ThinkProgress

Puerto Rico’s contract with Trump-connected firm sets off alarm bells in Washington

In this October 15, 2017 photo, Whitefish Energy Holdings workers restore power lines damaged by Hurricane Maria in Puerto Rico. CREDIT: AP Photo/Ramon Espinosa

Puerto Rico’s decision to award a no-bid $300 million contact to a two-person energy company in Montana has set off alarm bells in Washington as calls for investigations into the deal intensify among both Democrats and Republicans.

The contract, leaked copies of which were obtained by reporters, calls for Whitefish Energy Holdings LLC to conduct repair work on the island’s devastated electric grid. Language in the contract, however, precludes any type of review of the agreed-upon labor costs. It states that “in no event” will Puerto Rico, its utility, and federal officials “have the right to audit or review the cost and profit elements of the labor rates.”

The island’s government-owned utility, Puerto Rico Electric Power Authority (PREPA), also agreed to waive any claim against Whitefish Energy related to delayed completion of the work outlined in the contract. Whitefish Energy is charging more than $300 an hour for a subcontracted lineman and $462 an hour for a subcontracted supervisor. The company will also charge about $410 per worker in per diem food and housing costs.

Whitefish Energy will get paid through the Federal Emergency Management Agency (FEMA), not Puerto Rico’s government, Bloomberg News reported Thursday. The contract with PREPA is among the biggest yet awarded in the wake of Hurricane Maria, which hit Puerto Rico on September 20.

“The decision to award a contract to Whitefish Energy was made exclusively by Puerto Rico Electric Power Authority (PREPA),” FEMA said in a statement Friday. “FEMA was not involved in the decision.”

Based on its initial review of the contract, FEMA said it has “significant concerns” with how PREPA entered into the contact with Whitefish Energy. The federal agency said it was working with PREPA and its legal counsel to obtain information about the contract, including how the Puerto Rico electric utility determined the contract prices were reasonable.

Puerto Rico’s federal oversight board appointed an emergency manager to run PREPA after complaints about the Whitefish Energy contract and the length of the power outages on the island. PREPA filed for bankruptcy in July.

Some of the details in PREPA’s contract with Whitefish Energy “are reprehensible by any standard,” Peter Gleick, co-founder and president emeritus of the Pacific Institute and a climate change expert, told ThinkProgress in an email. “No open, transparent financial audit, and review? That alone opens the door to the potential for massive fraud and failure to perform. And the rates seem obscenely high for the work,” Gleick said.

Among Whitefish Energy’s investors is the Dallas-based HBC Investments LLC. Joseph Colonnetta, founding and general partner of HBC, donated $5,400 to Donald Trump’s presidential campaign and $14,600 to the Republican National Committee through the Trump Victory fund, set up to raise money from big donors. Last December, Colonnetta gave another $16,100 to the Republicans, while his wife Kimberly Colonnetta donated $33,400 on the same day.

Whitefish Energy is based in the hometown of Interior Secretary Ryan Zinke, who knows the company’s chief executive and whose son once worked for Whitefish. Less than one year ago, Zinke reportedly helped the company land a contract in Montana.

PREPA’s contract with Whitefish Energy “is a threat to the people of Puerto Rico, an insult to the American taxpayer, and an embarrassing scandal for the Trump administration and should be cancelled immediately,” Ramon Cruz, Sierra Club national board member and former commissioner of the Puerto Rico Energy Commission, said in a statement Friday. “The evidence is mounting that Ryan Zinke’s friends scored a no-bid contract that can never be audited and does not permit the government to act if their tiny company fails to get the power back on, all while more than 70 percent of families in Puerto Rico are sitting in darkness.”

On Thursday, Sen. Maria Cantwell (D-WA), ranking member of the Senate Energy and Natural Resources Committee, and Sen. Ron Wyden (D-OR), ranking member of the Senate Finance Committee, asked the Government Accountability Office to investigate PREPA’s contract with Whitefish Energy Holdings.

“Among the principal concerns … are the potentially inflated costs of time and material in the contract relative to comparable at-cost utility mutual aid agreements; the opaque and limited nature of PREPA’s bidding process that led to the contract letting; and the contemporaneous communications between Whitefish and senior members of the federal executive branch, including Secretary of the Interior Ryan Zinke,” the senators wrote in their letter to Comptroller General Eugene Dodaro.

Cantwell and Wyden said they will rely on the inspector general’s work to advice them on any steps necessary “to address fraudulent or otherwise inappropriate use of public money.”

In a separate letter, Rep. Rob Bishop (R-UT), chairman of the House Natural Resources Committee, and Rep. Bruce Westerman (R-AR), chairman of the House subcommittee on Oversight and Investigations, directed PREPA to retain all records surrounding the hiring of Whitefish Energy and to turn documents over to Congress.

“The size and terms of the contract, as well as the circumstances surrounding the contract’s formation, raise questions regarding PREPA’s standard contract awarding procedures,” the Republicans wrote Thursday.

Also on Thursday, Republicans and Democrats on the House Energy and Commerce Committee wrote a letter asking Whitefish Energy to provide a briefing to committee staff no later than November 9. Prior to the briefing, the committee wants Whitefish Energy to provide a list of entities subcontracted by the company hurricane response and recovery in Puerto Rico and a description of their responsibilities and cost of contract.

Rep. Raja Krishnamoorthi (D-IL) on Friday asked the leadership of the House Oversight Committee to investigate the full scope of anti-auditing language in government contracts. Krishnamoorthi, a former special assistant attorney general in Illinois’s anti-corruption unit, emphasized the dangers posed by such contracts.

“In light of the revelation that Whitefish Energy’s $300 million contract to rebuild Puerto Rico’s electrical grid contains an anti-auditing clause, I am respectfully requesting that you convene hearings to investigate both the Whitefish deal and the full scope of any anti-auditing language in government contracts,” Krishnamoorthi wrote in his letter.

In the wake of extensive storm damage or a disaster, states and municipalities normally contact a “mutual aid network” that can quickly mobilize thousands of workers to help with electric grid repairs — a step Puerto Rico reportedly never took. According to the Engineering News-Record, rebuilding Puerto Rico’s electric grid will require more than 62,000 new utility poles, 338 towers and 6,500 miles of cable.

Prior to the $300 million contract with PREPA, the largest contract Whitefish Energy had won was a $1.3 million deal with the federal government to do work on a 4.8-mile electric transmission line in Arizona. The company also won a $172,000 contract from the Department of Energy to replace a metal pole structure and install new conductor and overhead wire in Arizona.

Meanwhile, PREPA also has signed a $200 million contract with Cobra Acquisitions LLC to support the work on the island by Whitefish Energy to restore the main lines of transmission, according to a Caribbean Business news report. Cobra, a subsidiary of Mammoth Energy Services, is based in Oklahoma.

During a conference call last Friday, Mammoth Energy Services executives reportedly said that officials with FEMA were “involved every step of the way to make sure the contract complies with their reimbursement requirements.” Prior to beginning any work, Mammoth Energy Services received a $15 million up-front payment, and billing will occur twice weekly.