April 4, 2018 Read More →

Commentary: Puerto Rico’s Utility Privatization Lacks Public Transparency


Puerto Rico is nearing a massive sale: none other than the Puerto Rico Electric Power Authority (PREPA), the commonwealth’s sole power provider and most valuable public asset. Much like his father, who privatized several government agencies back in his day, Governor Ricardo Rosselló wants to entrust power generation to the private sector with the goal of creating a more competitive—and ultimately cheaper—energy market in Puerto Rico.

Yet Rossello’s administration, self-proclaimed as the “most transparent in Puerto Rico’s history,” leaves much to be desired in the way of transparency and regulation surrounding the sale of PREPA, also a bankrupt power utility with more than $9 billion in debts and archaic infrastructure. Rossello has not specified the use of sale proceeds, only stating that a portion of those could be used to inject liquidity into Puerto Rico’s insolvent public pension system.

Regardless of the merits or follies of privatization, shunning the Puerto Rico Energy Commission (PREC), appointing a lopsided governing board, and withholding the latest fiscal plan are not the traditional way to go about selling a public corporation.

Conflating regulation with excessive bureaucracy is likely a grave mistake. With a relatively small budget of roughly $6 million, the four-year old PREC is the first entity to ever regulate PREPA’s rates and approve an integrated resource plan in the power utility’s 77-year history. Low costs and expertise arguably put the commission in the best position to judge PREPA’s transformation and ensure a fair transition to a competitive energy market.

Puerto Rico’s private sector, PREPA bond insurers and creditors, US lawmakers, prestigious think tanks, and countless other groups think so too.

To say that PREPA’s governing board provides an added layer of regulation is a one-sided description that doesn’t acknowledge the inherent potential conflicts of interest. The governor gets to appoint seven of the utility’s eight board members, and only three require Senate approval. PREPA’s current board is presided over by Ernesto Sgroi, Rossello’s 2016 campaign treasurer, and includes two cabinet members, among them Christian Sobrino, the governor’s chief economic development adviser, and María Palou, the governor’s infrastructure adviser. All capabilities aside, these members hold undeniably close relationships with Puerto Rico’s top executive.

This is the same board that recently approved the selection of PREPA’s new CEO Walter Higgins III at a base salary of $450,000. The heads of the next two largest US public power utilities, David Wright at the Los Angeles Department of Water and Power (LADWP) and Tom Falcone at the Long Island Power Authority (LIPA), earn $350,000 and $275,000, respectively. LADWP and LIPA are not bankrupt.

What’s more, the board’s sole seat for a publicly-appointed member remains vacant to this day because the Department of Consumer Affairs has yet to conduct elections. In other words, the one member that ratepayers do get to directly elect is absent during PREPA’s most critical juncture.

Then there is the issue of disclosure. The administration decided to publicly release PREPA’s amended fiscal plan immediately after it was submitted to the Financial Oversight and Management Board (FOMB) at the end of January. Nevertheless, a subsequent version submitted on February 12th was concealed for more than a month and finally disclosed on March 23rd.

These inconsistencies only serve to foster skepticism and even spark litigation, as evidenced by PREC’s lawsuit to access the plan. Whether it’s Puerto Rico’s government or the FOMB that asked to keep the plan under wraps, the takeaway is the same: fiscal plans, which impact and are paid for by taxpayers, should be readily available to the public.

PREPA’s privatization is set to be the largest sale of a public asset in Puerto Rico’s history. An event like this deserves only the highest levels of transparency and oversight.

More: Puerto Rico’s PREPA Privatization: A Sale Too Private

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