New York State audit: Strains between LIPA, PSEG Long Island hindering utility's performance

Strains in the working relationship between LIPA and its contractor, PSEG Long Island, have hindered the utility’s ability to resolve risks and meet green-energy goals, and may have exacerbated problems with PSEG’s call center and strategic planning, according to a state audit.

The findings come as another top LIPA official, Mujib Lodhi, announced on Monday he was leaving the utility after chief executive officer Tom Falcone announced his departure last week. Both come as Gov. Kathy Hochul has hired a new slate of board members at LIPA and turned a more critical eye on LIPA operations rather than PSEG.

The state audit conducted by an outside company, NorthStar, on behalf of the Department of Public Service, found that while PSEG had seen steady improvements in reliability since the last management audit in 2018, other problems loomed large just as LIPA embarks on critical decisions about its future.

Legislation that would allow LIPA to run the utility and fire PSEG when its contract ends in December 2025 is stalled in the State Legislature, while the clock is running down even on a plan to put the LIPA system management contract out to bid. 

LIPA has been planning for two years to separate vital computer systems from those controlled by PSEG in New Jersey, but the process has been beset by delays. Any delay could work in PSEG’s favor by making it difficult for any new service provider to take over from PSEG in the future, should LIPA decide to hire a new one.

“PSEG and LIPA had disagreements regarding a request for proposals for the [computer] system-separation project,” the audit notes. “Lack of collaboration between PSEG and LIPA led to a … project delay in identifying a vendor for system separation and integration services.”

Among the problems: PSEG “made the decision to refuse to make its employees available” to LIPA officials to discuss critical aspects of the plan. “Notably,” the audit emphasized, PSEG’s refusal was “inconsistent with LIPA’s rights” under its $80 million a year contract with PSEG.

Still, the report found that PSEG has a “well-structured” organization and program to forecast electric use on Long Island, and that system reliability under PSEG remains among the best in the state. But it also found deficiencies in renewable energy and efficiency programs, including some that could slow the utility’s ability to meet key goals in the state climate law.

It said PSEG doesn’t have “adequate customer intelligence” to market energy efficiency programs or “evaluate the reality of implementing” the state climate-change mandates, an important part of Hochul’s green-energy roadmap.

“Obviously, anything where it’s a New York State goal we are incredibly concerned,” said Carrie Meek Gallagher, director of the Long Island office of the Department of Public Service, in an interview Monday. The climate goals are “tremendously ambitious and we are definitely concerned about that."

LIPA declined to comment. PSEG in a statement said, "Continuous improvement has made PSEG Long Island the number one most reliable overhead utility in the state of New York. We welcome the recommendations provided by this audit and will be developing a plan to execute them to continue to provide best-in-class service" to ratepayers. 

Assemb. Fred Thiele (D-Sag Harbor), who has been critical of PSEG's efforts to lobby against a fully public LIPA, said, "Renewing PSEG's contract is not a viable option, given their record of poor performance and public misrepresentations." 

“I found this entire audit rather stunning,” said Fred Harrison, a PSEG ratepayer and energy activist. “All these warnings on the structure, staffing, the whole thing feels like a third-rate operation. It’s just rather shocking.”

The state report notes that PSEG “did not perform any demographic studies to evaluate customer preferences and likely customer responses to [state climate law] initiatives,” the report said. “… Outside of the necessary planning for transmission and distribution upgrades, LIPA and PSEG have largely taken a passive approach to implementing [the climate law] in Long Island.”

Further, the report found, PSEG’s future resource plan for power generation capacity “does not meet the requirements” of the state climate law for 2030, a state mandate that 70% of generation resources meet the renewable portfolio standard. “Fossil generation will still exceed 30 percent of the portfolio” at that time, the state report found. The utility does, however, plan to meet the state goal of 100% clean energy by 2040, with a plan to phase out all fossil-fuel power plants by then.

Overall the report found PSEG’s clean-energy plans lacking. In 2022, PSEG met only one of four performance metrics for its electric-vehicle plan, and goals have been extended to 2027-28. Its school-bus electrification process and “connected buildings” pilot programs have been delayed, the report found, while a Miller Place battery storage project has been canceled and a bulk energy storage program delayed.

The audit suggests hiring an outside firm to conduct a full operations audit of PSEG’s clean-energy and energy efficiency programs this year. It also called for the creation of a formal tracking program to demonstrate compliance with state climate law goals by the end of June.

The audit found a long list of deficiencies with PSEG’s management of complex programs and projects on LIPA’s electrical systems, noting that its cost-estimating process for long term grid improvement projects has “not improved,” that reported cost-estimating accuracy is “misleading,” and that PSEG doesn’t follow its own procedure for developing project lifecycle cost estimates.

It also found that LIPA doesn’t provide “sufficient or meaningful oversight” of PSEG’s capital program and project implementation. It found similar deficiencies for PSEG work-management programs, with “limited progress” from prior DPS audits. “PSEG does not measure employee availability, utilization, efficiency, productivity, or effectiveness in an appropriate manner,” the report said.

The state review also found that PSEG had been “less than forthcoming” with LIPA during discussions on how to improve enterprise risk management at the utility, a critical multifaceted analysis to help the utility recognize and fend off potential pitfalls to the operation.

PSEG “does not remediate in a timely manner findings from [cybersecurity] vulnerabilities and penetration tests," it noted. 

The state also found PSEG and LIPA are “not consistently collaborative in their relationship,” most notably on strategic planning, including setting five-year strategic roadmaps for the utility.

“LIPA has tried in the past, most recently in the summer of 2019, to collaborate with PSEG on strategic planning initiatives, but those efforts were largely unsuccessful,” the report states. “Although PSEG leaders participated in several meetings with LIPA to discuss strategic planning issues, those meetings were ultimately not as productive as they could have been because of lack of support by PSEG Long Island leadership.”

The report said PSEG “must” provide LIPA with access to detailed information regarding “concerns, investigations, findings, and resolutions/remediation actions taken.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

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