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Puerto Rico’s Best Hope for Keeping the Lights On


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2017 Sep 24, 7:24am   3,768 views  11 comments

by Blurtman   ➕follow (2)   💰tip   ignore  

The indebted island was already eager to hand its electric utility to private owners. Hurricane Maria just made it much more likely.

When Hurricane Irma swept through South Florida on Sept. 10, about 4.5 million homes lost power in an extended blackout. In the days afterward, eight people died of heat-related causes at a nursing home without power in Hollywood, Florida. Floridians directed their outrage at Florida Power and Light, one of the state’s private regulated utilities, which was accused of shorting resilience spending as profits rose year after year.

Ten days later, the blow that Hurricane Maria has delivered to Puerto Rico made Irma’s impact on Florida look like a spring shower. Meanwhile, the service, management, and upkeep of the Puerto Rico Electric Power Authority, or PREPA, makes Florida Power and Light look like Amazon.

A 2016 report on PREPA commissioned by the Puerto Rican government is scathing. In the latter months of that year, for example, Puerto Ricans experienced four to five times the number of service outages as U.S. customers on average, though they pay the second-highest rates in the U.S. after Hawaii. Instead of investing in preventive maintenance, PREPA operates in a permanent state of triage. Its budget is “opaque and discretionary.” Record keeping is “subpar.” A third of the capital budget is spend on discretionary administrative expenses, hinting at a slush fund. Thirty percent of PREPA’s employees have retired or migrated to the mainland since 2012, the Washington Post reports—especially its skilled workers. Money is short, the report concludes, but so is human and intellectual capital.

The agency has $9 billion in debt and said it needs $4 billion to upgrade its infrastructure, including plants whose reliance on oil is passed onto Puerto Ricans in the form of high rates and dirty air. It filed for bankruptcy in July.

And that was before a Category 5 hurricane pounded the island this week.

Maria has left apocalyptic scenes on Puerto Rico, where 150 mph winds stripped whole hillsides bare of leaves and toppled concrete power-line poles. Precipitation rivaled global records, and river flows obliterated previous highs. Parts of the island received the sum of Hurricane Harvey’s three-day Houston rainfall in less than 24 hours—a year’s worth of Seattle precipitation in just a day, as the meteorologist Eric Holthaus noted.

PREPA director Ricardo Ramos said the power grid has been “destroyed.” Puerto Rico Gov. Ricardo Rosselló told Anderson Cooper it would take months to restore electricity to the island’s 3.5 million residents. It’s a task made more complicated by the fact that PREPA has become a political football, a problem symptomatic both of Puerto Rico’s economic crisis and the controversial Washington-run political system in place to manage the island, including its maligned power corporation.

The island has spent more than a decade in recession. Unemployment is more than 10 percent, and the population declined by more than 10 percent between 2004 and 2016. In 2015 alone, the net outward migration was more than 64,000, according to Pew. Six in 10 children live in poverty.

In May, Puerto Rico filed for bankruptcy under the provisions set forth in PROMESA (Puerto Rico Oversight, Management, and Economic Stability Act), a law signed by President Obama in the summer of 2016. The act established a financial control board for the island, similar to the emergency managers that have governed Detroit and other American cities in the wake of bankruptcies.

So far, that board has made some unpopular decisions, cutting spending on public health by 30 percent, closing schools, and lowering the minimum wage for young people to a little over $4 an hour. In the near term, austerity will worsen conditions on the island, where analysts expect the recession to continue until 2020. Many Puerto Ricans see the board as a tool of colonial oversight; at the time PROMESA passed, Bernie Sanders said it was a “junta” that would rule the island like “a colonial master.”

But this summer, the financial control board did something surprisingly wise, much to the disappointment of the congressional Republicans who created it: It voted 4–3 to reject a restructuring agreement for the power authority’s $9 billion in debt, infuriating the hedge funds that had negotiated a repayment deal to recoup 85 percent of what they were owed.

