State ethics board to examine grants to Snohomish PUD

OLYMPIA — The state Department of Commerce is investigating links between two former department leaders and a multimillion-dollar state grant for a project managed by the private company where the two men now work.

The agency Wednesday asked the state Executive Ethics Board to explore whether former state Commerce Director Rogers Weed and former Deputy Director Daniel Malarkey violated ethics law in working for 1Energy Systems.

The Seattle-based firm is central to the Snohomish County Public Utility District’s ambitious effort to develop new clean-energy technology using industrial-size batteries.

That effort is paid for, in part, with a $7.3 million Clean Energy Fund grant to the PUD by the Department of Commerce. Weed and Malarkey helped create the fund while working at Commerce. Malarkey also was involved in putting together the PUD’s grant application, which identified 1Energy’s role but did not mention the fact they are former Commerce executives.

Current Commerce Department Director Brian Bonlender said there’s no evidence of wrongdoing, but with taxpayer dollars involved and lawmakers asking about the situation, it seemed appropriate to go outside the agency for assistance.

It’s important “that we don’t have an appearance of impropriety or a conflict of interest,” he said in an interview with The Daily Herald.

Washington law bars former state employees from taking a job that has them immediately working on a contract that they helped draft, negotiate or administer. Rather, they must wait one to two years before doing so.

Weed and Malarkey issued a joint statement Thursday saying they will cooperate fully.

“We are doing this voluntarily and in the absence of any complaint being filed because the allegations that have been made are unnecessarily diminishing the terrific work being done by our colleagues, our customers and the entire Clean Energy Fund program,” they wrote.

“We believe that, when the timeline and facts are examined closely, our departure from the Department of Commerce, before the selection committee responsible for choosing Clean Energy Fund grantees had even been formed, will prove compelling, and we will be exonerated of any suggestion of wrongdoing.”

Meanwhile, the department has changed the contract language for future grants to require recipients, like the Snohomish County Public Utility District, and subcontractors, such as 1Energy, to disclose any former state employees working for them or on their boards.

The department also is conducting additional ethics training for employees, emphasizing the rules regarding future work in the private sector.

Commerce’s action follows a whistleblower’s ethics complaint at the Snohomish County PUD about the no-bid nature of contracts awarded to 1Energy Systems, a company founded by former PUD employee and Commerce contractor David Kaplan.

The PUD’s grant application was prepared with help from 1Energy Systems, which the district had chosen to manage the energy-storage initiative and create software for it.

In late March, the PUD hired an outside attorney to look into the whistleblower’s allegations. The investigator’s report, which was submitted to the district June 1, found that the district and Kaplan had created the appearance of a conflict of interest — a violation of PUD ethics policy.

The report also singled out Malarkey’s role after he joined 1Energy in September 2013.

Before leaving the state Department of Commerce, Malarkey “played a significant role” in establishing the Clean Energy Fund, Commerce spokesman Nick Demerice said Wednesday in an email responding to questions from state Sen. Doug Ericksen, R-Ferndale.

Ericksen heads the Senate Energy, Environment and Telecommunications Committee, which held a work session in late May looking at the connections between former Commerce employees, 1Energy and the Clean Energy Fund grant awarded to the PUD.

The district’s grant application listed 1Energy as a contractor and named four of the company’s employees. But it did not mention Malarkey.

Some Commerce staff members were “generally aware” of his involvement but “the extent of his involvement and scope of control was unclear,” Demerice said in the email.

Ericksen said he’s trying to figure out if Commerce employees helped create technical standards that have effectively assured 1Energy a monopoly as a provider of energy storage control software.

1Energy is central to an ambitious effort by the PUD to push the boundaries of energy storage technology. The effort began in 2010 when the district hired Kaplan, ostensibly to help improve how it manages information technology. The main reason he was hired, according to the PUD ethics report, was so he could get the expertise he needed to create a commercially viable company making software managing giant industrial-size batteries connected to a utility’s power grid.

Kaplan already had experience with energy storage technology and software development. Then, during his time at the PUD, he learned about utility operations and battery technology, according to several sources.

He began negotiating a research-and-development contract between the PUD and 1Energy while still working for the PUD. The contract was approved in September 2011 by the utility’s three elected commissioners, six weeks after he resigned from the district.

That contract led to other, larger deals, and 1Energy grew. The company’s hires included Malarkey and Weed.

Weed left the department in 2013 and joined 1Energy’s advisory board the following year. He was then hired as a vice president at 1Energy in 2014.

A third former Commerce employee, Michael Carr, joined Mukilteo-based UniEnergy Technologies after leaving the department in 2014. UniEnergy makes batteries for energy storage systems and was listed in the PUD’s grant application in 2013 as a subcontractor for 1Energy.

Before leaving state employment, Carr represented Commerce in negotiating the grant contract with the PUD. His role, too, is to be examined by the Executive Ethics Board.

The grant award is paid as the PUD achieves milestones defined by the contract. So far, Commerce has paid out $1.4 million to the PUD.

When questions about the grant were first raised earlier this year, Commerce withheld a payment to the PUD while considering its options. However, attorneys determined the department had to continue to pay the PUD when it achieved the contract milestones, Bonlender said in an interview with The Daily Herald.

The PUD was chosen for the grant by a selection committee of industry experts and one Commerce official. Malarkey and Weed were not involved with choosing committee members, Bonlender said.

In an interview with The Daily Herald, Ericksen, the state senator, said there appears to have been a “blurring of the line between the public and private sectors, the regulator and the business.”

“We’re trying to connect the pieces. The more we learn, the more troubling it becomes. I’m trying to get to the bottom of it,” he said.

Ericksen stressed that he is not accusing anyone of committing a crime.

It might turn out that everyone involved followed the rules, and “maybe the rules need to be changed,” he said.

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