puerto rico electric power authority and ernst & … generales... · 2018-07-05 · puerto...

PUERTO RICO ELECTRIC POWER AUTHORITY

AND ERNST & YOUNG LLP

PROFESSIONAL SERVICES CONTRACT

APPEAR

AS FIRST PARTY: The Puerto Rico Electric Power Authority, hereinafter referred to

as "PREPA", a public corporation and government instrumentality of the Commonwealth

of Puerto Rico, created by Act 83 of May 2, 1942, as amended, represented in this act

by its Executive Director, mister Javier Antonio Quintana Mendez, of legal age, married,

professional engineer, and resident of Guaynabo, Puerto Rico.

AS SECOND PARTY: Ernst & Young LLP, hereinafter referred to as "EY", a

elaware limited liability partnership registered to do business in Puerto Rico,

represented in this act by its Managing Partner, mister Arturo Ivan, Ondina Cordoves, of

legal age, married, and resident of Guaynabo, Puerto Rico, duly authorized to appear in

representation of EY by Resolution dated on April 7, 2016.

Both PREPA and EY are herein individuals referred to as a "Party" and collectively

referred to as the "Parties".

WITNESSETH

WHEREAS, this agreement (together with all attachments hereto, this "Contract")

confirms the engagement by PREPA of EY to perform the Audit Services (as defined in

Part II hereof) and the Attestation Services (as defined in Part 111 hereof). Except with

respect to the use of capitalized defined terms or as otherwise expressly provided

herein, Part I of this Contract shall apply to the Audit Services and Attestation Services;

Part II shall apply only to Audit Services and Part III shall apply only to the Attestation

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2017-P00012

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Cuantía: $523,000.00

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Núm. de Cuenta: 01-4019-92303-556-614

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Professional Service Contract Ernst & Young LLP

Services. The Audit Services and Attestation Services coiiectiveiy shaii constitute the

"Services".

WHEREAS, EY is willing and able to render such services to PREPA. In consideration

of the mutual covenants herein stated the Parties agree themselves, their personal

representatives, successors, and assignees, as follows:

Part 1. General Terms and Conditions for the Services

Article 1. Term of Services

This Contract shall be in effect for a period of one year (1) year beginning on the date

on which all Parties have signed the Contract:

EY expressly recognizes that in the event that there are ho funds budgeted or provided

for the payment of services contracted herein, PREPA shall have the right to terminate

the Contract, and EY shall have no right to be paid any fees or expenses for any

Services-exceptfor-the ServiGes:already-performed^and-rendered to PREPA ...

rticle 2. Termination

2.1 Notwithstanding anything to the contrary in this Agreement regarding its term,

PREPA may, at any moment and for any reason, terminate this Agreement for its

convenience after giving EY not less than thirty (30) consecutive days prior written

notice. In the event of PREPA's termination for convenience as described above,

EY shall recover from PREPA, as complete settlement for EY's fees and expenses

for such terminated Services, the payment for any Services performed by EY prior

to notice of termination by PREPA. EY shall provide evidence of its performance

of such Services to PREPA for PREPA's approval of final invoice..


2.2 PREPA may terminate this Agreement if EY defaults in its performance of any

material obligation under this Agreement, and EY does not cure such default in

performance within a period of seven (7) calendar days after EY's receipt of such

written notice of default from PREPA, unless such default is not reasonably

capable of being cured within seven (7) days, in which case such cure period shall

be extended as reasonably necessary, but not more than seven (7) additional

days. The exercise of its right to terminate, cancel or rescind this Agreement shall

not be understood as a waiver by PREPA to any other remedy it may have under

this Agreement or under the law for delays or breach incurred by EY in the

performance of its obligations under this Agreement. If so terminated, PREPA

shall promptly make payment to EY for any balance for Services performed in a

professional manner due under this Agreement.

2.3 EY shall have a reciprocal right to terminate this Agreement upon the same terms

available to PREPA, as described herein, so long as such termination is consistent

with the ethical obligations applicable to EY under the circumstances. In addition,

EY may terminate performance of the Services and this Contract upon written

notice if EY reasonably determines that it can no longer provide the Services in

accordance with applicable law or professional obligations.

2.4 The exercise by either Party of its right to terminate hereunder shall not be

interpreted or construed as a waiver or relinquishment by that Party of any other

right or remedy it may have under this Contract or under the law.


Article 3. Invoices

3.1 All invoices submitted by EY shall be subject to PREPA's reasonable approval

before being paid. Approval shall be provided for all invoices to the extent the

amounts are accurate and to the extent the Services were performed in a

professional manner and the invoices are in material compliance with the

requirements set forth in this contract. The payments shall be done within sixty

(60) days from PREPA's approval of the corresponding invoice.

3.2 EY shall notify promptly to PREPA when the billing under the Contract amounts

seventy-five percent (75%) of the maximum amount under the Contract. In

addition, EY shall present an itemized list of the remaining billable Services under

the Contract.

3.3 All payments performed under this Contract will be charged to the following budget

account 01-2425-24287-000-000-0000. .

3.4 All invoices submitted by EY shall include the following Certification in order to

proceed with its payment. This is an essential requirement and those invoices

submitted without this Certification, will not be processed for payment.

No Interest Certification:

Under penalty of absolute nullity, I hereby certify that to my knowledge no

employee, official or director of PREPA is a party or has any interest in the specific

profits or benefits to be obtained under this Contract, or if any employee, official or

director of PREPA has any interest in the profits or benefits under this Contract a

waiver has been previously obtained. I also certify that the only consideration to


provide the services under this Contract is the payment agreed with PREPA's

authorized representative.

The total amount of this invoice is fair and correct. The services were provided

and no payment has beerneceived for said Services.

OA Signature of BY's authorized representative

Article 4. Compliance with Act of October 30, 1975, No. 18, as amended

PREPA shall make any and all filings and certifications as may be required of PREPA

by law or administrative regulation for this Contract to become effective and

enforceable. The demand of the obligations of either Party under this Contract will be

subject to the filing of the Contract at the Office of the Comptroller of the

Commonwealth of Puerto Rico, in compliance with the Act of October 30, 1975, No. 18,

as amended. All such filings and certifications shall be made within the time periods

specified there for and PREPA shall notify EY as soon as such filings and certifications

are made.

Article 5. Independent Contractor

EY shall be considered as an independent contractor for all material purposes under

this Contract, and all persons engaged or contracted by EY for the performance of its

Services herein, shall be considered as its partners, employees, contractors or agents

or those of its subcontractors, and not as partners, employees, contractors or agents of

PREPA. In consequence, EY is not entitled to any fringe benefits, such as, but not

limited to vacation, sick leave, and other.


Article 6. Responsibility for Damages

T.he appearing Parties agree that their responsibilities for damages under this Contract

will be governed by the Puerto Rico Civil Code and its case law, as dictated by the

Supreme Court of Puerto Rico.

Article 7, Insurance

EY shall obtain and maintain in full force and effect during the life of this Contract

policies of insurance covering all the services engaged under the Contract, which shall

be obtained from insurance companies authorized to provide coverage for operations in

Puerto Rico, and to that effect it shall provide in original certificates of insurance and

endorsements, as follows:

A. Workmen's Compensation Insurance - EY shall provide Workmen's Compensation

Insurance as required by Workmen's Compensation Act of the Commonwealth of

Puerto Rico. EY shall also be responsible for compliance with said Workmen's

Compensations Act by all its subcontractors, agents, and invitees, if any.

EY shall furnish PREPA a certificate from the State Insurance Fund showing that all

personnel employed in the Services are covered by the Workmen's Compensation

insurance, in accordance with this Contract.

If imported technical personnel are exempted, as per Act of May 16, 1958, No. 16,

EY shall furnish evidence of such exemption and certificate from the insurance

carrier covering said personnel.

B. Employer's Liability Insurance - EY shall provide Employer's Liability Insurance with

minimum bodily injury limits of $1,000,000 for each employee


and $1,000,000 for each accident covering against the liability imposed by law upon

EY as result of bodily injury, by accident or disease, including death arising out of

and in the course of employment, outside of and in the course of employment, and

outside of and distinct from any claim under the Workmen's Compensation Act of the

Commonwealth of Puerto Rico.

C. Commercial General Liability Insurance - EY shall provide a Commercial General

Liability Insurance with limits of $1,000,000 per occurrence and $1,000,000

aggregate.

D. Automobile Liability Insurance - EY shall provide a Comprehensive Automobile

Liability Insurance with limits of $1,000,000 combined single limits covering all

owned, non-owned and hired automobiles.