Luis Santini Gaudier, a consumer representative on the PREPA board, had criticized the deal as “lucrative business” for creditors who had bought PREPA debt on the cheap. The deal was a rip-off, wrote Tom Sanzillo, the director of finance for the Institute for Energy Economics and Financial Analysis, in the Hill: “Puerto Rico’s economic growth for an entire generation will go largely to off-island financiers rather than into the Puerto Rican economy.” (And that was before accounting for the rest of Puerto Rico’s $60 billion in debt.)

The board’s idea is to privatize PREPA. “Lowering the price of electricity and spurring economic growth depended on reforming Prepa’s operations, not merely restructuring its credit,” the four members who had rejected the debt deal wrote in a Wall Street Journal op-ed. Privatization would allow PREPA to “modernize its power supply, depoliticize its management, reform pensions, and renegotiate labor and other contracts to operate more efficiently.” Most importantly, they wrote, no new investment will come into PREPA’s plants, transformers, and lines if Puerto Rico ratepayers are spending the next three decades paying off debt to vulture funds in New York.

This plan has made unlikely allies of New York bankers and Puerto Rican labor unions. Union officials are convinced PREPA chiefs are deliberately letting the system fall apart to strengthen the case for privatization, which the island’s governor declared was inevitable before the hurricanes hit. Unions believe their contracts and pensions are safer with elected politicians than with independent business leaders.

The banks, which sued the fiscal control board and lost, should be worried that PREPA’s assets could be sold off for a song in order to get a private operator invested in the island’s power system. They’ll wind up getting paid less, and later, than will newer investors eager to rebuild the island’s infrastructure. Their goal—getting paid for years to come by Puerto Ricans on their electricity bills—is at odds with the fiscal control board’s goal of making the island’s electricity cheaper.

PREPA has played up the extent to which recent funding shortfalls (during the control board era and before) have precipitated the crisis. Ramos, PREPA’s executive director, noted before Irma that the utility’s plants were vulnerable because no money had been spent on maintenance. Miguel A. Soto-Class, the president of the Center for a New Economy, a Puerto Rican research group, told the New York Times that a lack of tree pruning (again, to save money) had left the country’s 2,478 miles of transmission lines and 31,485 miles of distribution lines vulnerable to a storm. “PREPA’s current weak financial condition will affect the utility’s ability to quickly repair and restore service after this natural disaster,” Moody’s wrote in early September, before Irma.

Now a disaster has struck that is worse than what anyone had imagined; damage will likely cost hundreds of millions to repair, even as the future of PREPA—including such basic questions as its ownership—remains tangled up in politics. “This is a moment of crisis that we need to benefit from and transform into an opportunity of change, production and investment,” Jenniffer González, the island’s nonvoting representative in Congress, told the New York Times after Irma.

This wouldn’t be the first disaster to ease the way toward privatization. Selling off public assets has never been popular in Puerto Rico, but less popular still, in the wake of Hurricane Maria, will be a dysfunctional PREPA that can’t turn the lights on.

http://www.slate.com/articles/business/metropolis/2017/09/hurricane_maria_could_lead_puerto_rico_s_electric_utility_prepa_to_privatize.html

#SanJuanBlues

Comments 1 - 11 of 11        Search these comments

1   Shaman   2017 Sep 24, 7:58am  

Send them some solar panels and call it good.
They've thoroughly fucked themselves already. Maybe some personal responsibility will fix the problem. If people are responsible for their own power needs via solar then they might take better care of it.
2   MisdemeanorRebel   2017 Sep 25, 6:51pm  

Puerto Rico - only American when they need money.

At all other times they insist on obtaining every trapping of being an independent country (too good to be under US Flag at Olympics; march under Own Flag as if own country) with none of the responsibilities (like income tax) of being an American

Statehood or GTFO. No more Doormat.
3   Blurtman   2017 Sep 26, 4:16am  

TwoScoopsMcGee says
At all other times they insist on obtaining every trapping of being an independent country


My main complaint is that many of the women have too fat bottoms, and also Afro features, which I find generally unappealing, although not always.

