Constant Turmoil at Puerto Rico Electric Power Authority Creating Uncertainty
Editor’s note: A version of this article first appeared in the July 19-25 print issue of Caribbean Business.
The recent turn of events at the Puerto Rico Electric Power Authority (Prepa) that led to the resignation of five of its seven board members, including a newly appointed CEO, could turn back the clock on efforts to depoliticize the bankrupt public utility and transform it into a reliable first-class corporation.
Members of Congress are already concerned about Prepa’s latest turn of events because Washington is allocating millions to repair and restore the island’s power grid from the destruction by Hurricane Maria, and homes are still without energy. Members of the private sector are worried about the uncertainty that has been created for investors, some of whom have renewable energy projects in the works for the utility, and Congress’ possible intervention through legislation to privatize Prepa or place it under the jurisdiction of a federal entity, such as FERC, the Federal Energy Regulatory Commission. Others are urging the government to strengthen the Puerto Rico Energy Commission, which regulates the local power sector.
Transformation Advisory Council (TAC) Chairman David Owens said TAC, whose goals are to rebuild the power grid in a resilient, reliable and customer-friendly fashion that spurs economic growth and financial viability, was troubled by the turn of events because it is unusual for an entire board to resign. “The board resigned because it did not have the level of independence they thought they had,” he said.
A council…for now
The council is planning to meet with current Prepa governing board Chairman Elí Díaz Atienza, who is also executive director of the Puerto Rico Aqueduct & Sewer Authority, to see how TAC can continue to help. He said TAC wishes to ensure it can remain independent, be impactful and maintain credibility, and if that cannot happen, the members, who are volunteers, may not continue to work for Prepa.
Owens lamented the resignation of Prepa’s board members, who he described as stellar and noted that the $750,000 annual salary that they decided to pay Rafael Díaz Granados as CEO was not out of bounds with what is paid in the industry. “If you are trying to rebuild a system…you need a stellar person,” he said. Owens said the same thing about current CEO Walter Higgins, who he described as a stellar executive with experience restoring power systems. “I am a fan of Walt Higgins,” he said.
TAC has provided studies to Prepa’s board in an effort to steer the way to help decentralize powerplants in favor of microgrids, so service can be restored quickly in the event of a natural disaster. The council also advised Siemens, which is devising Prepa’s Integrated Resource Plan (IRP), the blueprint the corporation must follow to provide energy in the future, to conduct outreach efforts to get customers engaged and to facilitate discussion with the U.S. Department of Energy.
Asked about congressional action involving Prepa, Owens said the council does not intervene in anything political but noted members want an independent and depoliticized board and oversight because of the quantities of federal aid that have been put into restoring the island’s power grid.
A Washington source echoed Owens concerns, saying Congress could impose limits on federal aid if the federal legislative body does not feel it can trust the actions of what appears to be a “return to political appointees.”
After the resignation of a majority of Prepa’s board members, the only two members remaining on this board are Rosselló appointees. The other members’ departures give the governor more control over the utility, which is $9 billion in debt. The governor, in that regard, appointed Díaz Atienza and engineer Ralph A. Kreil. By law, Rosselló must select three of Prepa’s seven board members from lists supplied by independent recruiting firms and submit them to the Puerto Rico Senate for confirmation. Three other members can be appointed by the governor without confirmation, and the final member, a consumer advocate, will be selected by a special election supervised by the Department of Consumer Affairs, which has yet to be achieved.
The resignations of the board members came after Higgins announced he would resign over issues with his salary, saying “politics related to my compensation made it impossible for the contract to be fulfilled.” Higgins was hired in March with a $450,000 contract, with the potential to make twice as much in bonuses if he hit certain performance benchmarks. Prior to Higgins, Prepa was led by interim director Justo González, who Rosselló appointed last November after then-CEO Ricardo Ramos resigned over a contracting controversy with the Montana firm Whitefish.
The Prepa board stepped in to name Díaz Granados, offering him a $750,000 contract. But Rosselló took exception to the deal, tweeting that Prepa board members must reduce the salary or resign. The board implemented the request and accused the government of trying to politicize Prepa.
Higgins is slated to stay on until July 24 and the board must now find his replacement.
Chamber of Commerce Director Kenneth Rivera warned about uncertainty for investors coming to the island to do business and those investing in energy projects. The Energy Commission recently approved the designation of eight critical projects that had been conceived since 2010, but investors must have the ability to raise funds to complete them.
Tomás Torres Placa, executive director of the Institute for Competitiveness & Sustainable Economy, said that while there is a vacuum in Prepa’s leadership, once Prepa has completed and approved its IRP by late September, there will be a clear vision about the utility’s future. Torres Placa said he was willing to accept a position on Prepa’s board, if the government asks him, but only to defend the public interest. “This is what I do every single day,” he noted.
Regarding the vision for Prepa and the IRP, he said some 40 private organizations have ideas to make the power system modern and solid. He said the most important aspect for Prepa is to have a regulatory entity. On the other hand, he rejected attempts by Congress to federalize Prepa because the move, which was completed for a power company in Tennessee, did not work. “Whatever is done, private, public-private or a hybrid, it must be well-regulated,” he said.
Like Torres Placa, Manufacturers Association President Rodrigo Masses blames errors over Higgins’ contract that led to Prepa board members’ mass departure. “That leads to a response from Congress…. So, I urge the governor to strengthen the Energy Commission by appointing members to vacant seats and giving [the commission] an adequate budget,” he said.
Masses noted that Congress is “exploring different alternatives” to federalization but declined to provide details. He said he supports a system that allows municipalities to have grids, allows neighborhoods to create cooperatives for energy systems and provides for efficient wheeling service.