N.Y. DPS RECOMMENDS APPROVAL OF LIPA CONTRACT WITH PSEG

(The following is a reformatted version of a press release
issued by the New York State Department of Public Service and
received via e-mail. The release was confirmed by the sender.) 
September 27, 2013 
DPS Recommends Approval of LIPA Contract With PSEG And Releases
Management And Operations Audit 
Recommendations to be Considered at Upcoming LIPA Board Meeting 
As required by the LIPA Reform Act signed into law by Governor
Andrew M. Cuomo earlier this year, the New York State Department
of Public Service (Department) today submitted to the Board of
Trustees of the Long Island Power Authority (LIPA) a
recommendation to approve the amended contract with PSEG-Long
Island (PSEG-LI) to take over utility operations starting on
January 1, 2014.  In addition, the Department issued its first
comprehensive management and operations audit of LIPA and its
current management services agreement with National Grid. 
Currently, LIPA contracts with National Grid to perform the day-to-day operations and maintenance of the transmission and
distribution system.  The agreement with National Grid expires
on December 31, 2013 and PSEG-Long Island was competitively
selected by LIPA’s Board of Trustees to take over operations in
2014. 
Subsequent to the commencement of the management and operations
audit, the Legislature passed the LIPA Reform Act of 2013 that
provided greater operational control of the utility to PSEG-LI,
and expanded oversight of the utility by the Department. Under
the LIPA Reform Act, the Department was charged with reviewing
amendments to the PSEG-LI contract governing service -- formally
called the Operations Services Agreement (OSA) -- and making a
recommendation to the LIPA Board. 
Today, the Department submitted to the LIPA Board a
recommendation that it approve amendments proposed by LIPA and
PSEG-LI to the OSA. The Department found that the amendments to
the OSA are consistent with the LIPA Reform Act and expands the
role of PSEG-LI, a utility leader, as asset manager and provides
LIPA with the capabilities to protect the financial integrity of
the organization while at the same time ensuring customer
interests are met.  Moreover, the Department found that the
amended OSA already reflected some of the audit recommendations
and provided the appropriate tools and incentives for PSEG-LI to
implement the remainder of the recommendations. 
The audit primarily focused on LIPA’s and National Grid’s
operation of the electric system to date.  In addition, given
the upcoming expiration of LIPA’s contract with National Grid on
December 31, 2013, the audit also examined the services
contract, executed on December 28, 2011, with PSEG-LI (prior to
its amendments). 
The comprehensive audit of LIPA and National Grid’s operation
under the existing agreement serves to highlight deficiencies in
LIPA’s current operations. Given the changes that will soon take
place, the Department expects that the recommendations being
made in the audit will be used by LIPA and its new utility
provider, PSEG-LI, a subsidiary of Public Service Enterprise
Group, to ensure an improved level of service to electric
customers on Long Island. The amended contract and the LIPA
Reform Act contain tools to control costs that will allow the
parties to seek a rate freeze in 2014 and 2015 under the new
utility structure. 
“We  have  concluded  that  the  LIPA  Reform Act, the amended
OSA, and the management   and  operations  audit  provide  a
foundation  for  achieving meaningful  improvement  for Long
Islanders,” said Department Chair Audrey Zibelman.
“Specifically, the amended OSA makes certain that all parties --
LIPA, PSEG-LI and the Department -- have a common interest and
ability to improve service to Long Island electric customers.” 
The independently conducted management and operations audit
focuses on where improvements are needed going forward. Approval
of the amended OSA, coupled with the new oversight of the
utility by the Department, would address many of the concerns in
the audit and improve overall performance. For recommendations
more directed to the service provider, PSEG-LI, LIPA has
received a commitment from PSEG-LI that it will implement the
recommendations, with a vast majority implemented within the
first year of service. 
In addition to its 83 recommendations, the 402-page management
and operations audit report includes a number of themes that
emerged from the analysis. For example, as the entity ultimately
responsible for electric service on Long Island, LIPA has to
keep its contractors accountable for results. In addition,
LIPA’s customers deserve to be treated with maturity and
respect, to receive accurate and timely information about system
operations, rates and performance, and to have appropriate
levels of service. 
The audit revealed numerous areas where National Grid’s Long
Island operations were not treated with the same level of
management attention as that shown in National Grid’s electric
operations in other parts of the state. A recommendation in the
audit was that LIPA should not allow itself to become
subordinated to its service provider.  The amended OSA and the
LIPA Reform Act which provides for Department oversight of
operations will ensure that this does not occur.   It is
anticipated that the LIPA Board and PSEG-LI will consider the
recommendations made by the independent consultant NorthStar
Consulting Group at its meeting scheduled for Oct. 3, 2013. 
After a competitive procurement, DPS selected an independent
auditor to perform the audit. As required by law, the audit
addressed: 1) LIPA’s construction and capital program planning
in relation to the needs of its customers for reliable service;
2) the overall efficiency of LIPA’s operations; 3) LIPA’s Fuel
and Purchased Power Cost Adjustment clause and recovery of costs
associated with such clause; and 4) LIPA’s annual budgeting
procedures and process. 
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(sgp) NY 
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