Bill would boost state agency's power over LIPA, service provider PSEG

The Public Service Commission would be empowered to enact audit-based reforms at LIPA, impose fines and even revoke PSEG’s operating permit if it found LIPA's service provider engaged in “fraud, mismanagement or abuse,” a new bill working its way through the State Legislature proposes.

State Sen. Jim Gaughran (D-Northport), the bill's sponsor, pointed to recent irregularities at other Long Island utilities in arguing the extra powers were needed to hold LIPA contractors’ “feet to the fire” if it found “reasonable cause” they had engaged in wrongdoing. The bill would apply to any LIPA service provider covered by a five-year audit requirement in the LIPA Reform Act, chiefly PSEG Long Island, which has not been accused of any wrongdoing.

The bill would raise the PSC's authority beyond the parameters of the reform act, which was passed by the legislature and signed by Gov. Andrew M. Cuomo in 2013. That bill gave the PSC’s administrative arm, the Department of Public Service, more limited “review and recommend” authority over LIPA compared to other regulated utilities, with no ironclad jurisdiction to force LIPA to implement recommendations of regular management audits of the authority and its service provider. Newark-based PSEG operates the electric system under a long-term contract to LIPA. U.K.-based National Grid owns and operates many of the island’s largest power plants.

Assemb. Fred Thiele (I-Sag Harbor), sponsor of the identical bill in the Assembly, said he had long wanted the PSC to “play an even greater role” in oversight of LIPA and Gaughran’s bill was a “good first step.”

The reform act requires LIPA and its service provider to undergo a management audit at least every five years, and to address findings and recommendations in the audit within certain time frames. LIPA also has the right to revoke PSEG’s contract if it’s not meeting performance standards.

But Gaughran's bill memo notes that LIPA “can ignore the recommendations contained in an audit, so long as they declare the recommendation to be inconsistent and hold a public hearing on the topic." Spokesmen for LIPA and the PSC declined to comment.

He is sponsoring the bill, Gaughran said, to give the PSC “more teeth.” 

He cited issues related to New York American Water’s 2015 rate case in which the company was accused of intentionally deceiving state auditors in a rate-hike proceeding as reasons ratepayers should have similar regulated oversight of LIPA service providers. 

Issues surrounding state regulation of LIPA and its service contractors raise red flags for Wall Street rating agencies. Fitch Ratings, in a recent upgrade of LIPA bonds, said it remained “concerned with the influence legislators and local consumer groups can exert on governance, as exhibited in the passage of the LIPA Reform Act.”

Increased authority for the PSC was considered during negotiations for the LIPA Reform Act, which brought the review-and-recommend language to the table to appease lawmakers who wanted full PSC authority to bear on LIPA.

Management audits overseen by the DPS include lists of recommendations and time frames for implementing them — lists LIPA and PSEG report they've worked hard to comply with.

Newsday last year reported a series of differences between a first draft of the audit and a final version, one that eliminated four recommendations, including the first that sought to “improve transparency” by making it “imperative” that DPS attend all meetings of PSEG’s little-known utility review board. LIPA and PSEG last year said the January draft was “never shared with LIPA/PSEG,” that any changes they offered were to correct “factual inaccuracies.”

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

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