PORTLAND — An outside investigation into the failure by the city of Portland and the Portland Water District to charge Maine’s largest brewery for most of its sewer usage from 1996 to 2011 was hampered by the lack of records, according to a report released today.

There is no written record of communication between the city of Portland and the Shipyard Brewing Co. prior to 1998; no one can find copies of an application for a submeter installed on a new water line in 1996; and there are no copies of the permit or inspection for the new water line, said Bryan Dench,  the attorney City Manager Mark Rees hired more than a month ago to find out what went wrong.

Additional Photos

Shipyard Brewing Co. in Portland. John Patriquin/Staff Photographer

“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 he did not name.

Nevertheless, Dench concludes that the error was the the result of human error and poor communication – not misconduct.

In the 38-page report, Dench writes that he could not find any evidence that Shipyard Brewing Co. deliberately misled anyone about the use of water from a six-inch water line that was installed in 1996. Nor did he find evidence of corruption.

The error cost the city over a 16-year period as much as $1.5 million in lost revenue, according 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 reimburse fees that it should have been billed for.

The six-inch water line in question has supplied the brewery with the vast majority of the water it has used in production – 201 million gallons between 1996 and 2010 – but the brewery never paid sewer fees on that line. Instead, the company paid sewer fees on a smaller four-inch line that provided a small fraction of its water.

In 2010, for instance, the brewery paid sewer fees on only 9 percent of the water it used.

Shipyard officials said they were never aware of the billing error until it was discovered by city workers a year ago. It has been paying its full sewer bill since then.

Dench focused on billing procedures and processes at the city and the Portland Water District, which bills for sewer services on the city’s behalf.

In 1996, when the Portland Water District created the water account for the new six-inch line, it set it up in a way so that 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 that this is the case, and that the water district took direction from the city – specifically from Peterson.

James Pandiscio, a retired employee at the Portland Water District, in a statement last December said that Peterson told him that the new six-inch line would be for “brew water only,” meaning it would be used only for beer production and not cleaning.

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 Portland Water District tried a number of times to clarify why no sewer charges were being made for the six-inch line. Dench says.

He says Peterson did not follow up on the water district’s questions, which was uncharacteristic of him.

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 questions 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 because that would have been blatantly false, Dench writes.

At the same time, it’s 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, who had held the job since 1985, 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 that is not going down the sewer in order to avoid sewer charges, 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 that it submit a high level of detail about all of its pipes, meters and drains.

— The city should assure that adequate records are being kept.

— The city should develop a procedure to periodically review big water users that have submeters or do not have sewer accounts.

— The city and the water district should develop a procedure to elevate major billing questions to higher levels of management.

“In this case,” he says, “busy field personnel and busy customer service personnel interacted several times with respect to a substantial loss of sewer revenues by the City without complete follow-up on either side.”

In order to avoid future issues, the Portland Water District has changed business practices, and now requires the city to provide all sewer set-up instructions in written form and approval by a manager, water district spokeswoman Michelle Clements said today.

“Face-to-face and phone instructions will not be implemented until received as a written record,” she said in a statement.

Rees in a statement said the city is taking aggressive action to ensure that there are checks and balances in place so that something like this won’t happen again.

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.”

Dench is a lawyer with Skelton Taintor & Abbott in Auburn, This is the second time the city of Portland has hired him to conduct an outside review of a revenue matter.

The Portland School Committee hired Dench in 2007 to investigate financial and administrative mismanagement in the school district. His report led to the resignation of superintendent Mary Jo O’Connor and finance director Richard Paulson.

Staff Writer Tom Bell can be contacted at 791-6369 or at: Tbell@pressherald.com

Twitter: TomBellPortland