Disaster Response

House hearing reviews Puerto Rico recovery, Financial Oversight Board

The House Natural Resources Committee on Nov. 7 held a hearing related to Puerto Rico’s recovery efforts in the wake of Hurricane Maria and the role of the Financial Oversight and Management Board for Puerto Rico.

Witnesses who appeared at the committee hearing were Natalie Jaresko, executive director of the Financial Oversight and Management Board for Puerto Rico, Noel Zamot, revitalization coordinator for the Financial Oversight and Management Board, and Angel Pérez Otero, the mayor of Guaynabo, Puerto Rico.

Ricardo Ramos, executive director of PREPA, and Carmen Yulín Cruz Soto, the mayor of San Juan, Puerto Rico, were scheduled to testify at the hearing, but were unable to attend the hearing.

Members of Natural Resources committee sought details on contract

In late October, Rep. Rob Bishop, R-Utah, chairman of the House Committee on Natural Resources and Rep. Bruce Westerman, R-Ark., sent a letter to PREPA’s Ramos asking for additional details about the Whitefish contract. Westerman is chairman of the Natural Resources Committee’s Subcommittee on Oversight and Investigations.

PREPA recently cancelled a $300 million contract that the utility had entered into with Montana-based Whitefish Energy Holdings.

At the Nov. 7 hearing, Rep. Raul Grijalva, D-Ariz., said that while investigating contracts like the one with Whitefish is important, the committee should focus on the immediate humanitarian response.

Bishop said he was “very disappointed” that Ramos cancelled his planned testimony. The lawmaker said that he appreciated that the financial oversight board “is now looking at contract review policies,” adding that “we do not want another situation like Whitefish to happen again.”  

The oversight board was set up in 2016 through the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA.

Bishop noted that the Governors of Puerto Rico and the U.S. Virgin Islands are scheduled to testify before the committee soon, and said he hopes PREPA will testify then.

Jaresko details contract review policy

At the hearing, Jaresko explained the history of the oversight board, which was established by Congress to support the fiscal and economic turnaround of Puerto Rico, as well as restructure the sizable debt obligations that the Commonwealth and a number of additional governmental entities in Puerto Rico have incurred over the years.

She said the board has implemented a contract review policy to ensure transparency throughout the entire government. The policy applies to all contracts in which the commonwealth or any covered instrumentality is a counterparty, including those with the federal government, state governments, private parties, and nonprofit organizations.

The policy provides that effective Nov. 6, 2017, all contracts or series of related contracts, inclusive of any amendments or modifications, with an aggregate expected value of $10 million or more must be submitted to the board for its approval before execution.

In addition, the board retains the authority to adopt other methods, such as random sampling of contracts below the $10 million threshold, to assure that they promote market competition and are not inconsistent with the approved fiscal plan.

She also reported that the board appointed Zamat, its current revitalization coordinator, as the Chief Transformation Officer of PREPA, in accordance with its authority under Title III of PROMESA.

The Title III Court will consider the Board’s CTO appointment on Nov. 13. She explained that naming a CTO is a common procedure in bankruptcy proceedings, but this authority is being opposed by some parties in the Title III proceeding.

Zamot focused on restoring power as soon as possible

For his part, Zamot explained that he was testifying in anticipation of becoming confirmed by the Title III Court as PREPA’s CTO.

He said his objectives are to restore power as quickly as possible, develop and implement the transformation plan for PREPA, and ensure PREPA exits PROMESA’s Title III via the implementation of a plan of adjustment as a system that can provide stable, reliable, and cost-effective power to the island.

With respect to restoration, Zamot said that PREPA “can do more work” with the American Public Power Association and the Edison Electric Institute.

The Association and EEI on Oct. 31 received a letter from Ramos seeking assistance in bringing resources to Puerto Rico to support power restoration on the island.

In response, Sue Kelly, president and CEO of the Association, and Tom Kuhn, president of EEI, sent a letter to Ramos on Oct. 31 saying that the utility groups “look forward to working with you and with our government partners and their contractors to bring crews, equipment, material, and technical experts to the island to restore power for the people of Puerto Rico.”

Zamot said that one of the five key direct reports he will have on staff will be a Chief Operations Officer (COO) to oversee day-to-day utility operations. Zamot said this person will initially be someone from within PREPA, but he is looking for an industry executive to fill this role eventually.

Zamot has already identified executives, from public and private utilities, to serve on a Board of Advisors.

He also expressed appreciation that Congress created a Community Disaster Loan program in the supplemental appropriations bill and made PREPA an eligible borrower.

Q&A

During the question and answer portion of the hearing, there was particular attention paid to how much it would cost and how long it would take to rebuild the grid and restore power, for which the witnesses did not have a firm answer.

Zamot said that the U.S. Army Corps of Engineers (USACE), the Federal Emergency Management Agency, and Fluor were doing a damage assessment and that they expect more information to be available in two weeks. He emphasized the damage to the distribution system was “huge.” The USACE, in coordination with the Huntsville Engineering and Support Center, recently awarded a contract towards the repair of the power grid in Puerto Rico to Texas-based Fluor Corporation.

Meanwhile, Rep. Doug Lamborn, R-Colo., suggested that a narrow exemption from the Jones Act may be needed for Puerto Rico.

Zamot said that any measure Congress could take to lower the cost of fuel shipments would be a positive step.

Rep. Alan Lowenthal, D-Calif., asked if the Jones Act was a problem before the hurricane. Jaresko responded that it did add an additional level of difficulty. She noted though that the ports could not handle the capacity of ships arriving in the aftermath, so the Jones Act was not at fault for the slow pace of response and recovery.

Jaresko and Zamot said that reaffirmation of the oversight board’s authorities would be helpful in response to multiple questions on what the federal government could do to help. Explicit clarification from Congress of the board’s authorities would give private industry “some sort of sense of stability” and discourage litigation. Bishop said he agreed with Jaresko’s assessment of the need for “reaffirmation” of the board’s powers.

Rep. Louie Gohmert, R-Texas, said that Puerto Rico’s governor was against privatizing PREPA and then asked Jaresko for her opinion.

Jaresko responded that “privization is an option,” either the entire system or “bringing in the private sector to compete, bring down costs and raise efficiency.”

Other members seemed to obliquely suggest that privatization would be good, most notably, Rep. Darren Soto, D-Fla., who said there should be a “bidding process for Puerto Rico municipalities to bid for their electricity” instead of there being only one government-run system.

House subcommittee held hearing on post-hurricane response and recovery efforts

The House Energy and Commerce Committee’s Subcommittee on Energy on Nov. 2 held a hearing that examined the energy infrastructure response and recovery efforts in response to the wave of hurricanes that hit Texas, Florida and the Southeastern part of the U.S. mainland, as well as Puerto Rico and the U.S. Virgin Islands.

Among the panelists at the hearing was Julio Rhymer, executive director and CEO of the Virgin Islands Water and Power Authority, who testified about the impacts of Hurricanes Irma and Maria on the U.S. Virgin Islands.