LIPA approves PSEG to manage gridBy
 Photo credit: Newsday/J. Conrad Williams, Jr. | PSEG executive Scott Jennings is all smiles after LIPA unanimously approved the New Jersey company as the new manager of its electric grid. (Dec. 15, 2011)
Long Island Power Authority trustees on Thursday voted unanimously to award the contract to manage the regional electric grid to PSEG of New Jersey, ending National Grid's sometimes troubled five-year tenure.
The $3.5 billion, 10-year contract takes effect in January 2014. LIPA will immediately begin a two-year transition to the new company and a new operating structure, a process that officials acknowledged presented strategic challenges and expenses: $40 million over the next two years, to be specific. PSEG has partnered with Lockheed Martin to manage the contract and smooth the transition, officials said. Trustees also unanimously approved next year's $3.7 billion budget with a 1.5 percent bill hike, an average $2.20 monthly increase for residential customers. In a press briefing at LIPA headquarters, LIPA chief Michael Hervey noted PSEG's customer service record, financial transparency, culture match with LIPA and "value" in explaining why LIPA staff chose the 108-year-old company. PSEG was the lowest bidder. Unionized employees of National Grid who work on the LIPA contract, including line workers, meter readers and call center operators in the International Brotherhood of Electrical Workers, will transition to PSEG. Power plant workers aren't affected.
In a prepared statement, National Grid said the LIPA contribution to its operating profit was "not material" and vowed to work with LIPA to smooth the transition. "We are very proud of the efforts of our employees who have supported the LIPA contract for the past 13 years," said Tom King, president of National Grid's US business, referring to the combined tenures of National Grid and KeySpan, which National Grid acquired in 2007. "National Grid will continue to effectively serve LIPA and its customers for the duration of our current agreement while assisting LIPA's transition to a new services provider." King said the announcement has "no impact on our commitment to our gas distribution and electric generation business on Long Island or our continuing overall presence in the U.S." Scott Jennings, vice president of PSEG's mergers, acquisitions and development, said the company's chief objective at LIPA will be to improve customer service and satisfaction ratings, which have been among the lowest in the industry. The new operating structure is not expected to lower customer rates, which are among the highest in the country. "LIPA's crystal clear desire is to improve customer service," he said. Asked if PSEG would explore other acquisitions in the region, he said the LIPA business was the company's sole focus now, though he didn't rule out future expansion. National Grid's 17 local electric plants have been on the market; PSEG companies own nuclear, natural gas, and oil-fuel plants, and have holdings in solar and wind.
LIPA trustees have worked nearly two years on the selection process, and spoke with little hesitation about switching contractors, despite transition risks. LIPA chairman Howard Steinberg noted LIPA was getting a contractor just one state away compared with one "3,500 miles across the ocean," a reference to National Grid's British home-base. Steinberg has been outspoken in his criticism of National Grid over the past year. Trustee David Calone noted the contract in the past "was not working to the maximum benefit of our fellow ratepayers," and "LIPA needed a new way forward." Separately Thursday, trustees approved LIPA's 2012 budget, which includes a 1.5 percent bill increase starting next March. Steinberg at the meeting said he requested the authority work to reduce its debt, estimated at between $6.9 billion and $10 billion, by 20 percent by 2016. He also requested that LIPA accelerate efforts to cut its annual property taxes, which will jump 10 percent next year to $573 million. LIPA trustees also authorized the issuance of $850 million in bonds, $600 million of which will be refinancing previous debt.
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