Audit: PSEG LI's performance goals set lower than its predecessor

A largely positive state audit of the LIPA-PSEG Long Island electric utility nevertheless found some fundamental flaws, including the revelation that PSEG’s reliability performance goals were set lower than those for National Grid before it lost the LIPA contract.

The 455-page report by an outside firm for the state Department of Public Service highlights PSEG's achievements since it won the contract from National Grid in a 2013 bid by LIPA.

The report notes, for instance, that PSEG LI is “no longer” among the bottom quarter of large Eastern electric utilities (it ranked second from last in the most recent J.D. Power survey), and it makes note of LIPA’s “exceptional financial leadership.” The two-year, multimillion-dollar study found that LIPA’s organizational structure is “suitably aligned to its mission.” PSEG, the report adds, has “generally met or exceeded its incentive metrics,” making it eligible to receive more than $9 million in extra pay this year.

But farther down in the report, on page 207, the auditors found that PSEG’s performance metrics for three critical measures of system reliability were loosened in 2014 to levels lower than those National Grid faced when it ran the system.

“System reliability performance goals have been relaxed since 2013,” the report states, providing a chart that shows PSEG’s annual targets and performance against that of National Grid. In almost all cases, PSEG’s targets to receive compensation, and its performance, have lagged those of National Grid.

From 2008 to 2013, National Grid’s performance for the average system interruption frequency ranged between 0.67 and 0.77 outages per customer annually. (Lower numbers indicate better system performance.) But when PSEG took over in 2014, the target of 0.83 was raised to 0.90. Still, PSEG has failed to meet the performance target in the two of the three full years it has managed the system, after scoring 1.11 in 2016 and 0.95 in 2017. In both years, PSEG still earned more than $8 million in bonus compensation, including the full $9.5 million allowable last year, by using a higher score in another category to make up for the failed system score.

The same is true for a measure of the duration of outages in the score. Under National Grid, the average outage duration target on the system was 55.5 minutes each year from 2008 through 2013. Under PSEG, the target was relaxed to between 66.2 minutes and 68.5 minutes. Still, PSEG has missed the target in the past two years.

A third measure called customer average interruption duration was relaxed from 66.3 minutes during National Grid’s tenure, to 84 minutes in 2014 and 85.0 thereafter under PSEG.

In the report, PSEG explained that the new targets were “approved by both the LIPA board of trustees” and the Department of Public Service, which, under Gov. Andrew M. Cuomo’s LIPA Reform Act, has only review and recommend authority over LIPA and PSEG, but no formal jurisdiction. 

PSEG, in a statement, called the changes in the targets a “minor adjustment” to account for a new outage computer system installed in 2014, and added: “Our customers have the second lowest number of outages annually and the shortest outage durations in New York.” 

Nevertheless, the Northstar auditors responded that they believe “this methodology does not appear to promote continued performance improvement.”

Northstar said it found that PSEG’s “rationale and assumptions” “cannot be confirmed or verified with any certainty” relating to outage frequency.

The report notes that PSEG has maintained “high levels of reliability when compared to NY electric utilities,” but one observer said the relaxed targets are a point of concern.

“We’ve made some improvements since 2013, but we have a long way to go before we’re a quality utility,” said LIPA trustee Matthew Cordaro, speaking for himself and not the board. 

LIPA chief executive Tom Falcone noted PSEG’s “most improved” utility status in the J.D. Power survey, and the nearly half-billion dollars that LIPA has saved in refinancing debt, but added, “Successful organizations must continue to do better every day.” He said the DPS review reflects “our accomplishments and provides insights that will help us improve customer service, reliability and accountability to our customers.”