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IEEFA Update: Governor’s Utility Privatization Plan Betrays Puerto Ricans

January 23, 2018
Tom Sanzillo

In announcing yesterday a plan to privatize the Puerto Rico Electric Power Authority (PREPA), Puerto Rico Gov. Ricardo Rosselló said he wants private investors to buy the utility’s generation system and to operate its transmission and distribution system via private concession.

Rosselló is also moving to remove any independent oversight of the utility, which would perpetuate Puerto Rico’s long history of political interference in that system.

When a utility is designed around politics, you get a bad system—and one that leaves investors subject to political whim, which, given recent PREPA history, could make attracting investors difficult.

Rosselló has for some time systematically been angling to wipe out independent oversight of PREPA. A few months ago, he blocked Puerto Rico’s congressionally-appointed fiscal control board from appointing an independent manager for PREPA. Last week, the governor proposed a bill that would gut oversight by the regulatory Puerto Rico Energy Commission, and the governor is seeking instead not just to create a new board but to appoint all of its members, who would serve at his pleasure. Membership on the current commission, like every utility commission in the U.S., is by fixed, staggered terms and members can be replaced only for cause—meaning that it is independent of the caprice of any one governor.

Rosselló is aiming to make a deal in private and without independent regulatory oversight—a recipe for corruption and high costs. In the meantime, with PREPA under Rosselló’s control, the lights are still out across much of the island almost five months after Hurricane Maria.

The governor’s short-sightedness is on full display in this latest announcement, and as we have written previously, privatization would raise more questions than it answers.

  • How would a privately owned system—one without oversight from an independent regulator—protect the interests of Puerto Rico electric customers? Would it lower or increase already sky-high rates for businesses and residents?
  • Would the system as the governor proposes it ensure that development of renewable energy and distributed energy resources are prioritized, both for reliability and to reduce Puerto Rico’s dependence on expensive imported fossil fuels?
  • How would jobs for Puerto Ricans be factored into the change? What would happen to PREPA’s current workforce?
  • How would privatization be financed? Who is the governor selecting to negotiate this proposed arrangement? Are they the same fee-gouging Wall Street firms that charged PREPA $100 million for a failed debt-restructuring deal?
  • How would the public be protected from another Whitefish contract?
  • And how would privatizing the system deliver the modern, renewable energy-based grid that Rosselló says it will?

There is time to correct this mischief.

Privatization of PREPA’s generation system would require an act of the Legislature. Further, PREPA is in bankruptcy court, and its reorganization plan must be approved by a federal judge. The federal control board over Puerto Rico also has a say, although it has spoken favorably of privatizing PREPA. (That board has recently approved two requests for time extensions for PREPA to submit its budget, and a plan is due later this week that should contain more details of the privatization proposal and what PREPA plans to do with its $9 billion debt.)

The appropriate way to address Puerto Rico’s energy mess—and to restore investor confidence in the long-term financial health of its electric system—would be to adopt a long-term plan for the island’s generation mix and then empowerent of appropriate governance structures for achieving that vision. But the governor lacks any such vision and instead is recreating the same dynamics—back-room dealings, lack of independent oversight, lack of long-term energy or financial planning—that drove PREPA and Puerto Rico into crisis in the first place.

Tom Sanzillo is IEEFA’s director of finance.


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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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