Even before it was hit by Irma and now Maria, the Puerto Rico Electric Power Authority said it needed more than $4 billion to overhaul its outdated power plants and reduce its heavy reliance on imported oil. The company filed, in effect, for bankruptcy July 2.
Now, with Maria toppling transmission lines and 100 percent of Puerto Ricans without electricity, PREPA faces millions of dollars more for hurricane repairs.
The utility’s struggles are a key part of the commonwealth’s struggles to restructure about $74 billion in debts, overhaul its economy and stem the outflow of Puerto Rican citizens to the U.S. mainland.
“PREPA and electricity here have always been critical to economic recovery,” said Natalie Jaresko, a veteran banker, former finance minister in Ukraine and executive director of the federal oversight board for restructuring the island’s economy and debts. “What the hurricane is proving is that that infrastructure is fragile. It makes attracting capital to PREPA more critical than ever.”
The path of the storm suggested there could be heavy damage to the electric power lines that connect the big power plants on the southern coast of Puerto Rico with the more populous northern part of the island.
PREPA has 2,478 miles of transmission lines from its power plants and 31,485 miles of distribution lines, which carry electricity shorter distances from the grid to customers. Many of those pass through mountainous and heavily forested areas difficult to access by truck. “The terrain is not forgiving,” said Mike Hyland, senior vice president of engineering services at American Public Power Association, which was trying to organize mainland crews to head to the island.
It is too soon to know whether Maria inflicted damage on the power plants, but the path appeared to have bypassed the biggest ones, including a pair that burn heavy fuel oil to generate 900 megawatts each. Together, those generate enough to power 1.3 million homes. The median age of PREPA’s power plants is more than 40 years old.
Repairing the transmission lines could take weeks. PREPA was still restoring power to the last of the 1.4 million customers who had lost service with Hurricane Irma when Maria hit.
PREPA has also lost 30 percent of its employees since 2012 due to steady migration out of the commonwealth and retirements. The areas hit hardest have been skilled jobs, including the linemen needed to repair transmission lines.
“PREPA’s current weak financial condition will affect the utility’s ability to quickly repair and restore service after this natural disaster, highlighting the challenges faced by PREPA, including its reliance on an aging electric infrastructure in need of significant capital improvements,” said a Sept. 11 report by Moody’s about the damage from Irma.
The utility has a poor safety record. An explosion last year knocked out power in many places for four days. Newspapers run photos of poor maintenance, rusting control panels and outmoded controls.
There is little in the commonwealth budget for emergencies. The government set aside just $20 million for disaster relief, forcing it to rely on the Trump administration and Federal Emergency Management Agency for funds and manpower. Like other disaster areas, Puerto Rico could qualify for federal assistance through FEMA for up to 90 percent of costs to repair damage.
The hurricanes could “force the Energy Department and federal government to come in with massive aid to rebuild new plants quickly. You could imagine all the things that get in the way of building infrastructure, such as permitting, would get waived in an emergency,” said one executive who has been involved in debt talks. “People fear the worst, but also recognize that it might lead to much greater sense of urgency on the part of the federal government.”
One key issue for PREPA: its heavy reliance on oil. Most American utilities rely on natural gas, coal, nuclear power and renewable resources, in that order. But two-thirds of the electricity in Puerto Rico is generated by burning heavy bunker fuel and diesel.
This is costly, and the cost fluctuates with the oil markets. Puerto Rico’s electric rates are nearly 21 cents a kilowatt-hour. They were even higher several years ago when oil prices were at their peak.
The high cost of electricity undercuts the competitiveness of the island’s economy. “As a key input cost, this cascades down to locally produced goods and services and stunts potential growth sectors such as tourism,” said a report by three International Monetary Fund economists.
Because it burns oil, PREPA also has failed to meet federal environmental standards for mercury and sulfur dioxide.
An earlier restructuring plan for PREPA would have involved debt service equal to about 4 cents a kilowatt-hour, a figure that would rise if the electricity demand fell. But Congress last year passed the Puerto Rico Oversight, Management, and Economic Stability Act. It established a financial control board, which rejected the deal. A new plan is under negotiation by the board, known as the PROMESA board.
Meanwhile, the utility has defaulted on its debts and operates on a cash basis while seeking to cut costs. Miguel A. Soto-Class, president of the Center for a New Economy, a think tank based in San Juan, Puerto Rico, said that an earlier restructuring officer at PREPA showed an improved balance sheet by cutting maintenance. “So a lot of the plants have not been maintained,” he said Tuesday night after spending the day putting up storm shutters and cutting branches away from utility lines. “A lot of the reason power has gone out is that PREPA has not been trimming the trees on the power line.”
Soto-Class, who praised the way the commonwealth’s governor, Ricardo Rosselló, has responded to the hurricanes, said that the storms were “going to put the austerity policies that the government and [restructuring] board have been implementing to the test.” He said damage to the electrical grid, roads, water-pumping systems and houses was going to force the government to rebuild and repair.
Correction: A previous version of this story gave the wrong title for Natalie Jaresko. She is the executive director of the Financial Oversight and Management Board for Puerto Rico and not an adviser to the island’s government.