Inspector General Report Faults Utility Gifts to Department of Public Service Staff Investigating Safety Issues; Utility to Pay Fine of $1.667 Million

The Syracuse Post Standard reports that:

National Grid is expected to pay a $1.667 million penalty next month to settle charges that for years it plied workers at the state agency that regulates the utility with gifts including meals and rounds of golf.The gifts were uncovered during an investigation of Public Service Commission employees by state Inspector General Catherine Leahy Scott, who released her report today.

Tim Knauss, National Grid fined $1.6 million for improper gifts to state workers regulating the utility, Post Standard, July 18, 2012.  The New York State Inspector General's Report on the Investigation of Employee Misconduct at the Department of Public Service mentions the fine, contained in a proposed settlement scheduled for review by the PSC on August 16, but does not name the utility.  The IG Report states:

The Inspector General determined that from 2002 to 2010 several employees in the New York State Department of Public Service, Office of Electric, Gas, and Water, Safety – Electric, Gas, and Steam Section improperly received gifts totaling more than $7,000 in the form of meals and games of golf from regulated entities.  The Inspector General’s investigation further determined that two Department of Public Service (DPS) employees violated DPS policy by sharing confidential information, which included drafts of documents to be submitted to the New York State Public Service Commission. ****  The Inspector General’s investigation found that for more than eight years, several DPS employees assigned to the Safety Section engaged in misconduct by accepting gifts from public utility companies that were regulated by the Commission.  

 The Inspector General’s investigation further revealed that [an employee working on an explosion investigation] released several draft versions of an accident investigation report in violation of DPS’s confidential information policy.... 

(Emphasis added).  The IG's use of the plural  "regulated entities" and "utility companies" involved in making gifts to DPS staff suggests there may be more than one utility involved.  A response of the Public Service Commission, included in the Inspector General's Report, indicates that:

The utility company which provided gifts to [two DPS employees] as well as other Safety Section employees, has reached a settlement regarding the improper gifting in violation of the New York State Public Service Law.  The utility company has agreed to pay $1.667 million at shareholder expense in lieu of PSC’s commencement of an enforcement proceeding in New York State Supreme Court.  The agreement is subject to PSC approval at its August 2012 meeting.  

Neither the IG Report nor the PSC response contained in it mention National Grid or any of the other gift-giving utilities by name.  It is not clear from the report whether the same utility whose consultant obtained draft investigation reports being prepared by recipients of gifts was also a gift-giver.  The Report does not indicate whether any separate action has been taken by the PSC against the utility whose consultant - a former Department of Public Service staff member - obtained drafts of a DPS explosion investigation report being prepared by employees who had received gifts. 

The report mentions that the leaked draft of the investigation report was being prepared in connection with a major explosion in Queens on July 25, 2008. Contemporary news reports of a major Queens explosion on that date indicate that the utility serving the premises where the explosion occurred is Con Edison.  Sewell Chan, Queens Building Is Evacuated After Explosion, N.Y. Times July 25, 2012; Heads, it's Con Ed; tails, it's the landlord, N.Y. Daily News, July 26, 2008.  Thus, it would appear that the utility whose consultant received drafts of confidential explosion investigation reports is Con Edison.  Parsing the IG report, it appears that at least one employee involved in the leak of the draft DPS explosion investigation report also received gifts, from an unnamed utility.

Update
In a footnote, the Inspector General's report indicates that despite a Safety Staff Report which exonerated Con Edison in the July 25, 2008 gas explosion in Queens, and which was not initially presented to the Commission, the PSC eventually went on to bring a penalty proceeding under PSL § 25 alleging that the utility had violated legal obligations that contributed to the death of a customer, and injury to others:

In March 2011, the Queens incident investigation report was brought before the Commission.  Thereafter, following the filing of an order to show cause in anticipation of proceeding with a penalty action against the utility, the Commission entered into a settlement agreement [with Con Edison] in which the utility agreed to pay $1.5 million.  Following an additional DPS investigative effort, the Commission proceeded against the utility on the grounds that the non-compliance was based on the utility’s failure to follow its written gas turn-on and restoration procedures, which constituted a violation of Public Service Law (PSL) §§ 5 and 65 mandating safe and adequate service and Commission regulation 16 NYCRR 255.603(d), and Commission precedent.

The PSC Case 11-G-0077 includes the Report of the Safety Staff, (drafts of which had been vetted with Con Edison's consultant), which basically would have exonerated Con Edison for not following its established procedures for restoring gas service, stating:

refusing to restore service on that day might only have postponed but not prevented the incident. The same event could have happened even if the Con Edison personnel had fully followed procedure G-11836.

