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State audit finds LIPA management flawed

LIPA and other utility crews work to repair

LIPA and other utility crews work to repair damaged poles and downed lines. (Aug. 27, 2013) Credit: Newsday / J. Conrad Williams, Jr.

The Long Island Power Authority is "separated from the realities of daily operations," leading to poor customer service, high electricity rates and poor operational control, a critical new state audit of the utility found.

The audit, released Friday and conducted by an outside contractor on behalf of the state Department of Public Service, criticizes nearly every element of LIPA operations -- from its management team to its ability to control a vast network of outside contractors necessary to keep the lights on.

"LIPA exists as a nucleus, separated from the realities of daily operations, information and experience by a commercial contract barrier," the report says, taking aim at the public-private operating structure under which National Grid has operated.

"Based on our analysis, it appears that LIPA is organized and operated from the board of trustees down largely as a contract administrator, without full appreciation of its ultimate responsibility to provide safe, reliable, reasonably priced electric service to the residents of Long Island," the 400-page report said.

The audit said LIPA:

Has no plan for "how it can control rates over time," saddling customers with the second-highest bills in the state.

Has no "comprehensive plan for provision of quality electric utility services . . . "

Manages National Grid without "sufficient consideration of value received for the investment."

Doesn't adequately monitor or investigate cost overruns.

The audit includes 83 recommendations for LIPA and its new operator, PSEG, to implement to address the problems. Forty are PSEG's responsibility and the rest are LIPA's, including hiring and keeping more experienced staff and developing a "strategic plan to address the totality of the provision of electric service to Long Island."

LIPA has acknowledged problems identified in the audit and has committed to instituting the recommendations.

While the audit found that LIPA's current management team has done an "acceptable job" in difficult times, it has "significant need" of new leaders with deep utility experience, the audit found.

That finding comes as LIPA is about to turn nearly all its functions over to PSEG of Newark, N.J., and cut its staff roughly in half -- to no more than 50 employees. The new contract will require "continuous guidance, diligent oversight and meaningful intervention to assure things are done right," the department found.

"LIPA needs to take direct responsibility for customer service and needs to be integrally involved in its improvement," the audit says, adding that LIPA customers "deserve to be treated with maturity and respect."

LIPA officials say they plan to address the oversight issue through a newly formed Department of Public Service on Long Island, a component of Gov. Andrew M. Cuomo's LIPA reform bill signed this summer.

But LIPA's history of monitoring its contract with National Grid is spotty. When National Grid's performance under the existing contract fell below acceptable levels, LIPA renegotiated its agreement with the company to increase penalties but failed to enforce even previous sanctions, the audit found.

The audit noted that LIPA even relied on National Grid to conduct internal audits of National Grid's own performance. It stopped using National Grid audit teams because it couldn't obtain the underlying data and had "concerns about the quality of the audits." LIPA appears to have been denied access to a range of data that would have given it a clearer window into the costs of running the utility, including employee costs. "LIPA has no information on the compensation structure of National Grid Long Island employees," the audit found.

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