Preparing for Long Island's Energy Future
     

Preparing for Long Island's Energy Future

As we continue to prepare for our energy future on Long Island, we are excited to provide additional details about LIPA’s plans to restructure the way LIPA operates its electric utility business.

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Background Information

In October 2011, LIPA decided to adopt an improved business model designed to enhance the quality of customer service, provide long-term workforce stability and allow LIPA to more effectively manage costs with greater accountability and transparency. This action was the culmination of a year-long, independent and comprehensive review of LIPA’s strategic organizational options.

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Selection of Public Service Enterprise Group (PSEG)

Following up on that decision, on December 15, 2011, the LIPA Board of Trustees selected Public Service Enterprise Group (PSEG) to implement LIPA’s improved business model and to run the day-to-day operation of LIPA’s electric utility business beginning on January 1, 2014. PSEG brings over 100 years of experience in electric energy generation, transmission and distribution with a proven record of superior customer service. LIPA is confident that this decision, coupled with the adoption of an improved business model (October 2011), will provide LIPA customers with the best possible value, which is our primary objective.

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A message from LIPA COO

Click video for a message from LIPA COO, Michael Hervey

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LIPA & PSEG Partnership

PSEG will be a new partner operating the transmission and distribution system with LIPA under a new, improved business model. The creation of a joint operating committee will allow for a more collaborative process which will enhance the level of accountability, transparency and control between LIPA and PSEG.

  • PSEG has formed a Long Island based company that will focus exclusively on services to LIPA. PSEG, with subcontractor Lockheed Martin’s services, will create a team with complex business transition experience to ensure a seamless transition of services in 2014.
  • PSEG is one of the most highly regarded utility companies according to J.D. Power & Associates – with high rankings for reliability and customer service
  • PSEG will have a wholly-owned business unit dedicated solely to LIPA and its customers and it will be a consistent presence in our community, as all of this unit’s employees will work here on Long Island.

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Improved Business Model Overview

Under the new way of doing business, PSEG will be LIPA’s partner operating under a new, improved business model.

  • Creating a joint operating committee will ensure a collaborative process which will improve the level of transparency, accountability and control between LIPA and PSEG. This model is expected to allow LIPA and PSEG to operate at the highest levels of efficiency, resulting in improved services to customers.
  • Under this contract, LIPA will have approval rights over the annual budget and capital expenditures, which will provide LIPA with control over spending and the ability to decide how best to allocate resources.
  • These capabilities will facilitate better management of customer rates going forward, which will continue to allow for rate stability for customers.

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Frequently Asked Questions

Please take some time to browse the following frequently asked questions.

Why is LIPA contracting for Management Services at this time?
LIPA has a Management Service Agreement (MSA) with National Grid for operation and maintenance of LIPA’s transmission and distribution system which expires on December 31, 2013. In anticipation of that date, LIPA issued a competitive procurement seeking a vendor to provide such services under a new, long-term contract after the MSA ends. Back to FAQs

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Why was PSEG chosen?
PSEG was selected as the new service provider based on a joint proposal which demonstrated the following key strengths:

  • Proven track record of 1st quartile customer service and reliability;
  • A corporate culture that emphasizes transparency and local decision making;
  • A commitment to efficiency, cost control and customer satisfaction:
     
     - Superior IT and management system experience;
     - Experience with similar complex business transitions by Lockheed Martin Services, Inc.;
     - A comprehensive and detailed plan that demonstrates the ability to achieve a seamless transition of services; and
     - Lowest cost and best value for LIPA customers.
     
