Probes on LIPA's use of consultants in conflict

When Gov. Andrew M. Cuomo's Moreland Commission issued its final report on LIPA this summer, the findings of potential improprieties in its use of consultants were deemed so serious that they were referred to the U.S. attorney's office for a possible criminal probe.

So the recent findings by a special committee of LIPA's board of only minor "errors" in billings, amounting to about $85,000 out of a total $42 million, left questions about how the two investigations could come to such divergent findings.

Navigant Consulting Inc., a Chicago-based utility consulting firm that has for years advised the Long Island Power Authority on nearly all aspects of its operation, had been accused by the commission of charging "exorbitant" fees for expenses and consulting work -- up to $500 an hour -- as well as reimbursements for business-class airfare, air-club memberships and even a charter airline flight from a remote vacation resort in Puerto Rico.

But LIPA general counsel Lynda Nicolino told trustees that she'd been advised by the office of the U.S. Attorney for the Eastern District that its investigation had concluded with no action, "and they consider the matter closed." A spokesman for U.S. Attorney Loretta Lynch declined to comment.

"I had little confidence in the LIPA Moreland Commission, which appeared to exist solely to search for facts to support a preordained conclusion" to largely dismantle LIPA and transfer much of its responsibilities to PSEG-Long Island, said Cindy Kouril, a Melville lawyer who has written extensively about LIPA and worked as Special Assistant U.S. Attorney for the Southern District, in Manhattan.

A spokesman for Cuomo did not respond to several requests for comment.

In addition to finding no intentional wrongdoing, an internal LIPA audit director who oversaw the investigation told trustees that cost controls at LIPA were "satisfactory," despite the findings of the Moreland Commission, which incorporated nearly two years of work by the state inspector general, also a Cuomo appointee.

Lack of 'internal controls'

In its final report in June, the commission stated: "LIPA lacks internal controls for reviewing consultant charges, which has led to potential overbilling, improper expensing and other questionable charges passed on to ratepayers. Some of these practices may violate state and federal laws."

In a statement at the time, Cuomo lauded the commission's "extraordinary work" and "thorough investigation."

"The findings released today raise a series of questions regarding LIPA's management of a consulting contract that passed unexplainable costs to ratepayers and involved exorbitant expenditures that appear to have nothing to do with providing power to Long Island residents," he said. "I second the commission's call for a full and thorough investigation by a prosecutorial body."

But the LIPA auditor, Bill Melville, told trustees LIPA did not find "cases of overcharging on the part of consultant," Navigant.

Instead, he said, "There were billing errors that occurred that resulted in overcharges. And there was no evidence of any fraudulent activity or attempt to charge for work that had not been performed that I uncovered during this period of time."

Several LIPA board members who attended a Nov. 26 special committee meeting appeared relieved by the conclusions and even joked about the outcome.

"So, when is the big U.S. attorney's press conference saying that they are taking no action against LIPA so that we can all be there?" trustee Laurence Belinsky asked, to laughter. "I guess that's not going to happen and I guess we're going to get page 96 in Newsday in the legal notices."

Charges deemed 'proper'

In a LIPA report summarizing findings of the audit, the utility found that in all cases in which consultants logged more than 2,000 hours, the charges were proper. "In all cases, directors determined that the hours worked were appropriate based on the scope of the assignments of each consultant," the audit found.

In cases in which consultants were found to have worked more than 75 hours in a week, or more than 24 hours in a day, LIPA found what it determined to be unintended errors or justifications for the work.

"The charges in excess of 24 hours in a day represented either an adjustment for hours which should have been billed in a prior period or an accumulation of multiple days' hours labeled as one day," the summary states. "In both cases, the actual hours charged were correct."

2 cases of 'unusual activity'

Still, LIPA found "unusual activity" for two Navigant employees:

"The first was a consultant with 106 hours in a five-day period and it was determined by Navigant that a billing error had occurred totaling $13,630," the LIPA analysis found. "Navigant also determined that the second consultant's hours had been billed in one month and then again in the following month. This duplication resulted in an overcharge totaling $1,440. These overcharges will be submitted to accounting for deduction from Navigant."

LIPA suspended its contract with Navigant following the commission report's release, which came one day after Cuomo's LIPA reform act passed in the State Legislature. LIPA owes Navigant about $700,000. Combined with some $42,000 in charges identified during the state inspector general's probe and a prior LIPA analysis, the new questioned charges are at $85,000, Melville said.

Nicolino told trustees LIPA has "the flexibility" to continue to use Navigant in the future, though she did not say whether LIPA will do so.

Navigant spokeswoman Carrie Grapenthin, in an email, said the company's consulting fees were "not exorbitant. Rather, they were rates negotiated between LIPA and all consultants that were part of LIPA's request for proposal process."

Navigant also took issue with the commission's finding that a "revolving door" existed between LIPA and Navigant, in which staff that worked for one was hired by the other. It noted that former LIPA chief Michael Hervey went to work as a consultant to Navigant shortly after leaving LIPA in December 2012. Hervey has never been accused of any wrongdoing, and LIPA labeled "false" a Moreland Commission charge that Hervey "personally signed" a $23 million contract with Navigant in 2010. In fact, former LIPA finance chief Herb Hogue signed the contract.

Grapenthin of Navigant added, "There were no violations of any hiring policies or regulations by either Navigant or LIPA, and any claims of a revolving door . . . are not accurate."

LIPA spokesman Mark Gross said the utility has enacted a "reverse revolving door policy" that places unspecified restrictions on LIPA's ability to hire consultants who have worked for the utility. He said, "We are applying the reverse revolving door policy informally until we formalize new procedures with the new board, which we anticipate being early next year."