Puerto Rico Gov. Ricardo Rosselló announced his administration will begin the privatization of the Puerto Rico Electric Power Authority (PREPA), which he described as “a deficient and obsolete system of generation and distribution of energy on the island that was evident to citizens during the aftermath of Hurricane María.”
“We have a generation system that is 28 years older than the average in the electric power industry in the United States. We have a dependence on oil that makes it increasingly expensive, more polluting, and less efficient,” Rosselló said.
“PREPA has become a heavy burden on our people, who are now hostage to its poor service and high cost. What we know today PREPA does not work and cannot continue to operate like this,” he said.
PREPA, he said, will cease to exist as it operates at present. Apparently, the government will pursue selling power generation facilities and entering into public-private partnerships to run the transmission and distribution network.
Over the next 18 months, there will be a three-phased process to sell off the public utility’s assets to several companies. Part of the goal is to achieve the goal of more than 30 percent of renewable energy generation, to have the ability to respond effectively to natural disasters.
The first phase will define the legal framework through legislation. The market will be monitored and the call for companies interested in participating in the transformation of PREPA will be opened.
During the second phase, the offers of the companies will be received, and their technical, economic, and financial evaluation will proceed.
In phase three, the terms of awarding and hiring the selected companies that meet the requirements for the transformation and modernization of our energy system will be negotiated.
During a televised message, Rosselló said part of the income generated by the transformation of PREPA will be used to capitalize government employee retirement systems.
“If we want to facilitate the creation of new jobs and encourage investment on our Island, we have to change the obsolete energy system of the past, to one that serves as the engine of the economy, both for the reliability of those who produce energy, and for the commitment of the government to regulate and stimulate a modern energy industry,” he said.
PREPA is currently in a bankruptcy proceeding, addressing, among other issues, its whopping $9 billion debt with bondholders.
Late Monday, the Bondholder Group released a statement saying “it has always welcomed a range of potential strategies to improve operations at PREPA, and 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 Puerto Rico Energy Commission oversight and free from government interference.”
”It is also imperative that plans for PREPA’s future do not cause anyone to lose sight of the pressing present day challenge: getting the lights back on for everyone on the island,” the group said.
“We believe the only path for any proposal to deliver low cost and reliable power will be if it respects property rights, since failure to do so will result in years of litigation from multiple parties. The sole way to achieve this is to break the pattern of continued disregard for the law and past obligations and reach a consensus resolution with assorted stakeholders,” they added.
Private sector weighs in
The governor’s announcement drew immediate reactions from different private-sector groups which for the most part agreed that the changes announced will be good for Puerto Rico.
“The announced changes will allow Puerto Rico to become a competitive jurisdiction, ending a monopoly that discourages investment and the creation of jobs,” said Nelson Ramírez, president of the United Retailers Association.
Ricardo Álvarez Díaz, outgoing president of the Builders Association, said these changes are what Puerto Rico needs at a time when it has to rebuild and renew due to the hurricanes that devastated the island last September.
“The announcement by the governor inspires confidence and certainty that the government will do the right thing in this matter,” added Alvarez, accompanied by the new president of the Homebuilders Association, Emilio Colón-Závala.
Meanwhile, the president of the Retailers Association, Iván Báez, said “for many years the private sector has requested the total transformation of the energy system in Puerto Rico, which, due to its inefficiency, prevents our economic development. For that reason, we support the proposal presented by the governor.”
For his part, the president of the Puerto Rico Hotels and Tourism Association, Miguel Vega and the vice president of the Foundation for Puerto Rico, Maria Jaunarena, said “for many years we have heard promises of PREPA’s transformation and we hope this proposal will be completed for the welfare of the people and our economy. The cost of energy and its inefficiencies are obstacles to the development of the tourism industry.”
Similarly, Jon Borschow, chairman of Puerto Rico’s Destination Marketing Organization, said “it is essential that our energy generator and distributor is updated to the 21st century.”
Finally, Daneris Fernández, president of Enterprise Puerto Rico and Alicia Lamboy, president of the Puerto Rico Chamber of Commerce, said a transformation like the one announced by the governor will have positive effects in all sectors of the island’s economy and will facilitate investments.