Federal court rejects plan to install emergency manager to oversee Puerto Rico’s bankrupt power utility

Federal court rejects plan to install emergency manager to oversee Puerto Rico’s bankrupt power utility

A U.S. federal judge on Monday rejected a request from Puerto Rico’s independent oversight board to appoint an emergency manager to oversee the island’s bankrupt power utility, which has struggled to turn the lights back on after Hurricane Maria.

The oversight board last month proposed that Noel Zamot, a retired Air Force colonel, should serve as emergency manager of the Puerto Rico Electric Power Authority, the power utility known as PREPA. But Puerto Rico Gov. Ricardo Rossello objected to the appointment, which he said was an intrusion on the island’s sovereignty and an act of overreach by the oversight board.

U.S. District Judge Laura Taylor Swain in New York on Monday agreed with Rossello, and rejected the appointment of Zamot, Reuters first reported.

Puerto Rico’s federal oversight board was created by Congress during the Obama administration to oversee the restructuring process of the island’s $73 billion debt load.

It rejected a proposed settlement on PREPA’s $9 billion in debt, and the state-run power monopoly filed for bankruptcy in July.

The board turned to Zamot, a Puerto Rico native who already serves on the oversight board, after PREPA was heavily criticized for engaging in a $300 million, no-bid contract with a small Montana firm Whitefish Energy.

PREPA canceled the contract on Oct. 29 after criticism mounted over the terms of the deal and qualifications of the company, which is based in the same hometown as Interior Department Secretary Ryan Zinke.

At least four congressional committees are investigating the contract. The FBI and the Office of Inspector General for the Department of Homeland Security are also separately investigating the contract Whitefish contract.

Lawmakers from both parties have said they hoped Zamot’s appointment as emergency manager would hasten reforms at PREPA. The board filed an “urgent motion” Oct. 26 with the U.S. District Court of Puerto Rico to permit his appointment.

Zamot, in testimony before the House Natural Resources Committee last week, said recovering Puerto Rico’s energy infrastructure requires a “wholesale reimagining of the grid” that includes a mix of federal and private funding.

He said the oversight board had planned to announce a “transformation plan” for the grid by mid-December.

Rossello and PREPA Executive Director Ricardo Ramos are scheduled on Tuesday morning to testify before the Senate Energy and Natural Resources Committee.

Rossello will also appear before House Natural Resources Committee later Tuesday. Ahead of that hearing, Rep. Rob Bishop, R-Utah, the committee’s chairman, said PREPA had fulfilled his request to submit to congressional investigators more than 2,000 pages of documents from PREPA related to its handling of the Whitefish contract.

PREPA approved higher rates of pay and costs than normal for the Whitefish contract, according to a summary of those documents released by the committee on Monday night.

Instead of activating “mutual aid” arrangements with other utilities, PREPA decided to hire Whitefish, even though other mutual aid agreements in Florida, Texas, and many other states have helped U.S. utilities rebuild following natural disasters.

PREPA and Whitefish first agreed to a contract on Sept. 26. The two parties agreed on an expanded contract on Oct. 17.

Among other things, the committee said the standard hourly labor rates in both contracts were “exorbitant.” It noted that PREPA and Whitefish encountered “major shipping problems,” prompting delays that forced the power utility to approve charter jets at higher costs to transport cargo.

Ramos has said he agreed to the Whitefish contract because it did not demand money up front, an important consideration considering the utility’s dire financial situation.

Bishop said in a statement that the documents show PREPA has a “competence deficit” that necessitates federal oversight over contracts.

“A legacy of dysfunction (at PREPA) has created a competence deficit that threatens the island’s ability to improve conditions for its citizens. Confidence in the utility’s ability to manage contracts and time-sensitive disaster related infrastructure work is long gone,” Bishop said.

Ahead of Tuesday’s hearings, Whitefish CEO Andy Techmanski defended his company’s work in an op-ed for the Morning Consult.

He said Whitefish has restored power to more than 500,000 people in Puerto Rico, completed more than 200 miles of transmission and distribution lines, and mobilized more than 500 power line workers and 600 pieces of equipment.

“While our contract has been canceled, our team takes great pride in the work we have accomplished,” Techmanski said. “Whitefish Energy scaled up quickly to meet the challenge and bring power back to portions of Puerto Rico. If we’ve learned one thing, it’s that it will take considerable time and resources to restore power and other essential services to the island and its citizens.