While the Puerto Rico Electric Power Authority (PREPA) tweeted yesterday that “the process of recovery will be extensive, but not impossible” the agency has released no estimates on how long it will take to restore the grid.
What is known is that ahead of Hurricane Irma, which preceded Maria by two weeks, official estimates had the grid could for four to six months if were take a direct hit from a high-category hurricane. Irma skirted Puerto Rico, but Maria struck with full force, the strongest hurricane to hit the island in more than 80 years.
The future of Puerto Rico’s electricity system was already the subject of intense debate. It has been well known for years that the system was in a state of serious disrepair—and that was before Maria. An expert report filed in November 2016 by consultants to the Puerto Rico Energy Commission described PREPA as being “in a state of crisis.”
Bondholders would do well now to take their losses and move on.
For three years now, PREPA has been negotiating with its bond holders over the restructuring of nearly $9 billion in debt that the utility is in no position to pay off. A proposed agreement with creditors would have allowed many of them to collect 100 cents on the dollar and others to get back 85 cents on the dollar. The bondholders would have had first claim on the revenues of PREPA, which would have had the effect of both raising rates and starving the system of much-needed capital investment. This deal was rejected in June by the PROMESA fiscal oversight board, which found that it was not economically feasible for ratepayers to shoulder so much of such a huge legacy debt.
Hurricane Maria worsens this calculus. If it was unreasonable to expect the Puerto Rican economy to support bondholders to the tune of 85 percent or more payback on PREPA’s debt, it is even more unreasonable now. The island now faces billions of dollars in electricity-system rebuilding costs, not to mention all the other costs of rebuilding from Hurricane Maria. Puerto Rico simply does not have the money to rebuild and pay $9 billion to major bondholders, who would do well now to take their losses and move on.
IN THE RUINS OF THIS CATASTROPHE LIES A ONCE-IN-A-LIFETIME OPPORTUNITY for Puerto Rico to hit reset and choose a wise course forward— one that is in its own best interest. We’ve published extensive research on two distinct electricity-development paths facing the island. PREPA’s preferred path—before Maria—called for converting the island’s electrical system from one heavily dependent on out-of-date oil-fired power plants to one heavily dependent on imported natural gas. We’ve argued previously—and we argue now—for a more sensible and sustainable path, one that would involve significantly greater investment in Puerto Rica’s abundant natural renewable energy resources (“Opportunity for a New Direction for Puerto Rico’s Electricity System”).
Hurricane Maria underscores, above all, the need for an electrical system with a greater emphasis on resiliency. Greater reliance on microgrids and distributed solar systems (with backup storage) can make the island far less vulnerable to major storms than its current centralized generation model—or any new centralized model being contemplated in the wake of Maria.
Puerto Rico has an opening now to eliminate a debt Puerto Ricans will never be able to pay off and a moment to pause and take up an electricity-system rebuild that would be far more resilient than the one it has.
Cathy Kunkel is an IEEFA energy finance analyst.
IEEFA Testimony to Congressional Subcommittee on PREPA: Debt Restructuring Plan Before Congress Is Not Realistic and Does Not Hold All Players Accountable; Puerto Rico Left Open to More Financial Turmoil
IEEFA Press Release: Questions Around PREPA’s ‘Misguided’ Electric Plan for Puerto Rico; High Risks and High Costs; Perpetuation of Import Addiction
IEEFA Press Release: Calling for the Appointment of an Independent Inspector General to Take Over the Puerto Rico Electric Power Authority