E. Professional Liability insurance — EY shall maintain a Professional Liability

Insurance with limits of $1,000,000 per occurrence and $1,000,000 aggregate.

Requirements under the Policies

The Commercial General Liability and Commercial Automobile Liability Insurance

required under this Contract shall include:

As "additional insured":

Puerto Rico Electric Power Authority Risk Management Office PO Box 364267 San Juan, PR 00936-4267


The additional insured requirement may be satisfied by a blanket additionai insured

endorsement. A thirty (30) day cancellation or nonrenewable notice to be sent by

certified mail with return receipt to the above address;

Identify on the certificate of insurance that the General Liability insurance includes this

Contract under Contractual liability coverage identifying it by number, date, and parties

to the Contract;

Waiver of subrogation in favor of PREPA for claims due to EY's sole negligence;

Breach of Warranties or conditions: The breach of any of the Warranties or Conditions

in this policy by EY shall not prejudice PREPA's rights under this.policy.

Furnishing of Policies

All required policies of insurance shall be issued only by insurance companies

authorized to do business in Puerto Rico.

EY shall furnish a certificate of insurance signed by an authorized representative of

insurer in Puerto Rico, described the coverage afforded. This certification shall be in

the "Accord" form, in general use by insurers, or such other form as such insurer may

regularly issue. Also, relevant endorsements shall be furnished.

Article 8. Certifications or documents required by law

Previous to the signing of this Contract, EY will have to submit the following documents

or certifications: -

1. An Income Tax Return Filling Certificate, issued by the Treasury Department of

Puerto Rico, Area of Internal Revenues, assuring that the Auditor has filed his


Income Tax Return for the last five (5) years. In addition, the Auditor shall submit a

Certification of Debt issues by the Area of Internal Revenues.

2. Certification issued by the Municipal Revenues Collection Center (MRCC), assuring

that EY does not owe any tax to such governmental agency. To request such

Certification, EY will use the form issued by the MRCC.

3. Certification, issued by the Child Support Administration, assuring that EY is in

compliance with the withholdings required by law as an employer.

4. Certificate issued by the Department of Labor and Human Resources of

Puerto Rico, assuring that EY has paid to the Department of Labor and Human

Resources of Puerto Rico its employees' contributions, in accordance with the

Puerto Rico Employment Security Act (unemployment, temporary disability or

sickness or social security for drivers/chauffeurs); or is paying such contributions by

an installment plan in full compliance with its terms.

5. A sworn statement that neither EY nor any of its partners or owners performing any

of the Services have been convicted, nor have they pled guilty of any felony or

misdemeanor involving fraud, misuse or illegal appropriation of public funds as

enumerated in Act No. 458 - 2000, as amended or is under judicial legislative or

administrative investigation in Puerto Rico, the United States of America or any other

country for any of the crimes enumerated in Act No. 458, supra.

It shall be EY's responsibility, also to require all subcontracted third parties, other

than those providing incidental services such as messenger and photocopy services,


to comply with all the previous Certifications and to notify PREPA of such

compliance.

If any of the previously required Certifications shows a debt, and EY has requested a

review or adjustment of this debt, EY will certify that it has made such request at the

time of signing the Contract. If the requested review or adjustment is denied and such

determination is final, EY will provide, immediately, proof of payment of this debt to

PREPA; otherwise, EY accepts that the owed amount will be offset by PREPA and

retained at the origin, deducted from the corresponding payments. Specifically, EY

recognizes that submittal of the aforementioned certifications and documents is an

essential condition of this Contract; and even in the case that they are partially incorrect,

there will be sufficient cause for PREPA, at its option, to terminate, cancel or rescind the

Contract and to require EY to refund all payments received.

Article 9. Applicable Law

This Contract shall be governed by and construed in accordance with the laws of State

of the Commonwealth of Puerto Rico.

Article 10. Officials Not to Benefit

Each of the Parties hereby represents that, to its knowledge, no officer, employee or

agent of PREPA, or of the Government of the Commonwealth of Puerto Rico or

Municipal Government, shall be admitted to any share or part of this Contract or has

any direct or indirect personal financial interest that may adversely affect this Contract.

In addition to the restrictions and limitations established under the provisions of Act 12

of July 24, 1985, as amended, retired or former officers or employees of PREPA, whose


work was in any way related to the award or management of Contracts, shall in no way

benefit from any Contract with PREPA for a period of two (2) years after leaving

employment with or ceasing services to PREPA.

Article 11. Conflict of Interest

EY confirms that it has not identified any other engagement with a governmental

agency, body, public corporation or municipality of Puerto Rico or any consulting

services contracts with other governmental agencies or bodies in Puerto Rico and

elsewhere that it believes to constitute a conflict of interest for EY under applicable

professional standards.

EY acknowledges that, while performing its professional obligations under this Contract,

it must be free of conflicts of interest as set forth in applicable professional standards.

In contracts with partnerships or firms, in the event that any of the partners, directors or

employees of EY should engage in the conduct described herein with respect to

Services provided to PREPA, said conduct shall constitute a violation of the prohibitions

stated herein.

EY acknowledges that the Executive Director of PREPA shall have the power, with

respect to the acts of EY and/or its agents, employees, and subcontractors, to enforce

the prohibitions contained herein. In the event that PREPA should discover the

existence of conflicting interests with EY as described above, the Executive Director

shall inform EY, in writing, of PREPA's intention to terminate this Contract within a thirty

(30) day period. During said period, EY may request a meeting with the Executive

Director to present their arguments regarding the alleged conflict of interests, which


meeting shall be granted by PREPA in every case of an alleged conflict of interests, in

the event that EY does not request such a meeting during the specified thirty (30) day

period or the controversy is not satisfactorily settled during the meeting, this Contract

shall be cancelled.

Article 12. No discrimination

EY confirms that it will not discriminate against any person on account of age, race,

color, national origin or social conditions, physical or mental impairment, sex, sexual

orientation, political or religious belief or status.

Article 13. Experience

EY hereby confirms that it is capable and has the required experience to provide the

Services established under the Contract in a professional manner and in accordance

ith applicable professional standards, laws and regulations.

Article 14. Separability

If a court of competent jurisdiction or other tribunal declares any of the Contract

provisions as null or invalid, such holding will not affect the validity and effectiveness of

the remaining provisions of the Contract and the parties agree to comply with their

respective obligations under such provisions not included by the judicial declaration.

Article 15. Income Tax Withholding

PREPA will deduct and withhold at source to EY the equivalent of seven percent (7%)

from payment for services rendered under this Contract, in compliance with the Internal

Revenue Code for a New Puerto Rico, Law No. 1-2011, section 1062.03, as amended.

Notwithstanding, the withholding to be done by PREPA as herein stated could be


increased to: twenty percent (20%) in the event that EY is a non-resident individual,

which is a U.S. citizen, as provided by the Internal Revenue Code for the New Puerto

Rico, section 1062.08; or twenty-nine percent (29%) in the event that EY is a non

resident and non U. S. citizen individual; or a foreign corporation or partnership which is

not dedicated to industry or business in Puerto Rico, as provided by the Internal

Revenue Code for the New Puerto Rico, section 1062.08.

If a Release Letter (Total Waiver Certificate) has been issued to EY by the Treasury

Department, EY shall be responsible to submit a copy of said Release Letter to PREPA

for every calendar year; otherwise, payments under the Contract shall remain subject to

withholding at source. All invoice shall be segregated by concepts (services, materials,

equipments, etc), to identify the amounts subject to withholding, and avoid undue

'deductions.

Article 16. Special Contribution

PREPA will deduct and withhold a Special Contribution to EY the equivalent of one

point five percent (1.5%) from payment for services under this Contract, in compliance

with Article 1, Law No. 48-2013. Notwithstanding, advertising spots, reimbursable

expenses and the cost of equipment or materials are excluded.

Article 17. Internal Revenue Services

Since EY is an independent contractor, at the present time there shall be no withholding

or deduction from the fees for federal income tax purposes. EY shall be responsible for

seeing to the filing and paying of income taxes to the Internal Revenue Service (IRS) or

other appropriate Federal Government Agency. Nevertheless, PREPA shall notify the


iRS or other appropriate Federai Government Agency of the payments and the

disbursements made to EY.

