A reality based independent journal of observation & analysis, serving the Flathead Valley & Montana since 2006. © James Conner.

25 October 2017 — 2353 mdt

Is Whitefish Energy’s Puerto Rico deal emitting a foul odor?

Updated. Whitefish is closer to Hawaii (≈ 3,000 great circle miles) than to Puerto Rico (≈ 3,400 GC miles), and tiny Whitefish Energy is basically just a couple of guys making a living by being the prime contractor for building and rebuilding small sections of powerlines. But somehow they managed to obtain a $300 million no-bid contract to rebuild Puerto Rico’s power grid, which was damaged by hurricane Irma, and wrecked by hurricane Maria.

The New York Times, the Washington Post, and the Daily Beast (Story 1, Story 2, Story 3) have the details.

Because the powerline dudes and SecInterior Ryan Zinke are from Whitefish, and know each other, and because the awarding of the Puerto Rican contract was so irregular, at first sniff the deal seems to emit something between a whiff of something fishy and the reek of something rotten; seems to suggest that Zinke may have lent his hometown acquaintances an improper helping hand. But the whiff may be emanating from the Puerto Rico Electric Power Authority, not SecDOI.

PREPA may be the nation’s worst managed electric utility. In their 218-page report for the Puerto Rico Energy Commission, Fisher and Horowitz of Synapse Energy Associates, a Cambridge, MA, consulting firm, concluded:

PREPA’s system today is in a state of crisis. Deferred and inadequate investment in infrastructure, a loss of key staff, and a myopic management focus on large risky bets have left PREPA with generation and transmission infrastructure literally falling apart, unnecessarily high costs, a utility operating out of compliance with commonwealth and federal law, and alternative options rapidly disappearing.

♦ ♦ ♦ ♦ ♦

A review of the utility’s records shows a rapidly increasing generation outage rate, and customer outage levels four to five times higher than other U.S. utilities. Indeed, given the levels of generation outage reported by the utility, it is fairly astounding that PREPA was able to restore power after only three days in the September 21st 2016 Aguirre outage.

It is difficult to overstate the level of disrepair or operational neglect at PREPA’s generation facilities. Numerous reports, both internal and external, talk of multiple cascading events, simple failures that blossom into crises, staff shortages and in some cases, staff incompetence. PREPA’s system today appears to be running on fumes and in our opinion desperately requires an infusion of capital –monetary, human, and intellectual – to restore a functional utility.

Late today, the Washington Post reported that Puerto Rico’s financial oversight board will appoint a former U.S. Army officer, Noel Zamot, as PREPA’s emergency manager (he’s not an experienced utility executive). Political leaders in Puerto Rico are calling for voiding the contract with Whitefish Energy. And Congress appears ready to exercise its oversight authority.

It’s possible that PREPA’s incompetence, not corruption, led to the contract with Whitefish Energy, which may be guilty of nothing more than greed leading to biting off more than it can chew. I suspect the contract with Whitefish Energy will be modified, and that Whitefish Energy still will make a lot of money. But I doubt that Whitefish Energy will be the prime player in the rebuilding of Puerto Rico’s electrical infrastructure. PREPA needs thousands of linemen, and experts in rebuilding after a natural disaster. That manpower and expertise will be found in other electric utilities, mostly in the eastern United States.

If SecDOI Zinke aided Whitefish Energy in any manner — for example, sending to FEMA an email message saying “This company has experience working with powerlines in mountainous country, and may be able to help in Puerto Rico,” now would be a good time to disclose the details. His hailing from Whitefish naturally raises questions, but that doesn’t mean he did anything improper.

But someone, somewhere, ignored almost every sound principle of contracting, and probably had help doing so. Incompetence surely was a factor. But the affair is so far out of whack that a reasonable person has good reason to wonder whether corruption was involved.