May 9, 2018 Read More →

‘How Puerto Rico’s New Grid Could Go Wrong’

E&E News:

The territory’s power company, the Puerto Rico Electric Power Authority (PREPA), is about to be privatized after 70 years as the island’s sole power provider.

What worries Román is that the commonwealth’s government is approaching the massive undertaking in haste and with few safeguards in place, which it has done before, sometimes with disastrous results.

That’s because the world has never seen circumstances like Puerto Rico’s.

There have been bankruptcies. There has been upheaval in its regulatory regime. There have been technology transformations. There have been natural catastrophes. But there’s never been a case where all of these, plus privatization, have happened at the same time.

In March, Puerto Rico Gov. Ricardo Rosselló made an announcement. His government would do what government often does when public infrastructure is beyond repair: cede control of PREPA and invite private dollars to rebuild it.

PREPA’s monopoly would end, the generation plants would be sold off, and the transmission and distribution network would be operated on a long-term concession of up to 25 years.

The Legislature took up a bill to enable it called the “Puerto Rico Electrical System Transformation Act,” which is undergoing hearings.

“We are very optimistic that this process will result in us being able to transform the energy system in Puerto Rico,” said Carlos Mercader, head of the Puerto Rico Federal Affairs Administration, which represents the territorial government to Washington, D.C.

Others aren’t so sure.

“The bill establishes a mechanism to sell PREPA’s assets via politically driven contracts — rich in fees for lawyers, accountants, consultants and advisors,” wrote the authors of a report by the Institute for Energy Economics and Financial Analysis (IEEFA).

The Legislature’s blueprint doesn’t address the basic problems that drove PREPA into a ditch, including political meddling, IEEFA wrote. “There’s no coherent plan toward moving toward new renewables or retiring plants to deal with declining demand,” one of the report’s authors, Cathy Kunkel, said in an interview.

Others have pointed to Puerto Rico’s last privatization of a key utility as an example of what can go wrong.

In the early 1990s, the island’s water agency, the Puerto Rico Aqueduct and Sewer Authority (PRASA), was in the same sort of shape PREPA is in now: saddled with debt and decrepit, unable to meet customers’ needs.

Privatization of PRASA was set in motion by Gov. Pedro Rosselló, the father of the current governor. A study from the University of Iowa explains what happened. In its haste to close the deal, Puerto Rico sought few bids and wrote contracts poorly. Cost overruns ensued, along with conflicts that led to master contracts being canceled not just once, but twice.

How Puerto Rico’s new grid could go wrong

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