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October 4, 2010


DiNapoli: LIPA Monitoring of National Grid Leaves Room for Improvement

Continued Vigilance is Critical

Improvements are needed in Long Island Power Authority’s (LIPA) monitoring of National Grid’s (Grid) sales of emission credits, according to an audit released by State Comptroller Thomas P. DiNapoli. Against contract requirements, Grid did not report its cash receipts from credits sold through EPA auctions, and as a result, LIPA did not receive its $309,878 share until DiNapoli’s auditors made LIPA officials aware of the issue.

“Millions of Long Islanders rely on LIPA,” said DiNapoli. “LIPA has been adequate in its monitoring of National Grid’s performance.  But we shouldn’t set the bar at adequate.  LIPA must continue to monitor the existing agreements closely and make sure Grid makes all the appropriate payments.”  

DiNapoli’s audit found that while LIPA is adequately monitoring Grid’s performance standards, there is a need for closer oversight. For example, in 2008 LIPA declared that Grid fell short of agreed-upon customer service standards, resulting in a settlement agreement in February 2010 that doubled penalties to $2 million and secured a commitment from Grid to take several key actions aimed at improving customer service, including increased staffing on Long Island.

DiNapoli said Grid’s three 15-year contracts for Management Service, which include running LIPA’s day-to-day operations, Power Supply and Energy Management, are set to expire in 2013. LIPA announced in June 2010 that it would competitively bid its new Management Service Agreement, as recommended by DiNapoli in 2007. DiNapoli recommended that LIPA improve its monitoring of Grid’s emission credit sales to prevent future errors and ensure it receives its fair share from such sales. LIPA officials agreed with his recommendation and indicated they had taken corrective action.  

When Grid acquired KeySpan in 2007, DiNapoli pushed through a requirement for a comprehensive performance measurement system for LIPA to monitor and evaluate their new contracts with Grid.  The Management Service Agreement contains a total of 19 performance standards and requires Grid to submit detailed monthly reports to LIPA regarding its performance against those standards.

DiNapoli’s auditors found that LIPA has been sufficiently monitoring Grid’s performance, receiving monthly reports from Grid, verifying this information with independent sources, and following up with the company when it fails to meet contractual performance targets. LIPA also uses consultants to help monitor Grid’s performance, and has staff on-site at Grid facilities to oversee its operations.

Recent concerns regarding questionable spending included in National Grid’s request for a rate increase for direct customers of National Grid in New York State, has prompted U.S. Sen. Charles Schumer and other officials to call for an investigation.  Although LIPA and its customers were not directly impacted by this incident, the need for continued vigilance to protect LIPA ratepayers from unnecessary spending is clear.

DiNapoli said the new contracts must include meaningful benchmarks and performance standards, and impose real financial penalties for substandard performance. The penalties for failing to meet benchmarks must be sufficient to ensure the highest quality service for LIPA ratepayers.  The audit covered the period August 2007 to January 2010.

Click here for a copy of the audit.



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