Puerto Rico's bankrupt utility agreed to pay Montana-based Whitefish Energy double what linemen make, documents show
After Hurricane Maria knocked out electricity to millions of residents of Puerto Rico in September, the head of a small electric transmission company from Montana boasted that his firm could best manage the logistics of getting needed repairmen to the island.
"Please reply to this email with your approval, and we'll start flooding you with resources," Andy Techmanski, chief executive of Whitefish Energy Holdings, wrote to officials at Puerto Rico's state-run utility eight days after the storm hit.
But within days of the utility approving a first payment of millions of dollars to Whitefish, Techmanski wrote of "problems with logistics." He repeatedly pleaded for approval of costly airlifts of trucks that he said were stuck at ports in Florida.
"We have over 100 pieces of equipment staged in Jacksonville, that has backed up to the maximum threshold," Techmanski wrote on Oct. 10, saying that shipping companies were "creating hurdles" by requiring information on cargo - insurance, registration and driver information - and it was taking days for Whitefish to get each truck cleared for shipping.
The emails were contained in more than 2,000 pages of internal company documents turned over to congressional investigators last week that capture the troubled relationship between the island's bankrupt state-run utility and Whitefish Energy as they confronted a staggering electricity crisis that is now in its 54th day. The documents show how the tiny firm that won - and then lost - the largest contract to restore power in Puerto Rico struggled from Day One to live up to promises it was making to utility officials on the island. Even so, the Puerto Rico Electric Power Authority, or PREPA, agreed repeatedly to requests for higher and higher prices for restoration work.
The island utility appears likely to continue paying the firm millions of dollars a week into December, according to documents and interviews. Crews arrived in Puerto Rico last week on contracts with the firm lasting into next month, despite an announcement by PREPA on Oct. 29 that it was ending Whitefish's contract.
A spokesman for PREPA, Odalys de Jesus Colon, said he would refer questions to "the office that worked with the recruitment of Whitefish." There was no further response.
Ken Luce, a spokesman for Whitefish, said in an email on Monday that focusing alone on Whitefish's struggles "ignores the fact that every aspect of disaster assistance was hampered by logistical issues getting water, food, medicine and other supplies to the island because the air and sea ports were either closed or had severe capacity constraints."
Luce stressed that in less than a month, Whitefish brought more than 600 pieces of equipment to the island and mobilized before many others, including federal government contractors. "At no time did the Whitefish team let the logistical challenges become an excuse. We found solutions and continued our ramp-up and work."
According to the emails, PREPA's attorneys warned against the terms of an expanded agreement with Whitefish. PREPA went ahead and signed that contract on Oct. 17 without making many recommended changes. That contract built on an earlier agreement PREPA and Whitefish signed on Sept. 26.
The Oct. 17 contract raised the ceiling amount for payments to Whitefish to $300 million. Much of that money was for linemen that Whitefish was bringing to the island, billing at a rate of over $300 per hour, per person.
The documents show those rates were in some cases more than twice what its subcontractors were charging, allowing Whitefish to pocket as much as one of every two dollars it billed PREPA for the work.
Luce said it was too early to determine the final profit margin, but he said that Whitefish Energy "needed to make sure the fixed subcontractor rates in the contract were sufficient to cover the costs of such subcontractors, as well as Whitefish Energy's overhead and other costs. . . . Simply looking at the rate differential does not take into account Whitefish's overhead."
Luce said that "at least one potential subcontractor provided Whitefish Energy with a proposal that had rates that were equal to Whitefish Energy's own rates in the contract."
It is unusual for a government or utility to pay a third-party contractor when bringing in additional repair crews after major disasters. Typically, utilities activate mutual-aid agreements directly with other utilities, arrangements that typically mean workers are often guaranteed time-and-a-half or double-time for the work.
Jacksonville Electric Authority, one of the first to send workers to Puerto Rico as a subcontractor to Whitefish, calculated that it would have to charge 20 percent more than it would under mutual-aid agreements in the continental United States to cover costs associated with carrying out restoration work 1,000 miles off the U.S. mainland. Even with everything included, JEA's rates worked out to an average of $170 per hour for linemen, invoices show and the company confirmed.
But under the deal PREPA signed with Whitefish, the two-person Montana firm charged PREPA $319 to $462 an hour for linemen and supervisors. More than two weeks after the storm, some subcontractors were billing at those rates for 18-hour days that consisted of checking into hotels and attending meetings, according to daily log sheets turned over to the congressional panel.
Contrary to best practices in federal contracting, Puerto Rico also agreed to let Whitefish bill hourly for each piece of equipment, as well as each plane ticket, each hotel room and per-diem - all with a markup of 30 percent for the firm.
