A shrinking Long Island Power Authority faces the challenge of becoming a tougher watchdog as it shifts more control to an outside utility company next month, and critics question whether a mini-LIPA is up to the job.
Reform legislation requires the authority to vastly reduce its workforce, and it will cut 50 of its 100 staffers by Jan. 1.
"I don't think they can do it," said Assemb. Fred Thiele Jr. (I-Sag Harbor), who voted against the law. "From my perspective, we've wandered very far away from the solution. There needs to be, in one way, shape or form, a greater degree of accountability to the people of Long Island."
LIPA officials said the agency is up to the task laid out in a set of recommendations in a highly critical state audit released in September.
Mark Gross, LIPA spokesman, said the new authority is "dedicating internal resources to . . . oversight in a way that we have not done before." That and a new state Department of Public Service office "should provide for appropriate oversight . . . ," he said.
The audit took LIPA to task for past problems and included a series of recommendations that make clear that it must be more vigilant in monitoring its new contractor, PSEG of Newark. LIPA's customer satisfaction rankings have been among the lowest in the nation.
"Regardless of whether services are performed by LIPA or a contracted service provider, LIPA retains ultimate responsibility for results and effectiveness, and must have appropriate resources to meet its responsibilities," according to the audit.
Slew of problems cited
The audit, conducted by an outside consulting company at the behest of the state Department of Public Service and mandated by state law, found a long list of problems at LIPA that need to be corrected. Of 83 recommendations in the report, 43 are LIPA's to implement, with the rest left for PSEG to handle.
"To effectively manage [PSEG-Long Island] over such a broad range of services, LIPA must have access to necessary skills and core competencies," the audit states.
LIPA this year hired John McMahon, a Con Edison veteran, to take the helm. In addition to the 50 staffers being cut this year, McMahon is losing another 10 in 2015. LIPA's 15-member board will shrink to nine.
Assemb. Steve Englebright (D-Setauket), a co-sponsor of the LIPA reform act, said there's a "disconnect" between the department's interpretation of LIPA's role and the law, which envisions LIPA as little more than a holding company.
In addition to cutting staff, the law has resulted in a reduction in LIPA's budget, including for outside consultants. LIPA will have significantly more information to process and act upon than it did under current LIPA contractor National Grid, according to the audit. National Grid separately owns the regional natural gas distribution system.
Englebright said the new LIPA will need a focused staff to be the watchdog -- one with "the kinds of professionals that are necessary to evaluate and report back to the trustees on a regular basis so that PSEG is always feeling very self-conscious about everything they do."
Even as LIPA cuts staff, the Department of Public Service said in a statement it will step in to help. "Working in concert, LIPA and DPS will have a vast amount of utility regulatory expertise to ensure customers receive the best possible service."
The audit minces few words in criticizing the problems between LIPA and National Grid, offering them as lessons for LIPA's future. "To a large extent, LIPA's operations have been ignored by National Grid, and LIPA's customers have not received the benefits of other National Grid corporate level process improvement initiatives," the audit states.
For example, National Grid uses a comprehensive "Playbook" for its internal operations to "develop and manage capital projects in other jurisdictions. The National Grid Long Island project management group was unaware of the document," according to the audit.
It also noted that much of the workforce to staff the LIPA-PSEG service company will be "lifted and shifted" from the current National Grid Long Island organization and existing culture. About 1,900 workers for PSEG-Long Island will be what PSEG refers to as "incumbents," currently employed by National Grid. PSEG-Long Island, the audit recommends, will have to instill a "continuous improvement culture in these employees."
'They aren't at all ready'
The recast LIPA will enjoy "increased availability of data, timely reports, and access to supporting information and customized analysis." But that new information doesn't change the need for LIPA management to "request the relevant information and analysis and understand the import of the data and reports provided."
And while the PSC audit applauded PSEG's goal of achieving top customer satisfaction rankings within five years, LIPA "does not have information on the cost and rate implications of achieving these targets."
PSEG and LIPA have pledged to address the audit's recommendations.
The report noted that LIPA didn't have an internal audit department or "any internal audit staff" until the end of 2012. "As a result, the authority does not have any tools or processes for assessing the effectiveness of any existing operational practices designed to monitor and mitigate risk within LIPA or National Grid," the audit found.
The PSC, while criticizing LIPA's past performance, also noted that the 100-employee utility has always been somewhat unmatched to its task. LIPA governs and oversees a "complex electric utility operation with a relatively small number of resources . . . "
It also found a lack of focus on human resources, calling that shortcoming "troubling given the daunting transition to PSEG-LI and the uncertainty faced by personnel throughout the organization."
LIPA trustee Matthew Cordaro said the shrunken LIPA will find it nearly impossible to manage the amount of work ahead.
"They aren't at all ready to do this," said Cordaro, a former Long Island Lighting Co. executive. "They are just assuming PSEG will do everything."
With PSEG set to take control of LIPA's storm preparedness and response functions, the audit noted that LIPA hasn't carefully reviewed the way National Grid classified storm repair costs. The report noted that the British company can achieve higher profit margins if it classifies as storm-related those improvements that normally would fall under non-storm contracts.
The audit found that even as LIPA faces a broader set of customer service standards for PSEG, National Grid has performance targets under its LIPA contract that are below its targets for other regions in which it operates -- and that allowed it to place at the bottom of national service rankings without penalty.
The target speed set for National Grid to answer calls for service is an average of 168.9 seconds, with a penalty for an average response time of 213.9 seconds during a year, the audit found. That compares with an industry standard calling for 80 percent of inquiries to be answered within 30 or 60 seconds.
LIPA uses J.D. Power Customer Satisfaction targets to measure National Grid's performance, but the contract allows for the company to rank 16th or 17th of 17 for residential satisfaction and 22nd or 23rd for commercial satisfaction without penalty.
"As a result, National Grid can achieve its performance target while having overall customer satisfaction in the fourth" tier, the audit found.
National Grid spokeswoman Karen Young said, "We acknowledge and appreciate the audit's recognition of our excellent service and reliability record, and agree with many of the recommendations for LIPA that [the auditor] has made in the audit report."On two occasions when LIPA had the ability to impose a penalty or require an internal review related to failed customer satisfaction performance, in 2008 and 2007 respectively, LIPA decided not to act, the audit found.
In the end, the PSC found, the new contract, like the old, doesn't diminish LIPA's role.
"LIPA's outsourcing of core service functions to a third party does not remove, and in fact increases, the need for a comprehensive risk management process and strategic plan for the long range, overall provision of electric service to Long Island," the report says.
"Regardless of outsourcing decisions, LIPA retains the ownership of the electric service assets on Long Island, along with the fiduciary responsibility and the obligation to serve customers."