Amid struggles, PREPA moves towards privatization

by | Jul 24, 2018 | Economy | Comments

On Wednesday, June 20, Governor Ricardo Rosselló of Puerto Rico signed into law a bill which will move the Puerto Rico Electric Power Authority (PREPA) towards privatization. The law will seek to sell the power generation units currently controlled by PREPA, while concurrently attempting to enter into lease agreements for the authority’s distribution and transmission system. PREPA currently holds approximately $8.9 billion in debt, with revenue earned from sales and lease agreements planned to assist in paying off a portion of the current outstanding debt. This move will be made in hopes that Puerto Rico becomes more competitive in attracting new businesses and residents, with officials seeking to expand the tax base and dig the territory out from under billions of dollars in public debt.

Following his signature of the bill, Governor Rosselló stated that the “objective is simple: provide better service, one that’s more efficient and that allows us to jump into new energy models”. The law is designed to make an attempt at addressing the needs for an updated power grid in Puerto Rico, as well as lower current energy costs and help pull PREPA out of massive debt troubles. Energy prices in Puerto Rico are indeed notably higher than across the rest of the United States on average, with residential energy costs in Puerto Rico almost double that of the United States median, while commercial costs are nearly triple and industrial costs close to quadruple that of the United States average energy price per kilowatt hour. The law is not without its critics however, with Freddyson Martinez, Vice President of the Electrical Industry and Irrigation Workers Union (UTIER), stating that “the measure does not contain any guarantee of lower rates” and Lionel Orama, member of the National Institute of Energy and Sustainability at the University of Puerto Rico, putting forth that the laws ignores both the current outstanding debt of PREPA, as well as any legal mechanism regulating cost and efficiency standards for private companies.  

PREPA has had continuous financing issues for months, with the authority filing for bankruptcy and struggling to keep intact the outdated energy grid in the wake of Hurricane Maria. While many agree that something must be done to address both the outdated grid and financial woes, nothing is guaranteed going forward and the struggle between privatizing the authority and keeping it under public ownership has played out publicly. However, there does not appear to be immediate plans to award private contracts at this time, and the shift towards privatization of PREPA may be a slow process that is still in the making. Like many current shifts in the Puerto Rican economy, privatization of the energy authority looks to be moving towards private markets, but will likely be a drawn out process with no assurance of expedient organization changes.