Mexico’s CFE suspects former official opened US company as ‘conduit for improper payments’

The Whitewater Midstream case is advancing in the US, where the Mexican state electricity utility, the Federal Electricity Commission (CFE), has made new requests for evidence from two companies — JG Energy and Arbor Glen — related to the case. Federal court documents in Texas, obtained by EL PAÍS, reveal findings from a private investigator working on behalf of the CFE in the case against Guillermo Turrent and Javier Gutiérrez, ex-directors from the Enrique Peña Nieto administration accused of awarding multimillion dollar contracts to Whitewater Midstream in violation of the Mexican constitution.

To date, the CFE has opened three cases in the US in hopes that federal courts will order the companies in question to disclose information, including correspondence and transactions, that will assist the criminal investigations open against Turrent and Gutiérrez in Mexico. CFE expects that the information will confirm suspicions that the ex-directors conducted a false bidding process, misled the CFE Board of Directors to award costly and unnecessary contracts, and hid their long-standing personal relationships with Whitewater executives. The value of the contracts in question are estimated to be worth hundreds of millions of dollars.

In Mexico, Turrent and Gutiérrez are facing open criminal processes before the Special Anti-Corruption Prosecutor of the Attorney General’s Office (FGR). Gutiérrez is scheduled to appear in public hearings about the Whitewater case on August 17 and findings by a private investigator in the US suggest that he played a central role in the negotiations between the CFE and Whitewater.

Three months before becoming the deputy director of Modernization at the CFE in 2014, Gutiérrez founded a company in Houston called JG Energy Consulting, according to documents filed in the US federal case open in Houston. The address of the company is the same one as the home address of one of the Whitewater founders, Matthew Calhoun. According to public registration documentation, the address is the same one that Turrent and Gutiérrez used in 2012 to register a company called Mexico Energy Advisors, which later closed.

“CFE International seeks to use the subpoenas requested in this application to investigate whether JG Energy served as a conduit for improper payments to Gutiérrez,” reads the documentation the CFE subsidiary filed at the US federal court in Texas. Evidence presented includes tax statements in the US made by Gutiérrez that reveal JG Energy received more than $250,000 in income between 2015 and 2016, while he worked at the Mexican state utility.

“While Gutiérrez was working at the CFE and negotiating the Waha Connector Agreements and the precursors to those agreements, he received substantial income through JG Energy. This raises the possibility that JG Energy may have played a role as a conduit for payments to Gutiérrez associated with the improper award of the Waha Connector Agreements to Whitewater Midstream,” the court filing reads.

The Waha Connector pipeline was the first project negotiated between Whitewater Midstream and CFE International. The Precedent Agreement between the two companies for the pipeline was made on August 12, 2016, days before Gutiérrez requested bids for the same project from two of the biggest companies in the global energy industry, Energy Transfer Partners and Kinder Morgan. The private investigator that offered testimony in the US court says that Gutiérrez created “a misleading impression as to the competitiveness of the bid process,” given that he sent request for bids only after the contract had been awarded to Whitewater. The private investigator gave testimony after reviewing and having access to internal emails, public documents and private sources.

“The Waha Connecter pipeline appears to serve no apparent benefit to CFE or CFEi,” the private investigator said in his testimony.

An investigation by EL PAÍS published last year exposed links between Turrent, ex-director of the subsidiary CFE International, and two executives of Whitewater, Matthew Calhoun and Arlin Travis. The three worked together in 2000 and 2001 in the San Diego offices of Royal Dutch Shell. Their relationship and behavior was documented in a case of alleged electricity price inflation filed at the Federal Energy Regulatory Commission, FERC, which remains open.

A second contract signed between CFE International commits the state electricity company to buy a massive volume of natural gas from Whitewater, a quantity equal to 15 to 20 percent of Mexico’s daily import demand, for 15 years. In documents submitted to the US federal court, CFE claims to have evidence that Turrent and Gutiérrez made “misleading representations about projected Mexican natural gas demand” and “appear to have steered the procurement process” to ensure that the contract would be awarded to Whitewater, despite having submitted one of the more expensive bids for the project. The contract required approval from the boards of both CFE and CFE International.

“The gas Whitewater Midstream supplies under the South Texas Supply Agreement is often unnecessary excess gas that CFE International must resell. Gutiérrez and Turrent justified this excessive contract to the boards of directors of CFE International and CFE by making misleading representations about projected Mexican natural gas demand,” the court documents read. CFE claims that the contracts awarded to Whitewater included terms that were more expensive than offers made by other companies with more experience in the industry.

Last month, the Mexican Energy Ministry sent a legal document to Cenagas, the National Natural Gas Control Center, instructing the agency to require private companies operating in the country to buy natural gas solely from state companies CFE or Pemex. The document explained that, as a result of the contracts signed during the administration of Peña Nieto, the country is buying far more gas than it can store, transport or convert into electricity. This excess of natural gas, which CFE is obligated to purchase, costs the country an equivalent of 10 billion pesos, or around $500 million, per year, according to the document.

In April, EL PAÍS reported that the CFE opened a federal case in the US to request evidence from the company Antaeus Group, owned by Whitewater founder Calhoun. Since then, the CFE has opened two similar cases against JG Energy and Arbor Glen, owned by Whitewater executive Arlin Travis. In documents submitted to a US federal court in Austin, the CFE alleges that Travis worked simultaneously as a consultant for CFE International and Whitewater Midstream and coordinated contractual negotiations between the two parties.

“Evidence indicates that Travis, in his Arbor Glen role, drafted both CFE International’s request for offers for the Waha Supply Agreement and Whitewater Midstream’s final, and ultimately winning bid,” the court documents reads. “Through Arbor Glen, Travis simultaneously worked on both sides of the CFE International-Whitewater relationship.”

Internal emails submitted as evidence in the case reveal that, according to the terms of the consulting services agreement signed in 2016, the CFE agreed to pay Travis a monthly retainer of $6,000 for the first 20 hours of services provided each month. Additionally, according to the same contract, Travis would receive a “success fee” for no “less than $400,000 or more than $500,000″ for any completed deal, a rate he negotiated directly with Turrent.