Is Puerto Rico’s Power Company Management An Obstacle To Restoring Island’s Electricity?

Puerto Rico is in the headlines again — now for a $300 million contract assigned by the commonwealth’s power company to an energy firm, Whitefish Energy, located in Whitefish, Montana. The energy firm was supposed to help rebuild power lines in the wake of the destruction caused by Hurricane Maria. But questions were raised when it was discovered that Whitefish, Montana, population 7,200, just happens to be the hometown of Interior Secretary Ryan Zinke. How the contract, which has been cancelled, was awarded has become the subject of an investigation conducted by federal auditors.

This is not the only time Puerto Rico’s power company has been in the news over the past several years. Power for the entire island, an unincorporated U.S. territory home to 3.4 million American citizens, is the Puerto Rico Electric Power Authority (PREPA), a government-owned company overseen by a board of directors appointed by the governor with advice and consent of the commonwealth’s senate.

PREPA is one of the largest public utilities in the United States, but it has been plagued by poor management and underinvestment for so long its facilities have deteriorated to the point where they are no longer on par with industry standards. Infrastructure has not been maintained and updated; there has been little attempt to develop the use of renewable energy. Because of mismanagement, PREPA customers pay higher prices for electricity than customers on the mainland — almost 20 percent higher. In a country beset with poverty and economic malaise, paying more for electricity than needed creates an additional hardship for the average Puerto Rican resident.

The mismanagement of PREPA has been so severe that by July 2017 the company, $9 billion in debt, filed for bankruptcy, a move that, according to one bond insurer quoted in The New York Times, “would leave PREPA years away from attracting the private investment necessary to modernize.” This posed dire consequences since PREPA’s equipment, as noted in a 2017 draft fiscal report, was “degraded, unsafe, and unreliable.”

Then, on September 20, Hurricane Maria, a Category 4 hurricane that had left a path of destruction in the Caribbean, made direct landfall on Puerto Rico. It was the worst hurricane to hit in more than 90 years, and the island was still recovering from Hurricane Irma, a Category 5 hurricane that had passed north of the island two weeks before. The electric grid already damaged by Irma — 60,000 people were still without power — was no match for Maria. The grid went down. Millions were left in the dark. Six weeks later, 70 percent of the island was still without power. That was why Whitefish was brought on: to help restore power to the island as soon as possible. With the Whitefish contract cancelled, it is unclear what PREPA’s next move will be.

And it’s not as if Puerto Rico has not had help available on the mainland. A wide variety of U.S. electric companies have offered their services, but, inexplicably, PREPA accepted assistance only from Whitefish, a miniscule company with just two full-time employees. Now, as the U.S. Congress discusses an aid package to fund rebuilding Puerto Rico, some observers are demanding major changes.

Funding, it is argued, should be contingent on Puerto Rico building a new, state-of-the-art power grid. That would allow for electricity to be created more efficiently, lowering the cost for customers. Moreover, at present, 47 percent of the island’s power comes from petroleum, with 34 percent derived from natural gas, 17 percent from coal, and a mere two percent from renewable energy. A new grid would mean Puerto Rico could move toward sustainable energy sources.

To build a new power grid — construction of which should be open to any company appropriate for the project — may come only after a change in the administration at PREPA. Under CEO Ricardo Ramos, the company has not only struggled with bad management but it has also become the subject of an investigation by the Securities and Exchange Commission for misrepresenting bonds issued in 2013 and a class-action lawsuit alleging a massive kickback scheme. (PREPA, Law 360 reported, “colluded for years to buy low-quality fuel, sell it off as high-quality fuel, and keep the change as kickbacks.”) Most importantly, management is seen as a roadblock to reforming PREPA to make it viable for the future.

There is no question that Puerto Rico has suffered because of Hurricane Maria: 51 dead, widespread destruction of homes and businesses, a crippled infrastructure. But some observers see the devastation as an opportunity to rebuild the island in a way that may allow its citizens to improve their lives. That could start with building a new power grid designed for the future. It would be an investment that would both benefit energy consumers and stimulate the island’s economy as a whole.

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