recently completed cable to Shelter Island.

"It's a balance," Eichhorn said. "When we go into an area, we want to leave it the same or better than when we went in." 

The auditors recommended PSEG increase the specific details of projects in customer outreach materials, including highlighting when a project results in additional poles, pole changes and a shift from underground to overhead lines. In the Eastport project, PSEG initially planned to replace wooden poles with new wooden poles but later opted for stronger steel poles. LIPA instituted a new undergrounding policy last year that would increase notification and provide a way for customers who want underground cables to pay for them. 

The report, noting LIPA’s nearly $8 billion in debt, offered a somewhat different view than LIPA and PSEG’s recent public statements about the utility’s relatively low rates compared with neighboring state utilities. “The continued high level of debt, coupled with property taxes and other fees, means that LIPA’s retail rates are relatively high when compared to average New York electric rates,” the report noted.

LIPA, the auditors noted, has “no plans for the early retirement of debt,” opting instead to improve a separate ratio of the amount of debt on its books compared to total assets. That means that while LIPA will limit new borrowing, “the total amount of debt outstanding is expected to increase from current levels over time.”

LIPA chief executive Tom Falcone said the utility has more often compared its rates to metro-area utilities, against which "we are about middle" because it's a more relevant comparison than the entire state, or cheaper utilities out of state. "We’re not going to be competitive with Florida," he said. 

The report noted that a number of LIPA trustees continue to remain on the board even though their terms had “officially expired.” Chairman Ralph Suozzi’s term ended last December, for instance, as did vice chairman Tom McAteer — both Gov. Andrew M. Cuomo's appointees.

Falcone noted that it's up to government agencies to make and potentially renew those appointments, not LIPA officials. "They are aware of the vacancies," he said. "It's up to the appointing authorities" to fill or reappoint them.

The auditors also said that while LIPA has “taken steps to improve” the amount of information it makes available for customers and others, “transparency could be further improved.”

Countered Falcone: "I think that we have the most or one of the most transparent organizations."

The auditors noted that supporting documents for LIPA trustee meetings and votes, including costs, data and board resolutions, “are available for only a few months” on the LIPA website after the board meeting. LIPA makes the documents via Freedom of Information Law requests but receives “virtually no such requests.”

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