Fiscal board tells energy services firm to let review process play out in $268 million payment
By The Star Staff
The Financial Oversight and Management Board has told Mammoth Energy to wait for the outcome of a review process in a $268 million payment dispute with the Puerto Rico Electric Power Authority (PREPA).
The money is owed to Cobra Acquisitions, a subsidiary of Mammoth. U.S. District Court Judge Laura Taylor Swain said in August that indefinite delays in a criminal trial on fraud allegations against Cobra’s president Keith Ellison are not sufficient grounds to lift the stay on its dispute with PREPA.
PREPA paid Cobra more than $1 billion for repairs it performed on the power grid following Hurricanes Irma and Maria in 2017. But PREPA stopped making payments to the contractor after allegations that Ellison secured the contracts by delivering kickbacks to Federal Emergency Management Agency (FEMA) officials. The court initially placed the proceedings on hold in 2019, in part due to the approach of Ellison’s anticipated trial, the outcome of which could result in the invalidation of some or all of Cobra’s $268 million in outstanding claims against PREPA, according to the utility. In a letter to Arty Straehla, CEO and director of Mammoth Energy, the Oversight Board said it was writing in response to a Dec. 15, 2021 letter and renewed request for payment.
“As an initial matter, we would like to clarify for you the Oversight Board’s role with respect to PREPA’s expenditures,” the letter from Oversight Board Executive Director Natalie Jaresko read. “The Oversight Board’s primary role in this dispute is to represent PREPA in matters before the Title III court, including Cobra’s motion for allowance of an administrative expense claim. The Oversight Board generally has the authority to approve and establish PREPA’s annual budgets, but it does not control accounts payable.”
For the oversight board to support the allowance of an administrative claim, she said, it will need to know all the facts that are being discussed between the parties in the review process and make sure that Cobra’s charges are not subject to valid contract defenses or clawback, including as a result of the pending criminal proceedings against Cobra’s former president.
“The Oversight Board’s main concern is to ensure PREPA’s financial stability and avoid a liquidity crisis. Cobra’s motion is currently held in abeyance while Cobra and PREPA work to resolve any remaining questions regarding Cobra’s remaining unpaid invoices under its second contract with PREPA,” Jaresko noted. “To that end, PREPA has informed the Oversight Board that for the past several months, representatives of PREPA and Cobra have held bi-weekly meetings to review remaining discrepancies regarding Cobra’s invoices. We understand that these meetings have generally focused on categories of invoices which PREPA had not approved for submission to FEMA.”
Those meetings have addressed FEMA’s requests for additional information from PREPA with respect to Cobra’s work, Jaresko said. PREPA has informed the oversight board that the process has been productive and collaborative, and significant progress has been made. The review process is continuing and it is hoped that it will be completed shortly, she said.
“Moreover, based on reporting we receive from PREPA, PREPA does not have funds on hand to pay Cobra through previous allocations from FEMA,” Jaresko added.
“We are not aware of any material FEMA funds in PREPA’s possession or that it has discretion to allocate to payment to Cobra.”
PREPA, working collaboratively with Cobra, has submitted its appeal of FEMA’s rejection of $46 million in charges from the first contract to the Central Office for Recovery, Reconstruction and Resilience (COR3), and COR3 has submitted it to FEMA. PREPA’s FEMA counsel expects FEMA’s decision on the appeal in the near future. PREPA will submit charges under the second contract for FEMA approval when the parties’ review process is complete, Jaresko said.
“We believe the Review Process now taking place and pending requests for FEMA funding weigh in favor of paying remaining amounts duly owed to Cobra when those amounts are settled after the completion of the Review Process, from all available funding provided by FEMA as opposed to PREPA’s cash on hand, which is needed for operations and maintenance, especially in light of the current challenges you have noted,” she said. “The Oversight Board and its advisors will continue to monitor these processes, which at this time we believe are the most expedient path to resolution.”