March 26, 2024

New York State Audit: Tensions between LIPA and PSEG Long Island are hindering utility performance


The state audit found that strained working relationships between LIPA and its contractor, PSEG Long Island, may have hindered the utility's ability to resolve risks and meet green energy goals, and exacerbated problems with PSEG's call center and strategic planning.

The findings come as another LIPA executive, Mujib Lodhi, said he would leave the company on Monday after Chief Executive Tom Falcone announced his retirement last week. They also come as Gov. Kathy Hochul appointed a new board member to LIPA who will focus scrutiny on LIPA's operations rather than PSEG's.

The state audit, conducted by an outside firm, NorthStar, on behalf of the state Public Service Department, found that while PSEG has made steady improvements in reliability since its last management audit in 2018, other issues have loomed large just as LIPA is beginning to make important decisions about its future.

A bill that would allow LIPA to run the utility and fire PSEG when its contract ends in December 2025 has stalled in the state Legislature, and even plans to put LIPA's system management contract out to bid are running out of time.

What you need to know

The state audit said strained working relationships between LIPA and its contractor, PSEG Long Island, have hindered the company's ability to resolve risks and meet its green energy goals. The audit found that while PSEG has made steady improvements in reliability since 2018, other issues have loomed large as LIPA embarks on key decisions about its future. The findings come at the same time that another LIPA executive, Mujib Lodhi, announced he would be leaving the company on Monday.

LIPA has been planning to separate its critical computer systems from those controlled by PSEG in New Jersey for two years, but the process has been plagued by delays — delays that could work in PSEG's favor by making it harder for a new service provider to take over if LIPA decides to hire one in the future.

“PSEG and LIPA [computer] “The system separation project was delayed due to a lack of coordination between PSEG and LIPA in identifying vendors for system separation and integration services,” the audit said.

Among the issues was PSEG's “decision to refuse to discuss key aspects of the plan with LIPA officials.” “In particular,” the audit highlighted, PSEG's refusal was “contrary to LIPA's rights” under its $80 million-a-year contract with PSEG.

Still, the report noted that PSEG has a “well-organized” organization and program for forecasting electricity usage on Long Island and that the reliability of its system is among the best in the state. But it also found flaws in its renewable energy and efficiency programs, including some that could slow down key goals of the state's climate law.

PSEG said it didn't have “sufficient customer information” to market its energy efficiency programs or “assess the realities of implementation” of state climate change regulations, a key part of Haukle's green energy roadmap.

“If it's a New York state goal, then obviously we're very concerned,” Carrie Meek Gallagher, director of the New York State Department of Public Service's Long Island office, said in an interview Monday. The climate goals are “very ambitious, and we're certainly concerned about that.”

LIPA declined to comment. In a statement, PSEG said, “Continuous improvements have made PSEG Long Island the most reliable overhead electric utility in New York State. We welcome the recommendations made in this audit and will develop plans to implement them to continue providing best-in-class service to ratepayers.”

Rep. Fred Thiel (D-Sag Harbor), who has been critical of PSEG's lobbying efforts against fully disclosing LIPA, said in a statement that “given PSEG's poor performance and public misrepresentations, renewing the contract with PSEG is not a viable option.”

“I'm pretty shocked by this whole audit,” said PSEG ratepayer and energy activist Fred Harrison. “All of the warnings about organization and staffing make it seem like a third-rate operation. It's pretty shocking.”

The state report said PSEG was “considering customer preferences and [state climate law] “…other than necessary planning for transmission and distribution upgrades, LIPA and PSEG have largely taken a reactive approach,” the report states. [the climate law] On Long Island.”

Additionally, the report noted that PSEG's future resource planning for generating capacity “does not meet the requirements” of the state's 2030 climate law, a state mandate that requires 70% of generating resources to meet a renewable portfolio standard. At that point, the state report noted, “fossil fuel generation will still represent more than 30% of the portfolio.” However, the company plans to meet the state's goal of 100% clean energy by 2040, with plans to phase out all fossil fuel plants by then.

Overall, the report found flaws in PSEG's clean energy plan. In 2022, PSEG met only one of four performance indicators for its electric vehicle plan, with the goal extended to 2027-28. The process of electrifying school buses and the “connected buildings” pilot program have been delayed, the Miller Place battery storage project has been canceled and the bulk energy storage program has been delayed, according to the report.

The audit also recommends hiring an outside firm to conduct a full operational audit of PSEG's clean energy and energy efficiency programs this year. It also requires the company to develop a formal tracking program to certify compliance with state climate law goals by the end of June.

The audit found numerous deficiencies in PSEG’s management of complex programs and projects for LIPA’s electric system, noting that the cost estimating process for long-term grid improvement projects “had not been improved,” that the accuracy of reported cost estimates was “misleading,” and that PSEG did not follow its own procedures for developing project life cycle cost estimates.

LIPA also found that it did not have “sufficient or meaningful oversight” of PSEG's capital programs and project delivery. PSEG's work management program had similar deficiencies and was found to have made “limited progress” since a previous DPS audit. “PSEG does not adequately measure the availability, utilization, efficiency, productivity and effectiveness of its employees,” the report said.

The state investigation also found that PSEG had been “less cooperative” with LIPA in discussions about how to improve enterprise risk management at the utility, a critical, multifaceted analysis that helps utilities recognize and avoid potential pitfalls in their operations.

PSEG “fails to remediate findings in a timely manner” [cybersecurity] “Vulnerability and penetration testing.”

The state also found that PSEG and LIPA “were not consistently cooperative in their relationship,” particularly on strategic planning, which included setting out a five-year strategic roadmap for the utility company.

“LIPA has attempted to collaborate with PSEG on strategic planning efforts in the past, most recently in the summer of 2019, but those efforts have met with little success,” the report states. “PSEG leadership participated in several meetings with LIPA to discuss strategic planning issues, but those meetings ultimately were not as productive as hoped due to a lack of support from PSEG Long Island leadership.”

The report states that PSEG “must provide” LIPA access to detailed information regarding “issues of concern, investigations, findings, and solutions/remedial actions taken.”

Mark Harrington

Mark Harrington has been a reporter for Newsday since 1999, covering energy, wineries, Indian issues and fishing.


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