Article 18. Save and Hold Harmless

EY agrees to save and hold harmless and to indemnify PREPA for all expenses and

costs of any nature (including reasonable attorneys' fees) incurred by PREPA arising

out of any third party claim made by any person for bodily injuries, including death, or

for physical damage to tangible property, to the extent directly caused by EY, by its

negligent act or omission, in the performance or nonperformance of its obligations under

the Contract, but not to the extent,directly caused by negligence or tort of PREPA or a

third party, which is not an employee or subcontractor of EY.

With respect to any indemnity set forth in this Contract, each indemnitee shall give

prompt notice of its receipt of any threat, indication or other notice of any claim,

investigation or demand that might give rise to any losses required to be indemnified

hereunder and shall reasonably cooperate in the defense of such claim. The

indemnifying party shall have the right to conduct defense of such action at its sole

expense.

Article 19. Notices

Any notice and other communications hereunder shall be in writing and shall be

deemed given when delivered personally or properly mailed to the parties at the

following addresses:

To PREPA: Puerto Rico Electric Power Authority PO Box 364267 San Juan, PR 00936-4267


Attention: Javier A. Quintana Mendez Executive Director

To EY: Ernst & Young LLP 1000 Scotiabank Plaza, 273 Ponce de Leon Avenue San Juan, PR 00917-1951

Attention: Arturo Ivan Ondina Cordoves Managing Partner

Article 20. Change in Law

During the term of this Contract, any change in law, including, but not limited to changes

in applicable tax law, which causes an increase in EY's costs when providing the

services, shall be EY's responsibility and PREPA shall not be obligated to make

additional payments beyond the price originally agreed for those services.

Article 21. Force Majeure

The Parties hereto shall be excused from performing hereunder and shall not be liable

in damages, if and only to the extent that they shall be unable to perform, or are

prevented from performing by a Force Majeure event. For purposes of this Contract,

Force Majeure means any cause without the fault or negligence and beyond the

reasonable control of, the Party claiming the occurrence of a Force Majeure event.

Force Majeure may include, but not be limited to, the following: Acts of God, industrial

disturbances, acts of the public enemy, terrorism, war, blockades, boycotts, riots,

insurrections, epidemics, earthquakes, storms, floods, civil disturbances, lockouts, fires,

explosions, interruptions of services due to the acts or failure to act of any governmental


authority; provided that these events, or any other ciaimed as a Force Majeure event,

and/or its effects, are beyond the reasonable control and without the fault or negligence

of the Party claiming the Force Majeure event, and that such Party, within ten (10) days

after the occurrence of the alleged Force Majeure event, gives the other Party written

notice describing the particulars of the occurrence and its estimated duration. The

burden of proof as to whether a Force Majeure event has occurred shall be on the Party

claiming the Force Majeure event.

Article 22. Amendments

EY and PREPA expressly agree that no amendment or change order which may be

made to the Contract, during its term, shall be understood as a contractual novation,

less both Parties agree to it, specifically and in writing. The previous provision shall

be equally applicable in such other cases where PREPA gives EY a time extension for

the compliance with any of its obligations under the Contract or where PREPA does not

enforce any of its credits or rights under the Contract.

EY and PREPA have the right to propose changes to the scope of the services to be

performed by EY under this Contract; provided, however, that no such changes shall be

effective unless both Parties have agreed in writing. Neither Party shall be obligated to

proceed with any changes until both Parties agree to it, specifically and in writing.


Article 23. Representations

23.1 PREPA represents and warrants to EY that (a) PREPA's execution and delivery

of this Contract has been duly authorized, and (b) the person signing this

Contract is expressly authorized to execute it on behalf of, and to bind, PREPA.

23.2 Except for a claim limited solely to seeking non-monetary or equitable relief, any

dispute or claim arising out of or relating to the Services, this Contract or any

other services provided by or on behalf of EY or any of its subcontractors or

agents to PREPA or at PREPA's request (including any matter involving any third

party for whose benefit any such services are provided), shall be resolved by

mediation and arbitration as set forth in Exhibit C.

Article 24. Code of Ethics

•EY agrees to comply with the provisions of Act 84 of June 18, 2002, as amended, which

establishes a Code of Ethics for Contractors, Suppliers and Economic Incentive

Applicants of the Executive Agencies of the Commonwealth of Puerto Rico.

Article 25. Subcontract

From time to time, and depending upon the circumstances, (1) EY may subcontract

portions of the Services to other member firms of the Global Ernst & Young

Organization (EY and any such member firms are referred to as "EY Entities"), who may

deal with PREPA directly, though EY alone will remain responsible to PREPA for the

Services, and (2) personnel (including non-certified public accountants) from an affiliate

of EY or another EY Entity, or any of their respective affiliates or from independent third-

party service providers (including independent Contractors), may participate in providing


the Services. Unless prohibited by appiicabie iaw, EY may provide PREPA information

to other EY Entities and their personnel, as well as third-party service providers acting

on behalf of EY Entities, who may collect, use, transfer, store or otherwise process

(collectively, "Process") it in various jurisdictions in which they operate to facilitate

performance of the Services, to comply with regulatory requirements, to check conflicts,

to provide financial accounting and other administrative support services, or for quality

and risk management purposes. EY shall however be responsible to PREPA for

maintaining the confidentiality of all PREPA information, regardless of where or by

whom such information is Processed on EY's behalf. Either EY or the Company may

use electronic media to correspond or transmit information relating to, the Audit

Services, and such use will not, in itself, constitute a breach of any confidentiality

obligations.

EY shall not assign nor subcontract its rights and obligations under this Contract other

than to EY Entities or as set forth above, except in the event PREPA gives written

authorization for such actions; provided that no subcontract shall be considered for

PREPA's approval, except when the following requirements are met: (1) EY delivers

PREPA a copy of the subcontract, not less than thirty (30) days prior to the effective

date of proposed subcontract; (2) the subcontract includes, as a condition for its legal

validity and enforceability, a provision whereby PREPA has the right to substitute,

subrogate or assume EY's right under the subcontract, in the event that PREPA

declares EY in breach or default of any of the Contract terms and conditions; and (3) the

subcontract includes, as a condition for its validity and enforceability, a provision


establishing for the subcontractor the obligation to comply with all EY's obligations

under the Contract (mirror image clause), except for such obligations, terms, and

conditions which exclusively related to works or services not included under the

subcontract.

EY shall be responsible for any Services performed by any subcontractor as if such

were performed by EY itself.

Article 26. Request for Employment Prohibition

PREPA shall not, during the term of this Contract and for twelve (12) months following

its termination for any reason, without the prior written consent of EY, solicit for

employment, or hire, any current or former partner, principal or professional employee

of EY, any affiliate thereof, any other EY Entity or any of their respective affiliates if any

such professional either: (i) performed any audit, review, attest or related services for or

relating to PREPA at any time (a) during the then current fiscal year of PREPA up to

and including the date of the audit report for that year or (b) in the twelve (12) months

ended on the audit report date for the immediately preceding fiscal year, or (ii)

influences EY's operations of financial policies or has any capital balances or any other

continuing financial arrangement with EY.

Article 27. Claims for Services

PREPA may not make a claim or bring proceedings relating to the Services or otherwise

under this Contract against any other EY Entity or its subcontractors, members,

shareholders, directors, officers, partners, principals or employee ("EY Persons").

PREPA shall make any claim or bring proceedings only against EY. This paragraph is


intended to benefit the other EY Entities and EY's Person, who shaii be entitled to

enforce it. Each EY Entity is a separate legal entity.

Article 28. Assignment

If EY decides to assign or transfer an amount, due or payable, to which it is entitled for

Services rendered during the term of this Contract, EY shall notify PREPA of such

transfer of funds, in accordance to the provisions of Act 21-2012. Said notice shall

clearly indicate the rights granted, including a copy of the contract under which the

assignment or transfer of funds is made, the exact amount of funds to be assigned or

transferred, and specific identification information regarding the assignee (full name of

the person or company), address and any other contact information.

EY acknowledges and agrees that PREPA may deduct from the fees otherwise payable

to EY hereunder for Services any amount that EY owes PREPA; PREPA may retain any

said amount if EY fails to fulfill its obligations and responsibilities under this Contract, or

a claim arises for warranty or defects regarding the Services rendered under this

Contract. EY also acknowledges and agrees that PREPA's payment obligation under

any assignment of funds will cease upon payment of the outstanding amounts under

this Contract. PREPA shall not be required to make payments or transfer any funds for

fees for an amount that exceeds the payment to which EY is entitled to under this

Contract. EY's aforementioned notice of assignment of funds shall be accompanied by

a cashier's check or money order payment of two hundred dollars ($200), payable to

"Puerto Rico Electric Power Authority", for administrative costs for processing said

assignment.


