Heating Oil Companies Face Inquiry on Purity of Fuel
State and federal authorities are investigating whether several New York heating oil businesses cheated tens of thousands of customers for years, selling fuel diluted with recycled or waste oil, according to law enforcement and city officials.
In addition, two related civil lawsuits make accusations against two other companies that in recent years have sold tens of millions of gallons of oil to New York City and New York State for schools, housing complexes, universities, hospitals and other buildings.
Burning waste oil in furnaces could present a significant environmental hazard, and if the accusations that the companies cut their fuel are correct, it would mean that dangerous amounts of toxic pollutants had been released into the atmosphere, experts said.
As part of the criminal investigation, the authorities on March 12 raided at least five heating oil businesses in and around the city, including a delivery company and several businesses that deal in waste oil and some that are licensed to recycle it.
Two days later, several commercial and residential building owners filed the two lawsuits, seeking class-action status. One accuses Castle Oil Corporation, which describes itself as the largest independent fuel oil distributor in the metropolitan area, of defrauding customers by mixing its fuel with waste oil. The other accuses Hess Corporation, among the world’s leading energy companies, of delivering fuel oil blended with waste oil to its customers, but one of the lawyers who brought the suit said in court last week that Hess might have been victimized by a trucking company or companies that it hired to deliver oil.
Neither Hess nor Castle has come under scrutiny in the criminal inquiry, law enforcement and company officials have said. Both companies have denied any wrongdoing. They have contended that their oil met rigorous legal specifications and have called the lawsuits baseless, saying they would fight them in court.
Court papers filed by Castle in the lawsuit say that it has an in-house laboratory that conducts daily testing to ensure its products meet the required standards, and that city inspectors are on site five days a week to test every truck leaving its terminal bound for city agencies.
Last year alone, Castle sold more than 20 million gallons of No. 4 and No. 6 fuel oil — the grades burned in older furnaces — to New York City agencies, an official said. The lawsuit claims it was mixed with waste oil, like motor oil that has been used and discarded, sludge residue from commercial boilers and other used oil and lubricants.
The lawsuits were filed in State Supreme Court in Manhattan. The presiding justice, Shirley Werner Kornreich, signed a temporary order last week barring Hess and Castle from providing fuel that contained waste oil or that was not up to legal specifications, saying she had concerns about possible environmental hazards.
At a hearing on Wednesday, lawyers for Hess told the judge that they agreed to extending the order for a month while they prepare a motion to dismiss the lawsuit. Castle’s lawyers said they were negotiating with the plaintiffs to reach a similar agreement.
The businesses that were raided last week as part of the criminal investigation included Statewide Oil and Heating in Brooklyn — a company that is among several that deliver oil for Hess and that until 2011 delivered for Castle — and four interrelated companies that deal in waste oil: County Oil Company and J. B. Waste Oil Company in Astoria, Queens; New York Oil Recovery Corporation in Brooklyn; and Paradise Heating Oil in Ossining, N.Y.
During the raids, investigators from several state, city and federal agencies — some wearing bright yellow head-to-toe protective suits — tested oil and seized computers, reams of records and other materials, carting away more than 100 boxes of documents from one company alone, according to officials and people briefed on the matter. They will examine transactions involving hundreds of millions of gallons of oil, some dating as far back as 10 years. The inquiry is in its early stages, one official said.
The investigation, which grew out of a 2007 federal case in which two defendants pleaded guilty and cooperated with prosecutors, will examine a number of aspects of the businesses, including how transactions were recorded, how shipments were logged and how oil was tested, one official said.
Robert F. Kennedy Jr. — a senior lawyer for the Natural Resources Defense Council, the president of Waterkeeper Alliance and one of the lawyers who brought the lawsuit against Castle — said the environmental impact of the company’s actions were stark.
“Basically, that company has turned every boiler or furnace that it services into a toxic-waste incinerator,” Mr. Kennedy said in an interview. “When you burn waste oil, there is a tremendous amount of not only benzene, toluene and xylene, which are known carcinogens, but in addition, there is an inventory of heavy metals that are extremely toxic, including mercury, lead, arsenic, cadmium, antimony and zinc.”
But Castle, in its court papers, argued that the lawsuit’s contention that it mixed its fuel with waste oil was based on a single test of one delivery that it made last year out of 108,000, and that the suit provides no details on who conducted the test or how it was performed.
Lawyers for Statewide and for County Oil and its three related companies also denied wrongdoing and said they were cooperating with the inquiry, which is being conducted by the office of the Manhattan district attorney, the Internal Revenue Service, the New York State Department of Environmental Conservation, the city’s Department of Investigation, federal prosecutors in Brooklyn and other agencies, officials said.
In a statement, Statewide, which delivered oil from County, said that it “has always believed that County’s oil has met” city and state specifications and that it had no knowledge of County’s oil failing to meet specifications during random tests.
Scott N. Fein, a lawyer for the four interrelated companies, said, “We are hopeful that a resolution can be achieved reasonably quickly.”
Castle, in its court papers, said it blended oil to the city’s specifications for No. 4 and No. 6 fuel oil, which are different from applicable standards in New Jersey and New England; it also said it used some “lawfully processed” recycled oil. It argues that both practices are legal, and Mr. Fein said state and federal regulations allowed the blending of so-called virgin fuel oil with reprocessed or re-refined oil.
But the lawsuits contended that city and state contracts barred their vendors from blending.
Mayor Michael R. Bloomberg has been a proponent of helping buildings meet cleaner fuel requirements and instituted the NYC Clean Heat program in 2011, when the city adopted new regulations to phase out the use of Nos. 4 and 6 heating oils, which he has said emit soot, reduce air quality and can contribute to asthma.
The city has coordinated with banks and energy companies, including Hess, and environmental groups to establish financing to help building owners pay the cost of conversion to cleaner fuels, like natural gas, ultralow sulfur No. 2 heating oil and biodiesel. The mayor has said the conversions were expected to reduce soot pollution by 50 percent by the end of this year and prevent 300 asthma-related hospital visits.