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LIPA, PSEG Long Island reach agreement on contract reforms in response to tropical storm failures

June 30, 2021

by Paul Ciampoli
APPA News Director
June 30, 2021

The Long Island Power Authority (LIPA) on June 28 announced that it has reached an agreement with PSEG Long Island on a set of contract reforms that will provide LIPA and the New York State Department of Public Service (DPS) with greater oversight authority and resolve pending litigation related to PSEG Long Island’s failures to meet contract standards during Tropical Storm Isaias.

LIPA owns the Long Island electric grid and contracts with PSEG Long Island, a subsidiary of Public Service Enterprise Group Incorporated, to operate the grid on a day-to-day basis.

Under the settlement, PSEG Long Island will forfeit $30 million for Tropical Storm Isaias-related failures.

Specifically, the agreement calls for:

  • $6.6 million to reimburse customers without power for more than 72 hours for food and medicine spoilage;
  • $19.5 million in payments and credits to LIPA towards the cost of upgrading the information technology and communication systems that failed during the storm; and
  • $3.9 million in contributions to Long Island-based charities

On the afternoon of Tropical Storm Isaias, all of PSEG Long Island’s restoration and communications systems failed, leaving over 500,000 customers unable to communicate with their electric utility and hampering restoration efforts.

Over one million customer calls received busy signals, 300,000 text messages bounced back, and web services and mobile phone applications failed. Customers were unable to report critical emergencies, and those that could get through received inaccurate restoration times, LIPA said.

Hurricane Isaias made landfall at around 11:10 pm EDT on August 3, 2020, near Ocean Isle Beach, N.C., as a category 1 storm with maximum sustained winds of 85 mph. It then weakened to a tropical storm while proceeding north-northeastward inland along the Eastern Seaboard, reaching near Albany, N.Y., by 5:00 p,m. EDT on August 4.

Investigations by LIPA and DPS ordered by New York Gov. Andrew Cuomo determined that PSEG Long Island management was aware that critical information technology systems were not working before the storm, had inadequate business continuity plans, and had not maintained or rigorously stress tested systems.

The investigations led to the adoption by PSEG Long Island of 85 specific recommendations by the LIPA Board to correct information technology, management, and emergency management deficiencies, which are all in addition to the penalties and contract reforms announced on June 28.

Agreement creates stronger protections for customers

The agreement will also create stronger protections for customers, LIPA noted.

The President and Chief Operating Officer of PSEG Long Island will have full and final operational decision-making authority and the local executive team will be strengthened with new positions in information technology, cybersecurity, emergency response, business services, and human resources.

“To avoid the lack of accountability for local operations that was evident in the company’s response to Tropical Storm Isaias, all Long Island employees will report to managers on Long Island. Additionally, the compensation for all PSEG Long Island employees will be linked to the performance of Long Island operations,” LIPA said.

There will also be a strengthening of long-term planning, budget development, and cost management. New standards will require greater long-term planning, transparency, and accountability for delivering projects and services on time and within budget that meet the needs and deliver value for customers.

In addition, the reformed management contract increases the amount of PSEG Long Island’s annual compensation at risk from $10 million to $40 million, including automatic reductions for failures to meet minimum emergency response, customer satisfaction, and reliability standards and a new DPS investigative process to reduce compensation for failures to provide safe, adequate, and reliable service to customers.

PSEG Long Island will be subject to detailed performance requirements set annually by the LIPA board and DPS to ensure the company meets industry best practices across all the services provided to LIPA and its customers.

The agreement also calls for stronger oversight protections for LIPA and DPS.

The agreement requires timely, affirmative disclosure to LIPA and DPS of issues, such as those that occurred before and during Tropical Storm Isaias, that significantly impair PSEG Long Island’s ability to provide reliable service, emergency response, cybersecurity, financial impairment, noncompliance with laws, or circumstances that may endanger public health, safety, and welfare.

LIPA said new provisions will ensure that PSEG Long Island’s decisions to hire affiliates to perform services, including information technology services, at customer expense will deliver better quality and lower cost than competing vendors.

The agreement-in-principal, when finalized, will be presented to the LIPA Board of Trustees for their consideration.

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