LIPA, PSEG reach agreement on a new 4-year contract

LIPA and PSEG Long Island on Tuesday reached an agreement on a new four-year contract that the authority called the strongest in its history but one state lawmaker criticized as putting "lipstick on a pig."

The deal ends months of sometimes bitter public negotiations following the New Jersey company's failures during Tropical Storm Isaias in August 2020. The storm left more than 535,000 customers without power for up to a week amid communications and technology breakdowns that hobbled PSEG's restoration.

The Long Island Power Authority, which owns the electric grid, said the contract would give it critical new levers to force PSEG to perform, including limiting its annual $80 million fee by up to half if it fails to meet key service targets. It also mandates that PSEG's Long Island operation demonstrate new levels of autonomy from its New Jersey parent and new levels of transparency to verify performance.

LIPA chief executive Tom Falcone, in an interview with Newsday, called the pact the "best contract LIPA's ever had," one that's "backed by performance measures that will deliver for customers." And LIPA's acting chairman, Mark Fischl, said he was "cautiously optimistic" the new contract would force PSEG to deliver on its obligations, adding that loss of compensation built into the language should help.

But critics and even some LIPA board members have been urging LIPA to consider taking on the work itself by becoming a fully public utility, meaning LIPA would take over all aspects of the operation and no longer contract with a third-party to manage the grid. The new contract doesn't preclude LIPA from taking that option in the future.

"Of course, my belief is that we should move toward the original idea of fully public LIPA," said state Assemb. Steve Englebright (D-Setauket). "You can put lipstick on a pig, and this is still what we're dealing with. It's yet to be seen whether the company has had a corporate personality transformation."

The new pact still has steps to go through before final approval. LIPA trustees still must approve it, following public hearings on Dec. 2 and at its Nov. 17 and Dec. 15 board meetings. And the state attorney general and state comptroller also must approve it. That means LIPA will start the year with its existing PSEG contract and the new one won't be in place until the state agencies approve it. Falcone said that once approved, terms will apply back to the first of the year.

Customers can write to LIPA directly to comment on the contract at taskforce@lipower.org.

PSEG Long Island chief operating officer Dan Eichhorn said the company was "eager to bring this collaborative agreement to closure," pending state and other reviews.

The contract ends in 2025, and there's no longer a provision to automatically renew it for another eight years. It also would settle a $70 million breach-of-contract suit LIPA filed against PSEG in the wake of Isaias.

LIPA said the new contract meets all the terms LIPA had demanded following an ultimatum offer brokered by former Gov. Andrew M. Cuomo with top PSEG officials in late June.

That includes vastly expanding the list of performance targets PSEG must meet from the current 23 to 96 to earn its annual compensation, with targets reset annually by LIPA's board of trustees and the state. "These are all reasonably achievable," Falcone said.

And PSEG must adhere to strict new requirements for long-term planning, budgeting and management of its costs.

Not all were persuaded it will work.

"Saying this contract is the strongest in history is akin to saying that being in a car crash is better than a plane crash," state Assemb. Fred Thiele (I-Sag Harbor) said in an email Tuesday. "In the end it is still a disaster."

Thiele and Sen. Jim Gaughran (D-Northport) are preparing legislation that would "establish a process" to evaluate a fully public LIPA. Fred Harrison, a Merrick ratepayer and energy activist, who pushed hard for public power during months of hearings by LIPA, called the new contract "very disappointing," and said he welcomed Thiele's proposal.

LIPA and PSEG say the new contract will address oversight concerns. It gives the state Department of Public Service and its Long Island office the ability to enact a new investigative process if PSEG fails to provide safe, adequate and reliable service, LIPA said.

Newly named Long Island DPS director Carrie Meek Gallagher in a statement called the new contract "a sound resolution to the enforcement actions" recommended by the agency in its investigation of the company.

As part of the agreement, PSEG will pay $30 million for "ratepayer benefits" to "offset harm caused" by PSEG's failures, she said. The $30 million will go toward costs that were previously paid by ratepayers for repairing and upgrading storm communication and computer systems.

State Sen. Anthony Palumbo (R-New Suffolk) said he was satisfied that many of the issues he's had with PSEG are addressed in the contract. "As long as there's better oversight, that's what we're looking for," he said.

Under the new contract, the president and chief operating officer of PSEG Long Island will have greater autonomy in running the utility, with all Long Island employees reporting to managers here rather than in New Jersey. The contract mandates the local chief operating officer has "full and final operational decision-making authority," LIPA said.

The agreement also calls on PSEG to strengthen the local management team with new management positions in computer technology, cybersecurity, emergency response and business services. All will report to managers on Long Island rather than New Jersey.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

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