Puerto Rico just hired 2 contractors with little experience to fix its broken power grid
It's the island's most important hurricane recovery project.
Puerto Rico’s power crisis has improved little a month after Hurricane Marie took out the power grid. As of Thursday, 76 percent of power users still didn't have electricity.
In response, Puerto Rico's public power company has awarded big contracts to US energy companies with no experience responding to a major disaster. Generally, experienced utility crews take on the daunting task of repairing power grids in most US disaster zones.
Neither contract was awarded through a regular bidding process either, though it could be optional under a technical rule from the Federal Emergency Management Agency. Still, the decision to forgo an official process concerns experts and set off alarm bells in Washington, especially after the Washington Post reported that the CEO of one of the companies, Whitefish Energy Services, is the neighbor of Interior Secretary Ryan Zinke in their small hometown of Whitefish, Montana.
Whitefish Energy Services received the first contract from Puerto Rico's public power company, PREPA. They signed a $300 million contract on October 19 —the largest contract awarded yet in the aftermath of the Hurricane Maria in Puerto Rico. The tiny Montana-based company had only two full-time employees when Maria hit, according to the Washington Post.
Whitefish lashed out at mounting criticism on Twitter Wednesday, threatening to pull workers out of Puerto Rico. The company later apologized.
An Oklahoma-based fracking company announced last week it had also signed a contract with PREPA. This is a four-month, $200 million contract with a subsidiary of Mammoth Energy, called Cobra Energy. Their job is to design and build a new electric grid for Puerto Rico. The CEO of Mammoth says Cobra has electrical experience in the Midwest, but according to Mammoth’s website, the company’s deeper expertise is in drilling and fracking, including “pressure pumping services, well services, natural sand and proppant services, contract and directional drilling services and other energy services.”
On Tuesday, top Democrats on the natural resources committees in both the House and Senate asked for a review of the Whitefish contract.
"Today I am calling on the Government Accountability Office to investigate the circumstances surrounding the multimillion-dollar contract awarded to Whitefish Energy — a brand new company with two employees," said Sen. Maria Cantwell (D-WA), the ranking member of the Senate Energy and Natural Resources Committee. (Zinke's office denied that he had any role in the deal.)
Turning the lights back on in Puerto Rico has become the most pressing— and challenging — problem facing the island in the wake of Hurricane Maria. Category 4 winds destroyed the fragile power grid and knocked down about 80 percent of the transmission lines. With only 20 percent of the system working a month later, public utility companies cannot restore regular water, internet, and phone service. Rebuilding the wrecked electric system is a daunting task for even the most experienced utility crews.
Puerto Rico is not following the normal bidding process
In a meeting with reporters on Tuesday, the head of PREPA, Ricardo Ramos, suggested that they did not follow the typical process to secure the contracts. But he didn't understand why Puerto Ricans were so upset about the $300 million Whitefish deal, according to El Nuevo Día newspaper.
Ramos said the utility company evaluated "a bunch" of other offers before choosing Whitefish.
“It was the first one that could mobilize to Puerto Rico and that didn't demand payment right away,” he told reporters. (The contract, however, says PREPA was required to put down a $3.7 million deposit.)
The contract with Cobra was similar. A few days after the Whitefish deal was finalized, the Oklahoma fracking company announced that it had signed a multimillion-dollar deal with PREPA too.
Arty Straehla, the CEO of Mammoth (the parent company of Cobra), said in a conference call on Friday that Cobra does infrastructure repairs for utility companies across the Midwest. The company, founded in 2017 according to SEC filings, has 275 full-time employees, he said, and recently completed electrical work in Texas and Florida after the hurricanes.
In a follow-up conversation with Vox, a spokesperson for the company was unable to give further details about Cobra's contracts in Texas and Florida, or any of the clients they have served. The company has not won any federal contracts in the past or handled contracts for the state of Texas, based on a search of government procurement databases.
Straehla said Cobra planned to send about 500 workers to Puerto Rico in the coming days. PREPA already put down a $15 million deposit to start work on the grid, he said, though the contract didn't go through a bidding process.
"[The contract] was drafted in the room and every step of the way with FEMA, so it does comply with FEMA reimbursement," Straehla said. "We wouldn’t have entered this contract if we didn’t think we would get paid."
Still, two former FEMA officials told Vox they are concerned about Puerto Rico's decision to award such large contracts outside the regular bidding process, normally required for federal reimbursements.
Federal contracting rules are meant to ensure that government contracts are competitive and fair. It's also required by law if local governments in disaster zones expect reimbursement from FEMA's reconstruction grants.
FEMA’s role is complicating rebuilding efforts
There’s a complicating factor in all of this. FEMA has yet to authorize reconstruction aid for Puerto Rico, so local governments (and public utility companies) on the island are not eligible for long-term grants. Right now, Puerto Rico can only get FEMA money for emergency services. Emergency contracts don't need to follow federal procurement rules.
A copy of PREPA's contract with Whitefish Energy, obtained by Caribbean Business, suggests that is exactly how PREPA plans to get around the bidding requirements. The name of the contract — Emergency Master Service Agreement for PREPA's electrical grid repairs — indicates that it plans to use FEMA's emergency grants.
The scale of the disaster in Puerto Rico is far bigger than either Whitefish or Cobra has handled. Cobra Energy Services, which is less than a year old, has never won a federal contract. Whitefish has only won two small federal contracts in Arizona with the Department of Energy: a $172,000 deal to replace metal poles and install 3 miles of wiring, and a $1.3 million contract to revamp sections of a 4.8-mile transmission line.
In contrast, the $300 million contract with PREPA involves rebuilding 100 miles of transmission lines.
The contracts are a good opportunity for the two companies, but it’s less clear whether they are the best choice for Puerto Rico.
"We saw this as a significant way to return capital to investors," Straehla said, adding that he visited Puerto Rico a week ago to meet with PREPA officials to discuss a deal.
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