The decision, announced at LIPA’s board meeting, is the culmination of an 18-month process. PSEG’s bid offered LIPA’s customers the “best value,” said Michael Hervey, LIPA’s chief operating officer. The 10-year contract begins Jan. 1, 2014, after the current contract for utility services management with National Grid expires on Dec. 31, 2013. National Grid will continue to supply natural gas to its current customers, although that relationship is also being reevaluated by LIPA, which expects to announce a decision sometime next year.
The new agreement pairs PSEG with subcontractor Lockheed Martin, which will oversee the transition. Hervey said that he expects LIPA to save $100 million over 10 years thanks to this new arrangement. LIPA customers will not see a huge difference on their utility bill because the operating portion accounts for only 18 percent of the average bill. But Hervey insisted that PSEG’s new subsidiary, to be called PSEG Long Island LLC, will enhance customer service, be more efficient, be more compatible with “smart grid” technology, and provide LIPA with more fiscal transparency than the present arrangement with Nat Grid, adding that there will be “no sneak profits” with this utility. Hervey enthused that there will be a “dramatic difference” in the business structure.
In a conference call to reporters after the announcement, he said it will consolidate jobs on Long Island as one business unit, and honor the current labor contract with IBEW.
“At the end of the day it’s our intention to have essentially all employees servicing LIPA here on Long Island and in that business unit,” Hervey said.
IBEW Local 1049’s assistant business manager, Don Dailey, said in a statement, “Our members have consistently provided LIPA and Long Island with the best service and reliability in the state year after year. We are committed to working with the new service provider going forward.”
The contract still has to pass muster with the Internal Revenue Service, the New York State attorney general, and the office of the State Comptroller. LIPA, Hervey said, is basically a $3.6 billion business run by less than 100 people and serves more than 1.1 million customers in Nassau, Suffolk as well as the Rockaway Peninsula in Queens, making LIPA the second largest municipal electric utility in the nation in terms of electric revenues; Nat Grid has had 2,400 employees here—a “lean operation,” Hervey said.
The LIPA trustees also approved a 1.5 percent rate hike, which Hervey said had nothing to do with this change in electricity operator. The increase, amounting to about $2.24 more on an average customer’s bill, will start in March. LIPA’s costs, he explained, have been rising due to property taxes and he vowed LIPA would challenge its property tax assessments “aggressively” in order to drive costs down. He asserted that LIPA’s current rates are flat compared to 2005, while property tax assessments have gone up more than $40 million since 2010, and are projected to rise another estimated $52 million next year—an “unsustainable” rate of growth in taxes, Hervey said.
In response to questions, Hervey said the decision to replace Nat Grid with PSEG was unrelated to the utility’s response to Hurricane Irene, which drew some criticism from Gov. Andrew Cuomo as well as other officials and consumer advocates.
The technical evaluation had been completed in April, months before the storm struck, he said, but at the governor’s behest, LIPA did run another performance review of Nat Grid, PSEG, as well as Con Ed, the three bidders for this new contract, and compared their handling of power restoration after several major storms.
“We felt there was no need to change the decision” to go with someone new, Hervey said.