LIPA Faces Call for Federal Investigation

on June 26, 2013 at 5:00 PM

New York And New Jersey Continue To Deal With Aftermath Of Hurricane Sandy

NY state commission asks feds to look into “troubling” relationship between utility and key consultant.


The Long Island Power Authority, the target of multiple investigations in the wake of its poor response to Hurricane Sandy, may soon be facing investigation by federal prosecutors as well.

A special commission appointed by New York Gov. Andrew Cuomo released a report (PDF) on Saturday that accused the utility of “structural dysfunction and blatant disrespect for ratepayers,” as well as “disturbing trends in LIPA’s accounting practices, operations and management structure” that indicate that “LIPA’s failings do not just occur during weather emergencies.”

“Specifically, LIPA lacks internal controls for reviewing consultant charges, which has led to potential overbilling, improper expensing, and other questionable charges passed on to ratepayers,” the report stated. “Some of these practices may violate State and federal laws,” the report stated. Gov. Cuomo said Sunday that he planned to refer the commission’s findings to federal prosecutors in New York.

In particular, the commission scrutinized LIPA’s relationship with Navigant, a San Francisco-based consultancy that was deeply involved in the utility’s day-to-day operations. Of the $65 million or so that LIPA paid to consultants from 2008 to 2011, about $28 million went to Navigant, according to the report.

Those fees included “exorbitant” travel expenses that included a private plane to and from a Caribbean resort island, the report found. It also included more than 50 consultants billing at $300 to $500 per hour, one of them billing $4.5 million over a four-year period, the report found

“Additionally, there appears to be a revolving door of employees moving between LIPA and its primary consultant, Navigant Consulting, Inc. (Navigant), which may violate State laws,” the report stated.

In particular, the report cited the case of Michael Hervey, LIPA’s acting chief executive during its Sandy debacle, who joined Navigant early this year as a director in its Emerging Technologies & Business Strategy service group, according to Navigant’s website.

In 2010, Hervey signed a $23 million contract that extended Navigant’s utility contracting services for five years, and in 2011 approved roughly half of the $7.2 million billed to the authority for that year, the New York Times reported on Sunday.

“The Commission’s findings regarding the relationship between LIPA and Navigant have been referred to federal prosecutors for their further investigation and potential prosecution if deemed appropriate,” the report stated.  Navigant said in a Sunday statement that it is reviewing the report and cooperating with authorities.

The New York Times reported Sunday that it had been unsuccessful in attempts to reach Hervey for comment. Hervey, who had been with LIPA since 2000, resigned from the utility in November, along with LIPA Chairman Howard Steinberg, amidst intense criticism for the utility’s performance during Hurricane Sandy, when more than 90 percent of LIPA’s customers were left without power, some for weeks.

That, along with several other investigations into LIPA’s practices and finances over the years, led to Gov. Cuomo’s decision in May to turn over LIPA’s operations to Public Service Enterprise Group (NYSE: PEG), which owns New Jersey’s Public Service Electric & Gas. Under the plan, LIPA’s staff would be slashed from 90 to about 20, with PSE&G taking over full authority to manage daily operation, budgeting, storm preparedness, infrastructure improvements and energy efficiency and renewable activity.

Jeff St. John: June 24, 2013 via Greentech Media