Power recovery: Contracts ten times more expensive
The agreements granted by PREPA to two private companies for the repair the electricity network add up to $500 million and could increase
Wednesday, October 25, 2017 – 10:15 AM
Each worker who arrives in Puerto Rico on behalf of Cobra Acquisitions LLC, the second company hired by the Electric Power Authority to repair the electrical network, will cost customers about $4,000 per day in theory.
If that rate seems right to you, based on the urgency of recovering power in Puerto Rico, you should know that repairing the electrical system with the human resources of the other private company hired by PREPA, Whitefish Energy Holdings, will cost the customers of PREPA -and for the moment, the federal government- at least 10 times more than they would pay if the public corporation had the necessary personnel to lift its infrastructure.
These are the conditions that PREPA accepted in the contracts granted to companies Whitefish Energy Holdings and Cobra Acquisitions LLC when, in the midst of the worst natural disaster that Puerto Rico experienced and going through a cash flow crisis, the Island’s main public utility opted for resort to private suppliers. This, instead of signing a mutual aid agreement with homologous companies, members of the American Public Power Association (APPA), an issue that has raised serious criticism in different sectors of Puerto Rico and the United States.
El Nuevo Día asked APPA about the discussions with PREPA, but that organization referred the questions to the US Army Corps of Engineers (USACE).
Yesterday, Governor Ricardo Rosselló said that he had both contracts audited by the Office of Management and Budget, while in an interview with this newspaper, the executive director of PREPA, Ricardo Ramos, defended these agreements.
“They are practically the same costs. The difference is that, in APPA´s case, the Authority was obliged to do all the mobilization, provide transportation, fuel and accomodation. And, in the case of these private companies, they take care of the complete logistics: foods, fuel delivery, accommodation, bring their own equipment and materials. It is a relief in terms of logistics for PREPA,” assured Ramos.
He argued that the number of employees of PREPA, which has 231 crews, is not enough to restore the power grid swiftly. In addition, he said that, out of the five companies that responded to a call made by PREPA following Hurricane Irma, Whitefish proposed the lowest costs. The other four companies were Power Secure -the USACE contractor-, General Foreman, Southern Electric and B & B Electric.
However, Ramos could not say when the call was issued and why he used this mechanism and not a bidding. He said that the regulation of the public corporation allows a direct solicitation in times of emergency.
“It was between Irma and Maria. I do not have the exact date right now.” Ramos said. Whitefish Energy Holdings CEO Andrew Techmanski recently told El Nuevo Dia that he did not remember the date when talks began between his company and the public corporation or who had made the first approach.
Of the five companies responding to the solicitation, only Whitefish and Power Secure remained, requiring a payment in advance of $25 million. Whitefish was selected for a cap of $300 million, of which $8 million have been disbursed.
The contract with Cobra Acquisitions is for $200 million, and both contracts may increase, warned Ramos.
Following a request made by El Nuevo Día this week, PREPA sent the contracts it signed in the middle of the emergency so that Whitefish, founded in the state of Montana about two years ago, and Cobra Acquisitions restore the power grid.
Signed weeks ago
In the case of the Whitefish contract, although it was informed to have been done on 26 September, the parties signed the “Master Service Agreement” on 17 October.
The contract with Whitefish is the highest amount granted to the company founded by Techmanski, a electric worker from Montana.
A search conducted by El Nuevo Día points out that before Whitefish arrived on the Island, the US Department of Energy had awarded two contracts to the company for $138,200 and $1.3 million for two projects in the state of Arizona.
Meanwhile, Cobra Acquisitions, a branch of Oklahoma-based public company Mammoth Energy (Nasdaq: TUSK), was signed last October 19 and is for $200 million. According to El Nuevo Día, Cobra was registered in the state of Delaware on November 17, 2016.
“We are honored to have been selected to help restore the electrical infrastructure for residents of Puerto Rico,” stated Chief Mammoth Executive Officer Arty Straehla when he made the agreement public.
Straehla personally signed the agreement with PREPA. The day the agreement was reached with PREPA, Mammoth listed 16% on Wall Street.
The contracts granted to Whitefish and Cobra, in essence, cover the same tasks, but they are different cost structures.
In the case of Whitefish, the company details wages of workers and subcontracted personnel, as well as an hourly charge for the equipment used.
For example, using a large excavator will cost PREPA $242.25 per hour and the use of a satellite phone will be billed at $8 per hour. Each hour that the Whitefish passenger helicopter is in operation, the company bills $3,969 and, in the case of a Chinook helicopter, PREPA will pay $20,277 per hour.
Whitefish asked for an initial $3 million pay, which payment was confirmed by Ramos and he also said they were meant “for mobilization.”