Part II: Audit Services

Article 1. Scope of Services

1.1 This part sets forth the terms and conditions on which EY will audit and report on

the financial statements of PREPA for the years ending June 30, 2015 and other

services for June 30, 2014 and 2015, as described in Exhibit A (collectively, the

Audit Services) for PREPA.

1.2 Exhibit A to this Contract sets forth EY's additional understandings with PREPA

regarding the objectives and scope of work of Audit Services and the parties'

respective agreements, covenants and responsibilities in connection therewith.

Article 2. Payment Terms

2.1 EY's maximum professional fees for the Audit Services will be as follows:

2014 2015 _ . (or previous

Services y e a r s )

Audit of Financial Statement in accordance with generally accepted auditing standard and Government Auditing Standards $313,000

Agreed Upon Procedures in Official Statement

38,000

Audit of Schedule of Expenditures of Federal Awards (OMB A-133)** 34,000 37,000

Statement of Unmodified Gross Assets 23,000 25,000

Maximum Fees per year* $57,000 $413,000

*Fees based on the expected consistency of audit scope and level of internal audit assistance of 700 hours annually.

**Fees based on three major programs being selected to be audited per OMB Circular A-133.


2.2 PREPA and EY agree, subject to the terms of and understandings set forth in this

Contract, that fees for the Audit Services may not exceed four hundred seventy

thousand ($470,000), during the term of this Contract, payable according to the

break down in section 2.1 above.

2.3 However, our actual fees may exceed the top of this range based on changes to

the business (e.g., the nature of the business or change in business entities) or

additional unplanned effort. If we are requested or authorized by PREPA or are

required by government regulation, subpoena, or other legal process to produce

our documents or our personnel as witnesses with respect to the Audit Services for

PREPA, PREPA will, so long as we are not a party to the proceeding in which the

information is sought, reimburse us for our professional time and expenses,

incurred in responding to such requests. The hourly rate for the additional

professional time and expenses will be billed at $175 per hour. After both parties

agree on the services provided as mentioned in Part I, Article 22.

2.4 EY shall submit its invoices itemized and billed by hour on a monthly basis. Each

invoice shall be duly certified, detailing the services performed and the time

devoted to it.

Part 111: Attestation Services

Article 1. Scope of Work

EY will perform Attestation Services as described below ("Attestation Services").

Performance of the Attestation Services is subject to the terms and conditions of Part I


and Part III of this Contract. The Commonwealth of Puerto Rico's Office of the

Comptroller (the "Specified Party") may receive a copy of the Attestation Report,

provided that it is in the original, complete and unaltered from we provided.

The Scope of Services, Limitations, and Specific Additional Understandings for the

Attestation Services will be those set forth in Exhibit B to this Contract and in any

subsequent SOW entered into by the Parties for Attestation Services (other than

financial statement audit services).

Article 2. Payment for Attestation Services

2.1 The Parties agrees that the fees for the Attestation Services will be as follows:

Services

2014 2015 (or previous

periods)

Report for the compliance with the Commonwealth of Puerto Rico Office of the Comptroller

$11,000

Contribution in Lieu of Taxes(CILT)

$ 20,000 22,000

Total Fees for Attestation Services

$ 20,000 $ 33,000

2.2 The Parties acknowledge, subject to the terms of and understandings set forth in

this Contract, that PREPA will pay EY the maximum fees of fifty three thousand

dollars ($53,000) for the Attestation Services, during the term of the Contract

payable as set forth in the preceding table.

2 3 PREPA shall also reimburse EY for other reasonable expenses incurred, with

PREPA's previous approval, in performing the Attestation Services. EY's fees

does not include taxes or similar charges, as well as customs, duties or tariffs


imposed in respect of the Attestation Services, aii of which PREPA shall pay (other

than taxes imposed on EY's income generally). EY may receive rebates in

connection with certain purchases, which it uses to reduce charges that we would

otherwise pass on to PREPA.

2.4 EY may charge additional professional fees if events beyond its control (including

PREPA's acts or omissions) affect EY's ability to perform the Attestation Services

as originally planned or if PREPA ask EY to perform additional tasks.

Article 3. Additional General Terms and Conditions for the Attestation Services

The Attestation Services will be subject to the following additional general terms and

conditions:

3.1 EY will perform the Attestation Services in accordance with applicable professional

standards, including those established by the AICPA.

3.2 EY will not assume any of PREPA's management responsibilities in connection

with the Attestation Services. EY will not be responsible for the use or

implementation of the output of the Attestation Services.

3.3 PREPA shall assign a qualified person to oversee the Attestation Services.

PREPA is responsible for all management decisions relating to the Attestation

services, the use or implementation of the output of the Attestation Services and

for determining whether the Attestation Services are appropriate for PREPA's

purposes.


3.4 PREPA shall provide (our cause other to provide) to EY, promptly, the information,

resources and assistance (including access to records, systems, premises and

people) that EY reasonably requires to perform the Attestation Services.

3.5 To the best of PREPA's knowledge, ail information provided by or on PREPA's

behalf (Client Information) will be accurate and complete in all material respects.

The provision of Client Information to EY will not infringe any copyright or other

third-party rights.

3.6 EY will rely on Client Information made available to it and, unless EY expressly

agrees otherwise, will have no responsibility to evaluate or verify it.

3.7 PREPA shall be responsible for its personnel's compliance with its obligations

under this Contract.

Article 4. Use of Reports and Recommendations

-Any information, advice, recommendations or other content of any reports,

presentations or other communications EY provides with respect to the Attestation

Services under this Contract ("Reports"), other than Client Information, are for PREPA's

interna! use only (consistent with the purpose of the particular Attestation Services).

PREPA may not disclose a Report (or any portions or summary of a Report) externally

(including to its affiliates) or refer to EY or to any other EY's EY in connection with the

Attestation Services, except:

a. to PREPA's lawyers (subject to these disclosure restrictions), who may review

it only to give PREPA advice relating to the Attestation Services,


b. to the extent, and for the purposes, required by subpoena or similar legal

process (of which PREPA will promptly notify EY),

c. to other persons (including PREPA affiliates) with EY prior written consent,

who have executed an access letter substantially in the form EY prescribes

and who may use it only as EY has specified in its consent, or

d. to the extent it contains Tax Advice, as described below.

If PREPA is permitted to disclose a Report (or a portion thereof) externally, PREPA

shall not alter, edit or modify it from the form EY provided.

PREPA may disclose to anyone a Report (or a portion thereof) solely to the extent that it

relates to tax matters, including tax advice, tax opinions, tax , returns, or the tax

treatment or tax structure of any transaction to which the Attestation Services related

Tax Advice). With the exception of tax authorities, PREPA shall inform those to whom

it discloses Tax Advice that they may not rely on it-for any purpose without-EY's prior

written consent.

PREPA may incorporate into documents that it intends to disclose externally EY

summaries, calculations or tables based on Client Information contained in a Report,

but not EY's recommendations, conclusions or findings. However, PREPA must

assume sole responsibility for the contents of those documents and not refer to EY or

any other EY's in connection with them. This provision does not affect PREPA's ability

to circulate Reports internally.


PREPA may not rely on any draft Report. EY shall not be required to update any final

Report for circumstances of which EY becomes aware, or events occurring, after its

delivery.

Article 5. Responsibility in relation with Attestation Services

5.1 PREPA (and any others for whom Attestation Services are provided) may not

recover from EY, in contract or tort, under statue or otherwise, any consequential,

incidental, indirect, punitive or special damages in connection with claims arising

out of or otherwise relating to the Attestation Services, including any amount for

loss of profit, data or goodwill, whether or not the likelihood of such loss or damage

was contemplated.

5.2 PREPA (and any others for whom Attestation Services are provided) may not

recover from EY, in contract or tort, under statute or otherwise, aggregate

damages in excess of the fees actually paid for the Attestation Services that

directly caused the loss in connection with claims arising out of or otherwise

relating to the Attestation Services. This limitation will not apply to losses caused

by EY fraud or willful misconduct or to the extent prohibited by applicable law or

professional regulations.

5 3 P R E P A shall make any claim relating to the Attestation Services no later than one

year after it became aware (or ought reasonably to have become aware) of the

facts giving rise to any alleged such claim and in any event, no later than two years

after the completion of the Attestation Services. This limitation will not apply to the

extent prohibited by applicable law or professional regulations.


