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Second Appeal Analysis
PA ID# 000-92043-00; Puerto Rico Electric and Power Authority
PW ID# Various Project Worksheets (PWs); Electric Power System
In September 1998, Hurricane Georges caused severe damage to the Puerto Rico Electric Power Authority (PREPA). Originally, FEMA approved $159,602,045 for the recovery of Puerto Rico’s electric power transmission and distribution (T&D) system, including debris removal, emergency protective measures, and the repair of the T&D system to its pre-disaster condition.
The Office of Inspector General (OIG) later audited the Public Assistance grant funds that FEMA had awarded to PREPA (Applicant) for the disaster-related work. The August 11, 2009, OIG Audit Report reviewed costs totaling $69.7 million under 34 large projects and 221 small projects. With regard to the small projects, the OIG limited its scope to determining whether claimed costs were covered by insurance proceeds. Overall, the OIG identified $16,800,558 of questionable costs resulting from duplicate charges; losses covered by insurance; unsupported, excessive, unrelated and unauthorized charges; unapplied credit; and mathematical error. On July 11, 2011, after a thorough review of the OIG audit, the Applicant’s response to it, and a series of meetings between the Grantee, OIG, FEMA, and PREPA, the amount of questionable costs was reduced to $14,006,987 and FEMA de-obligated that amount.
On January 23, 2012, the Applicant sent a letter to the Governor’s Authorized Representative for Puerto Rico (Grantee) indicating it located 40 boxes of additional documentation related to six Damage Survey Reports (DSRs) in question and to insurance coverage. PREPA requested additional time to review this documentation and provide evidence of payments made related to the matter. Further, regardless of the request for more time, the Applicant highlighted a potential issue related to two of the DSRs, contending that FEMA incorrectly identified a duplication of benefits in DSRs 15717 and 06827. According to the Applicant, FEMA granted $3,607,650 under DSR 06827 for the cost of materials to complete restoration work of the T&D system through December 15, 1998; FEMA then approved DSR 15717 in the amount of $5,450,849 to complete work on the T&D lines from December 16, 1998 until June 30, 1999. On February 1, 2012, the Grantee transmitted the Applicant’s letter to FEMA as a first appeal of the de-obligation of funding, noting that the appeal time had been exhausted but the Grantee agreed with the Applicant’s position.
On July 17, 2012, FEMA met with the Applicant, Grantee, and OIG to review the additional documentation submitted by the Applicant and to ensure that this information was different from the information originally submitted. By the time of the meeting, the documentation amounted to 56 boxes of records related to insurance proceeds and seven DSRs—DSRs 02462, 06828, 15717, 06827, 05074, 15846, and 11608. While the OIG de-obligation involved multiple DSRs, FEMA limited its appeal review to the insurance coverage and seven DSRs included in the 56 boxes of documentation. After evaluating the documentation, FEMA only found new supporting documentation for DRSs 06828, 02462, 15717, and insurance coverage. FEMA did not find any additional information related to DSRs 06827, 05074, 15846, and 11608 and, therefore, made no changes with regards to those DSRs. On April 22, 2013, the Regional Administrator partially granted the appeal, reducing the total de-obligated amount to $8,821,401.71.
The Grantee transmitted the Applicant’s second appeal on September 17, 2013. The Applicant’s second appeal letter, dated September 12, 2013, outlines three issues.
First, the Applicant claims that it experienced a double de-obligation by the Governor’s Authorized Representative (GAR) and FEMA. The Applicant claims that the OIG conducted an audit “passing judgment on the documentation already audited by the GAR.” According to the Applicant, as a result of the OIG audit, FEMA then de-obligated $15,120,502.90 from the amount originally allocated, regardless of the $4,424,073 already withheld by the GAR as a result of its audit.
Second, the Applicant contends that FEMA incorrectly determined that it duplicated funding in DSRs 06827 and 15717. Part B of the OIG audit found a duplication of benefits under those two DSRs for $3,553,700 related to labor and transportation charges for the repair of T&D lines and $56,250 for repair of street lighting. FEMA concurred with the OIG’s determination and de-obligated $3,609,950. The Applicant cites the following examples to illustrate that the work completed under one DSR was different than the work completed under the other one:
- Expenses concerning the construction of power lines can be mistakenly interpreted as duplicated costs because various electric lines often run in the same sections of the poles.
- In the handling of poles, a crane operator carries and installs the poles but another “brigade of employees” installs hardware and cables on the poles.
- Applicant claims it used funds approved in DSR 06827 to purchase poles and in DSR 15717 for their assembly.
Third, the Applicant claims that the OIG recommended that FEMA find $2,500,582 eligible for DSR 06827 but that FEMA, even though it de-obligated the same amount for this DSR as the OIG recommended, only found $2,398,637 to be eligible. The Applicant also contends that it could not determine how much of the $2,500,582 corresponds to the contract charges under DSR 06827.
