PORTLAND — Hampered by poor record-keeping, an outside investigation of why Maine’s largest brewer wasn’t billed for much of its sewer usage for 16 years came up with no definitive answer, according to a report released Friday. But despite the lack of city or Portland Water District records of the Shipyard Brewing Co. account, an attorney hired to conduct the inquiry concludes that the mistake was likely the result of human error and poor communication — not misconduct.
Still, the report concluded, while there is no evidence the brewery misled the city and water district, some city or water district employees should have known that it was not paying sewer fees on the primary water line serving the plant.
The investigation found there is no written record of communication between the city of Portland and Shipyard Brewing Co. regarding the water line prior to 1998; no one can find copies of an application for a submeter on the new water line, which was installed in 1996; and there are no copies of the permit or inspection records for the water line, said Bryan Dench, an attorney hired by City Manager Mark Rees more than a month ago to find out what went wrong.
“One of course recognizes that the events these records might illuminate occurred some 16 years ago, but it still seems reasonable to expect that the records would exist elsewhere,” Dench writes.
In addition to the incomplete or missing records, he says, two key players are deceased: David Peterson, a senior sewer technician at the city, and his supervisor, whom Dench did not name.
The error cost the city as much as $1.5 million in lost revenue from 1996 to 2011, according to an analysis by the Portland Press Herald. Dench did not calculate the lost revenues. Nor did he say whether the city should ask the brewer to pay the fees it should have been billed for.
As part of Dench’s review, the water district provided the city with a list of 108 current water accounts that were not being billed for sewer at the time of the investigation.
The majority proved to be properties with septic systems, but 12 accounts were found that should have been charged for sewer. These accounts either represent conversions from septic to sewer hookup or new construction. The monthly sewer charges for the accounts range from $24 to $162, resulting in an annual loss of $14,598 and a total cumulative loss of revenue of $46,672.50. There are about 18,000 accounts in Portland that generate sewer revenues. The sewer department has an annual budget of $21 million.
All accounts have been notified and are now being correctly billed for sewer, according to a statement from the city Friday.
In a 40-page report, Dench writes that he found no evidence that Shipyard deliberately misled anyone about the use of water from the six-inch line installed in 1996. Nor did he find evidence of corruption by city or water district employees.
The city’s investigation into the matter is complete. Dench will present the findings at a special City Council meeting Monday.
The council will also go into executive session to discuss whether it should seek back payments from Shipyard. City attorney Gary Wood will present the council with the legal and policy options, said Mayor Michael Brennan.
Brennan declined to say what he believes the city should do.
“We need to reserve judgement until we have the advice of our counsel,” he said.
Fred Forsley, co-owner of Shipyard, said the report vindicates the company because it shows the brewery did not mislead the city about the water line. Forsley has said Shipyard officials had believed all along that they were paying the correct sewer fees.
When asked if the brewery should pay the city for back fees, he replied that the error did not cause the city’s other ratepayers to pay additional money.
The six-inch line in question has supplied the brewery with most of the water it has used in production — 201 million gallons from 1996 to 2010 — but the brewery never paid sewer fees on that line. Instead, the company paid sewer fees on a four-inch line that provided a small portion of its water.
In 2010, for instance, the brewery paid sewer fees on only 9 percent of the water it used.
The billing error was discovered by city workers a year ago. Shipyard has been paying its full sewer bill since then.
Dench focused on billing procedures and processes by the city and the Portland Water District, which bills for sewer services on the city’s behalf.
In 1996, when the water district created the water account for the new six-inch line, it set it up so Shipyard would only be billed for water and not sewer.
“This was clearly wrong and a mistake by PWD,” Dench writes. “How did this happen?”
As the billing agent for the city, the water district said it would not have made such a determination on its own. Documents in 2004 and 2007 confirm this, and that the district took direction from the city — specifically from Peterson, Dench writes.
James Pandiscio, a retired water district employee, said in a statement in December that Peterson told him the six-inch line would be for “brew water only,” meaning it would be used only for beer production and would not enter the sewer system.
Dench interviewed Pandiscio in March and concluded that it’s uncertain whether Peterson was talking about the six-inch line or another line in the plant.
To its credit, the staff at the water district tried a number of times to clarify why there was no sewer bill for the six-inch line, Dench says.
He says Peterson did not follow up on the district’s questions, and that it was uncharacteristic of him not to do so.
At one point, Peterson asked the water district when the sewer line was discontinued, a question Dench described as “baffling” if he knew all along that the water district was not billing for the six-inch line.
Dench says the water district never asked about the issue after Peterson died in 2008.
The Shipyard brewery produces seven to eight times more wastewater than beer, so it’s hard to imagine that anyone at the brewery would have told city officials that the six-inch line produced no wastewater, Dench writes.
It’s also hard to believe that Peterson, who had a reputation for always checking things out for himself, would have accepted such an assertion.
Shipyard bottles more than 3 million gallons of beer annually. Breweries typically discharge two to six gallons of water into the sewer system for every gallon of beer produced, according to the Brewers Association, a national trade group.
Dench says there is no evidence of corruption. He noted that Peterson lived in a mobile home park in Westbrook. His estate at the time of his death was worth less than $150,000. He had no disciplinary record.
Going forward, Dench is recommending that the city make some changes. They include:
• When a big commercial user wants to install a submeter to measure water not going down the sewer in order to avoid sewer fees, there should be a formal approval process involving more than one individual.
• When a company is installing a complex water system, the city should consider requiring it to submit details about all of its pipes, meters and drains.
• The city should assure that adequate records are kept.
• The city should periodically review big water users that have submeters or do not have sewer accounts.
• The city and district should develop a procedure to elevate major billing questions to higher levels of management.
In order to avoid future issues, the water district has changed business practices, and now requires the city to provide all sewer set-up instructions in writing and approval by a manager, spokeswoman Michelle Clements said Friday.
Rees, the city manager, said in a statement that the city is taking aggressive action to ensure there are checks and balances. While there is no definitive answer as to how this miscommunication occurred, he said, “I am hopeful that the findings of this independent investigation are assuring to the public.”
Rees was on vacation Friday and could not be reached for comment, said city spokesperson Nicole Clegg.
Brennan said the report confirmed that the error was due to miscommunication and not “inappropriate behavior.”
Going forward, he said, the city needs to put in place the best record-keeping system possible.
Still, Dench concludes the error is the result of human error, not record-keeping, Clegg said.
She said a lot has changed since 1996, when hard copy ledgers of hundreds of pages were sent to the city for review. Now, spreadsheets are the methods for sharing information, she said.
In addition, the city and PWD have improved data-sharing.
When asked about the missing records, Clements said that business practices were “more relaxed” 16 years ago. Transactions were often made over the counter or the phone, she said.
Since the district upgraded is customer-service software in 2005, she said, its record-keeping capabilities have significantly improved.
Staff Writer Tom Bell can be contacted at 791-6369 or at: Tbell@pressherald.com