A cybersecurity company filed a $110m lawsuit in New York this week, accusing the Spanish global energy company Iberdrola and its US subsidiary Avangrid of bid rigging and racketeering.
The 72-page federal court complaint outlines an elaborate scheme by Iberdrola executives to generate millions of dollars in wasteful equipment expenditures in order to turn a profit from its utility customers in New York, Connecticut and Maine.
The lawsuit further alleges that much of this equipment was never put to use and is instead collecting dust in warehouses across the region.
Iberdrola came to prominence about 20 years ago with investments in large wind farms, natural gas and hydroelectric power. In addition to Avangrid, it holds subsidiaries throughout Europe, Brazil and Mexico.
But in recent years, the company has come under scrutiny. Two of the Iberdrola defendants named in the lawsuit, Antonio Asenjo and Enrique Victorero, are currently under investigation in Spain for alleged corporate espionage and fraud.
Legislators and environmentalists in the U S have attacked it for price-gouging tactics, citing Maine’s soaring electricity bills and frequent, long-lasting outages ever since Avangrid assumed control of the state’s utility company.
This latest lawsuit, brought by Security Limits Inc, comes amid a series of high-profile utility malfeasance cases in the US, involving bribery and dark money groups used to influence elections and public officials. The largest of these criminal cases, a $60m alleged bribery scheme in Ohio this summer led to the expulsion of the state’s speaker of the House and a $230m fine levied against the utility, FirstEnergy.
The complaint also comes as Avangrid is looking to expand its operations to the American West by merging with New Mexico’s largest utility, PNM.
Mariel Nanasi, executive director of the Santa Fe-based environmental group New Energy Economy, has long been an ardent opponent of the merger, often voicing concerns about Iberdrola’s criminal investigations in Spain and the potential implications for New Mexico.
“Fraud, bid rigging, jacking up customer rates by making phantom capital expenditures – there is a pattern of misconduct that has emerged,” she said. “Avangrid and Iberdrola act outside the law and the public be damned.”
The complaint was filed in the southern district court of New York by lawyers representing Paulo Silva, a cybersecurity expert and CEO of Security Limits Inc. In it, lawyers describe events in the nearly two years that Silva spent working as a subcontractor for Avangrid, designing and building secure data centers for its utilities.
Silva alleges that in 2018 he complained about overspending on equipment. Shortly after, Avangrid executives began manipulating the bidding process and steering lucrative contracts toward five companies with ties to Iberdrola, he added.
According to the complaint, these companies were charged with buying large amounts of equipment for new data centers, for which they charged Avangrid markups of 40% or more. According to the complaint, much of this equipment was never put to use, but instead was stored in a warehouse, which had to be expanded three times over the course of several years, according to the lawsuit.
Iberdrola and Avangrid “actually paid to have structures erected to house the dust-gathering hardware that lacked any discernible purpose apart from serving as a vehicle for the [companies’] accounting misfeasance”, the complaint states.
In response to the complaint, Joanie Griffin, an Avangrid spokeswoman, described Silva as a disgruntled former subcontractor, bitter that he did not win bids from the company.
“The allegations and claims have no merit, and the company will vigorously defend itself,” she said.
The alleged benefit to Avangrid and Iberdrola derives from a half-century-old utility regulation strategy designed to encourage the development of critical infrastructure. These regulations allow utilities to charge customers for the cost of capital expenditures – long-term investments in things like equipment – plus an additional 7 to 15 percent, which the utility keeps as profit.
Under these regulations, Avangrid was allegedly able to charge its customers on their electrical bills for every piece of over-priced and unused equipment – while greatly enriching its shareholders. While the civil complaint does not include an exhaustive review of Avangrid’s alleged unnecessary purchases, the company’s SEC filings show that when the alleged scheme took place, Avangrid increased its capital expenditures by nearly $1 billion.
As technology has changed and improved, utility watchdogs have lambasted such regulations, saying they create a perverse incentive for companies to invest in unneeded equipment, while ignoring important maintenance and operational expenses. In Iberdrola’s case, the complaint says that the company over-purchased certain equipment, while also leaving major lapses in the utility’s cybersecurity. These lapses left critical utility infrastructure unprotected from things like cyberattacks, the complaint asserts.
“The [scheme], and its inherent waste, deprived SLI of valuable contracts it would have otherwise been awarded in an unrigged bidding process, wasted millions of rate-payers’ dollars, and wrongly enriched the [scheme’s] participants,” lawyers concluded in the complaint.