Puerto Rico has struggled to rebuild after Hurricane Maria knocked out power in September, and a big reason is the island’s energy system. The Puerto Rico Electric Power Authority (PREPA) does not expect to restore power fully until February. The island needs federal money to help rebuild its grid, but its energy management and infrastructure problems are so deep and longstanding that a cash infusion alone could actually make the island’s long-term energy problems worse. Congress must ensure that any federal assistance to Puerto Rico is attached to substantive reform of its deeply troubled energy utility.
Today, PREPA is $9 billion in debt. The fundamental problem? Politicians effectively have direct control over PREPA, through a governing board made up entirely of political appointees. Decisions on what kinds of electricity generation to build, on how to maintain transmission lines, and even on whom and what to subsidize are driven by political expediency. The unsurprising result is that PREPA has not done what is best for its long-term effectiveness and sustainability as a public utility, let alone what is best for its customers.
The electricity rates in Puerto Rico are nearly double those of the contiguous United States. As the mainland states have embraced policies like competition in electricity markets and privatized utilities, Puerto Rico’s electricity industry structure has barely changed since 1941. Moreover, PREPA has fallen about $4 billion behind in reliability investments, with the average age of its power plants at nearly 45 years. PREPA has long been wholly unprepared to endure a hurricane like Maria.
PREPA’s structure discourages fixes. Since the consequences of mismanagement and regulatory enforcement fall on a publicly-owned company, there is no accountability for failure and no incentive for reform. If allowed to continue, the costs of failure will fall on Puerto Rican residents, federal taxpayers, or, more likely, both. Congress will nevertheless need to devote federal funds to reconstructing Puerto Rico’s grid. However, merely giving PREPA its wish list of aid, which includes a request for $17.8 billion to fix the power grid, would entrench a failing utility and absolve PREPA from the responsibilities of reform.
Congress could instead consider a small amount of funding, around $1 billion, and attach to the money a requirement that the Department of Energy analyze Puerto Rico’s electric grid and offer recommendations for organizational improvements. These recommendations can then direct future relief funding. Indeed, such a proposal may be necessary. The Stafford Act prohibits assistance funds from being used for new projects, meaning the federal and Puerto Rican governments must otherwise rebuild the grid exactly as it was before Hurricane Maria.
Improving PREPA need not be a money pit, as reforms could generate savings that offset the costs of much needed changes. An analysis by The American Action Forum found that improving PREPA’s generating portfolio could save over $200 million per year while still bringing in enough money to repay a $3.15 capital investment in only 10 years. Thus, these changes would save taxpayer money over the long term. Similarly, an assessment from the R Street Institute highlighted that even modest introductions of competitive mechanisms, such as using requests for proposals to acquire new energy generation, could lead to substantial cost savings in an otherwise highly inefficient electric system.
All the data point to one story: PREPA is costing more to do less, and the best way to improve its efficiency is to take decisions out of the hands of politicians and instead empower market-based mechanisms. Puerto Ricans deserve better than PREPA. Federal taxpayers deserve better than PREPA. The excuses for Puerto Rico’s electric utility have become as scarce as the electricity the agency is supposed to provide.
Philip Rossetti is director of energy policy at the American Action Forum.
Devin Hartman is manager of electricity policy at the R Street Institute.