Puerto Rico’s economy is starting to rebound. After officially exiting bankruptcy in 2022, Puerto Rico’s economy is on track to grow by 1.8 percent in 2024. One obstacle, however, is the ongoing effort to restructure Puerto Rico’s beleaguered and deeply indebted electricity company, the Puerto Rico Electric Power Authority (PREPA). The company suffers from a legacy of mismanagement and under-investment. Puerto Rico’s government has proposed solutions to promote investment in renewable energy, improve service quality, and trim PREPA’s debt obligations. A meeting is set for bondholders to agree on PREPA’s future on March 4, 2024. Over the medium term, PREPA needs to implement a plan to achieve financial sustainability and guarantee quality service for residents and businesses. In order to get a sense of what’s ahead for Puerto Rico with regards to PREPA, I reached out to Tom Sanzillo, the Director of Financial Analysis at the Institute for Energy Economics and Financial Analysis.
Nathaniel Parish Flannery: What are the biggest problems PREPA faces right now?
Tom Sanzillo: More than six years after Hurricane Maria, Puerto Rico’s electrical system interruption index is 11 times higher than in the United States. Residents endure frequent blackouts and voltage fluctuations that fry appliances. This stems from more than a decade of underinvestment, and a long history of mismanagement.
The process of rebuilding the grid is critically important. To its credit PREPA has a sound plan which maximizes renewable energy saving money and cutting emissions.. This objective is key to a balanced budget. In a good year the fuel budget can be 30 to 40 percent of total outlays and in a bad year 60 percent. Fuel costs are at the root of budget deficits.
Unfortunately, the implementation of renewable energy is plagued by PREPA’s history of mismanagement. The goal of 40 percent renewable energy by 2025 is very far from being met. Today renewable energy is less than 10 percent.
On top of this, PREPA is bankrupt, with more than $10 billion owed to its creditors. Economic projections for Puerto Rico suggest low or no growth. PREPA can assist economic growth by improving the grid and reliability and keeping rates as low as is humanly possible. The no growth environment means the customer base cannot absorb increases in the rates. There is no room to pay legacy debt which produces no improvement in the system.
https://www.forbes.com/sites/nathanielparishflannery/2024/02/13/can-puerto-rico-rebuild-its-electrical-utility/?sh=48dfe5061325
