PSC Releases Audit of NYSEG and RG&E

ALBANY — The New York State Public Service Commission (Commission) today 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 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 that the companies must respond to within 21 days.

“The Commission operates a robust management and operations audit program that includes regular comprehensive management and operations audits, focused operations audits, and statewide utility comparisons,” said Commission Chair Rory M. Christian.  “The scope of this audit focused on ways to provide value to NYSEG’s and RG&E’s customers, while also reviewing core utility operations.  Department staff also identified certain audit findings and other information that certain company practices may be violations of Commission regulations or orders; the companies will now have an opportunity to respond to Staff’s contentions.” 

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. 

Notable findings from the audit include:  

• 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 and Cyber Security: The auditor noted that physical and cyber security programs are administered at the Avangrid level and that the cyber security program is not maturing as it should, despite cost increases.  The auditor recommended that Avangrid strengthen its cyber security 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, 2025. 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.  Department staff will also review the companies’ response to the NOAV and determine what, if any, additional enforcement actions are warranted. 

The audit released today is separate and apart from the utility management compensation audit announced by Governor Kathy Hochul in February 2025.  That ongoing, separate audit follows years of work by Department staff to examine utility management structures and seeks to align utility priorities with state objectives, including affordability, reliability, safety, and a cleaner environment.  That audit is part of a comprehensive effort led by Governor Hochul to combat rising utility costs and protect New York consumers. 

DPS staff’s NOAV alleges that NYSEG’s and RG&E’s board of directors consists of ineligible directors because they also hold positions as officers or directors of unregulated affiliate companies, which would appear to be inconsistent with the Commission’s 2013 order authorizing the insertion of Avangrid Networks, Inc. into the ownership structure of the companies.  The NOAV also alleges potential violations concerning maintaining customer billing records, and its billing procedures that resulted in prolonged estimated meter readings.  On gas safety, the NOAV alleges that NYSEG and RG&E have not complied with the regulatory requirements for reporting their response times to gas leaks or emergencies.  Lastly, on electric reliability, the NOAV alleges that NYSEG has not met enforceable reliability service standards for six consecutive years, despite paying Negative Revenue Adjustment payments for these failures and despite Commission approval of larger budgets for capital and maintenance programs in the last two rate cases.  

The NOAV requires the companies to respond to the allegations by June 9, 2025.  The NOAV includes allegations about potential violations; it does not constitute a final decision by the Commission concerning the allegations contained in the notice.   

Today’s actions may be obtained by going to the Commission Documents section of the Commission’s Web site at www.dps.ny.gov and entering Case Number 23-M-0103 in the input box labeled "Search for Case/Matter Number". Many libraries offer free Internet access. Commission documents may also be obtained from the Commission’s Files Office, 14th floor, Three Empire State Plaza, Albany, NY 12223 (518-474-2500). If you have difficulty understanding English, please call us at 1-800-342-3377 for free language assistance services regarding this press release. 

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