Privatizing Puerto Rico’s energy utility could be Whitefish 2.0

Privatizing Puerto Rico’s energy utility could be Whitefish 2.0
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Hurricane María was a total catastrophe for the people of Puerto Rico. But “Hurricane PREPA”, a man-made disaster, left 3.4 million American citizens without power, and without hope. The Puerto Rico Electric Power Authority (PREPA) and the government of Puerto Rico are not just financially broke — their credibility is also long gone.

The notorious, and self-inflicted, Whitefish debacle destroyed the credibility of the government of Puerto Rico. After Maria made landfall, PREPA failed to activate existing “mutual aid agreements” with other public and investor-owned electric companies. Instead, they opted to sign a shady $300 million contract with Whitefish, an unknown, two employee company from Montana.

Several congressional committees held hearings on the matter. Rep. Bobby Rush (D-Ill.) colorfully stated the prevailing perception about this notorious contract, “I smell a rat”.

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Now, with its credibility gone and 30 percent of the island still in the dark, the government of Puerto Rico is proposing to privatize PREPA. At the same time, the government filed several bills to dissolve the Puerto Rico Energy Commission: the only entity that provides oversight over the bankrupt utility and the energy sector.

 

Up until the creation of the Puerto Rico Energy Commission in 2014, PREPA was a self-regulated, politicized, and highly inefficient state monopoly. In just three years, with scant resources, and the fierce resistance of PREPA, the Puerto Rico Energy Commission accumulated a proven record of independent, efficient, and fact-based decision-making.

Two regulatory decisions of the energy commission helped PREPA’s customers to achieve more than $700 million in savings. The energy commission approved an integrated resources plan for PREPA, the first on the utility’s more than seven decades of existence. The entity presided over PREPA’s first-ever rate case. Rules to facilitate net metering for distributed solar energy emerged from regulatory action and dispute resolution.

The energy commission carried out a proceeding to establish PREPA's “new transparent bill”, so that customers better understand the (expensive) bills they are paying. Dispute resolution overseen by this regulator is shaping energy policy, providing consumer protection and legal certainty for investors.

One of the crowning achievements of the energy commission is a recent regulation for microgrids, the first of its kind in the United States, and a potential game-changer for Puerto Rico and the energy industry. Also, this young regulator produced a comprehensive, 2016 report fully describing the sad state of affairs at PREPA.

After Maria, the energy commission tightened the screws on PREPA to prevent another Whitefish-type situation in the future. Last, but not least, they put a stop to the fiscally irresponsible Aguirre Offshore GasPort project, PREPA’s $400 million boondoggle.

Considering its record of achievements, why is the government of Puerto Rico so adamant on dissolving what is clearly a successful, and independent, energy regulator?

The government of Puerto Rico argues that dissolving the energy commission and the Telecommunications Regulatory Board will generate $14.5 million in annual savings. This is a blatant lie. Both institutions are solely financed by fees imposed to their regulated entities. As evidenced in official budget documents, neither the energy commission nor the telecommunications board receive funds from the budget of the government. So money is not the real issue here. 

The Rossello administration’s concerns defy other possible partisan considerations. The governor has yet to appoint the chairman of the energy commission, a position which has remained vacant since 2017. The term of the interim chairman, José Román, P.E., expires on May 2018. If the issue were his desire to appoint a majority on this three-member regulator, the governor could have solved it in just a few months.

But neither fiscal concerns nor partisan politics explain the governor’s disdain for the energy commission. The same old corrupt practices that bankrupted PREPA are the real drivers behind the plan to dissolve the island’s independent energy regulator.

Gov. Rosselló aims to centralize all energy decisions at La Fortaleza. Absent the independent oversight of the energy commission, the government of Puerto Rico will be able to freely negotiate power purchase agreements and privatization schemes from the obscure dungeons of the executive mansion. This, regardless if such contracts agree with PREPA’s IRP or the territory’s energy policy.

Replacing the independent energy commission with a sole energy commissioner, who may be fired at will by the governor, guarantees that neither oversight, nor transparency, will govern Rosselló’s privatization schemes. This is Whitefish 2.0.

Reps. Nydia Velazquez (D-N.Y.), José Serrano (D-N.Y. 15), Raúl Grijalva (D-Ariz.) wrote a letter to governor Rosselló raising concerns over his proposal to dismantle the energy commission.

The Fiscal Oversight and Management Board created under PROMESA supports the existence of the energy commission as a “robust and independent” regulator.

El Nuevo Día, the territory’s main newspaper, has published several editorials opposing the plan to dissolve the energy commission.

The Puerto Rico Manufacturers Association, the Puerto Rico Society of Certified Public Accountants, the Sierra Club, grassroots organizations such as Casa Pueblo, the Ad Hoc group of PREPA bondholders, as well as local energy experts, all oppose dismantling this independent energy regulator.

Congress must look into the fact that Title V of the PROMESA act requires the approval of the energy commission over “critical [energy] projects.” Dismantling this independent energy regulator expressly puts in jeopardy PROMESA’s legislative intent to “revitalize” the economy of Puerto Rico.

Advocates for and against the privatization of PREPA usually rely on pure economic ideology, disregarding data or facts, those stubborn things. Only a strong, independent and non-partisan energy commission will make sure that the transformation of Puerto Rico’s energy sector is achieved with the people’s best interests in mind.

Ramón Luis Nieves, Esq., managing member of RL Legal & Consulting Services, LLC, is a former senator for the District of San Juan, and chairman of the Committee on Energy of the Senate of Puerto Rico. Nieves recently testified before the Subcommittee on Energy, Committee on Energy & Commerce, U.S. Congress, on the challenges to rebuild Puerto Rico’s energy grid after Hurricane Maria. Follow him on Twitter @ramonlusnieves.