AUTHOR: Gavin Bade @GavinBade
PUBLISHED Nov. 15, 2017

Dive Brief:

The CEO of the Puerto Rico Electric Power Authority told Senate lawmakers on Tuesday that he signed a $300 million contract with Whitefish Energy for power restoration due to difficulties with mutual assistance programs offered by other utilities. PREPA CEO Ricardo Ramos said that after Hurricane Maria he believed the utility was “unable to meet requirements” for mutual assistance with the American Public Power Association, such as providing fuel, housing and communications. Emails released by the House Natural Resources Committee, however, show that PREPA purchasing managers did not follow advice from their lawyers in signing the Whitefish contract, now the subject of a federal law enforcement probe.

Puerto Rico Gov. Rosselló requested $94 billion in disaster aid from Congress, but pushed lawmakers not to exercise more federal control over the territory’s decisionmaking. PREPA and Puerto Rico’s federal oversight board will work together to reform the utility, which could include partial or entire privatization, he said.
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The Senate Energy and Natural Resources Committee and the House Natural Resources Committee both held hearings on Tuesday to investigate power restoration in Puerto Rico — and in both, the Whitefish contract was a central focus.

“The reason why we have mutual aid contracts is to rebuild at cost,” said Sen. Maria Cantwell (D-WA), the ranking member on the Senate committee. “So the notion [that] someone comes in to gouge the Puerto Rico government and U.S. taxpayer, charging them exorbitant rates, then writing a contract so it can’t be reviewed property, was a great injustice to the U.S. taxpayer.”

PREPA contracted with Whitefish on Sept. 26, days after Hurricane Maria struck Puerto Rico, signing an agreement without a competitive bidding process that did not allow the utility or government officials to review rates or profit margins. Ramos told lawmakers he and his team opted for the previously unknown company because he was unsure PREPA could provide logistical assistance for mutual aid workers from other utilities.

“The agreement requires that the host utility take care of all of the logistics. There were no logistics in Puerto Rico,” Ramos told the Senate committee. “PREPA was suffering from a lack of fuel for trucks, food for employees, drinking water and ice. How could I have counted on having even more people into that situation? I needed people that were self-contained, who could bring their diesel as first responders.”

Emails released by the House committee, however, show that PREPA lawyers recommended at least seven types of contractual protections for the Whitefish agreement — protections that were included in draft documents but not written into an Oct. 17 update to the contract. Ramos did not address those findings in the hearing, but said that “in retrospect, there are some steps in our contracting process with Whitefish that we could have done better.”

“I chose to contract with Whitefish because my priority was securing the immediate assistance that we needed to begin restoring power as quickly as possible to our most critical customers,” Ramos said. “Taxpayer money was never at risk. There was never an expenditure of $300 million.”

Ramos cancelled the Whitefish contract in late October at the urging of Gov. Rosselló, turning back to mutual aid agreements from APPA and other utility groups. APPA declined to address Ramos’s comments about logistics after the storm, but said it is now working with the utility on power restoration.

“In mutual aid situations, APPA connects utilities that need help with utilities that can offer help. They then contract directly with each other, and work out payment and logistics between themselves,” APPA spokesperson Tobias Sellier said via email. “PREPA requested mutual aid on Oct 31. We are working with PREPA and our federal government partners on the logistics.”

Lingering questions over PREPA’s contracting process could have an influence on federal oversight of PREPA and any disaster aid from Congress. On Monday, a judge rejected a move from the federal oversight board that manages Puerto Rico’s finances to appoint a “chief transformation officer” to direct the grid rebuild. Rosselló, who opposed the appointment, welcomed the ruling, saying any additional federal oversight would be “unnecessary and harmful.”

“Puerto Ricans deserve the right to pursue their own recovery efforts with the support, not control of the federal government,” Rosselló told the House Committee. “To that end, we established the Central Office of Recovery and Reconstruction for Puerto Rico to ensure accountability and transparency in connection with the island’s reconstruction.”

Many lawmakers appeared skeptical about Puerto Rico’s ability to direct the reconstruction itself. Rep. Bob Bishop (R-UT), chairman of the House Committee, said the government faces “a tremendous credibility gap, based on Whitefish and other subsequent decisions that are going on there.”

“You’re asking for an unprecedented $94 billion. That’s a lot of money,” he said to Rosselló. “That’s not going to happen unless people are going to see some changes in the way cooperation is made, and the way that money’s going to be spent.”

Rosselló said he and PREPA are open to working with federal officials, including the oversight board, set up last year by Congress to oversee Puerto Rico’s progress through a bankruptcy process. Last week, the head of that board asked Bishop’s House committee to clarify that it has the authority to appoint new leaders to public agencies like PREPA — authority curtailed by Monday’s court ruling.

“To avoid uncertainty and lengthy delays in litigation, congressional reaffirmation of our exercise of our authority is welcome,” said Natalie Jaresko, head of the oversight board.

While an appeal could still be filed, the Monday ruling likely means Jaresko’s board will need to work with existing PREPA management and Puerto Rico utility regulators to guide the grid rebuild. At the Senate hearing, Jaresko said the ruling was a “setback,” but the board still has “the authority to review fiscal plans” for PREPA.

Jaresko laid out a three-part plan for PREPA, including the finalization of a new fiscal plan by Feb. 2 and contract reviews for every deal over $10 million. Rosselló said PREPA would be ready to work with Jaresko’s board, but said it has only the power to review and suggest, not make final decisions for the utility.

“We are very much willing to work with the board, with their powers,” he said. “But we do not want to give out the sovereign powers of the government of Puerto Rico, the elected government of the people of Puerto Rico.”

Just how much power the fiscal board has over PREPA could change in the coming weeks. Congressional lawmakers could write in new oversight stipulations to any disaster aid package, or move to affirm the board’s authority to intervene in financial decisions. After the hearing, Bishop said it was “premature” to speak about specifics, but that PREPA’s record demands more oversight of their practices.
“You see what PREPA’s done so far and that probably answers the question,” he said. “Yeah, there needs to be more oversight.”