5.4 To the fullest extent permitted by applicable law and professional regulations,

PREPA shall indemnify EY and other EY Entities against all claims by third parties

(including PREPA affiliates and attorneys) and resulting liabilities, losses,

damages, costs and expenses (including reasonable external and internal legal

costs) arising out of the third party's use of or reliance on any Report (including

Tax Advice) disclosed by PREPA or at PREPA's request.

5.5 EY may use data, software, designs, utilities, tools, models, systems and other

methodologies and know-how (Materials) that it owns or licenses in performing

the Attestation Services. Notwithstanding the delivery of any Reports, EY retains

all intellectual property rights in the Materials (including any improvements or

knowledge developed while performing the Attestation Services), and in any

working papers complied in connection with the Attestation Services (but not

Client Information reflected in them).

5.6 Upon payment for Attestation Services and subject to the other terms of this

Contract, PREPA may use the Reports relating to those Attestation Services, as

well as any Materials owned by EY that are included therein, solely to the extent

necessary to use the Reports.

Article 6. Confidential Information

Except as otherwise permitted by this Contract, neither party may disclose to third

parties the contents of this Contract or any information (other than Tax Advice) provided

by or on behalf of the other in connection with the Attestation Services that ought


reasonably to be treated as confidential and/or proprietary. Either party may, however,

disclose such information to the extent that it:

a. is or becomes public other than through a breach of this Contract,

b. is subsequently received by the recipient from a third party who, to the recipient's

knowledge, owes no obligation of confidentiality to the disclosing party with

respect to that information,

c. was known to the recipient at the time of disclosure or is thereafter created

independently,

d. is disclosed as necessary to enforce the recipient's rights under this Contract, or

e. must be disclosed under applicable law, legal process or professional

regulations.

oth Parties may use electronic media to correspond or transmit information and such

use will not in itself constitute a breach of any confidentiality obligations under this

Contract.

Unless prohibited by applicable law, we may provide Client Information to other EY

Firms (which are listed at www.ey.com) and EY Persons, as well as external third parties

providing services on our or their behalf, who may collect, use, transfer, store or

otherwise process (collectively, "Process") it in various jurisdictions in which they

operate in order to facilitate performance of the Services, to comply with regulatory

requirements, to check conflicts, to provide financial accounting and other administrative

support services or for quality and risk management purposes. We shall be responsible


to the Authority for maintaining the confidentiality of Client Information, regardless of

where or by whom such information is processed on our behalf.

If we Process Client Information that can be linked to specific individuals ("Personal

Data"), we will process it in accordance with this Contract, as well as applicable law and

professional regulations, including, where applicable, the European Union Safe Harbor

program of the U.S. Department of Commerce, in which EY participates. We will require

any service provider that Processes Personal Data on our behalf to adhere to such

requirements. If any Client Information is protected health information under the Health

Insurance Portability and Accountability Act, as amended, this Agreement is deemed to

incorporate all of the terms otherwise required to be included in a business associate

contract relating to such information.

he Authority warrants that the Authority has the authority to provide the Personal Data

to us in connection with the performance of the Services and that the Personal Data

provided to us has been processed in accordance with applicable law. In order to

provide the Services, we may need to access Personal Data consisting of protected

health information, financial account numbers, Social Security or other government-

issued identification numbers, or other data that, if disclosed without authorization,

would trigger notification requirements under applicable law ("Restricted Personal

Data"). In the event that we need access to such information, the Authority will consult

with us on appropriate measures (consistent with professional standards applicable to

us) to protect the Restricted Personal Data, such as deleting or masking unnecessary

information before it is made available to us, encrypting any data transferred to us, or


making the data available for on-site review at a Client site. The Authority will provide

us with Restricted Personal Data only in accordance with mutually agreed protective

measures.

With respect to any Attestation Services, if U.S. Securities and Exchange Commission

auditor independence requirements apply to the relationship between PREPA or any of

its associated entities and any EY's, PREPA represents, to the best of its knowledge, as

of the date of this Contract and as of the date of each Statement of Work hereunder,

that neither PREPA nor any of its affiliates has agreed, either orally or in writing, with

any other advisor to restrict PREPA's ability to disclose to anyone the tax treatment or

tax structure of any transaction to which the Attestation Services relate. An agreement

of this kind could impair an EY's independence as to PREPA's audit or that of any of its

affiliates, or require specific tax disclosure as to those restrictions. Accordingly, PREPA

agrees that the impact of any such agreement is its responsibility.

Article 7. Use of Logos and Trademarks

Neither Party may in connection with the Attestation Services use or may reference to

the other's name, logo or trademarks publicly without the other's prior written consent.

Article 8. Agreement for Attestation Services

This Contract (not including Part II hereof) constitutes the entire contract between

PREPA and EY as to the Attestation Services and the other matters in covers, and

supersedes all prior contracts, understandings and representations with respect thereto,

including any confidentiality agreements previously delivered. In addition, any policy,

protocol, agreement (other than the terms of Parts I and III of this Contract) or other


instrument, in whatever form, imposed at any time that purports to obligate EY, any

other EY Entity or any personnel of any thereof with respect to be use of Client

Information (as defined in Part III) shall be void and of no further effect, and PREPA

shall not seek to enforce any such obligation.

Article 9. Complete Agreement

This Contract including its attachments is the complete agreement between the parties

with respect to the subject matter hereof and fully supersedes any and all prior

agreements and understandings between the parties hereto pertaining to the subject

matter hereof, including, without limitation: the proposal and any documentation related

thereto including the Engagement Letters, and the Terms and Conditions of

Engagement.

In case of discrepancy or in the event of conflict among the terms and conditions of the

Contract and the Exhibits, the terms and conditions of the Contract shall prevail. In

case of discrepancy regarding the scope of services the terms of the applicable Exhibit

shall prevail.

IN WITNESS WHEREOF, the parties hereto have executed this Contract as of

t f r j j t juTjQ l<r 2016.

ERNST & YOUNG LLP PUERTO RICO ELECTRIC POWER

msantiago22910

Typewritten Text

660-43-3747

msantiago22910

Typewritten Text

660-28-6745

Ernst & Young Auditing Services for PREPA

EXHIBIT A Services Exhibit

Audit Services, Responsibilities and Limitations

Audit responsibilities and limitations

1. The objective of the audit of the basic financial statements is to express opinions on whether the financial statements for each applicable opinion unit are presented fairiy, in aii material respects, in conformity with U.S. generally accepted accounting principles and whether the supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole. We also will conduct an audit in accordance with the Single Audit Act Amendments of 1996 and the provisions of OMB Circular A-133 and wiii include tests of accounting records, a determination of major program(s) in accordance with OMB Circular A-133, and other procedures we consider necessary to enable us to express an opinion on compliance for each major program and to render the required reports.

2. In connection with our audit of the financial statements, we will not perform sufficient procedures to render an opinion on internal control over financial reporting nor on compliance with provisions of laws, regulations, contracts or grant agreements and other matters, and therefore, we will not express such an opinion.

3. We will report on internal control related to major programs and provide an opinion on compliance with provisions of laws, regulations, contracts or grant agreements that could have a direct and material effect on each major program in accordance

^ with the Single Audit Act Amendments of 1996 and OMB Circular A-133.

4. Should conditions not now anticipated preclude us from completing the audits and issuing our reports we will advise you and the Governing Board promptly and take such action as we deem appropriate.

5. We will conduct the audit of the financial statements in accordance with auditing standards generally accepted in the United States, as established by the American Institute of Certified Public Accountants (the "AICPA"), and the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we obtain reasonable rather than absolute assurance that the financial statements for each opinion unit are free of material misstatement whether caused by error or fraud. As management is aware, there are inherent limitations in the audit process, including, for example, selective testing and the possibility that collusion or forgery may preclude the detection of material error, fraud or non-compliance with laws and regulations. Accordingly, because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk exists that some


Exhibits for Contract


material misstatements may not be detected, even though the audit is properly planned and performed in accordance with the applicable auditing standards. Also, an audit is not designed to detect error or fraud that is immaterial to the financial statements. We will conduct the A-133 audit in accordance with auditing standards established by the AIGPA, the standards for financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the Single Audit Act Amendments of 1996 and OMB Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations."

6. As part of the audit of the financial statements, we will consider, solely for the purpose of planning the audit and determining the nature, timing and extent of our audit procedures, the Authority's internal control. Our consideration of internal control for the audit of the financial statements will not be sufficient to enable us to express an opinion on the effectiveness of internal control over financial reporting or to identify all significant deficiencies and material weaknesses.

