The Long Island Power Authority Board of Trustees voted Dec. 15 to choose a Public Service Enterprise Group (NYSE:PEG) subsidiary to manage the operations of the electric grid on Long Island, N.Y.
LIPA also said the contract is for 10 years and requires PSEG to create a wholly owned subsidiary to be located on Long Island and dedicated to LIPA and its 1.1 million customers.
LIPA’s board approved in October the restructuring of the company’s business model for the operation of its electric utility business. PSEG will assume the day-to-day operations in January 2014 at which time LIPA will implement a business model aimed at enhancing customer service quality, providing long-term workforce stability and allowing LIPA to more effectively manage costs.
The decision follows a competitive procurement process which started in 2009 and included a technical and cost analysis of proposals submitted in 2010. LIPA also noted that this is the first time that the contract for operation of Long Island’s transmission and distribution system has been competitively procured and follows the recommendations of state and local officials. The current contract for utility services management between LIPA and National Grid plc subsidiary National Grid USA expires Dec. 31, 2013.
LIPA COO Michael Hervey thanked National Grid and said, “National Grid and its predecessor have worked hard serving LIPA’s customers for the past 13 years.”
In a separate Dec. 15 statement, Tom King, president of National Grid’s U.S. business, said the company will continue to effectively serve LIPA and its customers for the duration of the current agreement while assisting LIPA’s transition to a new services provider.
“While we are disappointed at not being selected, the decision 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.,” he said.
The operating profit contribution from the LIPA contract, which is less than 1%, is not material when compared to overall profitability of National Grid, the company said.
In a separate Dec. 15 statement, PSEG said its subsidiary, PSEG Long Island, will manage LIPA’s electric transmission and distribution system.
Under the agreement, PSEG Long Island will be responsible for managing electric transmission and distribution operations, customer services, LIPA’s 18% ownership of the Nine Mile Point 2 nuclear station in upstate New York, and related functions. PSEG also said that Lockheed Martin, a subcontractor to PSEG Long Island, will provide transition management, information technology, corporate business, energy efficiency services and other services.
LIPA said PSEG, with Lockheed Martin’s services, will create a team with business transition experience to ensure a seamless transition of services in 2014.
Among the reasons for why PSEG was chosen, LIPA noted PSEG’s proven track record of 1st quartile customer service and reliability; a corporate culture that emphasizes transparency and local decision making; and lowest cost and best value for LIPA customers.
LIPA also said that before the contracts between it and PSEG become effective, regulatory approvals are required from the Internal Revenue Service, the New York State Attorney General and the Office of the State Comptroller. Those approvals are expected to be secured over the next several months. Following these approvals, PSEG will start a process of transition, during which it will prepare to assume the operation of LIPA’s system targeted for Jan. 1, 2014, LIPA added.
LIPA has set up a web site to keep the public informed, www.ourLIPAfuture.info.