Councilwoman concerned about city contracts to HPOWER

The head of the City Council’s Committee of Public Works, Infrastructure and Sustainability demanded answers Wednesday from the Department of Environmental Services to questions raised in a scathing report that found HPOWER’s contracts and procurement practices appear to have violated city policies and state procurement rules.

The audit released last month says operating revenues increased 5.5 percent while expenses increased 18 percent between 2008 and 2015, resulting in “a precipitous decline in net operating income from over $18.8 million to a loss of $543,500 in 2015.”

During a public hearing on the audit held Wednesday, committee Chairwoman Carol Fukunaga asked Environmental Services Director Lori Kahikina, “What are the guidelines for procurement and use of external consultants?”

External consultants cost the city $14.7 million, pushing the total to more than $1 billion, the audit revealed.

The audit, conducted by the Office of the City Auditor, revealed that taxpayers ended up paying more than $1 billion for HPOWER — the city’s waste-to-energy facility — although the original contracts were for $313.7 million. It also questioned the use of sole-source, cost-plus and time and materials contracts and 79 contract amendments, change and task orders to construct, improve, expand and refurbish the facility that cost $993.3 million. The addition of $14.7 million in consultants’ fees brought the final total to more than $1 billion.

City Auditor Edwin Young said: “Our concern is that as HPOWER revenues decline and losses that are occurring, the city is at risk for any losses that should occur in the future.” He noted that the HPOWER contract is unique in that it required general obligation bonds to be issued to ensure Covanta, the contractor operating HPOWER, and its subcontractors get paid.

“Based on our analysis of the operating statements, we anticipate there’ll be continued losses for HPOWER,” Young said at the hearing.

Carroll Cox of EnviroWatch, the only public testifier, said that after eight years of his looking into Covanta and HPOWER, and based on the audit, “it’s been a fleecing station for the taxpayer.”

Kahikina said the original contract for HPOWER’s construction and operations, awarded some 30 years ago, “was competitively bid before the enactment of the current procurement code.”

When a “third boiler expansion needed to be done,” the department consulted with the city Department of Budget and Fiscal Services and the state Procurement Office city office and “it was jointly decided that it was not necessary to be competitively bid,” she said.

In addition, the auditor said the city has failed to fill vacancies; had no accountants, auditors and others to properly administer the contract; and relied on consultants.

In defense of officials in her department, Kahikina said the audit looked only at what occurred up until 2013, “before we came into office.”

She said HPOWER revenues from 1991 to 2015 resulted in $201 million in net revenues. But Councilman Brandon Elefante pointed to the audit, saying, “In 2015, there was a loss.”

Councilman Trevor Ozawa called the city department’s move to pay for Covanta’s $585,000 legal fees “wasteful spending.”

In response, Kahikina said, “I have to agree with you.”