NEW YORK STATE — The New York State Public Service Commission (PSC) released the final report of the audit of New York State Electric & Gas Corporation (NYSEG) and Rochester Gas and Electric Corporation (RG&E). The companies—which combined provide electric service to 1.3 million customers and gas service to 591,000 customers in New York State—now must file their implementation plan within 30 days. In addition, the NYS Department of Public Service, the staff arm of the commission, issued a notice of apparent violations (NOAV) against the utilities stemming from staff’s review of information concerning the utilities’ recent operations, to which the companies must respond within 21 days.

In September 2023, the commission selected an independent, third-party auditor to perform the comprehensive management and operations audit of NYSEG and RG&E. The third-party auditor submitted a draft audit report, which is now finalized. In the final report, the auditor makes 128 recommendations to the companies. The two utilities are owned by Avangrid, a member of the Iberdrola group.

Notable findings

Cost allocations and service level agreements: The auditor found that Avangrid’s complex corporate structure makes it difficult to determine if the charges it allocates to NYSEG and RG&E are based on cost causation. The companies receive goods and services from 13 corporate affiliates. Some of those affiliates are holding companies for multiple utilities, thereby limiting the transparency of the allocations and making it difficult to ascertain whether costs are being allocated appropriately.  The auditor recommends that the companies revise and update the Cost Allocation Manual and simplify the cost allocation process.

Performance management and incentive compensation: According to the auditor, all performance management activities occur at the Avangrid level.  Avangrid does not develop operational plans to achieve goals related to NYSEG and RG&E.  The auditor found that incentive payouts for executives are subjective and are not based on attaining goals specific to NYSEG and RG&E.  The audit recommends that Avangrid conduct a third-party review of the NYSEG and RG&E CEO’s individual metrics and discontinue discretionary assessments.

Physical security and cybersecurity: The auditor noted that physical security and cybersecurity programs are administered at the Avangrid level and that the cybersecurity program is not maturing as it should, despite cost increases. The auditor recommended that Avangrid strengthen its cybersecurity planning documents and metrics used to track performance and improve reporting to staff.

Electric operations: The auditor stated that asset management is also handled at the Avangrid level. Avangrid has not implemented a formalized and integrated asset management software platform and still relies on spreadsheets. Avangrid underspends on asset management, contributing to NYSEG’s poor electric reliability performance. The audit recommends that Avangrid implement an asset management system for NYSEG and RG&E.

Customer operations: The auditor found that Avangrid does not have appropriate controls for customer service outsourcing, augmented staffing invoice review and approval, or contract management. The auditor recommends that Avangrid determine drivers of call center cost increases and verify whether they are attributable to NYSEG and RG&E. The auditor also found that the companies’ customer service performance indicator (CSPI) metric reports have been inaccurate and recommends that Avangrid update its CSPI process documentation, create a formal override process, and enhance quality control.  

In terms of next steps concerning the audit, NYSEG and RG&E must file an implementation plan by June 18. Department staff will review NYSEG’s and RG&E’s implementation plan to ensure the steps described in the implementation plan address the underlying findings and recommendations in the audit report. The implementation plan will be submitted for public comment. The implementation plan, including any revisions resulting from staff’s review, further refinement by NYSEG and RG&E, or public comments, will be presented to the commission for approval or modification at a future session.