THE TENASKA-COB TRAGEDY OF DECEIT BARED BY FORENSIC AUDIT; FORMER MAYOR TONY MARTINEZ, PUB'S BRUCIAK LIED

(Ed.'s Note: The City of Brownsville released a report detailing a failed project between the Brownsville Public Utilities Board and energy company Tenaska. Originally launched in December 2012, the project never became a reality but for several years up to today Brownsville PUB customers were paying increased rates for the project. The forensic report details the whole sordid mess and the deceitful nature of those involved. (Click on link above for full report.)

Auditors found Brownsville PUB CEO John Bruciak and former Brownsville Mayor Tony Martinez intentionally omitted key information to get the PUB board and Brownsville commissioners to approve the project, according to an executive summary. (Click on link.)

The report also states, among several other negative findings, that both Bruciak and Martinez failed to notify commissioners about the project's status to defend rate increases no longer necessary.)

Executive Summary

Purpose

Carr, Riggs & Ingram (“CRI”) was engaged to provide forensic services to the City of Brownsville
(“COB”), investigating the activities of the Brownsville Public Utilities Board (“BPUB”) leading up to and occurring subsequently to the execution of an agreement with Tenaska to build and operate a gas-fired electric generating station (the “Project”), and a related gas pipeline (the “Pipeline”).

We performed this engagement in accordance with the Statement on Standards for Forensic Services as promulgated by the American Institute of CPAs (“AICPA”). Our work did not constitute an audit in accordance with generally accepted auditing standards, an examination of internal controls, or any other attestation or review service in accordance with standards established by the AICPA.

Objectives

The objectives of our forensic engagement were to:

1. Ascertain whether there were any improper activities conducted in furtherance of the Project.

2. Provide an accounting of all funds set aside for and expended in connection with the Project.

3. Evaluate the propriety, nature, and timing of expenditures made in furtherance of the Project and

the accumulation of costs consisting of recorded construction-in-progress asset(s).

4. Determine the amount and disposition of any funds raised or collected in furtherance of the Project.

5. Document the justification of the Project and evaluate its reasonableness.

6. Ascertain that all activities and transactions were initiated under either specific or general approval.

7. Provide Brownsville, through its City Attorney, a final report identifying whether any irregularities

or illegal acts were detected in connection with all transactions identified in the scope of services.

The report shall detail evidence, if any, of illegal or irregular acts.

Background

Throughout the report, CRI references either BPUB as a whole, the BPUB board of directors (the “Board”), and BPUB management (“Management”). When referring to Management, the key personnel throughout the scope of the investigation included:

1. John Bruciak(“Mr. Bruciak”), CEO/GM

2. Fernando Saenz, COO/Assistant GM

3. Leandro Garcia, CFO

4. Marilyn Gilbert “Ms. Gilbert”), former Energy Risk Manager and former Director of Energy

Services.

The Board comprises seven members, six of whom are appointed by the City Commission for four-year

terms. COB’s mayor serves as the seventh ex-officio member.

Tenaska proposed the Project to the Board in late 2011. In December 2012, the COB approved a series of electric rate increases to fund both the Project and BPUB operations and maintenance (“O&M”) costs.

The finalized agreements (the “Definitive Agreements”) were executed January 25, 2013. The Tenaska
Brownsville Generation Station (“TBGS”) would have generated up to 800 Megawatts (“MW”) of
electricity, of which BPUB would own 25 percent, or 200 MW. BPUB also planned to build a natural gas pipeline to supply fuel to the TBGS. The initial commercial operation date (“COD”) was expected to be June 2016.

Tenaska was responsible for subscribing the remaining capacity of the TBGS. BPUB was responsible for certain development expenses, which required hiring outside engineering firms, attorneys, and consultants.

Tenaska’s inability to subscribe the remaining capacity was the ultimate reason for the Project’s failure.
On November 1, 2021, CRI was engaged by COB to conduct a forensic analysis of the events leading up to and subsequent to the formation of the project.

As part of its planning cycle, BPUB engaged engineering firm R.W. Beck in 2008 to conduct a 20-year load forecast (the “Beck Forecast” or the “Forecast”).

The Beck Forecast projected growth in system energy requirements and annual peak demand for the years 2009 through 2028; the annual peak demand would grow to 405MW by 2018. The Forecast also noted that the economic data used in the forecast after 2007 was projected, i.e. historical data used in the study was from 2007. 

It further noted that the most recent years of data were also subject to substantial revision. Because of this, the Beck Forecast recommended that the Forecast be updated periodically and cautioned that “plans for large capital expenditures, which are based on such forecast” be made with care and an allowance for flexibility.

A draft of the IRP, which identified key issues and recommendations, was completed in December.

At a special Board meeting in December 2011, BPUB discussed the key issues in the IRP and the

presentation made by Tenaska earlier that month. Management emphasized imminent capacity shortages identified in the IRP as part of the presentation given before the Board. The Board also discussed expanding the IRP’s scope to include an evaluation of the Project against alternative expansion options.

The Brownsville Herald quoted Mayor Trey Mendez and Bruciak in its account as follows:

"The auditors found that after initiation of project was initiated, BPUB agreed to multiple extensions even though Tenaska was unable to find a single subscriber for the station’s generating capacity besides BPUB.

“Presentations made by Management to (the city) did not accurately reflect the reality of the Project status,” according to the report. “Because of this, Management was able to defend rate increases that were no longer necessary for a Project that would not be built.”

Brownsville Mayor Trey Mendez, who serves as the ex-officio member of the seven-member BPUB board, told the Brownsville Herald Wednesday that he’d read the entire report and that “there’s a lot there,” adding that the city commission is “certainly concerned about the findings from the auditor.”

“It was a totally independent, neutral auditor,” he said. “It took 11 months, which is a lot longer than we expected. But the reason for that was because the auditors were very thorough. They reviewed over 10,000 documents overall, emails, correspondence, presentations, all sort of documents related to the project.”

Mendez said that based on the audit report the project’s lack of feasibility had become obvious within the first couple of years, and that he “expects that PUB will respond and that the PUB board will also ensure some sort of accountability for this.”

BPUB General Manager and CEO John Bruciak told the Brownsville Herald on Wednesday that he’d received the auditors report earlier in the day but was in meetings and hadn’t yet had a chance to read it. Bruciak said he probably wouldn’t be able to comment until after meeting with the BPUB board early next week."

To read complete forensic audit and executive summary, click on links above.