The Puerto Rico Electric Power Authority CEO salary controversy, in context

by | Aug 23, 2018 | Puerto Rico | Comments

Puerto Rico’s electric power company, the Puerto Rico Electric Power Authority, awoke to a new day Thursday, July 12, and found itself suddenly without a leadership team. When Governor Ricardo Rosselló demanded the lowering of the new CEO’s exorbitant salary, the executive board and CEO decided that they’d rather step down than reconfigure their finances.

In protest, five of the seven board members resigned. Outgoing CEO, Rafael Diaz-Granados, bid farewell to his new executive position just days after his appointment. His annual salary of $750,000—nearly forty times that of the median household income—turned heads in Puerto Rico’s legislature, and Governor Ricardo Rosselló referred to it as “not proportional to the financial condition of PREPA, to the fiscal situation of the government, or to the feeling of the people who are making sacrifices to raise Puerto Rico.”

The government-owned power authority, responsible for providing electricity to millions of Puerto Ricans, has already seen its share of bad days recently. The impact of Hurricane Maria triggered mass power outages across the islands, leaving a deeply bankrupt utility to solve a public power crisis. Sitting at $9 billion in the red, PREPA still struggles financially to restore power to its customers affected by the hurricane outages.

After the announcement of his appointment, Granados quickly took to defending his salary, citing its consistency with typical salaries in the electric industry. He argued that it was in fact much less than what he would’ve earned in other companies. He isn’t wrong; Geisha J. Williams, CEO of Pacific Gas & Electric (the California-based utility known as PG&E) brings home over $7 million a year. CEO Lynn Good of the Duke Energy, headquartered in North Carolina, earned a whopping $21 million last year. There’s no doubt that the electric power industry is a profitable one, particularly for the wallets of its head honchos. Granados plausibly could have increased his fortunes, as he pointed out, had he sat as CEO for a different utility; likely for a state-based operation rather than a Puerto Rican-based one. Yet, narrowing in on the differential between two wealthy groups of employees, and comparing the PREPA CEO against similarly high-ranking officials, doesn’t really get to the core of the controversy. When Roselló initially called for the lowering of the CEO salary, it was made within the context of an economically damaged territory— for whom the average resident a $750,000 income is an unimaginable farce—and with a claim directed towards a corporation already deep in debt and struggling to provide services to its customers.

Former PREPA CEO, Walter Higgins, clocked in at $450,000 annually—a then unusually high base pay which stirred up controversy at the time of its press release. Higgins resigned after serving only four months as executive, partly related to the overwhelming controversy over his high pay. In an email to PREPA’s board, Higgins noted, “Even if some legal argument could have been made, it became very clear to me that the politics related to my compensation made it impossible for the contract to be fulfilled.”

Governor Rosselló has since appointed a new CEO to fill the vacancy left by the month’s chaos. Rosselló gave the nod to José Ortiz, a former PREPA board chairman, and former executive director of the Puerto Rico Aqueduct and Sewer Authority. Additionally, two new board members—Eli Díaz Atienza and Ralph A. Kreilwere appointed to take over the board seats left empty as a result of the salary controversy.