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Suit alleges scheme at Grant PUD

Bert Caldwell The Spokesman-Review

The Grant County Public Utility District will renew expansion of its fiber-optic network after a two-year hiatus imposed because of significant financial losses, but the decision by no means puts the controversy over the operation behind it.

A new lawsuit alleging conspiracy and racketeering by the district has been filed in U.S. District Court. Many of the claims repeat, sometimes verbatim, charges the PUD itself made against another electric utility, Benton County Rural Electric Association. That 2004 lawsuit was settled out of court, with the REA paying the PUD about $450,000. Neither side admitted wrongdoing.

The REA was also named in the suit filed June 29 by Moses Lake attorney John Luke McKean, who is representing local Internet service providers. Spokesmen for the REA and PUD had no comment on the lawsuit.

The lawsuit says neither public utility has the authority to connect individual customers to a fiber-optic system that incorporates their own cable as well as segments owned by the Bonneville Power Administration. The cable was installed to allow utilities to manage their electric grids and generating plants, but excess capacity has been made available to other users as Congress and regulators eased restrictions on telecommunications providers.

Communications has been a dicey proposition for electric utilities. Avista Corp. bailed out of the business in 2001. Montana Power self-destructed by throwing aside its traditional electricity operations to invest in a fiber-optic network.

Grant County PUD lost more than $6 million on its telecom operations in 2004, which prompted a halt to further construction. The commissioners in May voted to resume limited expansion of its network in the Moses Lake and Quincy areas.

The PUD had launched its Internet service in 2001, after competitors like Qwest Communications prevailed on the Washington Legislature to limit public utilities to wholesale-level services. Some public utilities, they feared, might subsidize their telecom ventures with revenues from electricity sales.

The Grant County PUD owns the Priest Rapids and Wanapum dams, which provide the utility and its customers with lots of cheap electricity. That, in turn, has attracted industries, most recently network data centers for companies like Yahoo. The centers consume lots of power and require lots of high-speed Internet capacity.

But the companies McKean represents, Network Essentials Ltd. and, say Grant County PUD and Benton REA conspired to set prices for Internet service artificially low in an effort to drive them out of business. Their suit claims the PUD agreed to pay all the REA’s costs, plus 10 percent, to establish PowerTelNet as an Internet service provider in Grant County. Below-cost electricity was also part of the bargain.

The PUD controlled the operation and referred potential customers to PowerTelNet, the REA subsidiary. When audits raised questions about the arrangement, the operations were sold to another service provider, again with assistance from the PUD.

Network Essentials and took their complaints about PUD pricing of Internet services to the Washington Utilities and Transportation Commission in 2005. The commission ruled that 2000 legislation allowing public utilities into telecommunications allowed it to investigate whether rates gave the PUD an advantage but not order changes, as it can with service providers like Qwest or Verizon.

But the suit says that same law did not authorize public utilities to provide retail Internet service. Without that authorization, the PUD acted illegally.

Those claims may or may not stand up in court, but they should focus more attention in Ephrata and Olympia about why and how a wonderfully successful electric utility continues to struggle with an Internet connection.

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