In the case of Cobra, the company offers a combined fee between labor and the equipment that it will bring to the Island in order to carry out its work. Ramos assured the company was paid $11 million as an early payment.
The Cobra contract has a duration of three months and, during that period, the company expects that some 250 workers, including electric workers, will come to the Island. Each of these workers means a daily fee of $4,000, which would be equivalent to $1 million per day.
In addition to that fee, Cobra will charge $2,000 for each security officer and $2,500 for each of its officers in logistics or supervisory positions.
To provide housing for its workers, Cobra told PREPA would establish a facility described as a “camp” in order to house 550 people. That facility will cost PREPA $18.6 million.
In total, the Cobra contract is for $187.5 million. But Ramos said they paid $11 million in advance payment.
The agreement states that if Cobra had to pay taxes in Puerto Rico exceeding 8.5%, that amount would be added to the payment of the contract by PREPA.
Both Whitefish and Cobra contracts state that Federal Emergency Management Agency (FEMA) funds will be used and that each bill will have to be paid within three days once it is certified.
According to the Whitefish Energy contract, a firm that only had two employees when it signed the agreement with PREPA, the works of an electric worker will be billed to PREPA at a rate of $227.88 per hour. If it is an electric worker subcontracted by Whitefish, the pay for that increases by approximately 22% per hour, to $319.04. The figures correspond to what the company will bill to PREPA and not necessarily that the worker will get that number.
In addition, workers hired by Whitefish will receive housing, as well as food allowance that is four times more than what is paid to PREPA’s workers for food, when they are entitled to receive that benefit.
The daily allowance of a Whitefish employee will be of around $79.82, and, besides, PREPA will be billed for gasoline, diesel, each worker’s stay -which will be paid at a rate of $332.41 per night- and $1,000 for each airplane route ticket.
The daily allowance of a union employee of PREPA, if received in full, that is to say breakfast, lunch and dinner, is around $20.50.
Reaction of UITICE
PREPA’s union workers doubled the extra time they worked until, at the beginning of the year, the governor pushed for a reduction of that benefit to time and a half as part of their labor reform in the private and public sectors.
“That is an assault on our own house,” stated Héctor Reyes, president of the Union of Industrial and Electrical Construction Workers (UITICE, Spanish acronym), who was surprised at the terms of the contracts.
In PREPA, UITICE workers are responsible for the construction and repair of the transmission networks, through the now known transfers of helicopter to tower that the contractor Whitefish has published on social media to account for the work done in Puerto Rico. The staff of the Electrical Industry and Irrigation Workers Union (UTIER, Spanish acronym) tends to work more closely with the distribution lines, which are the infrastructures connected to shops or homes.
According to Reyes, on average, electric workers who do one of the most risky functions in repairing and maintaining power grids, get about $21 per hour.
This being so, on average, a PREPA electric worker would have to work almost 11 hours to earn what Whitefish would bill for an hour work from his employee.
“Someone is going to have to pay for that contract with his head,” Reyes said, noting that promises to reconnect the electrical system by the end of the year are unrealistic. To a large extent, that is because materials are still scarce. This fact was also noticed by the U.S. Army Corps of Engineers (USACE).
“At the distribution level, we have material for the next 15 days or more. At the sub transmission level, we have no material. At the transmission level, we have material for the next 15 days onwards,” explained Ramos.
He acknowledged that the inventory they have has been done “manually.”
According to Reyes, Puerto Rico now pays the price of dismantling maintenance and construction operations inside PREPA.
On the record
09.01.2017 Six days before Hurricane Irma left the Island without power, PREPA assures that its system would withstand the scourge of a cyclone.
09.18.2017 Government says to have agreements to bring personnel to help restore the power grid after Hurricane Maria.
09.23.2017 Governor says that they have received energy aid offers from Canada, Dominican Republic and Spain, but this support does not materialize.
10.06.2017 The US Army Corps of Engineers, which assists PREPA, claims that it can repair, but not renew the system as the government wants.
10.11.2017 PREPA admits that it only has $500 million to deal with the crisis. It was made public that Whitefish Energy Holdings has been contracted for $300 million. It was alleged that this company was the only one willing to work fast in Puerto Rico.
10.12.2017 PREPA informs that the assistance of the American Public Power Association (APPA) was not received because the process could not be completed due to a communications problem. Before that, the Authority said that it did not have money to pay APPA. However, APPA assures that it was not contacted by PREPA.
10.14.2017 Governor states that by mid-December, 95% of Puerto Rico should have power. Later, the Corps of Engineers says that at most, 50% of customers will have electricity by January.
10.17.2017. PREPA announces the hiring of General Electric for the repair in six months of the Palo Seco power station so that it can be brought into opperation. Later, an evaluation of the College of Engineers estimated that the plant can be repaired in 21 days.