Privatizing Puerto Rico Power

Many Puerto Ricans are still without power after Hurricanes Irma and Maria knocked out the island’s electric grid in the Fall. The federal government has poured in resources, but there are still hundreds of thousands of people without power. The sad episode has highlighted the gross failings of Puerto Rico’s government-owned electricity infrastructure. 

Even before the hurricanes, the power grid in Puerto Rico was in bad shape. A 2016 audit of the state-owned Puerto Rico Electric Power Authority (PREPA), found that “transmission and distribution systems are falling apart quite literally: they are cracking, corroding, and collapsing.” The audit found very old and dilapidated assets, and also that the utility has inexperienced staff, terrible record keeping, and a vastly bloated bureaucracy. PREPA has had a poor environmental record, and its power systems have constantly broken down, causing costly forced outages.

Before his resignation in November, the head of PREPA indicated that a “transformation plan” was in progress. But the bankrupt government company has no way to pay for modernization since it is heavily indebted and its finances are a shambles.

The good news is that Puerto Rico’s Governor, Ricardo Rossello, has unveiled a plan to privatize PREPA. Calling the company “a heavy burden on our people, who are now hostage to its poor service and high cost.” PREPA, he said, “does not work and cannot continue to operate like this.”

Rossello’s plan should be good news for Puerto Ricans, who are sick and tired of high-cost and unreliable power. Vast experience around the world since the 1980s shows that privatizing infrastructure, including electric utilities, increases operational efficiencies, improves capital investment, and enhances customer service. Moving PREPA’s assets to the private sector, within an appropriate regulatory framework, should reduce costs and lead to efficient new investment in Puerto Rico’s electric system.

Puerto Rico’s electric utility is not the only one that should be privatized. President Trump’s new budget proposes privatizing the Tennessee Valley Authority and the federal Power Marketing Administrations. Those reforms are long overdue, as privatization of state-owned businesses has swept the world outside of the United States since the Thatcher reforms of the 1980s.

Read more about privatizing the TVA and PMAs here and here, and more about the general benefits of privatization here.

Cato intern Johnathan Postglione helped assemble this post.