Cuomo's threat to revoke franchise of PSEG Long Island hits snags

Gov. Andrew M. Cuomo’s threat on Monday to revoke the franchise of PSEG to operate the Long Island electric grid for LIPA may run into a couple of snags: PSEG Long Island doesn't operate the grid under a franchise agreement and is not regulated by the state Public Service Commission.

As reported in Newsday on Tuesday, PSEG operates under a 12-year contract approved by the LIPA board of trustees with Cuomo's blessing in October 2013.

LIPA itself does not submit to direct regulatory oversight of the Public Service Commission like other investor-owned utilities in the state. Instead, under the LIPA Reform Act of 2012, Cuomo and state legislators conceived a new form of oversight for LIPA that give the state Department of Public Service “review and recommend” involvement over LIPA, including for rate hikes.

Ultimately, approval of the authority’s actions rests with LIPA's nine-member board of trustees (five of whom are Cuomo appointees).

PSEG “being under contract is accurate,” said PSEG president and chief operating officer Dan Eichhorn in a conference call with reporters Tuesday. PSEG isn’t regulated by the PSC, he noted, but by “terms and conditions in the contract.”

PSEG’s contract permits LIPA to terminate the agreement with PSEG for a range of conditions, including “any failure or refusal” of PSEG to perform. PSEG has rights to dispute the action, and upward of two months to address the issues.

Eichhorn said he’d “leave it to our lawyers” to respond to the specifics of how the contract differs from a franchise agreement. Under the contract, which can be extended to 20 years, PSEG gets $58 million a year to operate the system, and can receive incentives of more than $9 million annually if it hits performance targets. 

James Denn, a spokesman for the PSC, which is investigating PSEG and other utilities’ responses to Tropical Storm Isaias at Cuomo’s request, said, "There are multiple avenues that would allow us to revoke PSEG’s contract and we are working with LIPA as part of this investigation to determine the most appropriate path forward to ensure PSEG is held accountable for any potential failings."

LIPA declined to comment.

A spokesman for Cuomo's office referred Newsday's questions to the Department of Public Service.

Cuomo on Monday said he was “as serious as a heart attack" in booting PSEG from Long Island. "PSEG, you know your franchise can be revoked. And that is a real possibility,” Cuomo said.

LIPA trustee Matthew Cordaro, a former utility executive speaking for himself, said he did not put a lot of weight into Cuomo’s threat to kick out PSEG.

“It’s hard for me to take it seriously,” he said. “He says that so often, whenever there’s a problem with a utility.”

 Cuomo has threatened to yank the operating franchise of other local utilities, including most recently that of National Grid, after the natural gas supplier declared a moratorium on new gas hookups in the region that left customers scrambling. The company ultimately lifted the moratorium and agreed to pay $36 million in penalties, restitution and new green-energy programs. 

Cordaro said he didn’t agree with the notion of revoking PSEG’s contract, but said he still believed the best solution for Long Island was to fully municipalize the utility, removing the profit motive.

“With a muni, there’s only one name on the truck, it’s your name [LIPA], and there’s no way of deflecting blame,” Cordaro said.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.