September 12, 2017; The Intercept
While plans to privatize Puerto Rico’s energy sector have been in the works for years, Hurricane Irma has created the context for that to come closer to reality. Symbolically, the power struggle surrounding the power industry in Puerto Rico highlights the asymmetrical power relationship between the island and the U.S.
NPQ reminded readers of the need to beware of what Naomi Klein named in her book The Shock Doctrine: The Rise of Disaster Capitalism (also noted in last month’s article by Martin Levine about equity considerations in the rebuilding of Houston after Hurricane Harvey); namely, that capitalism harnesses crises, or shocks, to implement radical policies. Sadly, this is already underway in Puerto Rico.
A recent article by Kate Aronoff, Angel Manuel Soto, and Averie Timm for The Intercept begins, “Vultures circling the wreckage of Puerto Rico in the wake of Hurricane Irma are closing in on a long-sought prize: the privatization of the island’s electric utility.” (I should say by way of disclosure that my family originates in Puerto Rico and my father retired last year from the energy company discussed in this article.)
The long story of how Puerto Rico got to this moment probably begins with colonialism—the frame for many Puerto Ricans on the island for what is currently happening—but we will not begin there. Aronoff, Soto, and Timm give us a more convenient starting point:
Lisa Donahue, a consultant enlisted by Prepa [Puerto Rico’s public, and sole, energy provider] to restructure the agency’s debt, floated the idea before Congress last year, and governors of Puerto Rico have discussed privatization as far back as 2012. At the end of July, four of the seven oversight board members penned a Wall Street Journal op-ed, titled “Privatize Puerto Rico’s Power,” published just after the body had rejected a restructuring proposal from Prepa.
The authors assert that only privatization will allow Puerto Rico to lower costs and provide better service. It will do this by modernizing power production, “depoliticizing management” (is that an oxymoron?), reforming pensions (reducing people’s retirement payouts), and renegotiating labor and other contracts “to operate more efficiently” (reducing wages).
This is made possible by Puerto Rico’s political status vis-à-vis the U.S.—which is formally called a territory by outsiders and a colony by Puerto Ricans—and, more specifically, actual laws.
Act 76, passed by Puerto Rico’s legislature in 2000, allows governmental bodies to bypass certain permitting processes during a state of emergency. It also allows the governor to “amend, revoke regulations and orders, and rescind or resolve agreements, contracts, or any part of them” so long as the state of emergency is in effect.
PROMESA, the austerity measure passed by Congress last July, grants Prepa’s board authority to privatize. Its powers include “the ability to break union contracts, cut pensions, and take control of public assets.” Currently, there are plans to close 75 percent of the island’s public agencies, lower the minimum wage, and privatize many public corporations.
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Title V of PROMESA essentially extends the expedited, emergency-permitting process established under Act 76 to any of the “critical projects” outlined within it, which are required both to address an emergency and to have immediate access to private capital. Any agency that receives a critical projects proposal is required by law to put it through an expedited permitting process.
Puerto Ricans resoundingly reject PROMESA and the federally-appointed Financial Oversight and Management Board as the latest version of colonial power that is at the core of Puerto Rico’s relationship with the U.S., which has severely limited Puerto Rico’s autonomy and democratic structures. To wit: “The Puerto Rican governor is technically a member of the board but cannot vote on any of its final decisions.”
Deepak Lamba-Nieves, the Research Director for the Center for a New Economy (CNE), a Puerto Rico-based think tank, said, “Title V is a blueprint to transform a public utility…When you have a body like the board, that is only accountable to Congress, companies and individuals that want to invest in Puerto Rico aren’t going to lobby the government of Puerto Rico.”
Gov. Ricardo A. Rosselló, Puerto Rico’s top political leader, requested the White House to declare a state of emergency following the storm, which it did. Rosselló, who is considered “friendly to the creditors,” ousted the three consumer advocate members on Prepa’s board, who were opposed to privatization. Further, according to a representative from the Electrical Industry and Irrigation Workers Union (UTIER), during the storm, Prepa’s leadership did not send out 170 available workers to reconnect lines. They accused Prepa of “delaying restoration to build support for a corporate selloff.” Finally, the executive director of the federal control board (the Financial Oversight and Management Board) is Bill Cooper, who has strong ties to the energy sector. Cooper was an advisor to Rep. Rob Bishop (R-UT) who oversees the House committee with jurisdiction over Puerto Rico and is the head of the Center for Liquefied Natural Gas. As one Capitol Hill lobbyist told Caribbean Business upon announcement of Cooper’s appointment, privatization of Puerto Rico’s power sector is “a done deal.”
Privatizing utilities is increasingly seen as a solution for struggling governments around the world. “Days before Irma hit, Rosselló emphasized that privatization is firmly on the table, telling the New York Times that Irma ‘can become an opportunity or another liability.’”
No one is arguing that Prepa doesn’t need change. Prepa depends on imported oil to supply four-fifths of the island’s power, which is delivered through an old and inefficient system. Prepa’s financial systems seem to also be in a suboptimal state; the company loses 12 percent of its revenue to faulty billing and theft. A recent study commissioned by the government concluded that “Prepa’s system today appears to be running on fumes and in our opinion desperately requires an infusion of capital—monetary, human, and intellectual—to restore a functional utility.”
But, CNE argues, “widespread privatization is far from the only way to whip Prepa into shape.” Lambda-Nieves said, “what you need to be thinking about is economic growth, not how…to appease specific bondholders.” Puerto Rico has been in a recession since 2006, and many suspect that privatization will end up driving up rates for customers, which is already part of negotiations with bondholders.
However, the real threat to Puerto Rico is not U.S. creditors, but the storms brewing around it. Though U.S. investors seem set on gas, as climate change makes storms like Irma more likely, environmentally sustainable energy production becomes more urgent. In order to help stave off cataclysmic climate change, Puerto Rico must reduce carbon emissions.
CNE, in partnership with John Hopkins University, recently produced a report outlining a transition to renewable energy that provides much needed jobs and revenue growth. The Intercept concludes, “For now, Prepa’s fate rests with the courts.” But is this true? Power ultimately lies in people, not systems. What will it take to turn this around for Puerto Rico? What can we in the U.S., including the nonprofit sector and movements, do? These local instances of corporate control are manifestations of a global cooperate takeover that affects us all.—Cyndi Suarez