PSEG LI to receive $9.5M in performance incentives from LIPA

PSEG Long Island will receive $9.5 million in incentive compensation this year from LIPA customers even though the utility failed to meet a critical measure of system reliability for the second year in a row.

In a report filed by the Long Island Power Authority with the state Department of Public Service, LIPA said it reviewed data provided by PSEG and found the company met 23 of the 24 top-tier metrics for 2017, while missing one related to the frequency of outages. LIPA said that based on its evaluation and working from its contract with PSEG, “authority staff has concluded that PSEG LI has earned the full amount of the $9,516,865 in incentive compensation for the contract year.”

LIPA breaks the metrics into several categories and weights them accordingly: 40 percent for customer satisfaction, 30 percent for technical and regulatory performance, and 30 percent for financial performance.

One metric called system average interruption frequency is the only one in which PSEG lagged.

PSEG also missed that metric in 2016, and, the report notes, was required to file a corrective action report. A senior PSEG official said the reason for missing the metric included more reliability work on the system, new worker safety measures and a more accurate way of counting outages. He noted that the 2017 metric was a 15 percent improvement from 2016. It’s up even more this year, he said.

In its analysis, LIPA noted that PSEG’s performance for 2017 for outage frequency was 0.95 percent, a number that fell “just short of the target level of 0.92.” But the report notes that the score included a “significant improvement” in the second half of the year. LIPA also noted the metric was “well below the MPL [minimum performance] level” of 1.09. The lower the number, the better PSEG’s performance.

“As such, PSEG LI passed the 2017 minimum performance level and is not required to submit a new corrective action plan,” LIPA concluded.

The report also notes that PSEG was able to use “bonus points” earned by exceeding metrics in other performance categories in the technical and regulatory section of the plan. It achieved that by exceeding the metrics for worker safety and renewable energy generated, among others.

Last year, PSEG missed two of 25 metrics, and earned $9.23 million of a total $9.32 million as a result. The incentive compensation pool for PSEG goes up each year based on the consumer price index. PSEG also earns $58 million each year as a management fee under its LIPA contract.

One LIPA trustee, speaking for himself and not the board, said he couldn’t make heads or tails of LIPA’s justification. “I don’t really, truly understand it,” said Matthew Cordaro, a State Assembly appointee to the board and a longtime utility executive. “I have to study it more, but how it’s portrayed in the report, it’s difficult to immediately see how they justify this.”

More broadly, Cordaro described the PSEG performance targets as “soft.”

“They were designed to be met, and in fact most of them were already being met” when PSEG took over management of the system in 2014. “I’m critical of it in general. I think it should be tougher for them to earn dollars on an already-sweetheart deal.”

LIPA in a statement said that since superstorm Sandy and the LIPA Reform Act, “Long Islanders have seen steady improvements in service quality, particularly in storm restoration.” It noted the $9.5 million in compensation is a “good value” against LIPA’s $3.6 billion budget.

PSEG this week announced that it was recognized by the American Public Power Association as a Diamond Reliable Public Power Provider, for providing “reliable and safe electric service” to LIPA’s 1.1 million customers, including system improvement and workforce development. LIPA, which pays just over $240,000 a year to the association in membership dues, submitted the application for PSEG, which operates the grid under a long-term contract.