Puerto Rican Grassroots and Environmental Groups Oppose Privatization of Island’s Electric Utility

Interview with Cathy Kunkel, an energy researcher with Energy Economics and Financial Analysis, conducted by Melinda Tuhus

After Hurricane Maria devastated Puerto Rico in September 2017, electricity has finally been restored to most of the island’s more than 3 million residents. The antiquated, dysfunctional and polluting electricity grid collapsed after Maria’s hurricane force winds pummeled generators, power lines and transformers.
Now a new proposal to settle the more than $8 billion in legacy debt of the publicly-owned Puerto Rico Electric Power Authority, or PREPA, signals profits for bondholders, insurers and consultants at the expense of Puerto Rico’s electrical system and consumers. That’s according to research by the Institute for Energy Economics and Financial Analysis. The debt restructuring agreement was negotiated between PREPA, the Financial Oversight and Management Board for Puerto Rico (a fiscal control board created by Congress to deal with Puerto Rico’s debt crisis), a group of bondholders and one of the insurers of PREPA bonds.

Puerto Rico’s Gov. Ricardo Rossello and the head of PREPA support the deal, while grassroots and environmental groups oppose it. Cathy Kunkel, an energy researcher with the U.S.-based Institute for Energy Economics and Financial Analysis says efforts to privatize PREPA could hamper the island’s conversion to renewable energy and keep it locked into burning fossil fuels – either the dirty imported oil it operated on before the storm or on a build-out of fracked natural gas. Between The Lines’ Melinda Tuhus spoke with Kunkel, who describes the process by which this critical decision will be made, and who’s supporting and opposing it.

CATHY KUNKEL: There are definitely a lot of civil society groups that are against it, including the main union within the power authority. I wouldn’t say it’s inevitable, for a couple of reasons. Looking at Puerto Rico, there was an attempt in the late ‘90s, I believe, to do something similar in terms of a concession agreement for the water company, which is also a publicly-owned utility. They were basically going to bring in a private operator to run the water utility. They did sign the contract and it ended up being so expensive and rates went up a lot and then a few years later, they cancelled the contract. So even if they sign a deal for a concession for the transmission and distribution system, it doesn’t necessarily mean that it’s forever.

Another piece of it is that I think these deals they are trying to put together are fairly financially risky to investors as well, especially now with this debt restructuring agreement that says the first priority is paying off the legacy debt. It’s going to be more expensive and riskier for new investors to invest in the electrical system, which means they may not get as much interest as they hoped for and it may end up being very expensive to finance new private generation in Puerto Rico. So all those things make it so I would not call privatization inevitable.

BETWEEN THE LINES: Cathy Kunkel, who makes the decision about whether PREPA will be privatized? Since Puerto Rico is a commonwealth – some say colony – of the U.S., is it Congress?

CATHY KUNKEL: No, because in 2016, Congress established this fiscal control board for Puerto Rico and also essentially a bankruptcy process in the courts to deal with the Puerto Rican debt issue. So the debt agreement that has been struck for PREPA has to be approved by the bankruptcy court and then it also requires some new legislation in Puerto Rico, so effectively it has to be approved by the Puerto Rican legislature.

BETWEEN THE LINES: Are there other groups besides the main union at PREPA that are opposed to privatization?

CATHY KUNKEL: All of the environmental groups in Puerto Rico are against it, in part because of the rate impact, and also because it imposes debt charges even on people who install their own solar system. So it’s going to act like a disincentive to go solar, even though after the hurricane literally everyone agreed that it was ridiculous that Puerto Rico has no solar essentially, and that would help make the system more resilient for future storms.

BETWEEN THE LINES: That doesn’t bode well for solar. The electrical system before the hurricane was powered by filthy imported oil, which was toxic at ground level and extremely damaging to the climate. Is that what’s powering the system now that the grid has been more or less restored?

CATHY KUNKEL: Essentially, they patched back together the system that was already there and now they’re moving toward natural gas. Even though there’s a very strong renewable energy law on the books now and there’s a lot of talk about moving toward solar, there’s a whole lot of money moving toward natural gas. So that’s also part of the fight is trying to build up the domestic solar resource as opposed to shifting the dependence from one fossil fuel to another.

BETWEEN THE LINES: How big a threat is this possible privatization to the grid, to ratepayers, and to solarizing the system?

CATHY KUNKEL: Yeah, I think it’s a pretty big deal because the electrical system already was, before the hurricane, in pretty serious trouble. The rates are high; there’s very little renewable energy on the system, and if you’re trying to move in the direction of more solar and more rooftop solar in particular, which is what the Puerto Rican government it says it wants to do, then this really sets you back because it puts this new charge onto the rates, which will crowd out new investments. And also, as I just mentioned, it imposes a tax on people who install their own grid-connected solar systems, so that becomes a disincentive for people to move in that direction, too.

BETWEEN THE LINES: Does the Congress or other groups in the U.S. have a role to play?

CATHY KUNKEL: Yeah, in terms of the debt deal, the deal was only announced a couple weeks ago, and so I think the opposition is still forming and we’re going to see who comes out against it and how. But so far, Raul Grijalva, who is chairman of the House Natural Resources Committee, which is the most powerful congressional committee in terms of Puerto Rico, he’s come out publicly and urged the bankruptcy judge to reject the deal. Nydia Velazquez, who’s a representative from New York, she’s Puerto Rican, came out against the deal. So, there are people in the mainland who are starting to speak up about it, and I think we’ll see in the coming weeks how community and labor groups in Puerto Rico start mobilizing against it.

For more information, go to Institute for Energy Economics and Financial Analysis’  website  at ieefa.org.

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