4   zzyzzx   2017 Sep 26, 9:51am  

Obligatory mention of Puerto Rico's outrageous government pensions that still haven't been dealt with. That's the proverbial 900lb gorilla in the room. The corruption, high electricity prices, above average minimum wage for the area, and reputation as a crappy place to visit are all secondary to that.
http://www.reuters.com/investigates/special-report/usa-puertorico-pensions/

Today, TRS and the other main pension fund, the Employees Retirement System (ERS), together covering about 330,000 workers and retirees, are virtually penniless. Their combined unfunded liability totals $43.2 billion. With about $1.8 billion in assets to pay $45 billion in liabilities, the 96 percent combined shortfall is among the biggest of any U.S. state pension this century, and probably the biggest ever for pensions “of this size and scale,” said Keith Brainard, research director at the National Association of State Retirement Administrators.

And they’re only sinking further. Their combined burn rate – the difference between what they pay out and what they receive in contributions – is more than $1 billion a year, forcing them to rapidly liquidate assets. At that rate, they are forecast to run out of money in 2019, according to a 2015 report by actuarial and consulting firm Milliman, on whose recommendations the government relies.

TRS officials declined several interview requests. ERS Administrator Pedro Ortiz Cortes said pensions “kind of fell off the radar” after the 2013 reforms. The legislation was “reasonable in theory,” he said, though “the ability to comply was not taken into consideration.”

SHIFTING THE BURDEN

Absent a permanent fix, the responsibility to cover benefits will shift to the Puerto Rican government, creating a pay-as-you-go system funded mostly by taxpayers. At $1 billion a year, retirement benefits would cost the island around 11 percent of annual revenue, an unsustainable burden when combined with the 36 percent of revenue now going toward paying bondholders.

It can protect pensions, forcing hedge funds and other bondholders to accept draconian cuts under a debt restructuring – a scenario that could wreck Puerto Rico’s ability to borrow internationally for years.

Or, it can lessen the burden for bondholders by cutting pensions as well, sparking domestic political backlash and fueling outmigration that would further shrink an already dwindling tax base.

“I would need to go to the U.S., sell my house and start looking for a job” if pensions were cut, said Obdulia Lopez, 60, a retired social services worker from rural Juana Diaz who lives on a pension check of about $1,000 a month, after taxes.

Why are they allowing someone under 60 to retire and take a taxpayer funded defined benefit pension??? This is the problem!!!

Puerto Rico can’t fully control which path it takes. Governor Garcia Padilla’s administration on Feb. 1 unveiled a plan that would preserve pensions while reducing what’s owed to bondholders.

Again, not solving the actual problem.

Most pensions have a few decades to mature, building up assets in the early years before members retire. Puerto Rico’s pensions carried big unfunded liabilities nearly from the outset, inheriting them from retirement systems in place before the island became a self-governed U.S. commonwealth in 1948. From there, longer life expectancies helped deepen the gap.

So, too, did island leaders. Populist Luis Munoz Marin, Puerto Rico’s first elected governor, in 1956 instituted cultural excursion loans for pensioners. Puerto Rico was in “a stage of rapid social, economic and political development,” the 1956 law said, and should aim to enable “the largest possible number of Puerto Ricans to travel to foreign countries.”

Today, ERS and TRS participants can take out as much as $5,000 to travel if they can show that the trip will be culturally rewarding. The pensions also offer as much as $5,000 for personal loans and $100,000 for mortgage loans. Together, the two funds have more than $1 billion tied up in illiquid loan portfolios.

‘CANDY TO CHILDREN’

The largess continued under Luis Ferre, governor from 1968 to 1972, who increased benefits and instituted mandatory Christmas bonuses. Last December, creditors griped privately when Puerto Rico doled out about $120 million of the bonuses even as it missed some minor bond payments.

Christmas and medication bonuses, ad hoc cost-of-living adjustments, death benefits and other perks were expanded periodically throughout the 1980s, ’90s and 2000s. These now account for nearly $3 billion in liabilities, according to Milliman’s latest actuarial report, even after reductions under the 2013 reforms.

Rafael Hernandez Colon, president of the Puerto Rico Senate during Ferre’s administration, said his party went along with the Christmas bonuses “for political reasons” to avoid being labeled obstructionist, but did not consider it good governance. “We looked at it as giving candy to children,” Hernandez Colon said in an interview at his foundation in Ponce, a city on Puerto Rico’s southern coast.

