September 14, 2018 Read More →

IEEFA update: Rampant political hiring at PREPA only makes matters worse

Too many ‘empleados de confianza’ at the Puerto Rico Electric Power Authority

The Kobre & Kim report on Puerto Rico’s debt crisis shines a light on the corrosive impact of political hiring at various governmental agencies on the island, including at its public electric utility.

By subsuming competent management to the rough and tumble of political interference in government decision-making and operations, Puerto Rico’s leaders have created the worst of all worlds. A political class consumed by its own self-interests has relegated keeping the lights on at the Puerto Rico Electric Power Authority (PREPA) to the dustbin of afterthought.

This is to say nothing of the government’s neglect of housing, education, healthcare, and rebuilding the economy. As such, elected officials have become weak partners for investors who would like to take a stake in Puerto Rico.

The institutional waste of taxpayer dollars ties directly back to inappropriate hiring practices that are writ large at PREPA, as Kobre & Kim notes in its finding “that politics directly impacted rates in a way that kept them simultaneously high, and yet, still insufficient to cover operational expenses and capital improvement projects.”

The report outlines how governors of both political parties have used PREPA as a tool for political gain.

The governor appoints the board of directors and effectively controls hiring and firing of the executive director.

PREPA has a cadre of  150-300 “empleados de confianza,” or political appointees, on its payroll, according to Kobre & Kim, although its report suggests there are many more and that they are typically holding jobs beyond their competencies. This problem is cloaked by the common practice of moving such appointees into protected career positions that prevent them for all practical purposes from being fired by incoming administrations (although ‘around 200’ are transferred, as Kobre & Kim notes, every time a new governor takes office, according to research that goes back to 2016).

Questions abound. Do these employees only perform political tasks at the direction of the governor’s office? Is their real job to provide campaign services, for instance, raising money and performing functions more akin to political party staff work? Is the work of the political employee solely devoted to channeling agency resources such as information, contracts and jobs to favored clients of the governor or political party?

Or, are they performing valid political functions for the agency? Are they representatives of the agency to outside interests and organizations like the legislature, business and community organizations? Do they sit on internal committees to coordinate the governor’s policy vision within the agency and across the government? Are they advocates for PREPA in the political process that sets the governor’s policy and budget priorities?

Kobre & Kim’s inquiry does not outline how political appointees get their jobs, who they report to, how compensation is set and what special treatment with regard to pension and health benefits they receive.

THE SHEER MAGNITUDE OF POLITICALLY-DRIVEN HIRING AT PREPA has of course hurt the agency’s ability to manage its electrical system, and this remains an incompletely told story even with the Kobre & Kim inquiry.

PREPA’s push for initiatives that would make the island dependent on imported natural gas for electricity—rather that investing seriously in its abundant solar resources—is a good example of political interference at the expenses of PREPA ratepayers.

The Puerto Rico Energy Commission, which conducted the first-ever public integrated resource planning process for PREPA starting in 2015 and marked the first real proposal that the agency meet industry standards, found no economic or sound energy planning rationale for the proposed Aguirre Offshore Gas Port, for instance.

The commission found rather that the investment scenario that would best serve Puerto Rico would involve first increasing its renewable energy assets and then moving forward with other forms of generation, perhaps natural gas. The commission was harshly critical of PREPA’s management and concluded that allowing it to charge customers higher rates without first implementing reforms would mean squandering ratepayer dollars.

Additionally, given PREPA’s well-documented history of contracting scandals over the past decade or so, it is difficult to imagine how any of the proposed natural gas infrastructure projects can be completed without significant cost overruns.

A professional energy planning team is needed to drive operations and to integrate ongoing policy and political changes toward establishing a reliable, resilient and affordable system. Absent that, political needs come off as arbitrary moves motivated by narrow considerations along an unpredictable timeline dictated by dubious ethics. It’s a process that to say the least is detrimental to what’s needed to restore investor and consumer confidence.

Puerto Rico’s government to this day continues to prefer political appointees for positions where professional staff with specialized skills are vastly preferable and badly needed. That said, reform isn’t out of the question. After Gov. Ricardo Rosselló’s budget proposal for the Puerto Rico Energy Commission designated two-thirds of staff salaries for “empleados de confianza” positions, the Federal Oversight and Management Board for Puerto Rico made the right decision in rejecting the budget, which would have subjected the Energy Commission to the same political pressures that have all but destroyed PREPA.

The failure to instill a robust professional ethic at PREPA, an agency that provides a vital public service, has cost Puerto Rico not just untold amounts of money but many lives as well.  It is not a pattern that can be allowed to persist.

Tom Sanzillo is IEEFA’s director of finance.

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