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Report: New York American Water company workers tried to 'deceive' state

Assemblyman calls for a criminal investigation of the company and its employees responsible for errors in tax calculations.

New York American Water's Merrick headquarters.

New York American Water's Merrick headquarters. Photo Credit: Danielle Silverman

Employees of New York American Water intended to “deceive” state regulators after learning of “material errors” in tax calculations starting in 2013, and “intentionally withheld” information about the errors when the company filed to raise customer rates in 2016, according to a new state report.

The report released Friday by the state Department of Public Service came after months of investigation that previously found New York American Water overpaid its taxes by some $2.3 million, leading to customers overpaying by about $281,000. The company plans to provide $65 individual customer credits to compensate for the overpayments, pending state approval.

New York American Water’s 4,500 customers in and around Sea Cliff complained last year when rates jumped after the company’s state-approved rate hike.

The company has been dealing with the fallout from the miscalculations since December, when top officials traveled to Albany to report them to the state. Residents in the Sea Cliff district say they have been exploring ways to operate the water system as a public entity to help lower rates and improve service.

Among findings in the 45-page report was that employees in New York American Water’s tax department “seemed indifferent to developing correct information” to report to the state property-tax division.

The employees displayed “arrogance and unwarranted certitude” in the numbers they reported to the state, “even when it was pointed out several times, for several of the companies, that the numbers appeared to be incorrect.”

The report also found New York American Water’s rates and regulatory team “knew of the material errors” when the company filed for a rate increase in 2016, but “failed to disclose that information in rate proceedings” before the state Public Service Commission.

The failure “was not a result of the company’s negligence, which is itself troubling, but rather, of the company’s intent to deceive,” the report said.

In the end, the report noted, it was the company’s senior management and legal counsel who admitted the errors to Department of Public Service staff in December 2017, after the rate case had concluded.

New York American Water represenatatives “stated in that meeting how sorry they were that this error occurred, and that it was not brought forward much sooner,” the report said, noting that the company has been “very cooperative” in the probes.

Nonetheless, Assemb. Michael Montesano (R-Glen Head) called for a state criminal investigation.

“I am calling upon both the Nassau County district attorney and New York’s attorney general to launch a criminal investigation and convene a special grand jury to ensure this company, and the responsible employees, are held accountable for these actions as a whole,” Montesano said Tuesday.

The state report calls for “further enforcement actions,” including requiring New York American Water to hire an “independent monitor” to conduct ongoing reviews of the company’s practices.

The report also calls for reviewing whether costs “associated with the company’s failures should be paid for by shareholders rather than ratepayers.”

In a prepared statement, New York American Water said, “We take this matter very seriously and as staff acknowledged in the report, we have been very cooperative with this investigation. We take full responsibility, and we are currently reviewing the report so we can take additional improvement actions.”

Bruce Kennedy, president of North Shore Concerned Citizens, a civic group that seeks to put the Sea Cliff water district in the hands of a local municipal entity, said the report corroborates what the group told the Public Service Commission in 2015.

New York American Water has been “gaming the system all along, and the PSC dropped the ball by ignoring our pleas,” Kennedy said, calling state’s fixes “not enough.”

Kennedy said, “The only solution is to take the profit motive and assist the district in conducting a feasibility study to merge the district with an existing municipal water district.”

A bill sponsored by Sen. Carl Marcellino that would have funded such a study passed the Senate last month but was not approved in the Assembly.

The state report traces the tax-calculation problem to New York American Water’s 2012 acquisition of Aqua America New York Inc., when a spreadsheet conflict resulted in certain company plant values being “accidentally shuffled.”

The issue had a “material impact on the aggregate assessed value of the company’s taxable assets, thereby materially increasing the company’s annual property tax expense.”

Employees within New York American Water’s tax department compounded the problem, the report found.

The employees “lacked proper supervision,” and “did not communicate critically important information to their supervisors.” They also prioritized getting tax filings “completed, instead of getting them correct.”

The state also said New York American Water’s process for ensuring the accuracy of data was “particularly lacking.” The company plans to implement a new process to prevent future occurrences, the report states, as well an employee training program for importing data.

In its statement, the company said it will also enhance accounting and reporting controls, including additional management oversight. It plans a “community cabinet” to promote transparency. Its customer hotline number is 516-632-2222.

“We are committed to rebuilding our relationship with our customers in our North Shore/Sea Cliff district, the Public Service Commission leaders and staff as well as other appropriate stakeholders,” the company statement said.

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