Thursday, December 12, 2019

[Editorial] Wreck at the Energy Grand Prix

By on July 19, 2018

Editor’s note: This editorial first appeared in the July 19-25 print issue of Caribbean Business

When Walt Higgins agreed to remain at the helm of the Puerto Rico Electric Power Authority (Prepa) past the original July 14 date he had set for resignation, the erstwhile executive director bought Gov. Ricardo Rosselló time to constitute a new board that will have the unenviable task of selecting a suitable replacement.

That search is something akin to finding a racecar driver on the level of A.J. Foyt, Mario Andretti or Jimmie Johnson to pilot a Lamborghini—when you have a Prepa jalopy stuck in a pit stop and you are offering to cut the speed racer’s pay. There is no winning that race.

In Higgins’ case, the compensation package—$100,000 in relocation fees, $450,000 in base salary and as much as another $450,000 in a performance bonus—became a bone of contention among observers outside the energy realm. And the people were asking: “How does the Prepa board justify paying what seems like a king’s ransom for a CEO to run a bankrupt utility?” The governor, yielding to public outcry, asked to lower Higgins package, which led the fledging CEO to resign over what he considered a breach of contract.

In Higgins’ defense, David Owens, who is the chairman of the Transformation Advisory Council (TAC), a team comprised of industry leaders tasked with advising the governing board, believes Higgins is a stellar industry professional whose compensation is within acceptable market standards. “He is a stellar executive who has experience restoring power systems,” Owens told Caribbean Business.

Board members and Prepa insiders felt Higgins met his benchmarks and that the seeds for a new culture were in place to transform the utility, with a more customer-centric Integrated Resource Plan.

No matter how you slice it, Higgins was a tough sell to the people. Nevertheless, the governor’s energy brigades were ready to stick by their choice because they fully believed it was a necessary step in the right direction. When the governor succumbed to public blowback and reneged on Higgins’ contract, he sent the Prepa machine spinning on a hairpin turn.

The bad optics on this one—Ogilvy & Mather could not have sold this stinker—took on horrific overtones when the board then selected Prepa board member Rafael Díaz Granados as an interim replacement for $750,000. The executive director did not waste any time putting transformer in mouth when he went on a morning radio show and proudly expressed he was “making a sacrifice for Puerto Rico in accepting a salary [$750k] that was much lower than what he could be making elsewhere.”

Bad form, Rafa.

So, the governor, who was headed for Russia where he would enjoy the FIFA World Cup final, issued an ultimatum to the members of the Prepa Board to rescind the offer or resign. Thus, the stampede of resignations that ensued—five board members relinquished their posts—leaving the governor with only two of his political appointees, added to the two new hires: Puerto Rico Aqueduct & Sewer Authority (Prasa) Executive Director Elí Díaz Atienza and engineer Ralph A. Kreil. Sadly, the new members will have to get up to speed with some of the new covenants in place at the utility.

You see, the independent TAC advisers and the board members had been moving in lockstep, implementing new doctrines underpinned by best practices. These include customer-centric doctrines to provide consumers affordable, reliable power. Prepa’s core mantra expressed on the utility’s website: “Customers are empowered with behind-the-meter alternatives for energy efficiency, demand management and distributed generation […] Rate and market design create incentives to purchase, consume or produce energy in a manner that benefits the entire system. Subsidies are minimized, and those that remain have a nondistortionary impact.” Sounds nice on paper.

Last week’s mass executive resignation at Prepa was perhaps a sign the utility is unable to free itself from the politics and cronyism so entrenched in the bankrupt utility for decades. Truth be told, Prepa became collateral damage in a restructuring process under the Puerto Rico Oversight, Management & Economic Stability Act. More than charting a course toward structural balance and market access, that territorial law unleashed political gamesmanship among the governor, the Legislature and the Financial Oversight & Management Board on a level not expected when the law was first enacted by U.S. Congress in 2016.

So, people on the Hill are watching. As this newspaper was going to press, the search was still on for a new executive director to put Prepa back on track. The sooner we free that process of the political pollutants, the sooner investment and much-needed jobs will come.

Congress concerned about politicization of Puerto Rico power company

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