The Office of the Comptroller of Puerto Rico issued an adverse opinion on the fiscal operations of the Puerto Rico Electric Power Authority (PREPA), related to capital improvement projects.
The Report reveals the useless investment of $192 million in the purchase of land or development of projects that were not built or not completed. PREPA invested $62,205,965 in the cancellation of the Gasoducto del Sur project, disbursed $31,911,596 in the Vía Verde project that never began, and paid purchases and services of $85,533,332 for the unit conversion project at the Cambalache, San Juan, Palo Seco, and Aguirre power plants, which it later canceled.
The Report comments that, two years after the cancellation of PREPA's contract for the Gasoducto del Sur project, the Puerto Rico Aqueduct and Sewer Authority (PRASA) disbursed $51,855,640 for the acquisition of some of the assets and for the line of credit it assumed from PREPA. Of the assets, PRASA sold 35 pipes to PREPA for $45,500, since these could not be used to transport water. The Comptroller's auditors confirmed that those pipes were disused and deteriorated in Warehouse 5 of the Palo Seco power plant (see photos in Appendix 8 of the Report).
The six-finding audit also notes that in 2011 PREPA acquired two wind turbines for $3,714,21. One of the wind turbines is installed to serve PRASA's Wastewater Treatment Plant, and the other is stored at the Palo Seco power plant (see photos in Appendix 6 of the Report). The auditors found that the installed equipment also presents technical problems.
In 2011, PREPA acquired six parcels of land and buildings adjacent to the Authority's central offices in Santurce for $2,140,960, which are abandoned and disused (see photos in Appendix 7 of the Report). In fact, the land and structures are not recorded in the Authority's accounting system.
From the examination conducted of the Board's minutes, we found a lack of detail and documentation on the considerations and negotiations to cancel contracts, or the methods of selecting the contractors. These situations are due to the fact that convenience and feasibility studies were not conducted, the associated costs and economic impact on PREPA were not considered. In addition, the Board did not require the impact studies, nor did it protect the best interests of the Authority.
Contrary to the laws and regulations in force regarding contracting, PREPA did not request proposals from at least three professionals for any of the services contracted in the development of the Vía Verde Project. In addition, payments were identified before formalizing contracts, and the executive director had not presented a contract exceeding $500,000 for the Board's approval. From 2009 to 2012, the Authority had formalized 15 contracts and seven amendments.
PREPA did not provide the auditors with the evaluations on the administrative, operational, and financial capacity of a contractor to develop Vía Verde, who was paid $12,576,262. In addition, it disbursed $393,630 in advertising and planning services, in excess of what was contracted.
The Authority's Board had not updated the By-laws with the new provisions of Act No. 83, of the Electric Power Authority, had not evaluated compliance with the industry's governance standards, nor had it held public meetings from March 2016 to December 2018.
The audit reveals that PREPA failed to comply with the principles of transparency and accountability established by Act 57-2014 on Energy Transformation and Relief. As of December 10, 2019, the Authority did not have written rules or procedures to govern the processing of the information that by law must be published, and had not published on its portal 188 contracts and amendments for $1,940,566,845 that were indeed recorded in the Registry of the Office of the Comptroller of Puerto Rico.
After 78 years since the Electric Power Authority was constituted as a public corporation, the Accounting Division does not have a manual of accounting rules and procedures. In addition, deficiencies were observed in the account system in the PREPA Chart Accounts that has not been reviewed since 1989. These situations prevent maintaining reliable financial information and affect reasonable decision-making.
The Office of the Comptroller urges that the impact and burden of projects of this magnitude on their budgets be taken into consideration. Projects that commit present and future budgets may represent a financial burden in times of fiscal crisis such as the one experienced since the approval of laws declaring the state of fiscal emergency in Puerto Rico since 2006.
The Report, signed by the Director of Audit Affairs, Edna Velázquez Díaz, includes appendices of photos of the findings. This third and final report on PREPA covers the period from January 1, 2010 to December 31, 2018.
See Audit Report CP-21-01.
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