The cost of privatizing public utilities

by | Feb 21, 2018 | Opinion | Comments

It truly seems that “those who cannot remember the past are doomed to repeat it” as another Puerto Rican public utility company is privatized. All government administrations have privatized at least one public company since 1990. This time, Governor Ricardo Rosselló announced that steps will be taken to privatize the public utility company Puerto Rico Electric Power Authority (PREPA). PREPA is the electric utility company of Puerto Rico. After Hurricane Maria, they’ve been in charge of bringing electricity back to Puerto Rico.

Headlines have pointed out that PREPA is ‘bankrupt’, ‘hobbled’, and ‘troubled’. The Intercept published an article detailing how PREPA was set up for privatization. Just last year, after a surge in blackouts, questions arose over whether they were deliberate to support the privatization of the public company. A lack of oversight has been largely responsible for the rampant corruption and mismanagement of PREPA. In all of this, it looks as if the government had been deliberately setting PREPA up for failure in order to sell it.

Privatization has been a popular tactic of reforming failing public companies in Puerto Rico. Rossello’s own father privatized the Puerto Rico Telephone Company (PRTC) and medical facilities. The privatization of the PRTC is a significant point in Puerto Rico’s history. Many still remember the massive protests and confrontations with police that took place. Whenever talks of privatization come around, PRTC is brought up. It changed the way telephone services were provided on the islands. Converting from a public entity to a private one resulted in telephone service becoming a privilege of those who could afford it, instead of a right. It’s important to point out that PRTC came to be after the government bought it from the previous owner, International Telephone and Telegraph (ITT), because of the slow speed and high cost of expanding its services throughout the islands.

PREPA has followed a similar track. The government needed a way to expand electrical services throughout the Puerto Rico. People living in the countryside didn’t have electricity, nor was it an option, as there wasn’t a company offering the service. PREPA being a public utility ensured that everyone, regardless of location, would have access to electricity.

Taxpayers often lose when public works are privatized. These arrangements are business deals, and private companies are looking in to make a profit, to the detriment of the consumer. PREPA could also have similar results to the privatization of Puerto Rico Aqueducts and Sewers Authority (PRASA). The company had to be bought back by the government due to the rising cost, mismanagement, and inability to meet the Environmental Protection Agency’s standards for water quality. Privatization works to the detriment of the citizens in more ways than one. In Puerto Rico two highways in (PR-22 and PR-5) are administered by private companies. Unlike public highways, in which toll booths are used to pay back the cost of construction and maintenance, privately administered highways have higher costs to create a profit for shareholders. The Director of the  Brookings Institution’s Metropolitan Policy Program, Robert Puentes, detailed how Indiana’s Toll Road failed and is a definite warning to what might come for Puerto Rico’s privately administered toll roads.

All of this could happen with PREPA. In the end, it is the citizens that lose when these business deals take place. It wasn’t too long ago that one of the Rossello administration’s public-private arrangement with Whitefish turned out catastrophically. We shouldn’t go down the same road again, especially after hurricane Maria. There are many Puerto Rican citizens, like myself, that depend on public companies for access to utilities at a lower cost than if they were left to the free market. If the process of selling off PREPA takes 18 months, it’s possible that another hurricane could hit between then and now. That time should be used to focus on restructuring PREPA, and have it working for the best interests of the public, instead of setting it up to fail once more.