LIPA files $70M suit against PSEG-LI, alleging 'grossly negligent' storm response

LIPA on Wednesday filed a breach-of-contract lawsuit against grid operator PSEG Long Island in an unprecedented move that puts a price tag on the New Jersey-based company’s "grossly negligent" performance during Tropical Storm Isaias: at least $70 million.

The suit, filed in state Supreme Court in Mineola, accuses PSEG of a litany of "willful breaches of material obligations" before, during and after the storm, much of it tied to the breakdown of computer and communications systems that left 535,000 customers in the dark for up to eight days.

The suit accuses PSEG of "corporate mismanagement, misfeasance, incompetence and indifference, rising well beyond the level of simple negligence." PSEG failures were "willful" and "in bad faith," the suit says.

PSEG Long Island spokeswoman Ashley Chauvin said the company "will review the lawsuit."

She said the company "stands by our dedicated and hardworking employees, our past accomplishments and our commitment to improve."

The suit says that worse than leaving customers without power during a week of sweltering summer heat, PSEG left customers "without critical information" about its crippled efforts to restore power or provide accurate restoration times, after PSEG systems were "overwhelmed" with calls and failed under the stress.

Emails uncovered by LIPA and previously reported by Newsday showed PSEG Long Island officials knew of computer system failures more than a month before the Aug. 4 storm but were unable to persuade "absentee" management at PSEG’s Newark headquarters to help them resolve the problems. PSEG’s "willful failure to adequately design, plan, manage and test key communications and outage management systems were the root causes of the damage," LIPA said in the suit.

"We hired PSEG to do a job and they failed to do it and our customers should get their money back," said LIPA chief Tom Falcone in an interview Wednesday. "It's no different than if you bought a car and the dealer sold you a lemon."

He said LIPA will assure that any damages PSEG is forced to pay through the court will come from PSEG's corporate parent, and not Long Island ratepayers.

The litigation could take years to resolve, and there’s no guarantee LIPA would receive any payment. But if LIPA is successful, any proceeds could be used to offset LIPA costs related to the storm, including for investigations and storm costs that aren’t covered by anticipated federal grants for the Isaias response, which cost upwards of $350 million. The Federal Emergency Management Agency could pay up to 75% of those costs, meaning ratepayers could be on the hook for more than $80 million.

Many of PSEG's missteps, LIPA has said in task-force reports on PSEG’s performance, continue to this day. During a storm last month, PSEG directed some customers to a new toll-free telephone line after many received busy signals in reporting outages.

"That clearly is unacceptable," said Falcone. "We need them to have more urgency. These systems should be fixed right now and they are not."

LIPA in filing suit is not acting purely on its own authority. The state Department of Public Service, in a letter to LIPA trustees in November, specifically recommended the authority pursue litigation, both to force PSEG to comply with its LIPA contract, and to seek compensation for the millions in losses ratepayers suffered because of the faulty systems and prolonged restoration.

DPS "recommends that LIPA consider serving a notice that PSEG LI defaulted on material contract obligations and that LIPA seeks to terminate" its contract with PSEG, the state said in the Nov. 13 letter. DPS also recommended the LIPA "evaluate terminating PSEG LI as LIPA’s service provider." PSEG’s contract with LIPA extends to 2025 and is valued at nearly $80 million a year.

In addition to seeking at least $70 million in compensatory damages, with interest, LIPA's suit seeks to force PSEG to "immediately redesign, fix and/or strengthen" the communications systems, fix the outage computer system, and develop a working plan to keep the utility operating in the case of new storm-related system failures.

Chauvin of PSEG said the company has been "hard at work addressing the recommendations in LIPA’s 30- and 90-day reports. We believe that the current public-private partnership is the best option for Long Island customers and we have remained committed to being the service provider of choice for LIPA."

