Amid calls for fully public utility, LIPA trustees OK new PSEG contract

LIPA trustees on Wednesday approved a new contract with PSEG Long Island that the authority has portrayed as a significant improvement but critics say doesn’t do enough to set the utility on a course to become a fully public entity.

Trustees approved the plan by an 8-to-1 vote, even though it won’t take effect until some time next year, pending approval of the state attorney general and the state comptroller. Trustee Nancy Goroff, a board member recently named by the Assembly who voted against it, said while the new contract was “very impressive,” the “fundamental problem is that it’s a contract with a provider that has not delivered in the past.”

Approval came amid a newly issued LIPA Tropical Storm Isaias task force report that found PSEG “continues to use an out-of-date” storm computer system and that rollout of a new system has been pushed back to January. The report also found a PSEG backup plan “still not sufficiently robust.”

The report expressed “continued concerns” about PSEG’s computer-system work, including “overreliance” on outside vendors, “weak project management and oversight, and inadequate technical expertise.” The cost to repair computer and communications systems thus far is $35 million.

The new PSEG contract puts just over half of PSEG’s $80 million annual pay at risk if it fails to meet a list of 96 new performance metrics. It also puts a 2025 expiration date on a contract that previously had an option to extend for eight more years and allows LIPA to walk away, for a multimillion dollar fee, if it decides to shift toward a fully public entity before 2025.

“These are very big hammers” that LIPA can wield if PSEG fails to perform, said LIPA Chief Executive Tom Falcone. Carrie Gallagher, newly named director of the Department of Public Service Long Island office, in her first appearance at a LIPA board meeting, expressed strong support for the new PSEG pact.

But in a letter sent to LIPA’s board on Tuesday, Assemb. Fred Thiele (I-Sag Harbor) and Assemb. Steve Englebright (D-Setauket) expressed a “number of concerns” about the contract, and underlined that an overwhelming number of ratepayers at LIPA hearings showed a preference for a fully public utility.

“Their verdict has been clear: they want municipalization,” the lawmakers wrote. “We concur,” they added, but expressed disappointment the fully public option was not “more fully integrated” into the contract language.

The lawmakers also expressed concern that the new performance goals set a “very low bar” in some metrics and that storm computer systems aren’t more fully addressed in the new contract. They said they were “left to hope that the contract will terminate in 2025.”

Thiele has introduced legislation that would create a commission to thoroughly review the fully public option, and set it in place by no later than December 2025. Falcone called the proposed legislation “a study bill,” and suggested a need for new legislation to amend the LIPA Reform Act if LIPA were to fully municipalize. Nevertheless, Falcone said, LIPA “welcomes” the legislation and will “fully cooperate” with it. It awaits votes in the legislature and would require Gov. Kathy Hochul’s signature.

PSEG Long Island president and Chief Operating Officer Dan Eichhorn, who earlier this week that he would retire next year, praised the company’s 2,500 employees for their “fantastic effort” during the eight years PSEG has operated the system for LIPA, calling workers “something special.”

“I think we’ve accomplished a lot over the last eight years,” he said. PSEG took on the contract in 2014, and Eichhorn has been working for the Long Island system for nearly a decade.

PSEG is expected to be eligible for a performance bonus for 2021 after meeting all but two of the 26 targets for the year, according to a report Eichhorn delivered to trustees. The two that PSEG may miss relate to JD Power customer satisfaction goals: As of November, PSEG scored 681 of a potential 1,000 points for residential customer satisfaction, against a goal of 730. On the business side, the result was 737, compared with a goal of 789, according to a PSEG report.

Separately Wednesday, JD Power reported that PSEG’s residential customer satisfaction figures dropped to 677 of 1,000 in 2021, compared with 717 last year.

Eichhorn said all measures of reliability met or exceeded goals.