February 26, 2019 Read More →

IEEFA Puerto Rico – PREPA privatization plan overlooks unionized workers as best asset

Caribbean Business

Puerto Rico’s Senate and House of Representatives are finalizing an energy policy bill that amends the existing privatization plan for the Puerto Rico Electric Power Authority (PREPA). One of the remaining issues is whether to require future private utility owners to honor existing PREPA collective bargaining agreements with labor unions. The legislature should protect these agreements.

According to PREPA’s Certified Financial Plan in FY 2020, labor expenses are projected to be $281 million (8% of total expenses). These expenses cover salaries, benefits and pensions. Although this item is the smallest part of PREPA’s budget, it has the greatest consequence for Puerto Rico’s residents. PREPA’s workforce supports approximately 6,000 households, and the utility is a major source of jobs on the island. Fuel, subsidies, contracts and maintenance all cost more than labor. If some level of legacy debt payment were to be included, the percentage of dollars required for employees would drop even further.

Labor expenses are not and never have been PREPA’s main problem. About half of PREPA’s $3.4 billion in annual expenses goes off island to pay for oil, gas and coal. Historically, a significant amount of ratepayer dollars went also to investors, most of whom do not live in Puerto Rico. PREPA’s intention is to save $500 million in fuel costs by using natural gas and renewable energy. The agency must also lower its annual debt payments by hundreds of millions of dollars if it is to survive financially.

PREPA’s fiscal plan contains a number of statements that suggest that workforce rules, medical benefits and pension costs are at the root of PREPA’s financial problems. However, there are currently no publicly released studies or analyses that offer evidence for this problem or specific solutions. Making unsubstantiated complaints with unspecified solutions does not balance budgets. It does, however, cause division and frustration at a time when stakeholders must pull together.

INDEED, THE FISCAL PLAN POINTS TO A DIFFERENT LABOR PROBLEM: THE DIFFICULTY OF ATTRACTING AND RETAINING SKILLED LABOR. News articles have highlighted the exodus of skilled electrical workers from the island for better-paying jobs on the mainland. Workforce shortages add to the utility’s risk and require the hiring of high-priced, short-term consultants who have historically overcharged and underperformed.

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