The lawsuit notes that on the first day of the storm, 75% of customer calls to PSEG’s phone system, or more than 400,000 calls, were unsuccessful. PSEG "did not properly monitor whether calls to the outage line were connecting," the suit charges, a problem that "could have been prevented." PSEG continues to operate a telephone system that existed when it took over the contract in January 2014, and failed to test, "evaluate or expand" its capacity, the suit says. The same was true of digital communications channels that failed during the storm, including texting and web-site reporting functions, it says.

Worse, the suit says PSEG had no plan in place in the event the systems failed.

Failure of the computer system was evident in the first hours of the storm, the suit charges, rendering it "effectively non-functional at times," while "negatively impacting all communications channels and field activities." The outage management system is central to the company’s storm response, collating data from customer calls for use in a public-facing online outage map, worker dispatch and resource management.

Failure of the system also led company dispatchers to send work crews to job sites that needed no restoration, the suit charges, noting that 28% of area outage incidents were false. "In nearly one-third of all jobs dispatched" by the company, "workers arrived at an outage location to find that there was no outage. This delayed restoration by days."

One Long Island lawmaker said the lawsuit is justified. "This historic, aggressive move to demand accountability from a utility is appropriately commensurate with the level of failure that Long Islanders have been living with for too long," said State Sen. Todd Kaminsky (D-Long Beach). "If this doesn’t make PSEG wake up and act responsibly then nothing will."

Kaminsky said the lawsuit "clearly signals that even at this late date PSEG still does not have an effective customer response system, which in the middle of a winter in the Northeast is beyond troubling."

The suit notes that an upgrade to the outage computer system was budgeted by LIPA in 2017, but not loaded onto PSEG’s systems until February. The new version went live on June 28, "right before the start of the 2020 storm season."

But LIPA has since discovered that stress-testing of the upgrade was "woefully inadequate," failing to account for a storm such as Isaias, which saw a total of 645,000 outages. It also experienced a crash on July 17, but employees were unable to recruit parent-company officials to help, the suit says, and "never advised LIPA of the problems. …"

LIPA also labeled as "false," assertions by PSEG in a September letter to the state DPS, well after the storm, that its computer and communications systems had been repaired and stress tested, noting in the suit that the system in place now also has "functionality issues and has failed stress testing."

LIPA also noted that PSEG’s parent had "decided to abandon" the outage computer system for its New Jersey customers that LIPA had recently upgraded to. "While the upgrade was going forward on Long Island, PSEG LI’s parent was already looking for a different" system, the suit charges.

On a grander scale, the suit charges, LIPA’s priorities for Long Island customers are "subordinated to those of PSEG’s larger New Jersey utility."

The breach of contract claim extends to PSEG’s alleged failures to maintain customer contacts through its website, telephone systems, field services and computer systems, while failing to develop and implement a "business continuity plan" in the event they failed.

It further charged that PSEG’s management system that left top Long Island managers "dually" reporting to their Long Island bosses and back to New Jersey amounted to breach of the "covenant of good faith and fair dealing." The management structure "did not function" and left Long Island computer system managers "accountable to the organizational silos in Newark, whose priorities were the corporate parent organization rather than the Long Island operation."

The suit charges that PSEG Long Island president and chief operating officer Dan Eichhorn had "virtually no control" over the quality of the computer function provided for LIPA.

Gov. Andrew M. Cuomo, in a statement, said, "Utility companies like PSEG Long Island get paid to manage the aftermath of a storm, and time after time they have failed to hold up their end. It's inexcusable, and we're going to make sure that it doesn't happen again."

Key elements of the suit

• Charges PSEG failed to properly design and maintain computer and telecom systems, or have a backup plan in case they failed
• Says nearly a third of trucks dispatched after Isaias were to locations that didn’t require a repair
• Says PSEG’s sister utility in New Jersey has since abandoned the failed computer system it led LIPA to upgrade to in June
• Says PSEG’s Long Island customers’ interests are given lower priority than those in New Jersey
• LIPA is seeking at least $70M in compensatory damages, legal costs and interest, plus fixes to the deficient systems