LIPA awards fuel/power supply contract that had been held by PSEG to outside company

As LIPA continues to review prospective contenders to take over management of the electric grid, it has awarded a key separate contract for fuel and power-supply management services — one currently held by PSEG — to an outside company.

Services under the power supply management and fuel management contract for LIPA have been operated by a division of PSEG for the past decade. The service makes sure all LIPA-contracted power plants get timely shipments of fuel, including natural gas and fuel oil, and the program includes a hedging program that helps offset volatility of power supply charges, said Gary Stephenson, senior vice president of power supply for LIPA.

The new five-year contract, estimated at $20 million, was awarded to The Energy Authority, a nonprofit organization owned by six public power entities, Stephenson said, calling the company "a national market leader in this area." The contract begins in 2026.

The decision appears to have been unexpected by PSEG. A message sent to all PSEG employees from PSEG executives Rodney Dickens and Dan Cregg noted that LIPA’s board decided to "go forward with one of our competitors." Dickens is an executive adviser to PSEG who oversees the Long Island operations and Cregg is executive vice president and chief financial officer.

The two men wrote that "as much as the outcome of this particular [request for proposals] is not what we had hoped for, it’s important to note that today’s decision has no influence on the RFP for the continuing operations of the electric grid of Long Island and the Rockaways. We continue to participate in LIPA’s RFP process and will inform you as soon as a decision has been made by LIPA."

PSEG spokeswoman Katy Tatzel said, "We are proud to have saved LIPA customers millions of dollars each year over the life of the contract."

PSEG is in the running for the contract to manage the larger electric grid. 

LIPA also is continuing a search for a permanent CEO, and LIPA chairwoman Tracey Edwards told trustees a candidate could be named early this year.

Sources have said that among the frontrunners is Carrie Meek Gallagher, who heads the Long Island office of the State Department of Public Service, which oversees LIPA. She was previously regional director of the Department of Environmental Conservation's Long Island office. Information on LIPA's website says the CEO post pays from $330,000 to $380,000 a year. LIPA acting chief executive John Rhodes makes $365,000 a year. 

The loss of the fuel management contract by PSEG comes as research firm JD Power last month reported that PSEG Long Island dropped two points in the research firm's 2024 residential electric customer satisfaction survey.

PSEG scored 700 of a possible 1,000 points in the 2024 report, and dropped to 10th place among 18 large Eastern Region utilities. In 2023, PSEG Long Island scored 702 last and ranked ninth of 17 large eastern utilities. The survey reaches out to hundreds of customers each quarter inquiring about customer satisfaction with a utilities’ reliability, pricing, communications and other categories. PSE&G of New Jersey has been in first place for the past two years, with scores of 746 this year, and 759 last year.

At the LIPA trustees meeting last month, PSEG reported that it would miss at least two major measures of its reliability performance in the $80 million LIPA contract. Those metrics measure the average duration of power outages and the frequency of them among customers over the year. PSEG did achieve the metric for momentary outage frequency.

Mike Sullivan, vice president of electric operations for PSEG Long Island, told trustees, "Although we are not going to attain the objectives specific to the [LIPA contract metrics], we still provide a level of service that puts us top among overhead electric distribution" in the state." Board members didn’t question PSEG on reasons for the missed metrics.

PSEG this year will face 52 performance metrics, a sharp reduction from the 61 metrics in 2024 and 93 in 2023. Newsday has reported that PSEG in 2022 and 2023 had fully met 70% of the metrics, which lowers its annual incentive pay by millions of dollars.

PSEG officials at the meeting said they were on schedule to meet a revised target of separating the first key part of LIPA’s computer systems from PSEG’s in New Jersey, a plan that will cost some $74 million, officials said. Stage One will now be completed by April 14, they said, and the rest by year’s end. Delays and cost overruns have plagued the separation since LIPA first demanded it in 2022.

The board meeting included moments of contention after LIPA began enforcing a long-standing policy of restricting public speakers from lobbying or advocating for active LIPA bids. After a LIPA attorney cut off speakers who appeared to veer into advocacy positions, Merrick ratepayer Fred Harrison raised objections.

"This is a public facility, a public agency, and we have a right to free expression," Harrison said.

Edwards told Harrison that at last month’s meeting the speaker’s comments "went over the line a couple of times."

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

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