Financing issues interrupt electrical grid rehabilitation in Puerto Rico

by | Nov 30, 2017 | Economy, Headlines | Comments

While Puerto Rico continues to rebuild in the wake of Hurricane Maria, a new hurdle has appeared as Whitefish Energy has stopped their work in the territory. Whitefish Energy has been working with the Puerto Rico Electric Power Authority (PREPA) to reconstruct over 100 miles of downed transmission lines, however, on Monday November 20, the Montana-based company released a statement explaining that payments from PREPA had been delayed causing Whitefish Energy and its subcontractors to stand down “until PREPA pays for approved work already completed”. CEO of Whitefish Energy, Andrew Techmanski, also stated in the release that the shortfall in payments has risen to $83 million, which was beyond the company’s maximum allowable threshold to continue their scheduled work.

The initial $300 million contract was canceled after falling under continued scrutiny, and eventually FBI investigation. Questions arose from the outset of the arrangement, as Whitefish Energy was a little-known company, located far from Puerto Rico, and had only two full-time employees. The contract also allowed Whitefish Energy to bill PREPA, a government-owned entity and the sole provider of electrical and power generation for Puerto Rico, $319 an hour for linemen, which is well above the average pay for similarly positioned workers and the industry norm for emergency work on transmission lines.

Skepticism towards contracts to repair Puerto Rico’s damaged power grid has not been contained strictly to Whitefish Energy, as PREPA’s deal with Cobra Acquisitions has come into question as well. Cobra Acquisitions was incorporated less than one year ago, and the company’s contract with PREPA required a $15 million down payment and included a clause which would exempt the deal from being audited. Cobra is a subsidiary of Mammoth Energy Services, an integrated oilfield service company with a market capitalization of just under $835 million dollars that was founded in 2014 and is based in Oklahoma City. The deputy director of public affairs for the Federal Emergency Management Agency (FEMA) has also issued a statement outlining that FEMA has not approved any contractual agreement between PERPA and either Whitefish Energy or Cobra Acquisitions.

PREPA’s contractual issues reflect larger problems facing Puerto Rico as it repairs the damage from Hurricane Maria, and tries to ensure financial stability for residents going forward. The organization has not only failed to provide the necessary transparency during the process of rebuilding Puerto Rico’s damaged infrastructure, but has lacked the ability to establish institutional dependability and credibility among the public it is designated to assist. Despite these foundational shortcomings, PREPA has been placed in a situation with little margin for error. The organization is $9 billion in debt, and the aftermath of Hurricane Maria has created at least $20 billion in economic losses for Puerto Rico.

As a result, PREPA is in a cyclical situation of instability that will be difficult to correct, especially in the near future. Financially, PREPA was faced with logistical challenges and budget shortfalls even before Hurricane Maria ravaged Puerto Rico’s electrical grid. Now, as a result of the storm, infrastructure has been destroyed and it remains difficult to sufficiently provide citizens with the necessary power. With much of Puerto Rico’s population unable to receive power many businesses have lost function, jobs have vanished, and thousands have left for the United States Mainland. As these issues pile up, PREPA itself becomes less financially stable and has fewer sources of revenue to fund the necessary operations. If PREPA continues to lose financial solvency, it will be increasingly difficult to fund the reconstruction of Puerto Rico’s power grid and citizens will continue to be without the necessary energy to flourish economically, causing the loss of businesses and jobs.

This puts PREPA in a difficult situation when opening up bids for the rebuilding of Puerto Rico’s electrical grid, and was likely the root of the organization’s deals with Whitefish Energy and Cobra Acquisitions. Larger, more established company’s were likely weary of dealing with PREPA in light of the organization’s existing debt and the harrowing economic circumstances in Puerto Rico following Hurricane Maria. This opened the door for smaller companies, such as Whitefish Energy and Cobra Acquisitions, to take advantage of the severe conditions facing PREPA and Puerto Rico. Now, it has become painfully apparent that both Whitefish Energy and Cobra Acquisitions have used the circumstances to gain significant leverage over PREPA during contractual bargaining, leading to PREPA agreeing to exorbitant rates and difficult contractual obligations. The outcome is that Puerto Rican citizens must pay the price for the pre-existing institutional instability and financial insecurity of PREPA in the wake of a horrific natural disaster.