BANGOR, Maine — Regulators in Ohio are preparing to launch an investigation into the parent company of Bangor Gas Co. after an audit uncovered questionable business practices and financial dealings within the Ohio-based company and its subsidiaries there.
Bangor Gas is part of Energy West, a wholly-owned subsidiary of Mentor, Ohio-based Gas Natural Inc., which is the entity facing the impending investigation. According to its 2012 annual report, Gas Natural delivers natural gas to approximately 69,000 customers through regulated utilities operating in Kentucky, Maine, Montana, North Carolina, Ohio, Pennsylvania and Wyoming.
In a 65-page order issued Nov. 13, the Public Utilities Commission of Ohio alleged multiple instances of mismanagement — financial and otherwise — at Gas Natural. They include “an unawareness and negligence of the senior management … to their managerial and fiduciary duties and responsibilities”; a failure to enforce internal controls, including an appropriate separation between regulated and nonregulated subsidiary companies; and a failure to show its gas purchasing practices and procedures “were fair, just, and reasonable or that they resulted in minimum gas prices.”
There was also evidence that the company allegedly purchased and provided a Cadillac Escalade for one of CEO Richard Osborne’s sons, who was not an employee.
The commission’s report concluded that it had gathered enough evidence to “warrant an investigative audit be undertaken of the Companies, as well as all affiliates and related companies. It is the Commission’s intent to move expeditiously on this audit.”
Staff at the Public Utilities Commission of Ohio could not comment on the impending investigation because its still within the 30-day period when any party in the case can file for a rehearing, according to Jason Gilham, a spokesman for PUCO.
When asked whether PUCO’s staff looked at Gas Natural’s subsidiaries outside Ohio, including Bangor Gas, Gilham said: “It is possible that some of the practices between the Maine’s regulated utility and the unregulated affiliates were treated in the same fashion, but PUCO staff focused its audit on the Ohio utilities.”
Tim Schneider, who as Maine’s public advocate represents ratepayers in dealings with the Maine Public Utilities Commission, told the BDN on Monday that the impending investigation in Ohio of Bangor Gas’ parent company was worrying.
“We are very concerned about the revelations in the Ohio PUC report, which paint a picture of a deeply dysfunctional senior management at Gas Natural and its subsidiaries,” Schneider wrote in an email to the BDN. “We will be closely following the broader scale investigation of Gas Natural Inc. that the Ohio Commission has undertaken. Bangor Gas ratepayers pay administrative overhead to GNI, and of course any profits generated by Bangor Gas — which under their current rate plan, are substantially greater than those available to any other Maine utility — get passed upstream to this company. Though Bangor Gas doesn’t purchase its gas from an affiliate as in Ohio, the pattern of fraudulent dealings with affiliates by GNI is troubling and threatens the basic trust between the utility and its customers. We’ll be looking into Bangor Gas’ relationships with other GNI affiliates.”
In an email sent Wednesday morning, Jerry Livengood, general manager of Bangor Gas, said the investigation in Ohio will have no effect on Bangor Gas’ operations in Maine.
“It is business as usual here in Maine,” wrote Livengood. “We are confident that the management team in Ohio will navigate this matter to a positive outcome with the Ohio Public Utilities Commission.”
To highlight his point, Livengood said Bangor Gas this month completed a review of its gas purchase activities for 2011 and 2012 with the Maine Public Utilities Commission “with no deficiencies.”
“Bangor Gas is focused on completing our 2013 new construction projects. We are looking forward to 2014 and our commitment to continue to expand the availability of natural gas service throughout the greater Bangor area,” he wrote.
A message left at Gas Natural’s headquarters for comment also was not returned on Tuesday.
Gas Natural, which had $93.8 million in operating revenue in 2012, has stated a number of times that it sees Maine as a “growth market.”
In September 2012, the company acquired a leasehold interest in the 189-mile pipeline and corridor easement that runs from Searsport to Limestone. It plans to convert the pipeline to carry natural gas from the coast to Aroostook County.
“Maine is an underserved market and this acquisition aligns well with our existing service area, with parts of Loring crossing through Bangor Natural Gas’ service area, large industrial users and communities not yet served with natural gas,” Gas Natural wrote in its 2012 annual report.
The company has made some personnel changes at the top in the last month.
Gregory Osborne, the CEO’s son, was named president and chief operating officer of Gas Natural on Nov. 21. Previously, he had been president and chief operating officer of Energy West Resources Inc., Gas Natural’s marketing and production subsidiary, since February 2012.
Two weeks later, on Dec. 4, Gas Natural announced that Thomas Smith, its chief financial officer, was retiring.
Smith was mentioned prominently in the Ohio PUC’s report, which used his testimony to demonstrate “a severe organizational dysfunction” within the company. The report quoted Smith as saying that in addition to his CFO title, he thought he was also president of Gas Natural, “but I can’t be certain,” and when referring to another Gas Natural subsidiary, he stated: “I don’t recall whether I was an officer of that or not.” Smith also apparently held the title of vice president of Energy West.
Gilham, PUCO’s spokesman, said there is no timetable yet for the investigative audit and that it won’t be known what enforcement actions will result until after the investigation is complete.