To get lights back on, Puerto Rico must boost transparency

Puerto Rico’s hurricane woes are far from over, as the lights remain off for a majority of the island for the foreseeable future. The American territory is unlikely to get most of the grid online before the end of December, with devastating consequences for health-care delivery and other basic services.

These dire straits have been made even worse by the actions of the island’s publicly run power utility, the Puerto Rico Electrical Power Authority (PREPA). PREPA will continue to keep consumers in the dark and taxpayers in the red unless the administration reins in the Puerto Rican government’s poor decisionmaking. 

{mosads}In attempting to bring electrical service back to Puerto Rico, the Puerto Rican government and Financial Control Board have a single goal in mind: Privatize PREPA. While this is a laudable goal, the path to privatization could be nefarious and ultimately keep Puerto Ricans in the dark longer.

To see why, it’s important to examine the power authority’s pitfalls. PREPA bizarrely eschewed the help of leading American utilities, despite their combined expertise and experience in restoring operations in disaster zones.

Rather, PREPA chose to contract with a little-known firm called Whitefish Energy Holdings. Despite having only three federal contracts over its two-year lifespan and miniscule investment budget (annual revenue of $1 million), the Power Authority believes Whitefish to be an appropriate partner.

But even a cursory examination of the company reveals otherwise. In 2016, Whitefish was unable to secure financial backing for a promised transformer-manufacturing plant in Montana, despite repeated promises by leadership that the endeavor would create at least 1,000 new jobs. 

Worse, when it comes to actual recovery taking place, the Puerto Rican government is evidently embarrassed at the scope of Whitefish’s operations, overstating the number of boots on the ground.

Despite the assertion of PREPA CEO Ricardo Ramos that 200 Whitefish contractors are already on the ground, Whitefish CEO Andy Techmanski claimed the figure was only 75. With two listed full-time employees, the company can only provide limited oversight of these workers.

While there’s certainly nothing wrong with a utility, public or private, contracting out rebuilds to private firms, the selection process should reward experienced builders up to the task, particularly when it is funded by FEMA and federal taxpayer dollars.

Public power authorities, however, are doomed to contract out jobs to ill-equipped companies like Whitefish due to political maneuvering and the lack of a profit motive.

PREPA’s decision to forgo the “mutual aid” of the American Public Power Association (APPA) in favor of Whitefish was allegedly due to financial concerns, as Ramos feared that required payments/reimbursements would drain the rainy-day fund.

Public utilities, for example, typically have more health and safety violations than their market counterparts. In addition, power prices are normally higher, which is no small issue for the cash-strapped island of Puerto Rico.

Data from the Energy Information Administration (EIA) show that, in states without public utility monopolies, energy prices have risen by 50 percent for individual customers and 30 percent for commercial customers from 2002 to 2015. For states that have maintained monopolies however, the respective figures are 52 percent and 53 percent. 

Clearly, opening up Puerto Rico’s energy market would mean lower prices throughout the island, and better decision-making by key industry players.

But so far, Puerto Rico hasn’t gotten the memo. Union leaders at PREPA have spearheaded opposition to any talk of privatization, falsely claiming that the power authority’s poor management is part of a deliberate scheme to privatize the organization. 

Tesla CEO and hype-master Elon Musk pledged to work together with the Puerto Rican government to use renewable technologies in reviving the electrical system. And, given the intermittency issues and cost overruns associated with solar and wind projects, embracing the “Tesla Model” will only hasten the power authority’s destruction.

In a press conference with the governor of Puerto Rico, President Trump condemned the corruption taking place in Puerto Rico in the aftermath of Maria. Given this, the president should immediately appoint a czar to ensure transparency and accountability throughout the recovery process.

With adequate federal oversight, dubious decisions, such as the Whitefish contract, could be vetoed by more competent authorities.

A thorough overhaul, however, requires the FBI and congressional investigators to investigate the full extent of corruption and side-deals that plague San Juan. To ensure that dollars are well spent, FEMA and the Army Corps of Engineers must examine the qualifications of companies or individuals that may stand to benefit from Puerto Rican government contracts.

Starting this accounting process will allow for a transparent and efficient recovery not possible under current conditions. As constituted, the Financial Control Board is simply too conflicted and inept to oversee recovery efforts.

As PREPA’s inept actions have shown, cleaning up Puerto Rico’s electricity crisis won’t be easy. But structural reforms that have already worked in U.S. states can deliver a much-needed jump-start to the island and allow residents to keep more money in their pockets.

With the addition of some federal oversight, taxpayers and ratepayers can finally breathe easy over Puerto Rico’s woes. 

Ross Marchand is a policy analyst with the Taxpayers Protection Alliance, an organization that aims to inform the public of the effects of excessive taxation and spending by all levels of government.