Whitefish Puerto Rico contract stirs controversy

A massive rebuilding contract between Puerto Rico and a small Montana energy company has sparked controversy and raised questions about relief efforts after Hurricane Maria.

The $300 million contract between the stricken island’s power utility and two-year-old firm Whitefish Energy Holdings is looking more and more unusual each day.

On Friday, the Trump administration distanced itself from the contract, which the White House, the Federal Emergency Management Agency (FEMA) and Interior Secretary Ryan Zinke all said Puerto Rican officials were responsible for having signed.

“The federal government has nothing to do with this contract or the process. This was something solely determined by the Puerto Rican government,” White House press secretary Sarah Huckabee Sanders told reporters.

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“As we understand, there is an ongoing audit, and we’ll look forward to seeing the results of that later.”

Zinke, who comes from the same Montana town as Whitefish Energy, said he had “absolutely nothing” to do with the company receiving the contract. Zinke had come under scrutiny because of the coincidence of his hometown company getting the contract.

“Any attempts by the dishonest media or political operatives to tie me to awarding or influencing any contract involving Whitefish are completely baseless,” he said in a statement.

Zinke also had a separate conversation with Trump, telling the president in an Oval Office meeting on Friday that he had nothing to do with the contract. Zinke’s responsibilities as Interior secretary include overseeing the federal government’s relationship with territories like Puerto Rico.

Sanders said Trump asked Zinke if he had any involvement in the contract “just for clarification purposes.”

“He reiterated once again that we have no role — the federal government — and specifically he had no role in that contract,” Sanders told reporters.

FEMA said it was not a party to the deal, even though the contract said that the Puerto Rico Electric Power Authority (PREPA) guaranteed that FEMA “has reviewed and approved of” it — a characterization the agency dismissed.

“FEMA was not involved in the selection,” it said. “Any language in any contract between PREPA and Whitefish that states FEMA approved that contract is inaccurate.”

FEMA further stated that it “has significant concerns with how PREPA procured this contract and has not confirmed whether the contract prices are reasonable.” It said it was working closely with the utility to figure out how the contract came about.

PREPA expects FEMA to reimburse it for the costs of the contract, but PREPA and Whitefish would have to follow relevant contracting rules to be eligible.

While the news of Whitefish’s involvement is not new, a Tuesday story in The Washington Post shot it into the spotlight. It eventually spurred two congressional investigations, a Department of Homeland Security inspector general audit, a review by Puerto Rico’s government and numerous calls for more investigations.

PREPA and Whitefish signed the deal with no competitive bidding process in late September, despite Whitefish having only two employees at the time and little history working on infrastructure repair.

Puerto Rico officials say Whitefish won the contract because it didn’t require a deposit the island couldn’t afford.

Republicans on the House Energy and Commerce and Natural Resources committees sent a string of questions to officials on Thursday, asking Whitefish for documents related to its Puerto Rico operations and PREPA for information on its contact with repair firms like Whitefish. 

“The size and terms of the contract, as well as the circumstances surrounding the contract’s formation, raise questions regarding PREPA’s standard contract awarding procedures,” Rep. Rob Bishop (R-Utah), the panel’s chairman, wrote along with Rep. Bruce Westerman (R-Ark.).

Hilary Cairnie, a government contracts attorney at Pepper Hamilton, said the Whitefish contract set off some red flags, but some of the unusual aspects might be explainable.

“It was a bit unorthodox in terms of how it came about,” he said of the no-bid contract. “But the FEMA disaster rules and contracting requirements afford that FEMA will recognize exceptions to competition rules.”

The contract also has a provision that appears to limit the ability of government agencies to audit Whitefish.

“In no event shall PREPA, the Commonwealth of Puerto Rico, the FEMA Administrator, the Comptroller General of the United States, or any of their authorized representatives have the right to audit or review the cost and profit elements,” it states.

Cairnie said that’s highly unusual and likely not enforceable. Laws like the Inspector General Act give officials wide-ranging investigative authority, and the federal government wasn’t even a party to the deal.

“From a public sector perspective, that is supremely unorthodox,” he said. “While I can understand why a company like Whitefish would want to be able to be immune from audits, if the underlying contract was awarded consistent with FEMA rules and regulations, most assuredly, there would be multiple layers of audit requirements,” he said.

Despite repeated assurances that Zinke has no involvement, his opponents, like environmentalists and Democrats, have continued to push the issue as a major controversy for the Interior secretary.

Ramón Cruz, a national board member at the Sierra Club and former regulator in energy and environment roles in Puerto Rico, said the developments add weight to the group’s calls for Zinke to resign.

“It’s eyebrow-raising. It’s very surprising to see this, even when he said that these are only buddies, that everybody knows each other. But he failed to disclose that his son used to work for Whitefish,” Cruz said.

“There’s mounting evidence that is very worrisome, that he is not serving the best interest of the American people and the American taxpayers in particular.”

The criticisms come as Congress begins more aggressive oversight of the response to Maria. 

An Energy and Commerce panel will hold a hearing on the administration’s approach to recovery efforts next week, giving lawmakers the chance to probe the Whitefish contract and more general issues, including the slow pace of repairs on the island. 

The Whitefish deal has become a flashpoint for critics of the administration’s Maria response. 

“I was just there and saw the suffering of the people in the villages and towns across the island of Puerto Rico,” Rep. Luis Gutiérrez (D-Ill.) said on Wednesday. 

“Without electricity, we cannot get Puerto Ricans back to work rebuilding their island and  beginning to end the suffering. Look, the last thing we and the people of Puerto Rico need right now is a fat cat lining his pockets with money because they are well-connected.”

The company had other missteps this week, including a public feud with the mayor of San Juan, Carmen Yulín Cruz, who criticized the contract. 

Whitefish was forced to apologize after appearing to threaten pulling workers out of her city on Wednesday.