Before LIPA canceled search for new grid manager, PSEG official raised concerns about its process

Thirteen days before LIPA trustees voted in May to cancel its search for a new bidder to run the electric grid and instead negotiate a contract extension with PSEG Long Island, a top lawyer for PSEG's corporate parent raised concerns about the integrity of the bidding process and suggested the company was evaluating its legal options. 

In a May 9 letter included as an exhibit in a lawsuit against LIPA and six trustees by rival bidder Quanta Services, PSEG executive vice president and general counsel Grace Park wrote to "express concern regarding the integrity of the process that PSEG has now participated in for the last year." 

Park wrote that PSEG’s list of five primary concerns "call into question the conduct, fairness and impartiality of the selection committee, and also spotlight potential violations of the established procurement process rules." Her letter concluded with the statement that PSEG would "continue to evaluate what legal actions may be appropriate."

The letter came during a period of uncertainty about the outcome of the bidding process given the perceived gulf between the LIPA review committee's strong recommendation for Texas-based Quanta and the April 30 LIPA board vote to reject Quanta's bid. Park even raised concerns about the LIPA committee's assessment that PSEG did not meet minimum bid requirements in the process, noting the term "minimum requirements was previously not conveyed to PSEG at any point during the process." 

The letter provides a window into the thinking at PSEG, the only other bidder for the contract, about the bidding process, which has included allegations of potentially conflicting stock holdings, alleged pressure brought to bear on top LIPA officers to change bidding scores, and the decision to sideline, and eventually terminate, two of LIPA's most experienced officials who had been reviewing the bids. LIPA has suggested at least one of those terminations is related to a state-advised management review. 

The process and its outcome also has led Quanta to sue LIPA, as it too raised concerns about the bidding process, and sparked an investigation by the state inspector general and two internal LIPA ethics complaints.

Within two weeks of Park's letter, LIPA trustees would vote to negotiate a new contract with PSEG, a process that concluded in September with a five-year extension of PSEG’s contract valued at $493 million. LIPA owns the electric grid and pays PSEG Long Island to manage it. The current contract expires Dec. 31.

PSEG's list of five major concerns with the LIPA process, cited in previously undisclosed correspondence, present a distinct set of issues from those of Quanta, which has called the procurement "unlawful." 

In her three-page letter to LIPA general counsel Bobbi O'Connor, Park charged the process was "fraught with delays and now mired with issues that question its integrity." 

Her list of five chief concerns about the procurement was topped by a statement made during one LIPA trustee meeting that the "process included leaks of confidential information, intimidation tactics and other 'tawdry things' that would not be expected to happen to a board of volunteers."

She also raised concerns that one LIPA trustee, Dominick Macchia, an international representative for the IBEW electrical workers union, told the board he abstained from the vote because leadership of his organization had recently met with one of the bidders. "We are concerned about the activity of the other bidder conducting this type of outreach a week before the LIPA Board’s vote," Park wrote. 

Park also cited comments by Quanta chief executive Earl Duke Austin Jr. on a May 1 earnings call "suggesting direct outreach to the LIPA board to 'clarify' their concerns and 'give them the feedback that it’s necessary.'

"These statements were made despite the fact that the bidders are prohibited from engaging the LIPA Board," Park wrote. 

Park also pointed to LIPA's disclosure in May that one official on the review team, later revealed as then-acting chief executive John Rhodes, owned stock in Quanta between 2021 and December 2024. "This information raises questions about whether this was disclosed to LIPA or to LIPA’s board of trustees, the timing of that disclosure, what steps were taken as a result, and whether similar issues existed with respect to the other members of the Selection Committee."

Rhodes during a LIPA board meeting had denied any impropriety, saying his stock was managed by an outside firm and he hadn't been aware of the holdings. 

Rhodes was one of three top LIPA officials who strongly recommended that Quanta be awarded the LIPA contract. Another top official who was on the committee, senior vice president Billy Raley, has since been fired and has filed two ethics claims against LIPA, including one alleging retaliation. Raley said he was pressured by a state-appointed official to lower Quanta's scores during the procurement. Acting chief operating officer Werner Schweiger, also on the committee, was told last week that his position was being eliminated at year's end, sources said. He too has filed an ethics complaint and been interviewed by the inspector general, Newsday reported. 

The state comptroller's office is also reviewing LIPA’s proposed contract extension with PSEG after state Attorney General Letitia James previously approved it. 

LIPA declined to comment on the PSEG letter, saying it does not comment on active litigation. A PSEG spokeswoman didn't respond to a request for comment on the correspondence.

The exhibits filed by Quanta in state Supreme Court in Mineola also indicate that PSEG had earlier expressed concerns about aspects of the procurement and specifically its proposed new contract terms.

Notably, according to a separate LIPA letter included in Quanta’s recent exhibits, PSEG indicated that unspecified provisions in an early draft of the contract "provide[d] LIPA with excessive involvement in operation services" and were "exceeding LIPA’s statutory authority." LIPA declined to release the full PSEG letter that raised those issues or comment to Newsday about it. The contract at issue was nullified when LIPA voted May 22 to discontinue the procurement and re-up its former contract with PSEG.

In the LIPA letter referencing PSEG's contract concerns, LIPA director of procurement Maria Gomes took exception to PSEG’s assertion that LIPA’s proposed "excessive involvement" in utility operations violated the LIPA Act and the original law that created LIPA.

"LIPA’s proposed [contract] is consistent with its purpose and history," Gomes wrote, rejecting PSEG’s charges. "There is no provision of the LIPA Act or the LIPA Reform Act that restricts LIPA’s powers or oversight responsibilities in the way PSEG describes."

Quanta, in its recent court papers in opposition to LIPA’s motion to dismiss its case, argued that LIPA "irrationally and cavalierly ignored" the recommendation of its top officials, who "strongly recommended" Quanta. 

Quanta is asking the court to delay the start of a PSEG contract extension until a series of questions it has raised about the process, including its legality and fairness, are reviewed. Last month an acting judge in Mineola, Philippe Solages, denied Quanta's request for a temporary order to delay the PSEG contract, which has already been approved by the state attorney general and is moving toward final approval.

In a statement, BJ Ducey, president of strategic operations for Quanta Services, said: "The yearlong selection process for LIPA’s operator ended without a competitively procured awardee as a result of dubious decisions not based on the record and ignoring professional recommendations — raising questions about its integrity." He said LIPA’s 1.2 million customers "deserve a process that meets the highest standards of transparency, accountability, and public trust."

LIPA, in seeking to dismiss Quanta’s case, argued in court papers that Quanta filed its Article 78 objection to LIPA’s decision too late, beyond a statute of limitations.

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.