IEEFA: Privatizing Puerto Rico’s electric company would impede modernization
SAN JUAN – The Puerto Rican Legislative Assembly would be acting in the public’s best interest by blocking a proposed privatization of the Puerto Rico Electric Power Authority (Prepa), a new report by the Institute for Energy Economics and Financial Analysis (IEEFA) concludes.
The report, titled “Privatization Bill Will Not Solve Puerto Rico’s Electricity Crisis,” describes how a privatization program promoted by Gov. Ricardo Rosselló “lacks transparency, ensures inadequate regulation” of the utility, would “serve as a barrier to construction of a true 21st-century power system, and would undermine the island’s economy.
“We recommend the legislature reject this bill,” Cathy Kunkel, an IEEFA energy analyst and co-author of the report with IEEFA Director of Finance Tom Sanzillo, said in a statement. “While PREPA’s management requires reform, this can and should be done without privatizing PREPA’s assets.”
“The proposed law will not achieve its goals of modernizing Puerto Rico’s electrical system because it does not address the fundamental drivers of the high price of electricity on the island: fossil fuel dependency, debt, declining demand, mismanagement, and ongoing political interference at PREPA,” Kunkel added.
The bill would cancel a legislatively mandated integrated resource plan and renewable energy mandate. It allows instead for natural gas, coal, incineration and renewable energy projects to be “developed haphazardly” through processes that will likely result in a “reckless overbuilding” of the electrical system “that Puerto Rico cannot afford.”
The IEFFA report also cited the following reasons for opposing the bill:
–It eliminates the requirement for any project to conform to Puerto Rico’s legally established energy policy priorities or regulation.
–It allows for energy projects to be developed without establishing priorities, leaving these decisions up to PREPA and the P3 [Public Private Partnerships] Authority.
–It does not address the need for greater investment in microgrids and distributed generation to improve electrical system reliability. And, by eliminating any independent oversight of the privatization contracts, it eviscerates any public policy to promote these technologies.
–It offers no direction regarding electricity affordability or competitiveness. Contract prices are not required to be regulated, which means that a major component of customer rates will be initially established and then governed by a vague contract, lacking in transparency and subject only to the political determinations of the government of Puerto Rico.
–It is silent on PREPA’s $9 billion in debt and does not require the privatization transactions to align with the budget and debt goals of either PREPA or the Commonwealth. This failure means that the governor’s overall debt plan for the Commonwealth lacks internal discipline.
–It creates numerous red flags for abuse and political interference in the contracting process. PREPA and the P3 Authority, the two key agencies that select projects, negotiate contracts, approve deals and monitor the operations of future assets, are effectively controlled by the governor. The contracting system envisioned for these transactions does not require competitive bidding or an independent, rigorous review.
–The bill exposes PREPA’s employees to an uncertain future. There are no affirmative commitments to honor collective bargaining agreements, right of first refusal for existing employees with new owners, job protections, or labor representation. The bill excludes PREPA’s labor organizations from oversight and partnership committees. It allows the revenue derived from the asset sales to be used to defray current pension liabilities – but there is no mandate to fulfill pension obligations, no revenue benchmarks, and no time requirements.
Senate President Thomas Rivera Schatz has said the Senate will create a single bill from the privatization proposal and from a yet to be introduced legislation dealing with regulations.