After rejection of prospective grid manager, LIPA finds itself at another crossroads

The Long Island Power Authority is yet again at a crossroads.

After more than a year of studying and testing offers from two companies seeking to manage the electric grid for the next decade, three seasoned energy executives from LIPA last week issued a "strong" endorsement for a company called Quanta Services, a $22 billion energy infrastructure conglomerate from Houston, to take over.

But just minutes after that endorsement, voiced by LIPA’s acting chief executive, John Rhodes, a former chairman of the state Public Service Commission who has advised the White House on energy policy, the LIPA selection committee’s year of work was dashed.

Six trustees, political appointees of the governor, State Senate and Assembly, voted to reject Quanta. Only one trustee, David Manning, a former executive of National Grid and an appointee of Gov. Kathy Hochul, voted in favor of Quanta.

With that unprecedented rejection of its own internal expertise, LIPA was thrust yet again into a quarter-century legacy of turmoil and uncertainty. Two top LIPA officials questioned after the meeting said they were not sure what would happen next.

Even seasoned LIPA observers were caught off guard. 

"I was stunned," said former LIPA vice chairman Tom McAteer, a former chief deputy county executive for Suffolk County. "In this particular case, if you are ignoring the advice of experts, the question is: Why? What is it that would get you there? I don’t know the answer to that. But I sure would like to."

Opposition to the Quanta offer was led chiefly by four Hochul appointees who voted against it and was voiced by chairwoman Tracey Edwards. She recounted headlines about Quanta’s track record as a joint venture partner in Luma Energy, the utility that runs the trouble-plagued Puerto Rico electric grid. She read a published quote from Puerto Rico’s governor saying Luma had sold itself as an "expert" in utility management but that assertion had proven "false."

Puerto Rico has experienced several recent high-profile blackouts, and public officials there have attempted to lay the blame on Luma. Quanta officials told Newsday that the problem was a bankrupt electric utility that cannot fund needed upgrade projects and that Luma has upgraded areas of the grid it has jurisdiction over, including 23 substations.

LIPA’s selection committee had researched the question of Puerto Rico’s blackouts and found they were chiefly the problem of demand outpacing power supply from old, inadequate power plants, which are not managed by Luma.

But Edwards’ criticisms went deeper. She noted that many of the approximately 2,000 existing Quanta-affiliated employees in New York State don't do the same type of work PSEG's, and noted that transition costs could push Quanta's bid higher, despite offered discounts and a rate freeze (PSEG also charged ratepayers $15.5 million for transition costs in 2012, according to the state comptroller's office. In 2025 dollars, that translates to around $21 million.

In the end, Edwards at the meeting declared the findings and recommendation of her selection committee were simply "wrong."

Asked after the meeting what was next, LIPA chief of staff Tom Locascio, a former PSEG staffer and State Senate aide, said, "We have to figure that out." Rhodes, who as the acting CEO of LIPA could be out of a job in coming weeks or months as a search for his successor nears its conclusion, said: "That’s to be determined. And so I don’t know where that leads."

Hochul’s spokesman last week said the governor’s office was "aware of the board’s decision" concerning Quanta.

LIPA, in a statement issued Saturday afternoon, vowed to "ensure an outcome that provides the best value for our customers" by assessing "all available options to ensure a contract is in place on January 1, 2026."

PSEG, in a statement from spokeswoman Katy Tatzel, said, "We look forward to hearing about next steps in the selection process."

There are reasons for PSEG to be optimistic, utility observers say. LIPA’s contract with the New Jersey company has an option for an up-to five-year extension, which LIPA could be forced to enact now that it has rejected the only other bidder. (Future bidders seeing the outcome of the bid also could be discouraged from entering future solicitations, observers said.) LIPA also could award the new full 10-year contract to PSEG.

But awarding the contract under the solicitation process could carry risks if LIPA must subject it to scrutiny of the state attorney general and the Office of State Comptroller, both of which may request to review solicitation scores that favored Quanta. (PSEG's new bid to run the grid, according to LIPA's selection committee, "fell short of the grade of meeting minimum requirements.")

LIPA in a statement concurred that any award for the contract to manage the grid "for the period starting after the current agreement expires is indeed subject to [attorney general and comptroller] review."

LIPA said it informed board members of Newsday’s request for an interview about their votes, but none responded at press time.

A spokesman for the comptroller’s office, Mark Johnson, in emailed responses to Newsday, said the office would audit the grid management contract award if LIPA decides to extend the contract with PSEG. A contract extension "is subject to [comptroller] review and approval," he wrote, noting such a provision was included in LIPA’s amended 2020 contract with PSEG.

Johnson declined to speculate on whether the office would ask to review the Quanta offer, saying that nothing had been submitted to the comptroller’s office "at this time."

Observers said LIPA could opt to extend the existing PSEG contract for a shorter period than the five-year option to allow for time to make up its mind about what to do next — a decision that gives PSEG considerably more leverage in shaping any new contract now that LIPA has few other alternatives, LIPA watchers say.

"I think LIPA has tipped their hand," said Arthur Abbate, a former utility executive with National Grid, KeySpan and the former Long Island Lighting Co. "There were only two choices and they shot down the one choice. If I’m PSEG right now I’m in the driver’s seat."

Despite being rejected, Quanta Services issued a statement from BJ Ducey, president of strategic operations, that talked of "next steps." "We strongly believe in our capabilities as a service provider, and we are driven by our belief that Long Island deserves better," the statement said. "We look forward to the next steps and to showcase our long-standing commitment to building a better energy future for our customers and build on our track record of service, progress and success in New York and around the country."

LIPA under a proposed state law had considered the prospect of becoming fully public utility and running the grid itself, but the effort was scuttled by strong opposition from PSEG, lobbying by entities such as the Long Island Association, the failure of utility worker unions to endorse the plan, and lack of any public support from Hochul.

Former state Assemb. Fred Thiele, who left office last year, last week said he wasn’t surprised by LIPA's latest saga. "When I left office I just assumed the next contract was wired for PSEG," said Thiele, who sponsored the bill in support of a fully public LIPA. "In some ways I was surprised they even had a request for proposals."

What also surprised Thiele, he said, was "how ham-handed this process was ... Everything was behind closed doors, the board completely ignored the recommendation of its own staff, and [that] leaves me with the thought I had from the beginning, which is that this was wired from the governor’s office on down for PSEG."

LIPA and its 1.1 million customers have managed through its decades of crossroads, from buying out the investor-owned LILCO by LIPA in 1998 to decades of devastating storm outages and, most recently flagging performance. PSEG, as Newsday has reported, has seen customer service performance flag, employee serious injury rates increase, and the average frequency and duration of customer outages worsen in the past year.

When PSEG won the contract in 2011, it promised to be a top-ranking utility in customer satisfaction in five years. But PSEG never reached that "top-quartile" goal, and in the most recent ranking dropped to 10th place among the northeast’s 18 large utilities (from ninth the prior year).

Thiele, the former legislator, said in the end customers' interests have taken a back seat. 

"This has never been in the interest of ratepayers," he said of the public-private model under which LIPA (and the Puerto Rico grid) has operated. "It's another case of the private interests of a few outweighing the ratepayers.

"If you want to know what happened here follow the money," Thiele suggested. "PSEG is well connected in Albany, and they are succeeding. What they can't do with performance, they're doing with lobbying. The result is the status quo." 

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

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