No-bid PUD clean-energy project attracts state scrutiny

OLYMPIA — Officials of the state Department of Commerce answered questions Thursday from state Senate committee members concerned about how public money was used in a clean-energy project that’s the subject of an ethics investigation by the Snohomish County Public Utility District.

Doug Ericksen, R-Ferndale, who chairs the Senate Energy, Environmental and Telecommunications Committee, says he is concerned that executives of the project contractor, 1Energy Systems, include recent former Commerce Department leaders. After they left government, Commerce gave a $7.3 million grant to the PUD to help pay for the work.

Two of the Seattle-based firm’s vice presidents are Rogers Weed, who was the department’s director from 2009 until early 2013, and Daniel Malarkey, who was the deputy director for much of that time.

And 1Energy founder and CEO David Kaplan was a contractor for Commerce from April 2009 until March 2010. After that, he worked for the PUD, helping the district revamp technology strategy.

This past March, the district’s board of commissioners hired a Seattle law firm to investigate allegations by a PUD employee that district leaders steered lucrative no-bid contracts to 1Energy.

The investigator, Colleen Kinerk of Cable, Langenbach, Kinerk and Bauer, might submit her report to the district by the end of the month, said Neil Neroutsos, a spokesman for the PUD.

The Senate committee’s work session Thursday was about lawmakers “exercising due oversight” and “not a mock trial,” Ericksen said in an interview.

“I have to be very careful not to impugn anybody’s character or make accusations about individuals who are trying to make a living, right?” he said. “But I think there are a lot of concerns about the way the contract was awarded through the Clean Energy Fund to a company that has” former high-ranking Commerce officials in top positions.

Kaplan was a clean-energy consultant with the department for 10 months, Nick Demerice, director of external relations at Commerce, told the committee.

Both Malarkey and Weed left Commerce before the department assembled a committee to review clean-energy grant applications.

In its grant application, the Snohomish PUD did not list Malarkey or Weed as being involved in work with 1Energy, Demerice said.

Commerce has asked the state Office of the Attorney General and the Executive Ethics Board to review the grant and the state contract with the PUD to ensure no rules or regulations were violated.

The committee didn’t invite PUD or 1Energy to speak at the session, Ericksen said. He wanted to get information from Commerce first, he said.

“I think it needs a lot more looking into,” but, Ericksen cautioned, he is not saying anyone acted improperly.

1Energy CEO Kaplan issued a statement after the hearing, which said, in part: “We are confident the independent investigator will conclude that Snohomish PUD and 1Energy Systems have acted legally and ethically. We are also confident that the investigator will find that my role in negotiating on behalf of 1Energy Systems was legal, ethical and fully transparent, and that there was no impropriety or conflict of interest stemming from my tenure as a Snohomish PUD employee.”

As for Weed and Malarkey joining the company, their “transition from public to private sector employees was fully transparent and done in accordance with all state ethics codes,” Kaplan said.

The PUD is watching events in Olympia and has provided relevant documents to Commerce, said Neroutsos, the district spokesman.

The allegations behind the ethics investigation go back to 2010, when the PUD hired Kaplan to help develop a strategy for what’s called smart grid technology.

The effort was one of many progressive initiatives driven by recently retired PUD general manager and CEO Steve Klein. During his nine years running the district, he put the PUD on the bleeding edge of rising green-energy fields. That focus required investing millions to develop new technologies that were potentially more environmentally friendly, rather than relying only on well-established sources such as hydroelectric. His leadership in that direction inspired admiration and criticism.

Klein and Kaplan have declined multiple requests for comment.

One of Klein’s initiatives was creating energy storage systems using mostly open-source technology. Energy storage is part of “smart-grid” technology that adds batteries the size of shipping containers to a utility’s power grid, which allows it to more efficiently handle fluctuations in energy demand and production. That, in turn, makes it easier for utilities to use green energy sources such as wind and geothermal, which can’t be turned on and off the way a coal plant can.

Records show that Kaplan incorporated 1Energy and began negotiating its first contract with the PUD while he was still working at the district. Since that first contract in 2011, the company has received no-bid contracts worth about $16 million. Not all that money is going to 1Energy’s bottom line. Much of that money has been used by the firm to hire subcontractors and pay for the batteries.

The state clean energy grant was not awarded until March 2014, more than two years after the PUD started working with 1Energy.

Earlier this month, the PUD’s commissioners decided to put on hold a new contract with 1Energy worth as much as $3.8 million.

Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.