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Puerto Rico's oversight board considering privatization of 'failing' power utility

by Josh Siegel, Washington Examiner

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Washington, November 7, 2017 | comments

“The board is considering privatization as one of our options, maybe privatization of the entire system, some select part, or bringing in the private sector to compete,” she added. “We are looking at all of those.”

Committee Chairman Rob Bishop, R-Utah, said he intended Tuesday's hearing to focus on how the oversight board can play a stronger role in restoring power to Puerto Rico and ensuring the long-term viability of the electric grid.

As of Monday, 42 percent of the bankrupt island’s electricity had been restored after Hurricane Maria knocked out the power grid more than six weeks ago.

Puerto Rico Gov. Ricardo Rossello has resisted the oversight board’s powers. He has vowed to fight in court the board’s decision to appoint Noel Zamot, a retired Air Force colonel, to serve as emergency manager of the Puerto Rico Electric Power Authority, the power utility known as PREPA.

“To solve this problem, it needs to be done in coordination, not in an adversarial way,” Bishop said. “The board is not going to go away until your job is finished. The grid is the future of Puerto Rico. That has to be the first thing fixed, as everybody has been saying here.”

Zamot’s position as emergency manager for day-to-day operations of PREPA is subject to approval by a judge. The board filed an “urgent motion” Oct. 26 with the U.S. District Court of Puerto Rico to permit Zamot’s appointment. A judge is expected to make a ruling on Zamot’s position at a Nov. 13 hearing.

Zamot, who also testified before the committee Tuesday, said recovering Puerto Rico’s energy infrastructure requires a “wholesale reimagining of the grid” that includes a mix of federal and private funding.

He said the oversight board plans to announce a “transformation plan” for the grid by mid-December, which will include cost estimates. He could not provide to lawmakers Tuesday the financial damage to the grid.

The board has identified $3.3 billion in private capital that seeks to invest in Puerto Rico infrastructure projects, Zamot said.

As an example, he noted a waste-to-energy project sought by a New York company called Energy Answers that would involve an $800 million private investment to create a plant to convert waste into electricity.

Puerto Rico’s energy strategy seeks to achieve 50 percent renewables by 2040, Zamot said.

“We intend to do just that, not only for generation but to attract innovative capital solutions from the private sector for transmission and distribution as well,” Zamot said.

Renewables constitute 4 percent of the island’s electric grid.

Rep. Raul Grijalva of Arizona, the top Democrat on the House Natural Resources Committee, urged caution on a potential surge of private investment.

“If [Republicans] look to use the devastation in Puerto Rico to ram through projects faster, that would be a mistake,” Grijalva said at Tuesday's hearing.

PREPA was failing before Hurricane Maria hit. It is responsible for $9 billion of Puerto Rico’s $73 billion debt load.

The power utility, heavily dependent on Venezuelan oil, has aging power plants and has not maintained its energy infrastructure. It has lost two-thirds of its workforce in the past three years, as residents migrate to the mainland U.S. to escape the island's financial woes and a stagnant economy.

Puerto Rico's federal oversight board was created by Congress under the Obama administration to oversee the restructuring process of the island's debt.

It rejected a proposed settlement on PREPA's $9 billion in debt, and the power monopoly filed for bankruptcy in July.

Lawmakers from both parties said Tuesday they hope Zamot’s appointment as emergency manager if confirmed by a judge, would hasten reforms at PREPA.

Rep. Darren Soto, D-Fla., said Puerto Rico should “set up regions to be bid out and allow [mainland] utilities to be able to bid” to “break up [PREPA’s] failing monopoly.”

“PREPA has been part of the problem and a vehicle of political patronage for decades,” Soto said. “PREPA is failing the Puerto Rican people. Puerto Rico can be an energy model for the 21st century if we do this right.”

Rep. Louie Gohmert, R-Texas, compared PREPA’s performance to that of the Department of Veterans Affairs.

“When you look at how long it is taking to return power, it’s kind of looking like PREPA is to electricity what the VA is to quick and effective health care for veterans,” Gohmert said. “I can't imagine it being worse if it were privatized.”

Zamot has indicated he's open to privatization and suggested Tuesday it could be part of the solution.

“We are trying to consider all options,” Zamot said. “Privatization may be one of those. Clearly attracting innovative private solutions is part of it, so the federal authorities don’t have the sole responsibility for footing the bill.”

Before moving to long-term planning, Jaresko, the board’s executive director, asked lawmakers to clarify the board’s power to appoint Zamot, review contracts and set a fiscal plan, through new legislation.

She said Congress should make federal aid to the island contingent on reaffirming the board’s authority.

Jaresko says the board has broad authority already, but disagreements with other stakeholders "end up in time-consuming and costly litigation.”

“We would appreciate a legislative affirmative of those, and/or conditioning of appropriations on those powers as you see fit,” Jaresko said Tuesday.

At least one Democrat suggested Jaresko is asking for too much.

“Do you believe you are a kind of supreme dictator over everything?” Rep. Luis Gutierrez, D-Ill., asked sarcastically.

Jaresko said the U.S. territory needs emergency and restoration funds “on an unprecedented scale.”

Puerto Rican authorities have estimated the island suffered $45 billion to $95 billion in damage from the storm. Congress has approved nearly $5 billion in aid.

“It is very difficult for anyone in Puerto Rico to see the future at this stage,” Jaresko said, noting that her own home outside San Juan remains without power. “So much depends on you the Congress and how much is appropriated to Puerto Rico.”

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