September 22, 2017 Read More →

Hurricane Leaves Puerto Rico With a Chance to Hit Reset

Washington Examiner:

Puerto Rico has gone dark after taking a direct hit from Hurricane Maria, but the widespread electricity outages, predicted to last months, could encourage reforms to the island’s bankrupt power utility and fragile electric grid.

“This is like wiping the slate clean for Puerto Rico, which is good because all these problems the island faces are so intractable,” said Cate Long, founder of the Puerto Rico Clearinghouse, an independent research firm focused on the island’s massive debts.

“It’s almost like the wind came in and blew the nonsense away,” Long told the Washington Examiner. “In the long run, this could be very good for Puerto Rico.”

As Puerto Rico moves from the assessment to recovery stage, some experts and lawmakers are looking deeper at how to improve the island’s energy infrastructure, which was already damaged by Hurricane Irma two weeks ago.

Puerto Rico faced deep-rooted power problems even before the hurricanes. PREPA, the sole power provider to the island, filed for bankruptcy in July.

PREPA’s power plants are 44 years old on average, Reuters reported, compared to the industry-wide average of 18 years.

Puerto Rico derives most of its power from Venezuelan oil, and PREPA relied on selling bonds to pay for the imported oil it burned at its aging power plants that need billions of dollars worth of repairs.

Sensitive to price shocks in the oil market, PREPA charges the island’s residents high rates, more than any U.S. state but Hawaii, according to the Energy Information Administration.

The power company is also grappling with a manpower shortage. PREPA has lost 30 percent of its employees since 2012 as locals migrate to the mainland to escape the island’s financial woes and stagnant economy.

“The entire operation was failing both organizationally, and in the energy generation system and transmission and distribution systems,” said Tom Sanzillo, the director of finance at the Institute for Energy Economics and Financial Analysis, told the Washington Examiner. “They were vulnerable. So the surprise to me is the electricity is on at all in Puerto Rico, with the storm or no storm. It is that serious and has been that serious.”

Puerto Rico has tried to resolve its problems. The government entered a process similar to bankruptcy protection in May to restructure its more than $70 billion debt load.

But Puerto Rico’s federal oversight board, created by Congress to oversee the restructuring process, rejected a proposed settlement on PREPA’s $9 billion in debt, and the power monopoly soon filed for bankruptcy. The Republican members of the board wanted to transform PREPA into a private utility.

The board, known as PROMESA, is currently negotiating a new plan. Until that happens, the Trump administration and Congress will certainly provide some immediate relief.

Others say federally-provided recovery funding should be paired with structural change.

For example, Long and Sanzillo say PREPA should work toward depending less on imported oil and transition toward U.S.-fracked shale gas from the mainland, and renewable energy sources, mostly solar.

“PREPA does not have an organized solar program,” Sanzillo said. “We would encourage that as part of reforms.”

More: Puerto Rico’s crippled, bankrupt power utility under pressure to rebuild infrastructure

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