Snohomish County PUD to be investigated for ethics violations

EVERETT — The Snohomish County Public Utility District’s board of commissioners has hired an independent investigator to look into allegations that the utility improperly awarded contracts worth millions of dollars to a clean-energy consultant.

The investigation began after a PUD employee made the allegations at a commission meeting in March.

The employee, Anthony Curtis, repeated his claims at the commission’s April 21 meeting.

According to Curtis, the PUD’s top leaders, including recently retired CEO Steve Klein and his interim successor, Anne Spangler, helped steer lucrative contracts to a private consulting firm owned by former PUD employee Dave Kaplan.

Records show Kaplan set the company up and negotiated its first contract with the utility while still working there. Since that first contract in 2011, Kaplan’s Seattle-based company, 1Energy, has received no-bid contracts worth about $16 million.

Not all that money is going to 1Energy’s bottom line. Some has been used by the firm to hire subcontractors and for other expenses related to the contract work.

In March, the commissioners retained Colleen Kinerk of Caleb, Langenback, Kinerk and Bauer, a Seattle law firm, to investigate the allegations.

“The board is taking the complaint very seriously,” said Kathy Vaughn, president of the board.

The commissioners will not act on the allegations until after they have Kinerk’s report, she said.

The commission didn’t give Kinerk a deadline. The report could be completed as early as the end of the month, said Neil Neroutsos, a spokesman for the PUD.

Klein and Spangler were not made available for comment due to the investigation.

Curtis said that he doesn’t question 1Energy’s qualifications or the benefit of the project it is working on for the PUD.

He works on smart-grid technology at the PUD and has to work with 1Energy.

A lifelong Snohomish County resident, Curtis mulled coming forward with his concerns. Ultimately, he said, “I feel people were inappropriately helping themselves to money paid by my neighbors, my friends, my family and everyone who lives here. That just wouldn’t leave me. That didn’t sit well with me.”

Klein, who retired from the PUD on Thursday, used his position to steer favorable contracts to the company, Curtis said. And Spangler, whom the commission picked to fill in as the utility’s president until a successor is found, signed off on the contracts, he said.

If the allegations are true, Spangler either knowingly approved an improper contract or did not recognize misconduct, Curtis said. “Either answer should be a disqualifier” for her taking over as interim head of the PUD.

The district’s policies do not appear to explicitly prohibit employees from having a side business that gets a contract with the utility. However, there are plenty of caveats and qualifiers, which may or may not apply to 1Energy.

To understand Curtis’ allegations, you have to start in 2010, when the PUD hired Kaplan to direct efforts in what is called smart-grid technology. Kaplan “advised general manager and executive staff on business integration and advanced technology initiatives,” according to Kaplan’s page on LinkedIn, a professional networking website.

Kaplan could not be reached for comment.

According to Neroutsos, the PUD spokesman, Kaplan’s duties included “assessing the utility’s information technology capabilities and organization and recommending structural improvements, developing strategies for new technology, designing business architecture and working with the PUD as it assessed energy storage.”

The emerging field of smart-grid technology aims to “bring utility electricity delivery systems into the 21st century,” according to a definition on the website of the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability. A utility network can be more flexible and responsive by automating and computerizing key parts.

That, in turn, should lead to more efficient energy use and production.

While still a PUD employee, Kaplan started his own company, 1Energy. He incorporated it in Delaware and registered the business with Washington in the summer of 2010.

At some point before he left the PUD at the end of July 2011, Kaplan began talking with officials at the utility about a potential contract with 1Energy.

His last day as a PUD employee was July 29, 2011, according to the utility.

In an email sent that month, he referenced a meeting on July 18 with two PUD managers, CEO and president Steve Klein and the general counsel, Spangler.

It wasn’t the first time they had talked about the contract. A scope of work and other items were “finalized at our 7/18” meeting, Kaplan’s email states, implying that previous discussions had taken place.

It also references “our discussions last fall,” meaning the fall of 2010, though it is not clear if these were specifically about a business deal between the PUD and 1Energy.

An initial no-bid contract worth as much as $880,000 was unanimously approved by the utility’s three commissioners in September 2011. The contract was for work in the PUD’s foray into energy storage, an element of smart-grid technology that basically adds industrial-sized batteries to the system to handle fluctuations in energy demand and production more efficiently.

The contract allowed 1Energy to own any intellectual property it created as part of the work. If Kaplan had done the work as an employee, the PUD would have owned it.

The PUD’s justification for not putting the contract out for bid was based, in part, on the fact “grid energy storage is a nascent field, and there are very few entities experienced and qualified to perform this work.”

1Energy is basically the project lead and is designing and integrating the network system. It “is responsible not only for its software, but procurement of all of the equipment, integration into the prototype, testing and commissioning,” Neroutsos said.

By 2013, the first contract was rolled into a new one worth $3.5 million, and the project was expanded.

The aim is to create utility-scale energy storage using off-the-shelf components and open-source standards. Last year, the PUD and 1Energy joined others in the energy industry to create the MESA Standards Alliance to develop the standards.

1Energy has grown since it was founded. It has “six or eight” active contracts with clients in North Carolina, Texas, California, Washington and Chile, said Betsy Greer, the company’s marketing director.

“We’re disappointed in being implicated in the whistleblower complaint” and are working with the investigation, she said. “When all the facts are collected, they will show that we’ve always had a legal, ethical relationship with the PUD.”

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

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