The billing arrangement was so unusual that before it sent a first wave of 40 linemen and other workers to help, JEA sought confirmation from officials at the Puerto Rico utility that the terms of the Whitefish deal were correct.
"As long as PREPA is comfortable with that arrangement (including Whitefish's recovery of overhead expenses on JEA's actual costs), we will proceed with haste to provide assistance," wrote Melissa Dykes, the JEA's chief financial officer.
Other documents turned over to Congress show Whitefish also began charging Puerto Rico by the hour for generators, chain saws and dozens of other types of equipment days before the material arrived on the island.
With PREPA facing $9 billion in debt and much of its system in shambles, the circumstances surrounding the utility's contract with Whitefish could factor heavily in court battles to determine whether the utility will continue operating independently. The Puerto Rican governor, Ricardo Rosselló, wants to preserve PREPA's autonomy, but Congress wants its management entrusted to a federal oversight board and the utility's creditors want a new court-appointed receiver installed. On Monday, a federal court rejected the oversight board's plan to install its own executive to transform PREPA.
Rep. Rob Bishop, R-Utah, chairman of the House Committee on Natural Resources, said in a statement to The Washington Post that the documents show a "competence deficit" on the part of PREPA that necessitates the federal oversight.
"Confidence in the utility's ability to manage contracts and time-sensitive disaster-related infrastructure work is long gone," Bishop said.
The documents show Whitefish's chief executive disparaged the mutual-aid process that successfully sent thousands of workers to Florida and Texas to restore electricity after hurricanes this year.
On Sept. 28, eight days after Hurricane Maria struck the island, Techmanski told PREPA that the "mutual-aid agreement is very vague and would require a more structured framework agreement for them to recoup costs." Instead, he told PREPA, the process would work better if those workers and utilities were treated as subcontractors to Whitefish.
PREPA agreed. Three days later, Techmanski contacted Mike Hyland, chief engineer at the American Public Power Association and coordinator of that mutual-aid network, for help in arranging military ships, military transports and an Army "tent city" for workers.
On Oct. 12, 22 days after the hurricane hit, senior PREPA official Ramon Caldas Pagan wrote to Techmanski saying "we don't have time to waste. only 15% of our clients have electricity and now this situation put[s] at risk the live[s], security and safety of more than 80% of our island." He added that "we need to bring everything as soon as possible."
The same day, the FEMA attorney in Puerto Rico, Graciela Zavala-Garcia, wrote to one of PREPA's outside lawyers at Greenberg Traurig that the Federal Emergency Management Agency's office of chief counsel "concluded that the PREPA contract does not contain some necessary provisions." There were 15 missing components, ranging from environmental regulations to anti-lobbying provisions, according to a FEMA official who spoke anonymously because he was not authorized to represent the agency.
On Oct. 15, as Whitefish was ramping up, Techmanski and PREPA were still negotiating final contract terms. Nancy Mitchell of Greenberg Traurig again warned that the contract terms didn't comply with provisions required by FEMA.
Yet, in the final contract signed Oct. 17, PREPA disregarded several recommendations by Greenberg Traurig, including terms for canceling the contract, ceiling prices and breach of contract.
In a memo to Bishop, the House Natural Resources Committee staff noted other issues with the Oct. 17 contract. It said that "some subcontractors appear to have billed PREPA for nearly every waking hour they spent in Puerto Rico," 16 hours a day, 7 days a week, including overtime with "little supporting documentation."
The Oct. 17 contract included labor rates approximately 50 percent higher than the hourly rates in the Sept. 26 contract PREPA signed with Whitefish, the committee staff noted.
Under mounting political pressure, PREPA announced on Oct. 29 that it was moving to cancel the contract with Whitefish. Bishop said in a hearing last week that it remains unclear how or why the Puerto Rico utility first chose Whitefish.
The documents don't explain exactly how the two far-afield entities connected. Two days before the storm, Techmanski wrote to PREPA official, Caldas Pagan, saying that he was responding to a message the utility official had sent over LinkedIn, inquiring about Whitefish's resources to respond after the storm.
Techmanski wrote that he had 125 men, 35 bucket trucks, and other equipment, including "rubber gloves, sleeves and hot sticks to match any need you may have."
On Sept. 23, three days after the storm, Caldas Pagan wrote that PREPA was ready to move forward and would prepare a contract. Techmanski wrote back to him and six others at the company that he would fly to the island within 24 to 36 hours and asked, "Do you or your families need anything (generators, water, food, etc.) for us to bring to help them?"
Ken Luce, the Whitefish spokesman, said the company never delivered any equipment to PREPA officials for personal use.
"On Andy's first trip to PR to meet with PREPA to discuss ways to work together he did what any decent human being would do in offering to bring water and other supplies given the situation to the island," Luce said. "To be clear, while he made the offer, nothing was provided."