The Whitefish scandal, explained

by | Nov 14, 2017 | Headlines, Puerto Rico | Comments

It all starts with Whitefish…

The Whitefish Energy contract with the Puerto Rico Energy and Power Authority (PREPA) has been the source of so much controversy, that, on Sunday October 29, PREPA announced it would cancel its $300 million contract. This happened hours after Governor Ricardo Rosselló spoke out against the Whitefish contract, asking PREPA to cancel it. While many stand behind the cancellation, Ricardo Ramos, the director of PREPA, said it was an “enormous distraction” and that it would negatively impact their work on restoring the electricity grid, including potentially delaying work for 10-12 weeks. He also warned that the Whitefish company could potentially initiate a lawsuit. The cancellation is not official yet, so crews will continue working until 30 days after PREPA’s board approves the cancellation. Ramos reported that the company has already paid $10.9 million, and will pay a pending $9.8 million payment for work already completed. There is also the possibility that another $11 million will be paid to send the workers home early and to cover any costs incurred.

The timeline of events, and the conflicting claims by Ramos, have led to several investigations. The deal is being audited at both local and federal levels. On the local level, Ricardo Rosselló has the comptroller of Puerto Rico reviewing the situation. On the federal scale, the US Inspector General is also investigating. The US House Natural Resources Committee, lead by Rep. Rob Bishop, is also looking into the deal. They sent the company a letter asking for information and documents regarding the contract, and how, and through what authority, they were able to deviate from normal processes for contracting operations of this sort, including the bidding process. Multiple other congressional committees have also opened investigations. On Friday 27, The US Department of Homeland Security’s inspector general announced that they too would have federal auditors review the contract. Even the FBI is looking into the matter.

Ramos has made several claims that differ from each other about the creation of the contract. He stated that he was contacted several days before the storm by the Whitefish company about repairing what damages the hurricane would cause. He said he also spoke to 5 other companies, but that those companies offered similar prices but asked for deposits that were too high for PREPA to afford. He claims he consulted no one before signing the deal, and that he waited a week before informing the governor. He also claims that his agency believed contracts were pre-approved by the Federal Emergency Management Agency (FEMA), although they deny this.

The Whitefish Energy contract raised eyebrows around the nation since it was hired without having been a part of a standard competitive bidding process. Not to mention that merely one day after the contract was signed it “failed a safety audit to obtain a basic license to truck supplies on U.S. roadways.” Its trucking licence was still listed as revoked as recently as the 30 of October. The contract is also rather murky. “The contract said the utility would not pay costs unallowable under FEMA grants, but it also said, ‘The federal government is not a party to this contract.’” Two statements that are clearly at odds with one another. FEMA has also come forward and said that it had not approved any reimbursement requests by the agency. FEMA has also raised concerns over the legitimacy of the contracts, noting that before the contract, the agency only had 2 full time employees, but it has since hired over 300 workers. In response to queries over how such a small company could be hired to take on such a large job, Ramos is quoted as having responded, “Every company is small at some point in time.” FEMA has also raised concerns over the prices listed in the contract and whether they are reasonable for the services to be rendered. The contract also includes a particularly fishy clause that “pay rates and other terms of the agreement could not be audited or reviewed by FEMA, the commonwealth, the comptroller general or PREPA.”

Part of the controversy comes from the fact that the small, and previously unknown, agency comes from the hometown of Ryan Zinke a former senator from Montana, the current US Secretary of the Interior, who sits on Trump’s Cabinet. His own son held a summer internship at the company, and Zinke personally knows the CEO. A key financial backer of Whitefish Energy, HBC Investments, is known for having contributed significantly to the campaigns of Trump and other republicans. Whitefish Energy has now hired a political lobbyist, its first, to lobby on its behalf. Democrats cry corruption, although, criticism isn’t just coming from the Democrats; the Republicans in Congress are also calling foul.

The White House was quick to distance itself from the situation, with White House Press Secretary Sarah Huckabee Sanders releasing a statement saying that the federal government had not been involved.

Zinke seems to have taken a page out of the president’s book on how to deal with negative press against him. He blames the media. “I had absolutely nothing to do with Whitefish Energy receiving a contract in Puerto Rico… Any attempts by the dishonest media or political operatives to tie me to awarding or influencing any contract involving Whitefish are completely baseless.” He also tweeted, “Only in elitist Washington, D.C., would being from a small town be considered a crime.”

Governor Rosselló is attempting to keep the process from affecting the rebuilding of the power grid by requesting mutual aid agreements from New York and Florida. The Financial Oversight and Management Board has announced that they are putting retired Air Force Colonel Noel Zamot in charge of the power reconstruction efforts on the islands. However, this appointment has been met with resistance by Rosselló and other officials.

