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IEEFA report: Privatizing the Puerto Rico Electric Power Authority is not the answer

January 31, 2019

Puerto Rico’s electricity consumers will pay unreasonably high rates if plans to privatize the Puerto Rico Electric Power Authority (PREPA) move forward. The IEEFA analysis, “PREPA Privatization Will Hurt Consumers and Slow Economic Recovery”, recommends reforming the public model as more reliable, affordable, and sustainable both financially and environmentally.

If the proposed privatization model is implemented, IEEFA estimates prices will rise to 27 cents/kWh by 2024.  That amount is 18% higher than current rates and 35% higher than the 20 cents/kWh goal envisioned in PREPA’s financial plan. The system would risk further price increases tied to volatility in natural gas markets.

“Privatization would represent a step backwards for affordable electricity, bring about an economically uncompetitive system and lose a prime opportunity to maximize renewable energy,” said IEEFA energy analyst Cathy Kunkel.

The risks associated with investing in Puerto Rico’s unstable economy and PREPA’s legacy debts will also weigh heavily on future electricity prices under a privatized system. In addition, the IEEFA report zeroes in on a lack of accountability and oversight in the current system that represents a virtual “corruption tax” based on recent history.

As examples, the report cites: Mismanaging the annual $1-2 billion fuel procurement budget, the inflated Whitefish contract (post Hurricane Maria), excessive political hiring, misuse of proceeds from prior bond issuances, weak regulatory oversight, failure to produce mandated audits on a timely basis and the lack of controls over financial, legal and accounting advisory costs.

“The Puerto Rican government is preparing to enter into billions of dollars of contracts through a non-transparent, politically-driven privatization process,” said report co-author Tom Sanzillo, IEEFA’s director of finance. “This is a continuation of the status quo, not a transformation.”

The report also highlights that the privatization model is likely to lock Puerto Rico into long-term contracts for natural gas and to crowd out investments in renewable energy and distributed energy, despite the Puerto Rican government’s policy goal of achieving 100% renewable energy by 2050.

“The current privatization model will make it all but impossible for Puerto Rico to achieve its goals on affordability, resiliency and sustainability. There needs to be a rethink of this policy,” said Kunkel.

Full report here: PREPA Privatization Will Hurt Consumers and Slow Economic Recovery

Spanish version: La privatización de AEE perjudicará los consumidores y frenará la recuperación económica

Media Contacts:

For more information, contact: Vivienne Heston, Strategic Communications Director, [email protected], tel: (914) 439-8921

About IEEFA:

The Institute for Energy Economics and Financial Analysis (IEEFA) conducts global research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.

Cathy Kunkel

Cathy Kunkel is an Energy Consultant at IEEFA.

Cathy also served as an IEEFA Energy Finance Analyst for 7 years, researching Appalachian natural gas pipelines and drilling; electric utility mergers, rates and resource planning; energy efficiency; and Puerto Rico’s electrical system. She has degrees in physics from Princeton and Cambridge.

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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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