Loose from his moorings and with the wind at his back, Michael Hervey set sail to locate a new job opportunity. After 18 years with ComEd, Hervey was on the receiving end of a management shuffle precipitated by a series of summer blackouts in downtown Chicago, Illinois, in the summer of 1999. Hervey had a nice résumé with stints in protection and control, distribution, transmission and substation maintenance, construction and engineering. Hervey was confident his unplanned exit would not be a career buster. I offered to be a resource for Hervey in his search. In return, he promised to be a resource for T&D World when he made dock.

Hervey indeed managed a soft landing. Now the director of T&D at Long Island Power Authority (LIPA, Long Island, New York, U.S.), Hervey even managed to meet one of his personal goals, to live near “big water.” Hervey is a deep-water sailing enthusiast who gladly traded Lake Michigan for the Atlantic Ocean.

Hervey invited me up to visit, meeting me at the train station grinning from ear to ear. He just loves working in LIPA's fast-paced entrepreneurial environment. Hervey interacts with customers and tracks industry trends. He also answers his own phone and sends out his own e-mails. He meets regularly with Keyspan staff on network issues and focuses on the special challenge of providing first quartile reliability on an island.

Hervey drove us over to LIPA headquarters to meet his boss. Well, headquarters might be an overstatement. LIPA has only 71 employees with only two working in T&D, yet this organization is responsible for providing power to nearly 1.1 million customers. LIPA manages assets that include 1300 circuit miles (2092 km) of transmission, 56,000 miles (90,123 km) of distribution and 178 substations.

I'd like to step back and provide a little insight into how LIPA came into being. Remember the Long Island Lighting Co. (LILCO)? This investor-owned utility ran into trouble getting Shoreham Nuclear Plant on line. Cost overruns nearly sent LILCO into bankruptcy. With a hostile public paying electric rates of 17 cents per KWh, the scene was not pretty.

The short version is that Gov. George E. Pataki pushed for LIPA to take over LILCO's retail electric business along with the Shoreham debt. LIPA then outsourced operations, maintenance and construction back to newly formed KeySpan Energy, staffed by former LILCO employees.

I chatted with Hervey and his boss, COO Seth Hulkower, over a box lunch. Hulkower shared his experiences in crafting the original 1998 management services agreement with KeySpan to run and maintain the T&D network.

LIPA was pressured to bring down the cost of electricity on Long Island and quick. As a state agency, LIPA was able to reduce the cost of capital from 9.5% to 5% on the $4 billion Shoreham-related debt. As a municipal entity, LIPA was exempt from federal income tax — another major savings. And now, as a not-for-profit municipal utility, LIPA had no shareholders to pay. These moves enabled LIPA to cut rates to around 14 cents per KWh. And get this, KeySpan did not incur any significant layoffs.

Oh, yes, I forgot to mention that LIPA committed to freeze its rates for five years so some hard work remains. LIPA is now four years into its eight-year management services agreement with KeySpan. LIPA is already pre-paring for the expiration of their services agreement with KeySpan. Hulkower acknowledges that the contract is fairly easy to monitor and enforce but that it also limits competition and flexibility, keeping LIPA from taking advantage of best of breed opportunities.

States Hulkower, “We must determine which core elements LIPA needs to own and which functions are best bundled and outsourced.” Assisted by Navigant Consulting, LIPA is reviewing the key metrics needed for a successful management services agreement. Hulkower acknowledges there is a limit to the number of agreements LIPA could successfully manage. I expect a steady stream of visitors to call on Hulkower and Hervey in Uniondale, New York, over the next six or seven months pitching packaged services solutions to this overworked but merry band of men and women.

After lunch, Hervey dropped me off to catch the train back to New York City. I was struck again by the pervasive smile that lit up Hervey's face. Here is a man in his element. It's fun to see Hervey, with a full sail, facing the future with anticipation and optimism. I have no doubt that the citizens of Long Island will be the better for it.

Note: Seth Hulkower will speak at T&D World's annual Outsourcing Summit to be held Nov. 4-6, 2002, at the Renaissance Vinoy Resort and Golf Club in St. Petersburg, Florida, U.S. See page 86 for more information.