PREPA knew about contentious Whitefish contract clause but failed to act

06 November 2017

The Federal Emergency Management Agency (FEMA) warned the Puerto Rico Electric Power Authority (PREPA) about a controversial clause in the Whitefish Energy mandate 10 days before it was amended and executed, confirmed a FEMA spokesperson.

 

On 7 October, PREPA held a meeting with FEMA officials in Puerto Rico to discuss the Whitefish mandate, said FEMA spokesman Marty Bahamonde. At the same meeting, FEMA first became aware of the Whitefish mandate, according to Bahamonde.

 

PREPA procurement director Ramon Caldas also attested to the occurrence of the 7 October meeting between PREPA and FEMA officials during a recent interview with Debtwire Municipals.

 

Caldas did not confirm whether he participated in the meeting himself, but said PREPA lawyers, alongside legal counsel Greenberg Traurig, met with Whitefish’s attorneys on more than one occasion to discuss the legal terms of the contract. “I stayed on the sidelines during that process because I just deal with commercial aspects,” Caldas said.

 

Greenberg, which holds a USD 6m legal advisory contract with PREPA, did not return calls for comment.

 

A controversial clause

 

During the 7 October meeting, FEMA raised at least two specific concerns about the Whitefish mandate, including a controversial audit clause, and whether the contract featured reasonable costs, according to Bahamonde.

 

The audit clause in question bars PREPA, Puerto Rico’s government, and federal agencies such as the US Comptroller General, and even FEMA itself, from auditing or reviewing the costs and profit elements of Whitefish’s labor rates.

 

Despite FEMA’s warning, PREPA 10 days later (17 October) executed an amended version of the Whitefish mandate that still included the controversial clause under Article 59, Section 1 of the contract.

 

When asked whether FEMA would approve reimbursements for any contract that included such a clause, Bahamonde said “absolutely not.”

 

Honest vs. careless mistakes

 

PREPA Director Ricardo Ramos has acknowledged that the questionable clause should have been deleted but was mistakenly left in.

 

Yet FEMA’s statement that it raised this particular point during the 7 October meeting makes it all the more difficult to understand how such language made it all the way to the amended version of the contract, which was signed and executed a full 10 days later.

 

When asked about the clause, PREPA spokesman Carlos Monroig said the power utility company would not be issuing public comments regarding Whitefish, given the contract is under state, federal, and congressional investigations.

 

In addition to the controversial language, PREPA’s USD 300m contract with Whitefish has fueled speculation of political favoritism due to the company’s alleged ties to US Secretary of Interior Ryan Zinke, as well as powerful donors of President Donald Trump’s (R) 2016 presidential campaign.

 

Accountability lacking

 

PREPA first engaged Whitefish on 26 September in the form of an Emergency Master Service Agreement inked by Caldas, said Gerardo Portela, executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (FAFAA).

 

PREPA’s governing board ratified an amended version of the contract on 17 October based on a legal opinion issued by PREPA’s internal legal advisor Javier Morales Tañon, said Portela. Ramos announced last week the demotion of two PREPA political appointees, including Morales Tañon, though he denied the move had anything to do with the Whitefish contract.

 

Portela didn’t specify when exactly FAFAA became aware of the Whitefish mandate, but he did make it clear that the agency was unaware of, and did not participate in, the selection of Whitefish’s emergency agreement.

 

Other government agencies such as FEMA have also denied any involvement in the selection of Whitefish.

 

PREPA governing board’s 17 October resolution notes the board became aware of Whitefish’s mandate on 4 October, when board members were “notified of all conversations and all elements related to the [Whitefish] Emergency Master Agreement.” PREPA’s nine-member governing board includes Gerardo Loran, Portela’s ex-officio representative, as well as President Ernesto Sgroi, Governor Ricardo Rossello’s campaign finance director in 2016.

 

Competing receiverships

 

In response to the controversy, Governor Ricardo Rossello last week decided to cancel the Whitefish mandate, and later placed Caldas’ procurement office in a receivership.

 

Ottmar Chavez, director of procurement strategy at FAFAA, will lead that receivership, though we won’t know the extent of his role until Governor Rossello issues the corresponding executive order, Portela said.

 

The Whitefish controversy has made it all the way to PREPA’s Title III bankruptcy proceedings, where FAFAA attorneys recently asked to amend on-the-record statements to make it clear that the Whitefish mandate is not FEMA compliant.

 

Moreover, the Unsecured Creditor Committee (UCC) requested court approval of a probe into the Whitefish contract, and soon after scored a 13 November hearing on the matter.

 

Even the Financial Oversight and Management Board has moved to take over the embattled power utility, asking Judge Laura Taylor Swain to authorize their chief revitalization officer, Noel Zamot, to serve as chief transformation officer at PREPA. Zamot’s proposed appointment has elicited rebukes from Governor Rossello and PREPA creditors alike.

 

PREPA bondholders already once asked Judge Swain to place PREPA in a receivership due to alleged conflicts of interest, though Swain later denied that petition.

 

It’s unclear whether Judge Swain might be more inclined to green light a receivership following the Whitefish scandal.

 

A long shadow

 

The fact that PREPA and the entire commonwealth were in emergency mode in the immediate aftermath of Hurricane Maria voided requisites for a formal bidding process, said Caldas.

“Yes, there was an emergency, but we followed all the corresponding [PREPA] guidelines,” said Caldas, who shared highlighted copies of PREPA’s organic law and a protocol for the procurement of bid-exempt companies.

 

Caldas said he was the first PREPA official to make contact with Whitefish founder Andy Techmanski.

 

“On the night of 19 September, right before Hurricane Maria made landfall, Andy Techmanski sent me a message via LinkedIn saying they were available to help once the hurricane passed,” he said.

 

Caldas never responded to post-interview requests asking for images or copies of the aforementioned LinkedIn messages.

 

There is speculation that Whitefish had two people—one stateside and another in Puerto Rico—who pulled strings to get the mandate approved, said two sources with close ties to the commonwealth’s energy sector.

 

The UCC went as far as citing a local report in its Whitefish-probe court documents suggesting that former oversight board designee Elias Sanchez had lobbied for Whitefish’s mandate.

 

“I am the only person mentioned in this matter who has disavowed these accusations in a legal document, for which if proven false I could face charges of perjury. That is how sure I am of my non-involvement in this matter,” Elias Sanchez told Debtwire Municipals. “My motion contains my entire response to this matter, so you should view that.”