7. In accordance with AICPA auditing standards, we will communicate certain matters related to the conduct and results of the audit to the Governing Board. Changes to the scope of the Audit Services may occur as a result of the issuance of new standards and interpretations or inspections findings. We will communicate any significant changes in the scope of the Audit Services and related procedures to management and the Audit Committee on a timely basis.

8. If we determine that there is evidence that fraud or possible non-compliance with laws and regulations may have occurred, we will bring such matters to the attention of the appropriate level of management. If we become aware of fraud involving senior management or fraud (whether committed by senior management or other employees) that causes a material misstatement of the financial statements, we will report this matter directly to the Governing Board. We will determine that the Governing Board and appropriate members of management are adequately informed of instances of non-compliance with laws and regulations that come to our attention unless they are clearly inconsequential. We also will inform the Governing Board and appropriate members of management of significant corrected misstatements and uncorrected misstatements noted during our audit procedures other than those that are clearly trivial. In accordance with Government Auditing Standards, we will determine that appropriate members of management and Governing Board are adequately informed of:

• Fraud, and noncompliance with provisions of laws or regulations that have a material effect on the financial statements or financial data significant to the audit objectives and any other instances that warrant the attention of Governing Board,


• Noncompliance with provisions of contracts or grant agreements that have a material effect on the financial statements or financial data significant to the audit objectives, or

• Abuse that is material, either quantitatively or qualitatively to the financial statements or financial data significant to the audit objectives.

9. We will communicate in writing to management and to the Governing Board all significant deficiencies and material weaknesses identified during the audit, including those that were remediated during the audit. We also will communicate any significant deficiencies and material weaknesses communicated to management and the Governing Board in previous audits that have not yet been remediated.

10. We also may communicate other opportunities we observe for economies in or improved controls over the Authority's operations.

11. As part of our engagement, we will apply certain limited procedures to Governing Board's required supplementary information (RSI). The RSI consists of Management's Discussion and Analysis and a Schedule of Funding Progress for Postehiployment Healthcare Benefits. Those limited procedures will consist of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during the audit of the basic financial statements. We will not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The measurement and presentation of RSI, in accordance with prescribed guidelines, will be affirmed to us by management in its letter of representations.

12. We will not subject other information that comprises nonaccounting information or accounting information not directly related to the basic financial statements and the supplementary information to the auditing procedures applied in the audit of the basic financial statements and therefore will not express an opinion on this other information.

13. To the extent required by law, we will make our audit documentation available to a federal agency or the Comptroller General of the United States Government Accountability Office and provide copies upon their request. Audit documentation, as well as appropriate individuals, also will be made available upon request to appropriate auditors and reviewers. We shall promptly notify to the Authority of any such request to review our audit documentation.

14. An audit performed in accordance with Government Auditing Standards is not designed to detect noncompliance with provisions of laws, regulations, contracts or


grant agreements that do not have a direct and material effect on the financial statements or other financial data significant to the audit objectives.

15. Because the determination of abuse is subjective, an audit conducted in accordance with Government Auditing Standards does not require us to detect abuse.

16. In some circumstances in accordance with Government Auditing Standards, we may be required to report known or likely fraud and noncompliance with provisions of laws, regulations, contracts or grant agreements and abuse directly to parties external to the Authority.

17. In accordance with Government Auditing Standards, we will report in a management letter instances of noncompliance with provisions of laws, regulations, contracts or grant agreements or abuse that have an effect on the financial statements or other financial data significant to the audit objectives that are less than material but warrant the attention of Governing Board.

18. Under Government Auditing Standards, we are required to provide to the Authority our most recent peer review report, as well as subsequent peer review reports received during the term of this Contract. Our most recent peer review report accompanies this Contract.

Management's responsibilities and representations

19. The financial statements (including disclosures) are the responsibility of management. Management also is responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to error or fraud, for properly recording transactions in the accounting records, for safeguarding asset's and for the overall fair presentation of the financial statements in conformity with U.S. generally accepted accounting principles. Management also is responsible for the identification of, and for the Authority's compliance with, laws and regulations and provisions of contracts and grant agreements applicable to its activities.

20. Management is responsible for adjusting the financial statements to correct material misstatements and for affirming to us in its letter of representations certain representations made to us during the performance of the Audit Services, including that the effects of any uncorrected misstatements aggregated by us during the current audit and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements as a whole for each opinion unit.

21. Management is responsible for communicating to us on a timely basis all instances of alleged, identified or suspected non-compliance with laws and regulations, and all instances'of alleged, identified or suspected financial improprieties, of which


management or the Governing Board is aware (regardless of the source or form in which they may have been discovered or communicated to them and including, without limitation, allegations by "whistle-blowers") and providing us full access to information and any internal investigations related to them. Such instances include, without limitation, manipulation of financial results by management or employees, misappropriation of assets by management or employees, intentional circumvention of internal controls, inappropriate influence on related party transactions by related parties, intentionally misleading EY or other alleged, identified or suspected illegal acts or fraud that could result in a misstatement of the financial statements or otherwise affect the financial reporting of the Authority. If the Authority limits the information otherwise available to us under this paragraph (based on the Authority's claims of attorney/client privilege, work product doctrine or otherwise), the Authority will immediately inform us of the fact that certain information is being withheld from us. Any such withholding of information could be considered a restriction on the scope of the audit and may prevent us from opining on the Authority's applicable opinion units for the basic financial statements; alter the form of report we may issue on such financial statements; or otherwise affect our ability to continue as the Authority's independent auditors. We will disclose any such withholding of information to the Governing Board.

22. Management is responsible for providing us access to: all information of which management is aware that is relevant to the Audit Services, such , as records, documentation and other matters to complete the Audit Services on a timely basis; additional information that we may request from management for purposes of the audit; and unrestricted access to persons within the Authority from whom we determine it necessary to obtain audit evidence. Management's failure to do so may cause us to delay our report, modify our procedures or even terminate the Audit Services.

23. As required by AICPA auditing standards, we will make specific inquiries of management about the representations contained in the financial statements and supplementary information. AICPA auditing standards also require that, at the conclusion of the applicable Audit Services, we obtain a letter of representations from certain members of management about these matters and to represent that management has fulfilled its responsibilities as set forth in this Contract, including that all material transactions have been recorded in the accounting records and are reflected in the financial statements and supplementary information. The responses to those inquiries, the written representations, and the results of our procedures comprise evidence on which we will rely in completing the applicable Audit Services.

24. Management shall make appropriate inquiries to determine whether the Authority has a capital lease, material cooperative arrangement or other business relationship with EY or any other member firm of the global Ernst & Young organization (any of


which, an "EY Firm") other than one pursuant to which an EY Firm performs professional services.

25. Management shall discuss any independence matters with EY that, in management's judgment, could bear upon EY's-independence.

26. The Authority shall be responsible for its personnel's compliance with the Authority's obligations under this Contract.

27. Management is responsible for the following, as provided in Government Auditing Standards:

• Distributing the report on internal control over financial reporting and on compliance and other matters, as well as the steps being taken to make the report available to the public.

• Identifying for us previous audits, attestation engagements, or other studies that directly relate to the objectives of the audit, including whether related recommendations have been implemented.

• Applying a process to track the status of audit findings and recommendations.

• Providing views on any of our current findings, conclusions and recommendations, as well as management's planned corrective actions, for

— the report and the timing and format for providing that information. • Taking timely and appropriate steps to remedy fraud, noncompliance with

the provisions of laws, regulations, contracts or grant agreements or abuse that we report.

28. Management is responsible for the following as provided in OMB Circular A-133:

• Complying with the requirements of Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.

• Preparing the appropriate financial statements, including the schedule of expenditures of federal awards, in accordance with OMB Circular A-133.

• Establishing and maintaining effective internal control over compliance for federal programs that provides reasonable assurance that federal awards are being managed in compliance with laws, regulations and the provisions of contracts or grant agreements that could have a material effect on each of its federal programs.

• Complying with laws, regulations and the provisions of contracts and grant agreements related to each of its federal programs.

• Following up and taking corrective action on audit findings, including preparing a summary schedule of prior audit findings and corrective action


plans as required by OMB Circular A-133. • Submitting the reporting package to required recipients and the data

collection form to the designated federal audit clearinghouse. • Communicating to EY any significant vendor relationships where the vendor

is responsible for program compliance.

