The Complicated Evolution of PREPA
The future of Puerto Rico’s power supply is at stake in the transformation of PREPA.
The process of transforming Puerto Rico’s electric power grid is occurring with backdrop of that island’s complex political, social and geographic dynamic.
The House Committee on Natural Resources recently held a hearing entitled “The Status of the ‘Rebuilding and Privatization of the Puerto Rico Electric Power Authority.”
In more than three hours, many sides of this issue were explored at the hearing.
The Puerto Rico Electric Power Authority (PREPA) is Puerto Rico’s state-owned electric power company. It first came into existence in 1941, but it also has a troubled history. Not only was it known for presiding over far too many power outages, but it gained a reputation for dishonest dealing.
In one recent scandal, PREPA approved a no-bid contract with Whitefish Energy for $300 million to rebuild part of the power grid after Hurricane Maria. The Federal Emergency Management Agency (FEMA) was supposed to approve all such contracts, but was not even consulted.
Noel Zamat was born in Puerto Rico but currently lives in Florida and was one of the witnesses.
In his opening statement, he said many Puerto Ricans believe the government doesn’t have systems in place to stop this kind of fraud.
“The people of Puerto Rico desperately need the federal disaster funds already appropriated, but many believe that the government does not have the systems to create the transparency required to manage those funds.”
He argued for a federal coordinator to provide this transparency.
PREPA went into bankruptcy in 2017; the bankruptcy is part of a chronic problem of mismanagement and corruption.
A 2017 Reuters article found, “Frequent turnover in management and board leadership, which has long failed to prioritize grid maintenance, according to reports prepared in 2015 and 2016 for utility regulators by the consultancy Synapse Energy Associates. The deferred upkeep, according to a PREPA assessment in April, led to a ‘degraded and unsafe’ grid that needed at least $4 billion for modernization of an ‘isolated system, in challenging terrain’ that is ‘subject to natural atmospheric events.’”
It’s not all bad, however. José F. Ortiz Vázquez is the Executive Director and Chief Executive Officer of PREPA and in his opening remarks he listed some of the improvements of the agency.
“We have brought in independent leadership to PREPA’s governing board that added substantial experience from the mainland electric utilities industry and public sector to the leadership team,” he said. “We have tightened up our finances in line with fiscal plan, paid down $300 million in debt and improved our liquidity. Revenues have increased eight percent above budget.”
Hurricane Maria in 2017 was an unprecedented storm. According to one witness, the last time Puerto Rico experienced a storm of that devastation was in 1928 and Hurricane Felipe.
The Category 4 storm knocked out the power grid entirely and the island was without power for more than a month.
From the destruction, a vision was started for a new and improved power grid.
Ortiz Vázquez described the transformation. “Following Hurricane Maria, Puerto Rico embarked on a historic effort to transform its energy system. By bi-partisan consensus, set out a vision to create a consumer focused, efficient, resilient, and environmentally friendly grid system that delivers affordable electricity to the people of Puerto Rico.”
There was plenty of skepticism in the hearing that the transformation was going smoothly.
Raul Grijalva is a Democrat from Arizona and chairs the committee.
“Last July when this committee held a hearing on PREPA’s management crisis and its implication for recovery, I stated that my primary concerns were determining the best ways to guarantee that PREPA will be rebuilt so that it can withstand future extreme weather, providing the people of Puerto Rico with reliable and inexpensive power and preventing the displacement of PREPA’s workers. Those still remain my chief concerns today,” Grijalva said in his opening statement.
Dr. Marla D. Pérez Lugo, Ph.D., is a Professor of Environmental Sociology in the Department of Social Sciences at the University of Puerto Rico-Mayaguez, and another witness.
In her opening remarks, she said the planning and idea making process for this transformation has been largely elitist.
“In all the 12 main events held between January 2017 and March 2019 to discuss Puerto Rico’s energy future, the main language used was English, even though according to the US Census only 22 percent of the population speaks it fluently,” Pérez Lugo said. “Nine out of the twelve required an entrance fee of between $50 and $1,500 per person, and the rest were by invitation only. Seven of those events were held outside of Puerto Rico and the rest occurred only in the capital city of San Juan.”
Two words said over and over during the hearing were “accountability and transparency”, or a lack thereof, as was often the context during the hearing.
Pérez Lugo said in her opening remarks, “My main argument is that these processes are being conducted without transparency, without accountability and most of all lacking the real participation of the people who will have no other choice but to live with the consequences.”
That argument was heard repeatedly during the hearing.
Jenniffer González Colón is a Puerto Rican politician; she is currently the Resident Commissioner for Puerto Rico in the U.S. House of Representatives.
That is a non-voting position, but she asked questions during the hearing.
González Colón noted that Puerto Rico was not receiving funds which had already been appropriated because of PREPA’s fumbling.
She said that Congress had appropriated $2 billion through the U.S. Department of Housing and Urban Development but that much had still not been disbursed.
She said that members of the House Natural Resources Committee visited the island and had a meeting with representatives of PREPA, HUD, and the U.S. Department of Energy, which is helping to disburse.
During the meeting, here is what González Colón said happened at the meeting: “At that time, the Department of Energy, HUD, and PREPA were saying that each department was waiting on the other department.”
Part of PREPA’s transformation is its privatization, arguably the most controversial part of the transformation.
Here is how Ortiz Vázquez said PREPA would look: “This system will include among other things an independent transmission and distribution operator, established under the public/private partnership who could present a stable strategy, continuity on the leadership team, and execution procedures for the grid system going forward.”
The privatization plan has also received plenty of criticism.
“The Puerto Rican government is moving full-steam ahead with a series of privatization contracts for the Puerto Rico Electric Power Authority (PREPA) that are likely to lock customers into even more expensive electric rates than they currently pay. Instead of taking this opportunity to make electricity affordable and resilient, the government plan will tie the island to electric costs that will cripple its economy,” according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA).
Michael San Nicolas is the Guam Delegate to the U.S. House of Representatives; it is another non-voting position, but he also asked questions.
San Nicolas argued that privatization would increase long-term PREPA’s borrowing costs.
“I understand that the interest rates in Puerto Rico right now are elevated given the circumstances that they went through financially, but historically municipal debt, particularly in territories, has always been dramatically lower than private debt, because of the triple tax exempt status of the debt they’re able to float.”
San Nicolas argued that while currently private companies can finance debt cheaper, “Over the long-term as the debt history of Puerto Rico improves, and they’re able to get more to a normalized place, where they’re able to access the municipal bond market, to finance improvements, we may have over the long-term a more expensive way of borrowing.”