PUD accuses Benton REA of racketeering

Benton GM: 'We're being victimized' in lawsuit

At the start of this decade, officials at the Grant County PUD and Benton REA considered each partners.

Benton Rural Electric Association, which is based out of Prosser, took the lead among area electric utility associations to support the PUD's efforts to relicense the Priest Rapids Hydroelectric Project.

In turn, PUD officials made an apparent gentleman's agreement to sell to Benton some power benefits of the expected new license at a reduced rate.

So when Benton REA General Manager Chuck Dawsey was approached by then-PUD General Manager Don Godard in 2001 to offer Internet and telephone service on the fledgling Zipp fiber network, Dawsey said he wanted to participate, and so did his board of directors.

"We went up there to help Grant with the system," Dawsey said.

But that spirit of cooperation, it seems, was short-lived.

PUD commissioners voted not to sell wholesale power at a reduced price to Benton REA at the beginning of 2003. Before the end of the year, Benton REA was out of providing fiber service because, Dawsey said, it didn't look like it would make any money.

Now the two are in court.

The PUD filed suit against Benton REA earlier this year in an effort to recover dollars paid to contracts to provide Internet and telephone service over the PUD's Zipp fiber network.

Included in the lawsuit are accusations that Benton REA and PowerTelnet (a wholly owned subsidiary formed by Benton to run its fiber service) conspired together to violate federal racketeering charges.

The contracts, in which the PUD paid $601,410.46 to Benton REA for the monitoring of the Zipp network in 2001, were declared illegal by PUD independent investigator James Austin and a state auditor's report in

2003.

"Benton REA knew, or should have known, that the District did not have legal authority to make payments to Benton REA for that which applicable law did not authorize," PUD attorney Ray Foianini wrote in court papers filed with the Grant County Superior Court in late April.

According to state law, the PUD has authority to sell telecommunications service only to service providers, who then sell the service to the public. The Benton contracts, according to both Austin and the state auditor, were used by the PUD to funnel money to Benton REA to help its sell video and telephone service over the fiber network.

The contracts were approved by Ed Williams, the PUD's Zipp customer service director at the time. Because the contracts authorized payments of $15,000 per month plus hourly rates, they did not require commission approval.

Chuck Dawsey, general manager of Benton REA, said the nonprofit utility agreed to accept payments from the PUD for its operating costs of fiber service plus 10 percent.

The contracts, he said, were negotiated with Williams and looked over by numerous attorneys for both sides, including Foianini. Once the contracts were completed, Williams served as their administrator, Dawsey said.

"We believe we're being victimized here because we did only what the PUD asked of us," Dawsey said. "We fulfilled our contractual obligations."

PUD spokesman Gary Garnant said the lawsuit is in its early stages, and the district's ability to comment at this time is limited.

"In light of the pending court case, I'm not able to elaborate any further," Garnant said.

Foianini was out of town and could not be reached for comment.

PUD commissioners withstood harsh criticism at weekly business meetings from critics who felt Benton REA was given a gift of public funds to provide fiber service.

After the state auditor's report became public, Godard resigned as general manager. Williams and Coe Hutchison, the fiber business manager, were first reprimanded and removed from the fiber project, then asked to resign by the five commissioners.

The commission later directed the Foianini to recover the funds improperly spent on the Benton contracts, which laid the ground work for the lawsuit.

The PUD made similar allegations against PowerTelnet, Benton REA's wholly owned subsidiary. Dawsey, who is president of PowerTelnet, and Williams signed contracts stipulating the PUD pay a total of $109,000 to help the PUD develop its fiber-based telephone service.

According to Foianini, Benton REA and PowerTelnet constitute two separate entities. And, according to Foianini's argument, the two entities worked together to defraud the PUD into funding telecommunications in violation of state law.

The actions of Benton REA and PowerTelnet affected interstate commerce and caused a loss of funds for the PUD, which falls under the federal statute for racketeering, according to Foianini.

Racketeering charges call for Benton REA to dole out three times the alleged damages sustained by the PUD, according to Foianini.

Dawsey said he didn't even know what racketeering meant before the lawsuit was filed, and he denied any wrongdoing on the part of Benton REA.

"I was personally offended," Dawsey said. "I think it's a ridiculous allegation, and I think it might reflect the desperation of someone to resolve their own internal or political problems."