Something That Works Well

Published on March 8, 2020 / Leer en español

Sergio portrait
Policy Director

Sergio Marxuach explains why we must strengthen the Puerto Rico Energy Bureau and guarantee its regulatory independence at this crucial juncture for the Puerto Rico Electric Power Authority and the island’s electric grid. 

It is well known that the Puerto Rico Electric Power Authority (PREPA) is an organization that has traditionally operated with little transparency and poor accountability; for years it has voluntarily and recklessly flouted both local and federal environmental laws and regulations; and it has become a dead weight on the country’s economy with its high, arbitrary rates and unreliable service. In addition, it has been – and continues to be – a focus of political and governmental corruption. In fact, it is perhaps the second most corrupt agency of the government of Puerto Rico, after the Department of Education.

To address these problems, we advocated in 2014 in favor of the creation of a regulatory commission exclusively for the electricity sector that would exercise the following roles, among others: regulate the electricity market in Puerto Rico; ensure that the rates are fair and reasonable; ensure the quality and reliability of the service; encourage long-term planning through an integrated resource plan; promote the integration of new technologies at the lowest possible cost to meet long-term electricity demand; approve long-term capital investments; promote the integration of renewable energy producers; promote the implementation of energy efficiency and demand reduction measures, which are usually the lowest cost solutions to reduce rates; provide an effective forum with a lawyer to handle customer complaints; and reduce PREPA’s environmental “footprint” and its greenhouse gas emissions.

The Commission was created by Law 57 of 2014. In its short existence, the Puerto Rico Energy Commission, working with a small budget and limited human resources, won important victories against PREPA. For example, it managed to force PREPA to prepare and adopt its first integrated resource plan for long-term planning and significantly reduced an increase in the rates that bondholders supported as a condition for restructuring PREPA’s debt.

Despite, or perhaps because of its good performance, the existence of the Commission was recently threatened. Then governor, Ricky RossellĂł, probably due to reasons of partisan politics, delayed the appointment of candidates for the positions of commissioner and president. The strategy seemed to be to condemn the Commission to a slow death. Legislation was eventually passed to degrade the rank of the Commission, to a “bureau,” but thanks to the efforts of Senator Larry Seilhamer, the new Puerto Rico Energy Bureau (PREB) retained most of the former Commission’s powers and its independence.

The existence of an independent regulator of the electricity sector in Puerto Rico is more important than ever at a time when the long-term future of both PREPA and the electrical system of Puerto Rico are being discussed. The PREB is currently considering PREPA’s new Integrated Resource Plan (IRP). The IRP is a long-term plan, usually twenty years, that outlines the components — capital investment, generation technology, human resources, among others — necessary to implement a jurisdiction’s public energy policy.

The main controversy regarding the IRP lies in determining how much generation capacity with renewable sources are we going to connect to the grid and how much electricity we will continue producing with fossil fuels. The foreign and domestic interests that support natural gas are powerful, and well connected and financed. If it were not for the Bureau, PREPA would have already granted contracts for hundreds of millions of dollars to build gigantic new generation plants for natural gas, tying us for decades to a technology that is in the process of being eliminated around the world.

The PREB will also have to pass judgment soon on the sun tax proposed by the Fiscal Control Board to repay PREPA bondholders. This “Transition Charge” will structurally increase the future cost of electricity in Puerto Rico, as it increases by 64% during the term of the restructured bonds. According to an analysis carried out by Dr. Ramón Cao, this charge would negatively affect economic growth, reduce employment and increase inflation. It is up to the PREB to stop this new tax and minimize any other increase in the electricity bill proposed by the Fiscal Control Board.

In addition, the government of Puerto Rico is currently negotiating with a private company to manage and operate the island’s electricity grid, and eventually it intends to do the same with the generation assets. Regardless of the option you favor for PREPA: (1) keep it as a public corporation; (2) restructure it as a mixed capital company, with government and private sector participation; (3) keep it only as the operator of the transmission and distribution grid and liberalize power generation; or (4) privatize it in its entirety, the PREB will have to protect the interests of consumers, keep both PREPA and any private operator in line, regulate the electricity market and stop rent seeking and predatory behavior from internal and external interest groups to the corporation that could benefit unfairly from changes to the current market structure.

In a country where we complain that nothing works, both the Commission and the Energy Bureau have worked well. Therefore, the Bureau must be strengthened to continue operating as an independent entity that regulates the electricity market in an objective manner and free of vested interests, whether financial or political. If we truly want to transform our energy system into a modern one, which integrates renewable energy sources, that is resilient, cost effective and sustainable, it is imperative that the Puerto Rico Energy Bureau operate at full capacity.

This column was originally published on March 8, 2020 in El Nuevo DĂ­a.