Puerto Rico Utility Admits Error as Senators Blast Price-Gouging

(Bloomberg) -- Puerto Rico’s utility acknowledged that it made some missteps in issuing contracts to help it rebuild its grid even as it defended its choice of two untested companies to lead the effort.

Ricardo Ramos, the executive director of the Puerto Rico Electric Power Authority, faced questions in Congress about the utility’s sole-source contract for $300 million with Whitefish Energy Holdings, about rates Whitefish charged for its work, and why the utility didn’t tap mutual aid from utilities on the mainland instead.

"It’s one thing to be responsive in the immediate aftermath of a hurricane, it’s another thing to be engaged in something that we would all call gouging of the taxpayer," Senate Energy and Natural Resources Committee Chairman Lisa Murkowski said at a hearing Tuesday. "The recovery began when that mutual aid" was finally tapped, she said.

"You can certainly understand that frustration," she told Ramos.

Prepa also ignored the advice of its own lawyers in signing that contract, according to documents released by the House Natural Resources Committee.

Ramos told the Senate panel that the utility couldn’t use mutual aid from mainland power entities because it couldn’t provide them with housing, food, generators or other logistics. It needed companies that could provide all of those, too.

"I chose to contract with Whitefish because my priority was securing the immediate assistance that we needed to begin restoring power as quickly as possible to our most critical customers," he said. "I needed people who were self-contained."

Puerto Rico was hit with twin hurricanes in September. The first, Irma, left 1 million residents without power. Then, on Sept. 20, Maria made landfall, wiping out 80 percent of the island’s electrical grid and cutting power to everyone on the island. Recovery in major metropolitan areas has progressed slowly; remote parts of the island are still without electricity. While Prepa had restored power to 49 percent of the island as of Tuesday, it says it will be a reach to get 95 percent of its customers reconnected by the end of the year.

The slow pace of recovery has prompted criticisms of the federal response and the local utility’s decisions. Prepa issued an initial contract to Whitefish, which had just two employees and a headquarters in Whitefish, Montana, the hometown of Interior Secretary Ryan Zinke. Cobra Acquisitions LLC, a subsidiary of Mammoth Energy Services Inc., got a contract next for similar work rebuilding the transmission and distribution system.

Clear-Cut Case

Senator Maria Cantwell, a Democrat from Washington, called the Whitefish deal a clear-cut case of price-gouging. Utilities from across the country were offering help, she said, and "I guarantee they weren’t charging Whitefish rates to go."

Lawmakers criticized Prepa for allowing Whitefish to charge as much as $231 an hour -- and Mammoth $285 -- for workers on site in Puerto Rico, according to documents released by the House committee Tuesday. However, while lawmakers said that was much greater than utilities would charge under mutual-aid agreements, Prepa provided documents showing that other companies contacted proposed charging similar or higher hourly rates.

Asked by Cantwell about any possible corruption, Ramos said: "I don’t know of any individuals who may have received a kickback from Whitefish."

And Puerto Rico had complaints of its own, citing a slow response from the U.S. Army Corps of Engineers, which is responsible for power restoration after storms.

"I wasn’t satisfied with the level of urgency that the Corps of Engineers had for picking up the energy grid," Puerto Rico Governor Ricardo Rossello told the House Natural Resources Committee. "We were told they were going to start immediately and that it would take 45 days. More than 30 days afterwards we only had seven crews from the corps."

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