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Vote set on contract to shift LIPA control to PSEG


4. LIPA CEDES CONTROL TO PSEG - After questions were raised about LIPA's management, finances and response time after superstorm Sandy, Gov. Andrew M. Cuomo proposed a plan that gave PSEG, a New Jersey utility company, nearly complete control of the Long Island power grid, replacing the LIPA brand with a new entity, PSEG-LI. On Oct. 3, LIPA trustees approved Cuomo's effort to reform the utility. Read the full story Credit: Steve Pfost

Broad operational control and a long list of jobs previously handled by the Long Island Power Authority will be turned over to a private utility operator under terms of a new contract released Friday.

The new contract, scheduled take effect Jan. 1, "effectively shifts the major operational and policy-making responsibilities" of the local electric grid owned by LIPA to PSEG of Newark, according to a LIPA letter summarizing the new contract.

LIPA trustees are expected to vote on the contract Thursday. At least two trustees, Neal Lewis and Matthew Cordaro, already have expressed skepticism, saying LIPA won't have enough control over green-energy programs and hasn't adequately studied the potential impact on customer rates.

PSEG will take on "significant responsibilities" for capital expenditures and emergency response, the documents say. LIPA will be "kept at levels only necessary" to meet its bonding, legal, contract and oversight responsibilities, with no more than 50 employees, officials have said.

PSEG also will have the authority to "independently set a range of operational policies," including planning for electric grid upgrades, the cost of power-generating capacity and management of the environmental health and safety program. The contract also removes LIPA's right to approve subcontractors.

The proposal doesn't specifically address a planned three-year rate freeze, but says rates should be kept at "the lowest level consistent with sound fiscal operating practices."

The agreement lasts for 12 years, compared to a previously proposed PSEG contract that would have lasted for 10. The new contract can be extended for another eight years if PSEG meets certain performance standards.

Under the new contract, PSEG will receive $58 million in yearly compensation, compared with $36.3 million under the previous proposal, based largely on its assuming broader operational responsibilities. An annual incentive compensation "pool" is increased to $8.7 million from $5.44 million.

The PSEG-Long Island brand will appear on formerly LIPA-branded trucks, bills and other materials.

Most of the costs of running the utility will be passed directly to LIPA and its customers, including a number of newly identified costs such as power-supply management, fuel buying and certain nonstorm emergency costs, according to the contract. A new provision allows LIPA to reject up to $10 million in emergency costs it deems unreasonable or "imprudent."

Termination of the proposed new contract is allowed if LIPA decides to privatize or convert to a fully public power company, or experiences a change in regulatory requirements.

LIPA keeps ownership of all improvements made to the electric grid under the new PSEG contract, but PSEG can make recommendations for capital investments that would be made and owned by PSEG -- but only if they result in "meaningful" reductions in customer energy usage.

The new contract requires that PSEG prepare a three-year rate plan for 2016-18, based on LIPA data. LIPA and PSEG will prepare separate budgets relating to their operations, then PSEG will "consolidate them for presentation in a rate case," the LIPA summary says. If there's a conflict between LIPA and PSEG on the rate case, PSEG will deliver the plan to the Department of Public Service, "without invoking a dispute resolution proceeding."

Like the previous PSEG contract, the new one includes PSEG to meet a long list of performance standards, but it reduces that list to 21 from a prior 27. In addition, according to LIPA, the customer survey performance goal is given a lessened emphasis, from 70 percent to 60 percent of total points, the summary says.Trustees will vote on the contract Thursday at a public meeting at LIPA headquarters in Uniondale, starting at 1 p.m.


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