Other prominent names have been dredged up as having potential connections with the deal. Elias Sanchez, a Puerto Rican lobbyist who once ran Rosselló’s campaign, is believed to have ties to the Whitefish organization. His involvement is being investigated. Previously an advisor to the governor, it is rumored that he resigned due to conflicts of interest involving personal income that he had originally concealed. In court he denied having any involvement in the deal and asked that his name be removed from court proceedings. We reached out to the Whitefish organization to ask if Sanchez was in any way involved in the contract, if it is true that he has no connection to Whitefish CEO Andy Techmanski, and if he doesn’t, whether Sanchez has any other connection or relationships to the Whitefish organization. One Brandon Smulyan, a representative of Whitefish, replied only that, “Mr. Sanchez was not involved in helping Whitefish in any manner whatsoever in securing a contract with PREPA.” The statement, while not addressing all of the questions we asked, seems to be the standard response to all media enquiries regarding Sanchez and Whitefish.

The Natural Resources Committee held a hearing on November 7, to investigate the Whitefish contract, and were shocked and disappointed that Ramos did not show up. He had submitted the requested documents, but did not turn up in person to answer questions for the committee. The committee expressed disappointment in Ramos’ decision not to attend, specifically, because they felt that the documents raised more questions than they answered.

What about APPA?

Usually, after a disaster wipes out the power grid, the American Public Power Association (APPA) is asked to provide aid in rebuilding after major power-outages. APPA, in fact, already represented PREPA and its customers before the hurricanes struck. It represents all not-for-profit, community owned utility companies. Many have expressed concern over the fact that APPA wasn’t contacted to do this until very recently in the timeline of events. Supposedly, Ramos considered contacting APPA, but instead decided that they wouldn’t be able to act quickly enough, an excuse that seems rather flimsy. After PREPA moved to cancel the Whitefish contract they moved to ask APPA for support, after having previously declined support earlier in October.

Have you heard about Cobra?

Another somewhat shady deal was happening in the shadows of the Whitefish contract, that is also now under investigation. Cobra Acquisitions LLC, a company that opened its doors this very year, was awarded a $200 million contract. The company is a subsidiary of a large fossil fuel company (Mammoth Energy Services), begging the question again of shading dealings in the interest of oil money. Mammoth also claims that FEMA was involved in discussions between PREPA and Cobra.

FEMA has declined to comment on whether or not it was a part of these conversations, but it has said that, “There’s not a lawyer within FEMA that would have ever approved that contract… The bottom line is, it was not our contract. And the other thing to be clear here is we don’t approve contracts.” What this is referring to is that FEMA does not have to approve contracts of these sorts, but it must be given spending audits.

The fishiest thing about the contract is that PREPA agreed to pay an upfront $15 million to Cobra. This is in direct contradiction with Ramos’ defense that he hired Whitefish because it did not ask for an upfront payment. Cobra has also confirmed that it received the $15 million payment.

In the end does it matter?

There are many questions that have risen to the surface due to this scandal. Should PREPA, already seriously in debt and under scrutiny, be able to create these expensive contracts? Is it fair or right for these companies to make money on a humanitarian disaster? While workers should definitely be paid, should companies work to make contracts that turn up such a profit in situations of serious need, or should they be required to work at normal rates? Forbes goes into detail, comparing the costs given in the Whitefish contract to normal rates. Some parts come off as being close to normal, though it is clear that everyone involved will be making a decent profit from this humanitarian disaster. While Forbes comes to the conclusion that getting the lights on is the most important issue, regardless of whether you make a profit, many would disagree. Profiting off of disaster is considered immoral and leads to further future problems. Many see the solution to Puerto Rico’s energy disaster is to build a different, more resilient, eco-friendly grid. While organizations like APPA are often criticized as being too slow and bureaucratic to work effectively in such emergencies, they did great work in Florida and Texas this year, and have also proved themselves more than capable in New York during hurricane Sandy. It is also strange that a community owned company would strike such deals with private companies with so little oversight or communication. The Forbes article did have an important point though, that, stopping now and shaking things up may only serve to hurt the power recovery efforts in the long run. However, that doesn’t seem to be a good enough excuse to let the Whitefish and Cobra deals simply continue on without scrutiny. The American government owes it to the citizens of Puerto Rico to investigate, to find out if there was any impropriety, and that their power needs are addressed in the most economic way possible that addresses all their needs, not just the business interests of the elite.