LIPA taps PSEG to manage grid

Long Island Power Authority trustees Thursday voted unanimously to award a $3.3 billion contract to manage the regional electric grid to PSEG of New Jersey, ending National Grid's sometimes troubled five-year tenure.

The 10-year contract will take effect in January 2014. The contract amounts to costs of $323.92 million a year.

LIPA will immediately begin a two-year transition to the new company and a new operating structure, a process that officials acknowledged will present strategic challenges and cost $40 million. PSEG has partnered with Lockheed Martin to manage the contract and smooth the transition, officials said.

Trustees also unanimously approved next year's $3.7-billion budget with a 1.5 percent bill hike, an average $2.20 monthly increase for residential customers.

In a news briefing at LIPA headquarters, LIPA chief Michael Hervey cited PSEG's customer service record, financial transparency, culture match with LIPA and "value" to explain why LIPA staff chose the 108-year-old company. PSEG was the lowest bidder.

Unionized employees of National Grid who work on the LIPA contract, including line workers, meter readers and call center operators in the International Brotherhood of Electrical Workers, will transition to PSEG. National Grid power plant workers aren't affected.

The PSEG brand won't appear on Long Island; the new entity will operate under the LIPA name.

National Grid has endured criticism during the past year over flagging customer satisfaction ratings and accounting overcharges, and heard widespread complaints about coordination, communications and expenses related to storm response.

In a prepared statement, National Grid said the LIPA contribution to its operating profit was "not material" and vowed to help LIPA with the transition.

"We are very proud of the efforts of our employees who have supported the LIPA contract for the past 13 years," said Tom King, president of National Grid's U.S. business, referring to the combined tenures of National Grid and KeySpan, which National Grid acquired in 2007. Scott Jennings, vice president of PSEG's mergers, acquisitions and development, said the company's chief objective at LIPA will be to improve customer service and satisfaction ratings, which have been among the lowest in the industry. The new operating structure is not expected to lower customer rates, which are among the highest in the country.

Asked if PSEG would explore other acquisitions in the region, Jennings said the LIPA business was the company's sole focus now. National Grid's 17 local electric plants have been on the market; PSEG companies own nuclear, natural gas and oil-fueled plants, and have holdings in solar and wind.

LIPA chairman Howard Steinberg said LIPA was getting a contractor just one state away, compared with one "3,500 miles across the ocean," a reference to National Grid's British home base.

Trustee David Calone said the contract in the past "was not working to the maximum benefit of our fellow ratepayers" and "LIPA needed a new way forward."