29. Management is responsible for the preparation of the supplementary information in conformity with state applicable criteria such as OMB Circular A-133 and if applicable, the Governmental Accounting Standards Board. For any document that contains the supplementary information and indicates that we have issued a report on the supplementary information, management will include the audit report on such supplementary information. Management will make appropriate representations to us regarding these matters. ,

Other matters

30. If we are requested or authorized by the Authority or are required by government regulation, subpoena, or other legal process to produce our documents or our personnel as witnesses with respect to the Audit Services for the Authority, the Authority will, so long as we are not a party to the proceeding in which the information, is sought, reimburse us for our professional time and expenses, incurred in responding to such requests following the terms in Part II Article 2.3.

If we Process Authority information that can be linked to specific individuals ("Personal Data"), we will process it in accordance with this Contract, as well as applicable law and professional regulations, including, where applicable, the European Union Safe Harbor program of the U.S. Department of Commerce, in which EY participates. We will require any service provider that Processes Personal Data on our behalf to adhere to such requirements. If any Authority information is protected health information under the Health Insurance Portability and Accountability Act, as amended, this Contract is deemed to incorporate all of the terms otherwise required to be included in a business associate contract relating to such information. Xhe Authority warrants that it has the authority to provide the Personal Data to EY in connection with the performance of the Audit Services and that the Personal Data provided to us has been processed in accordance with applicable law.

32. In order to provide the Audit Services, we may need to access Personal Data consisting of protected health information, financial account numbers, Social Security or other government-issued identification numbers, or other data that, if disclosed without authorization, would trigger notification requirements under applicable law ("Restricted Personal Data"). In the event that we need access to such information, you will consult with us on appropriate measures (consistent with


professional standards applicable to us) to protect the Restricted Personal Data, such as deleting or masking unnecessary information before it is made available to us, encrypting any data transferred to us, or making the data available for on-site review at a Authority site. You will provide us with copies of any Restricted Personal Data only in accordance with mutually agreed protective measures.

33. You acknowledge that to the extent the Authority is regulated by or under the supervision of a federal, state or other regulator of banking or financial services (including, without limitation, the Board of Governors of the Federal Reserve, the Office of the Comptroller of the Currency and the New York State Department of Financial Services) (collectively, "Regulators"), you may be in possession of confidential supervisory information as defined in relevant law or regulations ("CSI"), including without limitation documents and information comprising CSI arising'from, relating to, or concerning inspections and examinations by such Regulator(s). As set forth in paragraph 22, we may require access to such CSI in order to perform the Audit Services. However, CSI may be subject to regulatory restrictions on disclosure to and/or use by third parties. Accordingly: (1) management will identify to EY the Regulators that regulate and/or exercise supervisory oversight over the Authority; (2) management will identify to EY all CSI in your possession; (3) to the extent management's provision of CSI to EY is not authorized by applicable law or regulation absent Regulator approval, management

— will obtain authorization from the applicable Regulator to provide us access to any and all CSI for the purposes of performing the Audit Services with respect to CSI already in its possession immediately following execution of this Contract (and with respect to any later-identified CSI immediately upon learning of the examination, inspection or other activity that could result in such materials being deemed CSI); and (4) management will not provide any such access prior to having received such authorization and having identified to EY with specificity the information that constitutes CSI.

34. EY retains ownership in the workpapers compiled in connection with the performance of the Audit Services.


EXHIBIT B Attestation Services Exhibit

Responsibilities, Limitation, Specific Additional Understandings

For each project that we agree to undertake for the Authority, we will prepare a Statement of Work describing the particular Services, as well as any advice, presentations, or filings to be made, our fees therefor, and any other project-specific arrangements. All of the Services will be subject to the terms and conditions of the professional service contract, its attachments, and the applicable Statement of Work (together, this "Contract"). Except for a claim seeking solely injunctive relief, any dispute or claim arising out of or relating to this Contract, the Services or any other services provided by us or on our behalf to the Authority shall be resolved by mediation and arbitration as set forth in Exhibit C of the Contract.

We will perform the following projects:

• We will perform agreed-upon procedures as specified by the Authority and described below or as the Authority may otherwise specify in the course of our engagement (the "Agreed-Upon Procedures") in accordance with the Attestation Standards of the American Institute of Certified Public Accountants relating to the Puerto Rico Electric Power Authority computation of th§ Contribution in Lieu of Taxes (the GILT Computation) for the fiscal years ended June 30, 2014 and 2015.

• We will examine PREPA's compliance with recommendations of the Commonwealth of Puerto Rico Office of the Comptroller (the "Recommendations") set out in reports issued.

Management responsibilities

1. The Authority shall assign a qualified person to oversee the Services. The Authority are responsible for all management decisions relating to the Services, the use or implementation of the output of the Services and for determining whether the Services are appropriate for the Authority purposes.

2. The Authority shall provide (or cause others to provide) to us, promptly, the information, resources and assistance (including access to records, systems, premises and people) that we reasonably require to perform the Services.

3. To the best of the Authority knowledge, all information provided by the Authority or on the Authority behalf ("Client Information") will be accurate and complete in all


material respects. The provision of Client Information to us will not infringe any copyright or other third-party rights.

4. We will rely on Client Information made available to us and, unless we expressly agree otherwise, will have no responsibility to evaluate or verify it.

5. The Authority shall be responsible for the Authority personnel's compliance with the Authority obligations under this Contract.

Other Matters

6. We may charge additional professional fees if events beyond our control (including the Authority's acts or omissions) affect our ability to perform the Attestation Services as originally planned or if the Authority asks us to perform additional tasks. We will not do so without your prior written consent; provided, that we shall not be required to perform any services for which you will not agree to pay.

7. If we are required by applicable law, legal process or government action to produce information or personnel as witnesses with respect to the Attestation Services or this Contract, the Authority shall reimburse us for any professional time and expenses (including reasonable external and internal legal costs) incurred to respond to the request, unless we are a party to the proceeding or the subject of the investigation; -provided, we shall, to the extent permitted by its legal and professional obligations, promptly inform the Authority of any such request or requirement and provide the Authority with an estimate of the fees and expenses we expect to incur in response thereto.

8. The Authority shall pay us for all work-in-progress, Attestation Services already performed, and expenses incurred by us up to and including the effective date of the termination of this Contract. The payments shall be done within sixty (60) days from PREPA's approval of the corresponding invoice.

9. The Authority agree that we and the other EY Firms may, subject to professional obligations, act for other clients.


EXHIBIT C Dispute Resolution Procedures

Mediation

A party shall submit a dispute to mediation by written notice to the other party or parties. The mediator shall be selected by the parties. If the parties cannot agree on a mediator, the International Institute for Conflict Prevention and Resolution ("CPR") shall designate a mediator at the request of a party. Any mediator must be acceptable to all parties and must confirm in writing that he or she is not, and will not become during the term of the mediation, an employee, partner, executive officer, director or substantial equity owner of any Auditor audit client.

The mediator shall conduct the mediation as he/she determines, with the contract of the parties. The parties shall discuss their differences in good faith and attempt, with the mediator's assistance, to reach an amicable resolution of the dispute. The mediation shall be treated as a settlement discussion and shall therefore be confidential. The mediator may not testify for either party in any later proceeding relating to the dispute. The mediation proceedings shall not be recorded or transcribed.

ach party shall bear its own costs in the mediation. The parties shall share equally the fees and expenses of the mediator. ,

If the parties have not resolved a dispute within 90 days after written notice beginning mediation (or a longer period, if the parties agree to extend the mediation), the mediation shall terminate and the dispute shall be settled by arbitration. In addition, if a party initiates litigation, arbitration, or other binding dispute resolution process without initiating mediation or before the mediation process has terminated, an opposing party may deem the mediation requirement to have been waived and may proceed with arbitration. The mediation shall be concluded in San Juan, Puerto Rico.

Arbitration

The arbitration will be conducted in accordance with the procedures in this document and the CPR Rules for Non-Administered Arbitration ("Rules") as in effect on the date of the Contract, or such other rules and procedures as the parties may agree. In the event of a conflict, the provisions of this document will control. The mediation shall be concluded in San Juan, Puerto Rico.

The arbitration will be conducted before a panel of three arbitrators, to be selected in accordance with the screened selection process provided in the Rules. Any issue concerning the extent to which any dispute is subject to arbitration, or concerning the applicability, interpretation, or enforceability of any of these procedures, shall be governed by the Federal Arbitration,Act and resolved by the arbitrators. No potential


arbitrator may be appointed unless he or she has agreed in writing to these procedures and has confirmed in writing that he or she is not, and will not become during the term of arbitration, an employee, partner, executive officer, director or substantial equity owner of any Auditor audit client.