Alleged Double De-Obligation Related to GAR and OIG Audit Reports
The FEMA Public Assistance (PA) Guide outlines the process through which FEMA obligates PA Program funds:
FEMA and the State share responsibility for making PA Program funds available to the applicant. FEMA is responsible for determining eligibility, conducting environmental/ historic preservation review, approving projects, and making the Federal share of the approved amount (that is, the grant) available to the State through a process known as obligation. Funds that FEMA has obligated are available to the State via electronic transfer, but reside in a Federal account until the State is ready to award grants to the appropriate applicants…The State is responsible for providing the State share of the eligible costs and for notifying the applicant that funds are available.
In accordance with regulation and policy, when FEMA obligates DSRs, currently referred to as Project Worksheets (PWs), FEMA passes the federal cost share through the Grantee. If the Applicant is concerned that the GAR mistakenly de-obligated the same funds twice, that issue must be raised with the Grantee.
DSRs 06827 and 15717: Duplication of Funding
Title 44, Section 206.206, of the Code of Federal Regulations (CFR), specifies that an “appeal shall contain documented justification supporting the appellant’s position, specifying the monetary figure in dispute and the provisions in Federal law, regulation, or policy with which the appellant believes the initial action was inconsistent.”
Based on a review of the Applicant’s supporting cost documentation, the OIG determined, and FEMA concurred, that the Applicant claimed the same funding twice under DSRs 06827 and 15717. The Applicant maintains that this determination is incorrect and asserts that it completed the work under DSRs 06827 and 15717 during different time periods. Although the language used to identify the dates of the work in the two DSRs is different—as DSR 15717 covers “the restoration of all electrical transmission and distribution to pre-disaster condition during the period of December 16, 1998 through June 30, 1999 and DSR 06826 covers “all work not completed as of December 15, 1998 to restore all electric transmission and distribution lines and public lighting to pre-disaster condition— the two time frames described in the DSRs start at the same time.
Although the Applicant provides examples within its second appeal letter to suggest the DSRs were written for different work on the same facilities, it failed to submit any documentation, as required by 44 CFR 206.206, to support those assertions. Similarly, no documentation was submitted to contradict the results of the OIG audit and subsequent FEMA Region II assessment, both of which reviewed all of the supporting cost documentation available for actual costs incurred. Finally, although the funding approved in DSR 15717 was based on actual force account costs and the funding approved in DSR 06827 was based on a cost estimate for work that was not completed, the scope of work for both DSRs is essentially the same - DSR 15717 covered “the restoration of all electrical transmission and distribution to pre-disaster condition during the period of December 16, 1998 through June 30, 1999,” and DSR 06827 covered “all work not completed [as of December 15, 1998] to restore all electrical transmission and distribution lines and public lighting to pre-disaster condition.”
DSR 06827: Alleged Cost Discrepancy
FEMA de-obligated the exact same amount, $4,072,488, for DSR 06827 as the OIG recommended in its audit report. The Applicant asserts that the OIG Audit Report states that the OIG concluded that $2,500,582 of costs claimed in DSR 06827 are eligible, but FEMA only found $2,398,637 of these costs to be eligible. In making this assertion, the Applicant points to page 4 of the OIG audit report, where the OIG supports $2,500,582 of the costs claimed under DSR 06827.
In looking closely at how the OIG organized its audit report in comparison to how FEMA organized its first appeal analysis, it is apparent that the Applicant mistakenly overlooked a critical section of the OIG audit report in coming to the above conclusion. The OIG organized its audit report by subject matter whereas FEMA organized its analysis by DSR. The OIG’s assertion, on page 4 of its report, that it supports $2,500,582 in eligible costs is only with regards to “project charges not supported by documentation” for DSR 06827. On page 5 of the OIG audit report, the OIG outlines additional costs, specifically $101,945 in “overhead charges,” that it found questionable with regards to DSR 06827. This amount equals the difference between the $2,500,582 that the Applicant believes is eligible for DSR 06827 and the $2,398,637 that FEMA found eligible for this DSR. The OIG did not question costs in relation to this DSR anywhere else in its report.
FEMA correctly de-obligated the funding at issue in this appeal because there was a duplication of funding within the two DSRs in question. Moreover, there was no inconsistency between the OIG recommended eligible amount for DSR 06827 and the amount FEMA found to be eligible. Finally, the assertion the GAR double de-obligated certain costs is a matter that should be raised with the Grantee, not FEMA.
 OIG Audit, Hurricane Georges Activities for Puerto Rico Electric and Power Authority, DA-09-21 (August 11, 2009).
 Letter to PR Governor’s Authorized Representative from Ana Luz Morales, FEMA Disaster Recovery Manager (July 11, 2011) (On file with FEMA).
 Damage Survey Reports 06827, 02462, 06828, 15717, 05074, and 15846.
 Federal Emergency Management Agency, Public Assistance Guide, FEMA 322, at 108 (June 2007)(noting that throughout FEMA regulations and policy the term “State” is used interchangeably with the term “grantee).
 44 CFR § 206.206 Appeals.