PSEG-Long Island chief outlines strategy to improve LIPA

With a to-do list that includes righting the troubled ship that is LIPA, David Daly, the newly named president of PSEG-Long Island, is looking to vastly improve LIPA's low rating with customers, develop an airtight emergency response plan, and rewire its culture -- all on a budget that freezes rates for two years.

In an interview at LIPA's Uniondale headquarters this week, Daly outlined the plans that have the Newark, N.J.-based company hitting the ground running by its Jan. 1 start date to operate the electric grid -- plans that include changing the way 1.1 million customers interact with their utility through customer-friendly technology and business models, while increasing tree-trimming and launching a new call center.

"The buck stops with us," Daly said, describing PSEG-Long Island as a local company. "We're going to be judged by our customers."

All eyes are on Daly and PSEG, which have promised to turn LIPA from a bottom-ranked utility in terms of customer satisfaction to one that is best-in-class in five years or less. Daly, who started at PSEG in 1983, has been a vice president at sister utility PSE&G since 2008. He has overseen utility operations, corporate strategy and transmission planning.

Gov. Andrew M. Cuomo pushed hard for the legislation to overhaul LIPA, which puts PSEG in control of the utility in a way that the current contractor, National Grid, never was. The price tag shows: PSEG will bill LIPA $446 million for its broader contract next year, compared with National Grid's $291.1 million this year.

Last week, Daly met with Cuomo's staff, the latest in a series of progress checks, during which he assured officials the company would be fully prepared if a storm were to strike Jan. 2, 2014.

Amid all the demands on Daly and PSEG-Long Island for new levels of readiness and improvement, there are built-in limitations. Cuomo's promise of a rate freeze over the next two years has to some extent limited PSEG-Long Island's ability to make all the improvements the system requires.

Daly declined to say whether he would have preferred the rate freeze not be in place. "It's a very big challenge, I won't describe it otherwise," he said of implementing the improvements without hiking rates. "It's a challenge we made for ourselves. . . . It's my commitment now."

Some improvements may have to wait, however.

LIPA's bills and the billing system, for instance, a big gripe among customers who find the monthly mailings difficult to understand, won't be overhauled in the short term because a fix would be too expensive, Daly said. In the interim, PSEG will "look at things we can do around the edges" to improve bills. "Billing systems are expensive," he said. "I need to meet a rate freeze."

PSEG will focus first on better communications and customer service, installing an entirely new staff of 20 to 25 people just to monitor and analyze how the utility handles incoming calls. It's introducing a new automated phone system called interactive voice response that will vastly improve customers' ability to get quick answers to questions, to take outage reports and provide solutions to problems. The website also will be upgraded.

The communication effort starts next month, with mass mailings "describing the commitments we'll be making," including a new customer satisfaction model and a 30 percent to 40 percent increase in the amount spent on tree trimming in the first quarter of 2014. "They'll notice a difference in the level of communication" right away, Daly said.

PSEG-Long Island will have 2,259 employees, 1,925 of whom are former National Grid workers. Some 400 will be "ambassadors" in the field to introduce the brand and open the lines of communications.

Daly is getting a substantial boost from Cuomo and the state in his ability to address big expenses and problems at LIPA without raising rates. Just over $190 million in grants are coming LIPA's way in 2014 (compared with $34.4 million in 2013), to pay for a new storm outage-management system, fortify substations for storms and pay for renewables programs -- costs LIPA itself has borne in the past.

Even while PSEG expects to continue with the broader goals of LIPA's green-energy programs, it has trimmed that budget by $26 million compared with this year's budget. Solar-energy companies were livid about the reduction, and the lawmaker who sponsored the LIPA Reform Act said it caught him off guard.

"That came as a surprise to me, and is contrary to the commitment that was made," said Assemb. Robert Sweeney, (D-Lindenhurst). "We're going to have some conversations at the state and PSEG level to see how that can be fixed."

Daly said, "We're committed to delivering the programs at a lower cost."

LIPA, which will be reduced to 50 employees next year from the current 100, will retain responsibility for its debt, monitoring PSEG's performance and performing one other major task: making decisions about developing new power sources.

LIPA's team will make a final recommendation next year about a new 700-plus megawatt plant called Caithness II in Yaphank valued at $3 billion. Daly said PSEG, which will take over power markets in 2015, will be "very much in the middle" of the decision. He said PSEG will "take a look at" removing the potential for conflicts given that Caithness is represented by the Uniondale law firm Ruskin Moscou Faltischek, and its lobbying arm, Empire Strategies, represents PSEG.

But even as Daly and his new team work to re-engineer the Long Island utility and electric system, they are also operating under a very large uncertainty. The IRS has yet to issue a ruling on whether LIPA can remain a tax-exempt organization under the new structure -- essential if PSEG is to avoid paying income taxes and LIPA can continue to issue tax-exempt debt. That ruling is expected in December. The IRS won't comment on the matter.

If the IRS rules against LIPA, a massive plan B would have to be implemented, vastly reducing PSEG's responsibilities, and even removing its brand from mailers and trucks. Officials at LIPA, the Cuomo administration and PSEG say they are confident that won't happen. "I don't have major concerns about the IRS" decision, Daly said.

LIPA critics aren't so sure, however, and some are banking on a negative IRS ruling to push LIPA toward what they see as the original intent of lawmakers: to convert LIPA to a fully public power company.

Daly doesn't expect it to happen. "When we deliver on our commitments, that will become a distant thought," he said.