The arbitration panel shall have no power to award non-monetary or equitable relief of any sort or to make an award or impose a remedy that (i) is inconsistent with the contract to which these procedures are attached or any other contract relevant to the dispute, or (ii) could not be made or imposed by a court deciding the matter in the same jurisdiction.

Discovery shall be permitted in connection with the arbitration only to the extent, if any, expressly authorized by the arbitration panel upon a showing of substantial need by the party seeking discovery.

All aspects of the arbitration shall be treated as confidential. The parties and the arbitration panel may disclose the existence, content or results of the arbitration only in accordance with the Rules or applicable professional standards. Before making any such disclosure, a party shall give written notice to ail other parties and shall afford them a reasonable opportunity to protect their interests, except to the extent such disclosure is necessary to comply with applicable law, regulatory requirements or professional standards.

The result of the arbitration shall be binding on the parties, and judgment on the arbitration award may be entered in the Court of First Instance of Puerto Rico sitting in the city of San Juan or any court having proper jurisdiction. Prior to a party initiating arbitration, the parties' respective senior managements shall endeavor to resolve the dispute in good faith.

Puerto Rico Electric Power Authority SOW (2015)

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Statement of Work

This Statement of Work, dated i S ^ t ^ j e f r / f r (this "SOW"), is made by Ernst & Young LLP ("we" or "EY") and the Puerto Rico Electric Power Authority ("you" ®r/PREPA"), pursuant to the Professional Service Contract (Contract), dated ftdnyrff ("Contract"), between EY and PREPA to provide services as described below (the

"Services").

Except as otherwise set forth in this SOW, this SOW incorporates by reference, and is deemed to be a part of, the Contract. The additional terms and conditions of this SOW shall apply only to the Services covered by this SOW and not to Services covered by any other Statement of Work pursuant to the Contract. Capitalized terms used, but not otherwise defined, in this SOW shall have the meanings in the Contract.

Scope of Services

EY will examine PREPA's compliance with recommendations of the Commonwealth of Puerto Rico Office of the Comptroller (the "Recommendations") set out in reports issued for each the year ended June 30, 2015 (or a previous period).

EY will conduct our examination in accordance with attestation standards established by the AICPA. The objective of our examination is to express an opinion on PREPA's compliance based on our examination. Our examination will include examining, on a test basis, evidence about PREPA's compliance with the Recommendations and performing such other procedures as we consider necessary under the circumstances. The Services will not constitute any legal opinion or advice and specifically, we will make no legal determination that PREPA complied with the Recommendations.

Should conditions not now anticipated preclude us from completing our examination of • PREPA's compliance with the Recommendations and issuing a report thereon, we will advise management and the Governing Board promptly and take such action as we deem appropriate.

EY will provide PREPA with periodic progress updates and, at PREPA request, meet with PREPA periodically at the conclusion of these Services to review our results.

Within one year following the conclusion of each respective Period, we will issue a written Report as to the results of our examination for that Period.


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Limitations on scope

EY will not conduct an audit, review or examination of any entity's financial statements or prospective financial statements in accordance with applicable professional standards. None of the Services or any Reports, including the AUP Report, will constitute any legal opinion or advice. EY will not conduct a review to detect fraud or illegal acts, nor will we test compliance with the laws or regulations of any jurisdiction.

EY will not identify, address or correct any errors or defects in your computer systems, other devices or components thereof ("Systems"), whether or not due to imprecise or ambiguous entry, storage, interpretation or processing or reporting of data. EY will not be responsible for any defect or problem arising out of or related to data processing in any Systems.

The specific nature of the Services will depend both on the amount of detail you provide to us and the time frame within which you require our assistance.

Any additional services outside the scope of the Services set forth above or any change in the scope of the Services will be mutually agreed between the parties in writing.

EY will not:

• Perform services that would result in our assuming management responsibilities. • Perform ongoing internal control monitoring activities or other control activities that

affect the execution of transactions or confirm that-transactions are properly " executed and/or accounted for.

e Perform routine activities in connection with your financial processes that are equivalent to those of an ongoing compliance or quality control function.

• Determine which, if any, recommendations for the selection/application of accounting principles or improving internal control should be implemented.

• Recommend which accounting policy or accounting treatment should be adopted. • Be a member of any project management office or lead or supervise it. We will not

draft project management documentation for management. • Act on your behalf in reporting to your Board of Directors or Audit Committee. • Authorize, execute or consummate transactions or otherwise exercise authority on

your behalf. • Prepare source documents on transactions. • Perform any task or service that in our judgment may impair our independence.

PREPA specific obligations

PREPA are responsible for identifying and complying with all legal and other requirements applicable to the conduct of your business and other activities. PREPA


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shall establish and maintain internal controls to provide reasonable assurance of your compliance with those requirements as well as your evaluation and monitoring of such compliance.

PREPA shall discuss with us any matters that, in your judgment, might bear upon our independence.

PREPA will not, and PREPA will not permit others, including any Specified Parties, to, quote or refer to any Report, including the AUP Report, any portion, summary or abstract of any thereof, or to EY or any other EY Firm, in any document filed or distributed in connection with (i) a purchase or sale of securities to which the United States or state securities laws ("Securities Laws") are applicable, or (ii) periodic reporting obligations under Securities Laws. You will not contend that any provisions of Securities Laws could invalidate any provision of this Contract.

EY also draw your attention to the reservations set out in the Contract, as well as your management responsibilities, your obligations and your representation, as of the date hereof. You have obtained the prior approval of your Audit Committee for these Services, as applicable.

PREPA are solely responsible for the preparation of your financial statements and for making all judgments inherent in preparing them, including for the determination of your accounting policies and the appropriate application of generally accepted accounting principles ("GAAP") and including with respect to any changes to GAAP, and for your compliance with applicable regulatory requirements. PREPA is responsible for all management decisions relating to the Services, for the use or implementation of the output of the Services, for determining whether the Services are appropriate and for your purposes. PREPA shall assign a person who is qualified and has the capacity to

ersee the Services.

Specific additional terms and conditions

The Services are advisory in nature. EY will not render an assurance report or opinion under this SOW, nor will the Services constitute an audit, review, examination, or other form of attestation as those terms are defined by the American Institute of Certified Public Accountants or by the Public Company Accounting Oversight Board. Accordingly, EY will not express any form of assurance on accounting matters, financial statements, any financial or other information or internal controls as part of the Services. None of the Services or any Reports will constitute any legal opinion or advice. EY will not conduct a review to detect fraud or illegal acts.

EY will not provide a professional opinion on the application of accounting principles pursuant to the AlCPA's Standards for Reports on the Application of Accounting Principles (as amended and interpreted) as a part of these Services. None of the


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Services or any Reports will constitute any legal opinion or legal advice. EY will not conduct a review to detect fraud or illegal acts.

Notwithstanding anything to the contrary in the Contract or this SOW, we do not assume

any responsibility for any third-party products, programs or services, their performance or compliance with your specifications or otherwise.

Notwithstanding anything to the contrary in the Contract, the AUP Report is intended

solely for your information and use and the use of the Specified Parties, as set forth in this SOW.

Timetable

Unless otherwise agreed, and subject to the terms of the Contract, we expect to perform the Services during the contract period.

Contacts

You have identified Mrs. Yolanda Rivera Rivera as your contact with, whom we should communicate about these Services. Your contact at EY for these Services will be Mr. Arturo Ivan Ondina Cordoves.

Fees

The Terms and Conditions of the Contract address our fees and expenses generally.

Our fees for these AUP Services will be as follows:

FY2015 PR Controller Report (or previous period)

$11,000

Our maximum fees for these services will be $ 11,000, payable as break-down in the preceding table, unless there is a change in the scope.


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In witness whereof, the parties have executed this SOW as of the date set forth above.

Ernst & Young LLP Puerto Rico Electric Power Authority

By:_ Arturo Ivan Ondina Cordoves Managing Partner (

Quintana Mende^ ""Executive Director

Puerto Rico Electric Power Authority

Ernest#Ramos Morales Chiewhinancial Officer

Puerto Rico Electric Power Authority

By: ^ Y J D I landfHrff^t'a Rivera

Controller

puerto rico electric power authority and ernst & … generales... · 2018-07-05 · puerto...

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