National Grid agreed to implement new internal cost controlling measures recommended in a recent Public Service Commission audit, but disputes a finding suggesting New York customers were overcharged by $44 million as a result of faulty accounting practices.
The five-member commission gave National Grid 45 days to institute a series of 10 recommendations aimed at streamlining its accounting processes. In addition, the commission launched a new proceeding aimed at determining how much National Grid customers were overcharged in rates as a result of the flawed accounting practices that were initially discovered when the utility proposed a rate hike in 2010.
Commission members discussed the audit during their monthly business session in Albany on Thursday. They did not, however, indicate whether they will require National Grid to refund the overcharged amount outlined in the audit or when the new proceeding would get under way.
National Grid spokesman Steve Brady acknowledged the need to institute the recommendations outlined by the commission. For instance, he said, the company is implementing a single-platform accounting system that can be applied through the utilities servicing New York, rather than the existing pair that separately serve its downstate gas operations and the former holdings of the Niagara Mohawk Power Corporation.
“Many of those recommendations have been implemented or are in the process of being implemented,” he said.
But the company contests the notion that it overcharged customers to the degree outlined in the independent audit ordered by the commission. Brady called the methodology used in the audit “tragically flawed” and suggested the $44 million figure is drastically inflated.
“We think the methodology they used to do that was unsound,” he said. “It resulted in inaccurate and frankly widely overstated results.”
A 2009 audit of National Grid’s electric business and the company’s subsequent request for a rate increase in 2010 prompted the commission to call for a new independent probe into its financial records. The commission still approved the increase, but made $50 million temporary and subject to review at the conclusion of an independent audit of National Grid’s service company expenses.
The $1.76 million audit conducted by the Kansas-based Overland Consulting tested 1,425 targeted and randomly sampled service transactions valued at $1.77 billion and drawn from the two accounting systems used by the utility companies operated by National Grid in New York. Among these transactions, the audit found 176 — or roughly 12.4 percent — with accounting errors.
In addition, the audit found National Grid improperly categorized $11.2 million in expenses attributed to its upstate electric business as “recurring” during its 2010 request for a rate increase. The audit found no evidence of this cost in 2008 or 2010 and therefore it should have been considered a one-time expense during the rate review.
In its comments to Overland, National Grid acknowledged it had made accounting errors. But the company said these overages amounted to about $175,000 out of the $1.04 billion it tested.
The company also noted the state Department of Public Service and the Public Service Commission both analyzed the recurring expense before approving the rate increase.