Yet when Hernandez Colon won the governor’s seat in 1972, his administration approved perhaps the most structurally damning benefit of all. Under a 1973 amendment to existing pension law, government employees who retired at 55, with 30 years of service, were entitled to lifetime annual payouts worth 75 percent of their salary.

That percentage was based not on a worker’s career average salary, but on the average of his three highest salaries. So those who were promoted close to retirement, or for only a short time, could earn lifetime pensions disproportionate to contributions.
5   MisdemeanorRebel   2017 Sep 26, 10:02am  

zzyzzx says
Their combined unfunded liability totals $43.2 billion


And they don't pay tax. Jesus Christ, you know our fucking doormat Congress will probably give them our money they don't pay federal income tax into.

Enough with being a doormat.

"But they're poor and their duly elected leaders blew all their money in corruption and mismanagement! Give them your money!"

Puerto Ricans and the "Poor PR" crowd hate when you mention they don't pay tax in Puerto Rico because it interferes with their demands for charity. I expect we'll hear the "Well, if they go to NYC and become a short order cook, they pay some taxes on that..." argument soon.
6   Strategist   2017 Sep 26, 10:32am  

Blurtman says


She's hot. I wouldn't mind fucking her.
7   Ceffer   2017 Sep 26, 11:13am  

Dicey problem. How to incorporate Latin American patronage and corruption into a fake USA framework?

Do we actually NEED a tropical money pit?
8   zzyzzx   2017 Sep 26, 11:27am  

Allowing people to retire at 55 with 75% of their pay is the biggest problem here. They need to cut off these people under 65 and make them get a job.
They already moved government employees to 401K's.
Then deal with the insane electric prices, since, oil is one of the more expensive, if not most expensive way to generate it. I get it that oil is the easiest to import to the island, but a combo of wind/solar/hydro/pumped storage hydro/natural gas could cit electricity costs quite a bit.
They also need to do whatever it takes to become the preferred tourist destination for Americans (since there are plenty of people who really don't want to get a passport). They can do this if they try. Never having been there, I can't say for sure, but it does have a bad reputation and that is something that can be changed.
After that, their higher than surrounding area minimum wage might still be a problem as well.
9   anonymous   2017 Sep 26, 11:50am  

I love PR and I'm glad that Trumpcucks are afraid to travel there because of FakeNews that it's dangerous . The food is excellent. The women are amazing and their music is fun.

Where else can you hike with wild horses, and pestork on your own private Black Sand beach? Night cap kayak in a bioluminescent bay?

Stay away from Puerto Rico, you will hate it!
10   WookieMan   2017 Sep 26, 2:52pm  

errc says
I love PR and I'm glad that Trumpcucks are afraid to travel there because of FakeNews that it's dangerous . The food is excellent. The women are amazing and their music is fun.

Where else can you hike with wild horses, and pestork on your own private Black Sand beach? Night cap kayak in a bioluminescent bay?

Stay away from Puerto Rico, you will hate it!

Only been once, but had fun. Was there two nights pre-cruise departure and did another night when we got back. Some parts were sketchy, but didn't feel unsafe by any means. Did the bio luminescent bay, was a little underwhelmed with this to be honest, but was still fun kayaking in practically pitch black darkness. Highlight of our limited time there was the El Yunque Rain Forest. Had a blast there. Really only experienced the San Juan area and the Northeast coast including the rain forest.

The area we got dumped at for the bio bay tour though had a shit load of stray dogs. All very cool, but being younger it was one of my first experiences with places that just have fucking random dogs everywhere. Not sure if anyone else has experienced the same thing. We were actually looking at a trip there with the kids since we could use points and not pay the international BS to Mexico, Dominican, etc. Guess that's not happening for a couple years now. Although I'm sure there are some massive real estate deals coming down the pipeline with this hurricane destroying practically everything.
11   zzyzzx   2017 Sep 27, 8:58am  

errc says
I love PR and I'm glad that Trumpcucks are afraid to travel there because of FakeNews that it's dangerous .


I'd go to PR on vacation (like going to the beach in February). I doubt that it's anywhere nearly as bad as it's reputation.

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