To: Commission
From: Don Goddard; Ed Williams and Coe Hutison
Subject: State Auditor Report
Date: November 19, 2003
Attached is a response to the State Auditor Report
Specifically, the District paid for and Benton obtained contracts for video programming, testing and selection of set top boxes and associated software, CLEC phone license, NXX phone numbers and application and agreements for phone interconnections with incumbent systems. Benton's efforts were the equivalent of about 1 person over 2 years.
The District's lawyer said the final contracts were lawful (4/03). The District's Commission approved entering into the contracts. The District's internal auditor certified the payments that were made pursuant to the final contracts (4/14/03). Nothing changes the fact that the District contracted for, received and paid for these services.
Authority: The Austin report states on page 12 that:"A public utility district has the implied authority to take such actions, not inconsistent with the statute or our state constitution, as the district might consider reasonably necessary or prudent....to provide wholesale telecommunications services, and in order.....to succeed in that effort."
"The District might permissibly take a wide range of actions designed to promote the use of its fiber optic system by homeowners, farmers and businesspersons within Grant County, but it must leave the actual business of providing telecommunications services to them to third-party service providers."
Benton used the net revenue (revenue from the District less what it paid its employees and contractors) along with the wholesale services it acquired to provide retail services. The District intended this because it:
1) placed downward pressure on retail prices for the benefit of the owners of the fiber system ("yardstick") and
2) provided additional assurance that the owners of the fiber system would recover their investment if a provider stopped service or failed to pay their bills (both happened).
The District believes that it stayed within the guidelines described in the Austin report. The District did not provide telecommunications services to end users. The District took steps it considered reaonsably necessary to succeed in the provision of wholesale telecommunications services.
Placing Benton between the District and the customer was seen as responsibe to criticism of other PUD's that sold services directly to the public. And it was seen as analogous to PUD authority to build electrical facilities subject to the restriction that it contract with third parties to build certain facilities.
It is now clear that people differ on what is "reasonably necessary to provide wholesale telecommunications services". Regardless of that difference of opinion, these contracts are closed and the District's attorney and auditor have been instructed to recover any inappropriate payments.
Information: At the time the contract was proposed for adoption it was characterized as reimbursing Benton's costs. The hourly rate was indicative of this intent. e-mail of 2/22/01 supports this, then the Commission deliberated for two meetings, with the lawyer present (minutes of 2/26 & 3/5/01), before adopting the contract.Subsequently, the intent to pay Benton's costs was discussed in a memo (6/10/02) sent to the Commission and internal auditor (e-mail fo the same date). Finally, the issue of paying Benton's costs was discussed by the Commissioners themselves at two meetings between the Grand and Benton Boards (2/19 & 7/9/02) and at individual Commission meetings (e.g., 7/15/02). Therefore, it is clear that staff did not mislead the Commission about the intent to pay Benton's costs.