In its Order to Show Cause launching a penalty proceeding against Con Edison regarding the explosion, the Commission indicated it was not bound by the Staff Report:

The Report observed (at 20) that a refusal to restore gas service might have avoided the incident, but concluded that such refusal might not have prevented, but only postponed, the incident because “[t]he same event could have happened even if the Con Edison personnel had fully followed procedure G-11836.” Nothing in PSL 25(3) requires, however, that we determine that full utility compliance would have prevented the death or injury; rather the statute requires a Commission determination that the noncompliance “caused or constituted a contributing factor.” The Report’s speculation as to what might have happened on some subsequent day had the restoration of service been postponed does not necessarily defeat Con Edison’s contribution to what actually happened on July 25, 2008.

The PSC action did not allege any violation arising from the utility's consultant who vetted the Staff drafts of the Safety Report.  Subsequently, Liberty, a plumbing company who along with Con Edison was sued after the explosion, opposed the PSC settlement with Con Edison because it resulted in no finding of wrongdoing by Con Edison.  Liberty apparently raised the issue of the Con Edison  consultant's influence on the DPS Safety Staff Report:

Finally, Liberty claims Con Edison manipulated the Staff investigation. It asserts Con Edison attempted to focus Staff on the condition of gas valves and hoses irrelevant to the open valve in Apartment 2P. 35 Liberty also claims Con Edison diverted Staff’s attention from the actions of Con Edison employees.36 It further asserts Con Edison’s consultant persuaded Staff to remove a conclusion in a draft of the Staff Report, relating to whether Con Edison’s violations caused or contributed to the Gas Incident.37

The footnotes refer to Liberty's objections submitted in opposition to the settlement that are not contained in the PSC public electronic case file for Case 11-G-0077.  As discussed below, the Liberty objections may have contained allegations of improper gift-giving by Con Edison to DPS Staff.


The PSC Order approving the settlement mentions the issue of the leaked report in discussion of Con Edison's response:

Finally, Con Edison rebuts Liberty’s claim that Staff of the Gas Safety Section of the Office of Electric, Gas and Water improperly removed a conclusion from the initial draft of the Report to the effect that Con Edison’s actions caused the explosion.43 Con Edison asserts this is incorrect because the initial report never found Con Edison’s actions caused the explosion, but only suggested that Con Edison’s actions may have contributed to the root cause of the explosion.44 Con Edison also argues that Staff properly revised its initial draft of the Report because the evidence did not support such a conclusion. Here Con Edison asserts the initial draft of the Report did not include any evidence, and contained no discussion, as to how Con Edison’s alleged procedural violations may have contributed to the root cause of the explosions.45

The PSC Order approved the settlement of the case without taking action regarding Liberty's claims on these issues:

Given the limited purpose of this case, Liberty’s objections relating to the Company’s alleged wrongful conduct after July 25, 2008, are not controlling with respect to the acceptance of the Agreement as a basis for settling the penalty action.  At most, they suggest we have valid grounds for exercising our enforcement powers to the fullest extent allowable under the law. In effect, however, this is what the Agreement achieves. It provides for a monetary payment by Con Edison’s shareholders in an amount at least as great as what the Commission could possibly obtain if it successfully pursued all available penalties under the Public Service Law. Thus the Agreement fully achieves the discrete purposes of Section 25 of the Public Service Law.This is not to say that we dismiss the concerns Liberty raised. Rather, we view them as largely outside the scope of this case. We do, however, clarify that we regard Clause II.3 of the Agreement pertaining to the relinquishment of penalty claims, as reaching only gas safety violations associated with the “Gas Incident,” defined in the Agreement the explosion that occurred on July 25, 2008 at 147-25 Sanford Avenue, Queens. We do not read the Agreement as limiting and we preserve our authority to bring any penalty action for violation(s) beyond gas safety violations, which was the focus of our investigation, (i.e., PSL §15, which prohibits, among other things, gifts to Department employees). 56 While Clause II 3 of the Agreement provides the Commission will not pursue a penalty action with regard to Con Edison actions “directly or indirectly related to the Gas Incident” we do not construe that as reaching conduct improperly affecting our Staff’s investigation. We will require Con Edison to accept this reading of the Agreement as a condition of the approval of the Agreement.

In the footnote to the mention of "gifts to Department employees, the PSC Order stated "This clarification should not be read to imply that we have evidence of such violations."  


In June, 2011, a court case brought by victims of the explosion against Con Edison and Liberty Plumbing was settled.  Con Edison agreed to pay the entire award of $25 million.