Dive Brief:
- Puerto Rico Gov. Ricardo Rosselló on Monday announced a plan to privatize the Puerto Rico Electric Power Authority (PREPA), the state-owned electric utility widely criticized for its response to Hurricane Maria last autumn.
- Privatization could take 18 months, Rosselló said, beginning with a legislative proposal and then the review of acquisition offers. Legislative leaders expressed support for selling the public utility, though the transaction would have to be approved by a federal ovesight board and a federal judge because PREPA is in bankruptcy.
- PREPA has been plagued by mismanagement and underinvestment for years and in November its executive director resigned after a scandal over a post-hurricane power restoration contract. About a third of the island remains without power more than four months after the storm.
Dive Insight:
Calling it "one of the great impediments to our economic development," Gov. Rosselló in a Monday televised address announced Puerto Rico would seek to privatize the nation's largest publicly owned utility.
"The Puerto Rico Electric Power Authority has become a heavy burden on our people, who are now hostage to its poor service and high cost," Rosselló said in a statement. "What we know today as the Puerto Rico Electric Power Authority does not work and cannot continue to operate like this."
PREPA has been in the spotlight since Hurricane Maria destroyed its grid, leaving its 3.3 million customers without power. In the aftermath of the storm, the utility eschewed mutual aid offers from mainland utilities, rewarding a $300 million contract for power restoration to a small Montana based firm called Whitefish Energy.
The contract and slow pace of power restoration caused outcry in Puerto Rico and Washington, leading to the deal's cancelation, the departure of PREPA Executive Director Ricardo Ramos, and a federal law enforcement probe into the contract's signing. A number of mainland utilities are now operating on the island through mutual aid agreements, though only two-thirds of the island reportedly has power.
Hurricane Maria is only the latest of PREPA's issues. The utility is also $9 billion in debt and working though a bankruptcy proceeding overseen by a federal judge in New York. That court would have to agree to any sale, but in November rejected a request from PREPA's federal oversight board — set up by Congress to guide its restructuring — to appoint an outside director for the utility.
In a statement, bondholders holding much of the utility's debt welcomed Rosselló's plan.
"We believe the American citizens that live in Puerto Rico would be better served by an electric utility run by a private operator with a proven track record, installed immediately, subject to existing PREC oversight and free from government interference," the group said, referring to the Puerto Rico Energy Commission, the island's regulatory body.
Some observers expressed concern about that regulatory oversight. Earlier this month, Rosselló outlined a plan to combine PREC with other island regulatory bodies, placing them under the direction of one gubernatorial appointee. Critics said the plan could weaken independent oversight of PREPA, and they expressed similar concern about privatization.
"PREPA's proposed privatization, without regulatory oversight and mechanisms of consumer protection, will only benefit unscrupulous investors, NOT the people of Puerto Rico," former Puerto Rico Sen. Ramón Luis Nieves said on Twitter. "Be prepared for 'Whitefish Part 2.' "
Many current territory legislators appear to support Rosselló's plan, however. The leaders of the Puerto Rico House and Senate support privatization, Caribbean Business reports, though the Senate leader pledged to carefully review the proposal. The Senate minority leader also supports privatization, the outlet notes, tweeting "Bravo!" at the prospect yesterday.
Revenue and fiscal decisions in Puerto Rico must also be approved by its seven-member federal oversight board, established by Congress to guide the territory government through its financial restructuring. Politico reports Rosselló intends to include plans for PREPA's sale in a new fiscal package he will present to the board by Wednesday.
