Draft Schedule of Audit Findings Grant County Public Utility District No. 2 January 1, 2003 through December 31, 2003 The District provided telecommunications services to end-users in violation of state law. Description of Condition: During our audit of the District, we noted the Zipp fiber optic telecommunications network was providing telecommunications services to end users, outside the scope of its authority. The District was informed of this by its own staff after completion of an internal audit. The District has not corrected the condition. The services provided include: Direct service to end-users including the U.S. Bureau of Reclamation and Big Bend Community College. Service to Douglas County Public Utility District without an established inter-local agreement. The District also did not charge Douglas County Public Utility District for the services. Cause of Condition: The District did not take corrective action when its was informed it was acting outside its authority. District staff indicted they were aware that Big Bend Community College was an end user but that this was the College’s issue, as it should not have been acting as an retail service provider. The District was aware of the services being provided to Douglas Public Utility District, but failed to address the issue as that District has refused to enter into an inter-local agreement and has refused to pay for services. Douglas Public Utility District states that Grant Public Utility District “promised” the services at no cost. We found no documentation to support that statement. Effect of Condition: The District furnished telecommunications services to end users In violation of state law. The District is providing services to another governmental entity without an inter-local agreement in violation of state law and is providing the services for free. Recommendation: The District should comply with state law and should discontinue providing retail telecommunications services. District’s Response: Auditor’s Remarks: We appreciate the steps the District is taking to resolve this issue. We will review the condition during our next audit. Applicable Laws and Regulations: RCW 54.16.330 provides guidance on telecommunications facilities. . . (1) A public utility district in existence on June 8, 2000, may construct, purchase, acquire, develop, finance, lease, license, handle, provide, add to, contract for, interconnect, alter, improve, repair, operate, and maintain any telecommunications facilities within or without the district's limits for the following purposes:      (a) For the district's internal telecommunications needs; and      (b) For the provision of wholesale telecommunications services within the district and by contract with another public utility district.      Nothing in this subsection shall be construed to authorize public utility districts to provide telecommunications services to end users.      (2) A public utility district providing wholesale telecommunications services shall ensure that rates, terms, and conditions for such services are not unduly or unreasonably discriminatory or preferential. Rates, terms, and conditions are discriminatory or preferential when a public utility district offering rates, terms, and conditions to an entity for wholesale telecommunications services does not offer substantially similar rates, terms, and conditions to all other entities seeking substantially similar services.      (3) A public utility district providing wholesale telecommunications services shall not be required to but may establish a separate utility system or function for such purpose. In either case, a public utility district providing wholesale telecommunications services shall separately account for any revenues and expenditures for those services according to standards established by the state auditor pursuant to its authority in chapter 43.09 RCW and consistent with the provisions of this title. Any revenues received from the provision of wholesale telecommunications services must be dedicated to costs incurred to build and maintain any telecommunications facilities constructed, installed, or acquired to provide such services, including payments on debt issued to finance such services, until such time as any bonds or other financing instruments executed after June 8, 2000, and used to finance such telecommunications facilities are discharged or retired.      (4) When a public utility district provides wholesale telecommunications services, all telecommunications services rendered to the district for the district's internal telecommunications needs shall be allocated or charged at its true and full value. A public utility district may not charge its non-telecommunications operations rates that are preferential or discriminatory compared to those it charges entities purchasing wholesale telecommunications services.