Puerto Rico’s electricity consumers will pay unreasonably high rates if plans to privatize the Puerto Rico Electric Power Authority move forward.
The IEEFA analysis, “PREPA
Privatization Will Hurt Consumers and Slow Economic Recovery,” recommends
reforming the public model as more reliable, affordable, and sustainable both
financially and environmentally.
If the proposed privatization
model is implemented, IEEFA estimates prices will rise to 27 cents/kWh by
2024. That amount is 18 percent higher than current rates and 35 percent
higher than the 20 cents/kWh goal envisioned in PREPA’s financial plan. The
system would risk further price increases tied to volatility in natural gas
“Privatization would represent
a step backwards for affordable electricity, bring about an economically
uncompetitive system and lose a prime opportunity to maximize renewable
energy,” said IEEFA energy analyst Cathy Kunkel.
The risks associated with
investing in Puerto Rico’s unstable economy and PREPA’s legacy debts will also
weigh heavily on future electricity prices under a privatized system. In
addition, the IEEFA report zeroes in on a lack of accountability and oversight
in the current system that represents a virtual “corruption tax” based on
As examples, the report cites:
Mismanaging the annual $1-2 billion fuel procurement budget, the inflated
Whitefish contract (post Hurricane María), excessive political hiring, misuse
of proceeds from prior bond issuances, weak regulatory oversight, failure to
produce mandated audits on a timely basis and the lack of controls over
financial, legal and accounting advisory costs.
“The Puerto Rican government is
preparing to enter into billions of dollars of contracts through a
non-transparent, politically-driven privatization process,” said report
co-author Tom Sanzillo, IEEFA’s director of finance. “This is a continuation of
the status quo, not a transformation.”
The report also highlights that
the privatization model is likely to lock Puerto Rico into long-term contracts
for natural gas and to crowd out investments in renewable energy and
distributed energy, despite the Puerto Rican government’s policy goal of
achieving 100 percent renewable energy by 2050.
“The current privatization
model will make it all but impossible for Puerto Rico to achieve its goals on
affordability, resiliency and sustainability. There needs to be a rethink of
this policy,” said Kunkel.
PREPA plan will raise rates
while missing opportunity for renewables and dampening economic recovery