Snohomish PUD audit focusing on whether policies are being followed

By Scott North

Herald Writer

The Snohomish County PUD spends millions of dollars every year to contract with people who cut tree limbs away from power lines, or fight its legal battles, or write programs for its computers.

But a planned audit of the district’s contracted services won’t analyze whether it makes sense for the publicly owned utility to be spending money that way.

Nor will the audit determine if the utility is getting the best value for its dollar.

Instead, it will review whether PUD employees are following policies and procedures for hiring consultants, and if the utility has the right rules in place.

That’s the level of analysis the PUD thought it could accomplish in a short time to address community concerns about professional services contract spending, which accounts for nearly 15 percent of the utility’s annual budget for operating its electrical system.

"I hope that folks in the community don’t get the feeling that there is just unbridled spending at the PUD, because that is just not the case," said Michael Gianunzio, the PUD’s top attorney.

Gianunzio on March 15 became acting general manager after his boss, Paul Elias, went on paid administrative leave.

The move came in the wake of embarrassing revelations that a management consultant from California had billed the utility $750,000 while passing along costs for stays at a luxury hotel in Seattle and pricey meals.

The bills from consultant Laurence Akiyoshi will be among the materials reviewed by Moss Adams, an Everett-based auditing company. The PUD expects to spend up to $40,000 and "absolutely" plans on making the audit results public, Gianunzio said Friday.

So far, the utility has identified roughly 75 professional services contracts, each valued at more than $100,000, that will be considered in the audit. But plans call for auditors to look only at a representative sample of those contracts, which cover everything from the people who provide security at the utility’s buildings to those who train employees on the district’s computers and the companies managing PUD advertising accounts.

The contracts under review have a total budgeted value of more than $25.4 million, some stretching out through 2006. An analysis by The Herald of the PUD’s spending since 1999 shows that some high-priced professional services aren’t on the auditor’s list.

Several attorneys, for example, who together accounted for more than $2.1 million in spending over the last three years, aren’t represented in the audit. Also not included in the review is the nearly $350,000 the PUD spent on polling, focus groups and other customer research.

The utility’s use of a Seattle public relations consultant who charges between $60 and $175 an hour is not included in the audit review. The PUD went to the consultant for advice on how best to handle damage control in the wake of criticism about fees paid to Akiyoshi, records show.

PUD spokesman Neil Neroutsos said the PR consultant has been used from time to time to provide a useful outside perspective and to help district officials get their message across to customers. He didn’t know how much it cost the utility to seek advice on the Akiyoshi matter, but said the firm’s bill last month was for about $800.

The company has charged the utility roughly $17,300 since 1999, the analysis found.

"We try to minimize those uses, but when we do we think it is money well spent," Neroutsos said.

The utility relies on contracted services as one way of reducing the number of people it needs to carry on its payroll, and also to get access to services and expertise unavailable from among existing staff, officials said.

Gianunzio said that most attorneys aren’t on the list of contracts to be audited because their services were estimated to cost less than $100,000 for the next year. But there’s always uncertainty about how much they’ll be used.

"You never know who is going to sue you," he said.

Technology-related companies, particularly those involved with the utility’s efforts to overhaul its computer system, are heavily represented among the contracts earmarked for the audit. The computer project has become mired in cost overruns and delays, but contractors connected to that effort have been paid more than $4.1 million by the district since 1999, records show.

Dick Duchaine, who oversees the PUD’s information services division, said he is convinced the utility has followed sound business practices in bringing in consultants who "supplement our staff with the right expertise at the right time."

He said he’s confident that the problems highlighted in the Akiyoshi contract, which included a double-billing of more than $60,000, aren’t representative of the PUD’s contracted services.

"I think that was a real one-shot thing," he said. "I’m sure that when you get the audit back there won’t be more of them."

Gianunzio said Friday that utility officials are aware of criticism over their decision to hire a consultant to look at the PUD’s use of other consultants, but the state auditor declined to perform the work. He also pointed out that the PUD’s overall spending on professional services contracts has fluctuated considerably over the years. It is budgeted to reach $10.4 million in 2002, but has been as high at $18 million in 1998 and less than half that the following year.

PUD officials say that while contracted spending is getting a lot of attention now, it isn’t playing a major role in PUD customer electricity bills, which are among the highest in the state. The PUD expects to spend more than $395 million to buy power this year, an expense that accounts for nearly two-thirds of the utility’s total spending. When put up against the $610 million the PUD expects to spend this year on all of its operations, professional services contracts account for less than 2 percent of spending.

Still, PUD leaders know they’ve got to take a hard look at how every dollar is spent, said Don Berkey, president of the PUD commission.

Berkey and others on the PUD board have said they were surprised by Akiyoshi’s contracts and the nearly $425 an hour he charged. But The Herald’s analysis found PUD commissioners on nine occasions approved checks to pay for his work. The checks averaged $69,000.

Berkey said the billings alone didn’t mean much because "the way they come through there wasn’t anything to trigger a question."

He said the PUD may want to consider bringing back earlier practices that provided PUD commissioners with more detail on the status of projects and contracts when bills were submitted for approval.

Many PUD employees are saddened that in the sharp focus on consultant spending there has been little acknowledgement that the utility has cut its staff from a high of 1,000 a few years ago to about 875 today, said Kristin Hall, acting general counsel.

"Every year, people have been working hard to do more with less," she said.

You can call Herald Writer Scott North at 425-339-3431

or send e-mail to north@heraldnet.com.