National Grid USA's downstate New York utilities made their case for why state regulators should not impose penalties against them for allegedly committing 1,616 safety violations, many tied to a Queens, N.Y., gas pipeline project embroiled in a qualifications cheating scandal.
Brooklyn Union Gas Co. and KeySpan Gas East Corp. challenged the potential financial penalties in an Oct. 1 filing, arguing that the Public Service Commission of New York lacks authority to initiate a penalty proceeding against them. The companies also claimed that the state's Department of Public Service, or DPS, staff essentially over-counted the alleged violations and said the commission should exercise restraint in light of National Grid's commitment to complying with state safety rules.
The commission opened enforcement proceedings against the National Grid utilities on July 11, alleging they failed to properly oversee contractors, which allowed noncompliant work to go unnoticed. DPS staff discovered many of the violations after National Grid inspected work performed by contractor Network Infrastructure, following a whistleblower report alleging the contractor helped employees who worked on a Queens pipeline project cheat on their operator qualification tests.
In response, the utilities "submit that the resources of staff and the companies are far better devoted to remaining on the present path of continued improvement in safety performance without the need for a costly and time-consuming administrative penalty proceeding regarding issues the companies have already addressed in a manner that has had and will have no financial impact on customers," they said in the filing.

Brooklyn Union and KeySpan presented a lengthy legal argument for why the commission does not have the authority to levy administrative penalties against them. The utilities claimed that public service law only authorizes the commission to assess penalties against "combination gas and electric corporations." They argued they do not fall within the scope of the relevant provision in the law because they are "straight gas corporations." Applying the section of Public Service Law to them "would create significant constitutional issues related to equal protection," they said.
The companies further argued the commission has no authority to penalize them for actions taken by independent contractors, and they should not be held liable for civil penalties that arise from intentional misconduct or fraud by their agents.
Brooklyn Union and KeySpan also claimed DPS staff misinterpreted regulations in identifying violations, asserting they reasonably complied with regulations in many cases, and they took issue with how DPS staff counted the violations.
"Specifically, in a majority of instances, staff pancakes one alleged violation of an inspection regulation on top of an alleged violation of an [operator qualification] regulation, and then adds these two alleged violations on top of an alleged violation of an individual commission regulation," they said. "In many instances, staff has alleged that the companies failed to inspect a certain location and argues that this alleged failure serves as the basis for multiple penalties. As such, the show cause order and the staff list seek to penalize the companies multiple times for the exact same conduct at several locations."
The companies further argued several factors mitigate the penalties, including that the alleged violations did not harm people or property. They note they have never been penalized for violating the regulations in question, were unaware of Network's fraud and took measures to prevent similar issues in the future.

Brooklyn Union and KeySpan also said the commission should not start a prudence proceeding — a process meant to assure that company shareholders, rather than ratepayers, bear the cost of remediation work tied to the violations. The companies said they have committed to shouldering the costs and established accounting procedures to make sure expenses are not passed on to customers.
Those costs have reached $9.8 million over the past three fiscal years, and the companies expects to spend at least another $5 million, they disclosed in the filing. The DPS estimated the cost of excavating infrastructure for compliance checks at nearly $7 million in July.
The utilities and DPS staff entered into preliminary settlement discussions shortly after the commission ordered the companies to show cause for why regulators should not penalize them. Both parties indicated that talks could continue, even with the recent filing.
"We filed our response to the order demonstrating that we don't believe a penalty proceeding is warranted under these circumstances; we remain open to further discussion with the DPS staff," National Grid spokeswoman Karen Young said Oct. 3.
For its part, the commission is still processing the utilities' perspective. "The company's response to the commission's order is being examined. Settlement discussions continue," commission spokesman James Denn said in an email.
