Testimony by Tom Sanzillo, U.S. House Natural Resources Committee hearing on the status of the rebuilding and privatization of the Puerto Rico Electric Power Authority (PREPA)
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Key Findings
While a small portion of the investor dollars have gone to on-island investors, the overwhelming share of investment repayment has gone off-island. For more than a decade, PREPA has been operated in a manner to benefit the interests of fuel suppliers, bondholders and other private interests via lucrative and poorly-managed contracts.
The privatization plan lacks the transparency and stringent contract monitoring and oversight requirements that would be needed to instill confidence in this process.
PREPA borrowed nearly $11 billion from 2001 to 2013 and currently has approximately $9 billion in legacy debt outstanding. Despite the growing risks that should have raised red flags with creditors during this period—including declining sales, the poor condition of PREPA’s physical assets, and the practice of borrowing to pay operating expenses—PREPA was able to continue borrowing money.
Executive Summary
Chairman Grijalva and members of the committee, thank you for the invitation to testify today. I am the director of finance for the Institute for Energy Economics and Financial Analysis (IEEFA). IEEFA has been closely following and analyzing Puerto Rico electrical system issues since 2015. Our publications have focused on the physical and financial condition of the Puerto Rico Electric Power Authority (PREPA): specifically pre- and post-hurricane energy planning and priorities; debt management; consultant hiring and fee structures; renewable energy opportunities; management challenges; political interference; budget and fiscal plan; federal oversight; fuel oil contracting; and other procurement issues and irregularities. My opinions and that of my coauthor on many pieces in Puerto Rico, Cathy Kunkel, have been cited in The Bond Buyer, The Hill, El Nuevo Día, El Vocero, Caribbean Business News, Fortune, Vox, The Intercept, USA Today, and Inside Climate News.
Prior to my tenure at IEEFA, I spent 17 years at senior management levels at the New York City and New York State Comptroller’s Offices. I left state service in 2007 as the First Deputy Comptroller of New York State (and served for a short period as the State Comptroller due to an early resignation). In those positions, I had responsibility for the oversight of a $150 billion pension fund; a 1 million member retirement system; a $250 billion state and local bond portfolio; 40,000 annual contracts valued at $85 billion; the audit program for all public authorities (including the state’s largest energy authorities, the Long Island Power Authority and the New York State Power Authority) and state and local governments; monitoring of the state budget and expenditures (including payrolls); and review of the finances of 1,400 units of local government. My work on state government finances has appeared in the New York State Oxford Handbook on Politics and Government.
Part of my responsibilities concerned the problem of local government fiscal distress. The New York City Comptroller is a member of the New York State Financial Control Board and monitors the New York City government budget. During my tenure, the New York State Comptroller had statutory obligations for existing control boards in New York City and Yonkers (including Yonkers’ exit from oversight). The office initiated new control boards in Troy, Nassau County, Erie County and Buffalo. As part of the Comptroller’s Executive leadership team, I had direct responsibility for most of these initiatives.
I have also served on the advisory board of the Long Island Power Authority, the New York electric utility whose privatization has often been cited as model for PREPA.
I am here today to testify on the current effort to privatize PREPA, which, based on IEEFA’s research, is unlikely to achieve the island’s policy goals of affordable electric rates and a more resilient and reliable power system.
Please view full report PDF for references and sources.