  • PSEG, with subcontractor Lockheed Martin’s services, will create a team with complex business transition experience to ensure a seamless transition of services in 2014.
  • J.D. Power & Associates ranks PSEG significantly higher than the other competitive proposers for both reliability and customer service.
  • PSEG is partnering with LIPA under a new, improved business model. PSEG will work with LIPA under a joint operating committee, dedicated to enhancing the level of accountability, transparency and control between LIPA and PSEG.
  • PSEG currently provides electric and gas services to 4 million New Jersey customers and has a proven track record of superior customer service, reliability, technical expertise as well as a proven environmental track record. Back to FAQs

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What services will be included in the new contract?
The new contract will include all services necessary for PSEG to perform the day-to-day operations of Long Island’s utility business in a safe and reliable manner through a dedicated business unit providing services exclusively for LIPA’s customers. This business unit will exist as a stand-alone subsidiary of PSEG. Back to FAQs

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What kind of benefits will the newly adopted improved business model provide and how does it enable improved management by LIPA?
LIPA required PSEG to create a wholly-owned business unit dedicated solely to LIPA’s customers and will be a consistent presence in our community.

Through creating a joint operating committee, LIPA and PSEG will work together to ensure the highest level of efficiency – providing increased visibility, transparency, accountability and control, thereby resulting in improved customer service. Under this contract, LIPA will have approval rights over the annual budget and capital expenditures, which will provide LIPA with a clear line of sight into operating costs and the ability to decide how best to allocate LIPA resources. These capabilities will better enable LIPA to manage rates going forward.

The improved business model also provides for the flexibility to move to municipalization or privatization; should either option become desirable in the future. Back to FAQs

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What is Lockheed Martin’s role under the new contract with PSEG?
PSEG subcontracted with Lockheed Martin for its expertise gained from its work on complex transitions at US military bases and other types of service provider arrangements. Lockheed will take the lead in assuring a smooth transition to PSEG when the new contract begins January 1, 2014. Lockheed will have an active involvement in the IT Operations and the back-office support services performed by PSEG. Back to FAQs

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When will this new contract start?
LIPA anticipates that following a transition period that will start in 2012, the new contract with PSEG will commence on January 1, 2014 and remain in effect for a ten-year period. Back to FAQs

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What external approvals are required for this contract?
Regulatory approvals must be obtained from the Internal Revenue Service, the Attorney General and the NYS Office of the Comptroller before the new contract becomes effective. These approvals are expected to be secured over the next several months. Back to FAQs

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What is the cost proposed by PSEG?
PSEG contract costs for 2014, the first year of full operations, inclusive of its management services fee and estimated costs of operating LIPA’s system are $245 million expressed in today’s dollars. PSEG’s proposed management fee was the lowest of the three finalists saving LIPA’s ratepayers on a net present value basis $110 million. Back to FAQs

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How do the costs of this contract compare to those under the existing contract, and how will these costs affect my rates?
The costs under the new contract are similar to those under the existing contract. While there are many factors that affect customer rates, the new contract is not expected to negatively affect the rates LIPA customers pay for electric services. Back to FAQs

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Will LIPA have details about this contract available to the public?
After all approvals are obtained, the new contract will be available, under the Freedom of Information Law. Back to FAQs

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What will happen to those employees currently providing services to LIPA through National Grid once the new contract is in effect?
LIPA and PSEG are strongly committed to maintaining an experienced workforce on Long Island. The new contract requires PSEG to offer employment to current National Grid employees who are needed to perform services for LIPA under the current arrangement. Back to FAQs

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Will the new Service Provider honor the union bargaining agreements?
Yes. LIPA has required PSEG to honor all existing union contracts. Back to FAQs

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Will there be improvements to customer service under the new contract?
PSEG is one of the leading utility providers in the nation in terms of customer service. J.D. Power & Associates highly ranks PSEG for both reliability and customer service.

LIPA and PSEG will aggressively pursue improvements in customer service and as part of PSEG’s contract LIPA has implemented several contracts metrics to support this initiative. PSEG has committed to strive to achieve first quartile customer service performance. Back to FAQs

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Is PSEG committed to energy efficiency and rewnewable initiatives?
Like LIPA, PSEG has been a leader in renewable energy and efficiency initiatives in their service territory. Back to FAQs

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Will there be any change in my service now?
No. Customers will contact and conduct business with LIPA in the same fashion as you are currently. Back to FAQs