Some at PUD concerned about response to ethics probe

EVERETT — Snohomish County PUD executives and the three elected commissioners say they are taking seriously the findings of an outside ethics investigation and will review relevant policies.

The investigation found that the Public Utility District appeared to show favoritism, in violation of an ethics policy, when it awarded a no-bid contract for a clean-energy project.

Two senior employees, however, and the whistleblower who prompted the investigation say PUD leaders appear to see the probe as a distraction and are ready to move on. They don’t hold out much hope that PUD leadership will take a probing look at policies.

“If they do review it, it will be cursory,” said one high-level employee, who spoke on the condition of anonymity for fear of retaliation. “They’re ready to move on.”

The report says there was an “inference of favoritism” when the PUD skipped the bid process and awarded a contract to a former-employee-turned-contractor, David Kaplan, and his company, 1Energy Systems, in 2011.

But the report found that neither the PUD nor Kaplan “met their obligations under Directive 90,” which prohibits behavior that creates the appearance of a conflict of interest.

Commission President Kathy Vaughn called it “kind of a violation of our directives.”

At some point, the commission “will want to go through Directive 90 and make sure we have things covered,” she said.

Commissioner Toni Olson echoed that sentiment after Tuesday’s regular commissioners meeting, the first since the PUD received the report June 1.

The board “will look at our practices and procedures,” she said.

She pointed to the commission’s May 26 meeting, when PUD staff briefed the commissioners on the district’s contract procedures. The ethics investigation was still under way at that point.

Based on the meeting minutes and documents, though, that presentation was informational — about how the process works — rather than a critical review of how to improve standards.

The senior employee who talked to The Daily Herald shared a June 3 email to all employees from interim CEO and General Manager Anne Spangler. Without specifically mentioning the report’s finding, Spangler wrote: “Now that we can move forward, I want to take the opportunity to remind us all how much we have to be proud of.”

The employee was struck by the email’s tone. “They think this investigation is a pesky intrusion,” the employee said.

Kinerk’s report says that the PUD and Kaplan failed to follow the district’s policy prohibiting behavior that creates the appearance of a conflict of interest. Otherwise, the report says, the district complied with policies and state law in awarding no-bid contracts to 1Energy to manage installation of energy storage technology. Energy storage systems connect industrial-sized batteries to the power grid, allowing a utility to store excess energy for times when demand is high.

A second senior employee described the PUD leadership’s reaction as, “We’re sweeping it under the carpet, and we’re moving forward.”

The official reaction to the ethics violation, the second employee said, has co-workers wondering if the PUD’s ethics policy is “now no longer applicable to any PUD employee, or just optional for higher level management.”

The whistleblower, Anthony Curtis, whose ethics complaint launched the investigation, said in an interview he is “disappointed that they aren’t taking any proactive steps to address the findings in the report, which are very serious.”

Curtis contacted a commissioner in March with his concerns. Later that month, the commission hired an outside attorney, Colleen Kinerk of Seattle-based Cable, Langenbach, Kinerk &Bauer, to investigate the allegations that district leaders improperly steered millions of dollars of work to 1Energy Systems.

The PUD has awarded four no-bid contracts worth nearly $15 million to Kaplan’s Seattle-based firm, which makes software for the energy industry.

According to the report, the PUD created a job for Kaplan in large part so he could learn what he needed to know to make his company commercially viable.

While still a district employee, he began negotiating a contract with the PUD on behalf of his company. Six weeks after leaving the utility in 2011, the PUD awarded the company a no-bid contract worth up to $800,000, allowing him to hire staff. Prior to that, he was 1Energy’s only employee.

Since then, Kaplan has used the PUD contracts as stepping stones to at least five other contracts with major utilities, including Puget Sound Energy.

The report’s author seems at one point to say there actually was a problem with the no-bid nature of one of the contracts.

Kinerk writes that the PUD adequately justified not putting the work out to bid “with the exception of the first contract” with 1Energy.

That sentence implies the district was not justified in skipping the bidding process when it awarded that initial work.

Later, the report only says that not putting the work out to bid “was not the wisest or most appropriate course of action,” suggesting that it did not violate district policy.

Kinerk has not responded to multiple requests for clarification.

“This is an example of unclear wording on the part of the investigator,” Spangler said in an email to The Daily Herald.

“The actual finding is that the initial contract between 1Energy and the utility was executed without proper regard of utility policies about conflicts of interest,” Spangler said.

She said that staff will review the district’s ethics policy, which was last amended in 2007.

During the investigation, the commission put on hold another no-bid contract with 1Energy, worth up to $3.8 million.

The commissioners will likely take up that proposed deal in “the next couple months,” Vaughn said.

Board members have asked PUD staff to brief them again on the contract for a refresher, she said.

Rather than a refresher, retired PUD mid-level manager Ignacio Castro would prefer they reconsider the reasons for an ethics policy in the first place. The PUD’s relationship with 1Energy shows district leaders aren’t focused on ratepayers or voters, he said.

“We haven’t had any reduction in rates. We’ve only had increases,” said Castro, an Edmonds resident.

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

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