Update PSEG powers 415M deal with Long Island Power Authority

Public Service Enterprise Group will manage the Long Island Power Authority’s electric transmission and distribution system in a deal worth up to $415 million.

Public Service Enterprise Group will manage the Long Island Power Authority’s electric transmission and distribution system in a deal worth up to $415 million.

The authority on Thursday awarded a 10-year management contract to PSEG’s new subsidiary, PSEG Long Island LLC, to operate LIPA’s system beginning in 2014.

Under the deal, PSEG will earn a management fee of $36 million annually, plus up to $5.4 million each year if the company reaches certain performance targets related to customer satisfaction and reliability. The fees are in addition to operational costs, for which the company will be reimbursed. The contract also includes up to $1.5 million in performance-based transition funds, and an escalator clause, which could raise the annual fees over the life of the contract. 

PSEG owns the state’s largest utility, Public Service Electric & Gas, which has 2.2 million electric customers in the Garden State. The LIPA deal will bring another 1.1 million electric customers under the PSEG banner.

“We thought it was a great opportunity,” said Scott Jennings, PSEG’s vice president of development. “One part of the motivation is we think that we manage a very good utility and other power operations in New Jersey and other surrounding states.”

The contract calls for PSEG Long Island LLC to manage electric transmission and distribution operations, customer service and LIPA’s 18 percent ownership of Nine Mile Point 2 Nuclear Station, in upstate New York.

Lockheed Martin, a subcontractor to PSEG Long Island, will provide transition management, information technology, energy efficiency services and other help.

PSEG was one of three finalists considered for the contract.

This will be PSEG’s only utility distribution service outside of the state of New Jersey, though the company does own power plants and other assets outside of the Garden State.

LIPA’s transmission and distribution service is currently managed by the British firm National Grid.

Jennings said PSEG Long Island will likely employ between 20 and 40 people at various points to help with the transition. The company expects to add at least 20 to 25 permanent employees, and Long Island will have its own dedicated senior management team.

Jennings said one of the concerns of the LIPA board was customer service. The board expects PSEG to improve customer service and implement a number of operational enhancements, he said.

Asked if the new deal might hinder the PSE&G’s service to New Jersey customers, Jennings said it would not.

“Not at all,” he said. “We’re incredibly aware of the strong needs of New Jersey, and not a single part of that will change. This will be managed through a separate vehicle. Management will send a select management team over there to oversee operations, and there will be no distraction whatsoever.”