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National Grid shareholders will pay for the more than $500 million in cost overruns associated with a "flawed'' implementation of new company software, the New York Public Service Commission said today.

(Michael Greenlar | mgreenlar@syracuse.com)

SYRACUSE, N.Y. - A new software system that was supposed to cost National Grid ratepayers $384 million is expected to cost $945 million instead because of "flawed'' implementation, according to the state Public Service Commission, which said it will make sure that utility shareholders absorb the extra cost.

The PSC today released results of an audit of National Grid's natural gas companies, including the Upstate gas business formerly operated by Niagara Mohawk Power Corp. As part of the review, auditors looked at National Grid's implementation of new SAP software that was intended to streamline back-office systems across the company's different U.S. utilities.

"National Grid's SAP implementation was flawed,'' the PSC said in a news release. "The company's efforts to remediate and stabilize the software system have been extensive and costly, the costs for which the company shareholders will pay.''

National Grid turned on the new system in November 2012, during the height of restoration efforts to repair the damage caused by Hurricane Sandy. The new system caused widespread problems, including incorrect paychecks, unpaid vendor bills and other issues.

The attorney general of New York won a $5 million settlement from National Grid to compensate employees for payroll problems, and the Massachusetts attorney general won a similar $2 million settlement.

Company executives have already announced millions in lost profits because of the problems. For the fiscal year ended last May, the loss was $225 million, the company said.

In an interview in August, National Grid CEO Steve Holliday told syracuse.com that the company had finally stabilized the system this summer. Holliday said much of the work to get the system working properly was done in Syracuse, where the utility brought in a few hundred outside programmers and other contract employees to work on corrective measures.

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