August 7, 2003

In the audit opinion of the financial statements of the Guam Power Authority at September 30, 2002, the auditors, Deloitte Touché Tohmatsu commented as to the uncertainty of the issuance of general obligation bonds by the Government of Guam and the uncertainty of whether a water rate surcharge by the Guam Waterworks Authority will go into effect. As of the fiscal year end, GPA had accounts and notes receivables of $100.1 million, which increased by $13.5 million over prior year. Of the total $100.1 million in receivables, the Government of Guam and related agencies represented 51%, or $51.5 million. On the other hand government sales of electricity represented only 18% of total electric sales. The bonds, if issued, would pay government receivables of $30 million. The surcharge if it were to go into effect would be applied to GWA’s receivables of over $18.5 million (The GWA surcharge went into effect May 2003). FEMA receivables of $10 million stemming from Typhoon Paka remain outstanding since 1998.

While GPA had a net loss of $7.1 million, the bulk of the loss stems from a one-time charge of $6.8 million due to the capitalization of leases of generation plants which were built, owned and operated by independent power producers (IPP). In prior years the leased payments to the IPPs had been expensed. At the end of the 20-year leases, which began in September 1996, GPA will own the generation plants, more commonly known as Piti 7, 8 and 9. GPA had an $8 million loss in FY 01.

GPA’s payroll and related benefits for its 584 employees was $27 million a slight increase from prior year of $26.6 million and 573 employees. Overtime and premium pay on the other hand declined from $3.8 million to $2.6 million. General and administrative expenses however increased by $4.4 million to $25.1 million, the bulk of which was for insurance, nearly doubling to $9 million from $5 million.

GPA had contractual expenses of $5.5 million, which included among other things $655,728 in legal fees, $950,000 on office space rental, $365,000 on one of its equipment rental contracts, $142,000 on comptroller services. They also paid $439,255 to the PUC. Starting January 1, 2003, GPA has been paying $25,000 a month for its Harmon main building compared to $78,000 a month in the two prior years.

In the draft report on GPA’s Compliance and Internal Controls Report, the auditors cited GPA with eight findings. Among the issues discussed in the findings were the following:

• Internal Auditors reporting to the General Manager rather than the Board of Directors
  
• Lack of supporting documentation for transactions



• Not reinforcing it’s disconnection policy, allowing accounts to accumulate large balances
  
• Not being able to detect whether new accounts are opened in the same location where outstanding balances exist
  
• Not maintaining a detailed Property, Plant, and Equipment listing or subsidiary ledgers
  
• Not recording an adequate allowance for doubtful accounts
  
• Inconsistencies with local procurement law

For a more detailed commentary of GPA’s operations refer to the Management Discussion and Analysis in the audit report.