Firms say Grant PUD broke law

October 1st, 2003

By Shirley Wentworth Tri-City Herald Basin bureau

Basin Internet service providers want some heads to roll at the Grant County PUD.

They say the utility violated antitrust laws and broke state law that prohibits the PUD from providing retail Internet, telecommunications and cable services over its fiber-optic lines.

By subsidizing Benton Rural Electric Association so it could create a subsidiary to provide Internet service to Grant County, Grant PUD forced out four other area businesses, said Craig Jungers, owner of Network Essentials, based in Moses Lake.

He said he plans to sue both agencies for price fixing.

"All other providers had to use their own capital to buy equipment, pay employees, etc. The one that didn't have to could drive prices down so others couldn't make a profit," he said.

Sen. Luke Esser, R-Bellevue, chairman of the state's Technology and Communications Committee, plans to come to Eastern Washington on Thursday and Friday to visit Grant and Chelan PUDs. The committee plans a 7 p.m. public hearing Thursday at Ephrata City Hall to discuss telecommunications and fiber-optic availability.

Esser said the committee is studying what roles PUDs should play in providing retail services. "Some PUDs seem to want to do it all -- retail and wholesale -- and I have a lot of concern with that," he said.

Grant PUD tried to get language into a Senate bill last year that would allow PUDs to provide retail service if local providers could not attract more than half of the end users who could access fiber-optic lines.

The Grant PUD story started unraveling earlier this year when anonymous letters signed "your PUD insider" alleged PUD business improprieties.

Internal PUD e-mails and documents obtained by the Herald show that as early as 2000, PUD managers were trying to figure out how to entice other power companies to provide retail services to Grant County customers.

In an Oct. 27, 2001, e-mail, PUD manager Don Godard asked his customer service manager, Ed Williams, when he would have a proposal that would entice Benton REA to provide Internet service on Grant County's fiber system for less than $8 a month or at cost.

"Bottom line to Benton & Tacoma -- Allow us to put your name on the service, we'll take care of as much of the work as you like and we'll send you a check each month," Godard wrote.

Grant County PUD also approached Tacoma City Light to provide cable TV service, but Tacoma declined.

Although the information was wrong, a December fiber update report stated that Quicksilver had decided to reduce its Internet price, meaning Benton, GemNet and Quicksilver would all be offering Internet service for less than $10 a month.

GemNet and Quicksilver are two of the providers that ultimately went out of business.

"Our ploy with Benton has worked out exactly as hoped," the PUD report said.

Numerous e-mails discussed retail prices of the services to be offered through Benton REA as well as the startup costs.

A Feb. 21, 2001, e-mail made it clear that Benton was aware what effect an Internet and video access fee of $10 per month would have.

"I need to point out that if Grant only does this arrangement with Benton REA, PowerNET (Benton's subsidiary) will quickly become the only provider on the fiber because no other ISP will be able to offer a competing combination of services," wrote Michael Bradshaw, Benton REA general manager.

It is unclear how much PUD commissioners knew, but in a Feb. 22, 2001, e-mail sent to Williams, Godard wondered how to characterize the Benton contract for the commissioners. He said the point of the contract was to reimburse Benton for startup costs. A handwritten note above the sentence said, "Say in front of Ray?"

The note appears to refer to Ray Foianini, the PUD's attorney, who said he couldn't approve a contract that allowed the use of public money to help Benton REA get regulatory approval to provide retail service.

"I have not been able to come up with any lawful way by which the District could expend public funds for the purpose of enabling a third party to meet the basic qualification requirements under state and federal law to become a service provider," Foianini wrote in a March 10, 2001, e-mail. "I think we have exhausted the list of creative options and with this contract we are venturing into an area that is not legally supportable."

The contract then was rewritten as an agreement for professional services, in which Benton was paid $15,000 a month to monitor the PUD's fiber network.

E-mails and a March confidential memo showed Benton REA was skittish about the contract. The memo noted that "Grant's customers are not experiencing the ability to choose between competitive suppliers of telecom services."

Commissioners ultimately approved the professional services contract, but the agreement fell apart in late 2002. On Nov. 21, Benton REA wrote Grant PUD that it would pull out of the partnership if Grant PUD did not fulfill its promises of selling power.

Earlier this year, after the anonymous allegations of improprieties on the part of PUD officials surfaced, PUD commissioners hired Seattle attorney James Austin to investigate.

He concluded commissioners had approved a "professional services contract" with Benton REA to monitor the PUD's connection to its fiber-optic -- or ZIPP -- system, as well as to help design, implement and operate the fiber-optic/communications system.

However, Austin also said a second "behind-the-scenes" agreement was in place that was intended to provide Benton with money needed to become a retail video and telephone provider.

Benton REA manager Chuck Dawsey said his agency does not agree with Austin. "There were no shadow agreements; there were two contracts," he said.

Both contracts that Benton signed -- one as the REA and one as PowerNET -- with Grant were approved by attorneys on both sides, he said.

Dawsey also said Austin did not review Benton's documentation, which has been turned over to the state auditor's office.

"We've done nothing wrong," he said. "We entered into these (transactions with Grant) in good faith."

But in a 23-page September memo responding to questions from PUD officials, Austin said there were potential antitrust ramifications from the agreements. He said their purpose appeared to have been to drive down Internet service prices by existing providers.

Referring to state law that prohibits PUDs from selling retail service, Austin wrote, "What (the PUD) may not do itself, it may not do through others acting on its behalf or at its instance. It really boils down to that."

PUD Commissioner Bill Bjork said he is waiting for a state auditor's report that is due this month. He said the commissioners will review the auditor's report, the Austin reports and internal e-mails.

"We can't just sweep this under the table," he said.

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