September 29, 2017 Read More →

IEEFA Update: Puerto Rico Bankruptcy Court Weighs a Motion to Turn Back the Clock on Electricity System Reform in Puerto Rico

A Sudden New Move by the Status Quo to Thwart Development of a More Resilient Grid

Still horrifically crippled by Hurricanes Irma and Maria, Puerto Rico is now facing a fresh indignity: Its long-simmering fiscal crisis is being used in a quiet attempt to weaken sound utility regulation and to stifle the island’s nascent shift to solar energy.

Something resembling a bureaucratic coup is occurring within the context of a larger struggle over the electrification future of the island, which today is reeling from a blackout that shows little indication of near-term recovery.

Some background on the politics of the moment: For the last several years, the Puerto Rico Energy Commission (PREC) has judiciously conducted several proceedings to review the operations, finances and physical management of the Puerto Rico Electric Power Authority.

The commission has issued several stark criticisms of the authority on how it has mismanaged a whole realm of responsibilities: planning, spending, debt management, budgeting, governance and contracting.

A full-frontal attack on those who would question the utility’s long history of mismanagement and failure

The commission has succeeded in slowing development of an ill-conceived natural-gas port. It has pressed for greater investment in solar energy, placed restrictions on rate increases and developed a program of much-needed audits of the power authority. The commission has also required professional budget preparation and reporting, set forth a program of contracting transparency and called for accountability standards for the power authority’s board and staff.

Its work represents a good beginning on a monumental task to reform what before the hurricane was a mismanaged, bankrupt agency and is now a mismanaged, bankrupt agency in operational shambles.

The commission has been thwarted all along by forces that have sought to maintain the power authority’s status quo. The most overt opposition to reform emerged on Sept. 5 as Hurricane Irma approached the island. The power authority and its fiscal agent, the Puerto Rico Fiscal Agency and Financial Advisory Authority (FAFAA), acting under the direction of the Puerto Rico Oversight Board (PROMESA), filed a “notice of removal” in an important case before the federal bankruptcy court adjudicating the power authority’s future. The notice asks the court to effectively dismiss two civil cases brought by the Institute for Competitiveness and Sustainable Economics (ICSE) — a Puerto Rico business think tank — that challenge how the power authority has done business. The “notice to remove” is nothing less than a full-frontal attack on those who would question the utility’s long history of mismanagement and failure.

Such a reaction was to be expected — the agency’s operations have never been reviewed by an outside entity. That said, it is peculiar that the power authority is beyond the reach of independent review.

WHY SUSTAIN A FAILED BUSINESS-AS-USUAL MODEL, ESPECIALLY WHEN IT DEFIES an explicit federal statute: PROMESA is supposed to “support the Energy Commission of Puerto Rico in achievement of its goal of reducing energy costs and ensuring affordable energy rates for consumers and business.”

This past summer, to its credit, the PROMESA board rejected the power authority debt restructuring that would have benefited Wall Street at the expense of the 3.5 million U.S. citizens of Puerto Rico. That decision was encouraging in that it suggested support in Washington for an actual path to recovery for the power authority. It is being contradicted now by the machinations that would allow the power authority to push aside reform.

The power authority, if this strategy succeeds, can stick to its dangerous mindset of centralized electricity generation based on imported natural gas, oil and coal. When the next hurricane comes, the agency will be as ill-prepared as ever.

The wiser path will have been lost, one built on distributed solar generation systems capable of reaping Puerto Rico’s abundant sunshine for a system built around resilience, efficiency and affordability.

 Tom Sanzillo is IEEFA’s director of finance. This column appeared earlier today on The Hill.

 RELATED POSTS:

 IEEFA Update: Hurricane Maria Gives Puerto Rico an Opening to Break From the Past and Build a Modern Electricity Grid

IEEFA Questions PREPA’s ‘Misguided’ Electric Plan for Puerto Rico; Notes High Risks and Costs; Sees Perpetuation of Import Addiction

IEEFA Update: Rejection of PREPA Debt Restructuring That Favored Bondholders Is a ‘Good Day’ for Puerto Rico