As some of you may already know, on September 21, Puerto Rico experienced a massive blackout across the island. The power outage was apparently caused by a fire that erupted at an electricity plant when some systems failed, sparking approximately 15 more fires at other locations. Up to 1.5 million people were left without power, 250,000 without running water, about $1 billion was potentially lost in the three days that everything came to screeching halt. Though the situation has been more or less resolved, for the time being, there are still many households left without electricity. The governor has warned that there could be unforeseen consequences from the incident in the future, adding to the fears that this a sign of worse to come as Puerto Rico deals with crisis after crisis.
The electricity situation in Puerto Rico is a symptom and maybe even one of the causes of the deteriorating economy of the island. Like with many other services in Puerto Rico, energy was provided by one centralized government entity called the Puerto Rican Electric Power Authority, or PREPA for short. PREPA has made many questionable decisions and has been the subject of several allegations of corruption. In towns like Aguadilla, electricity is provided free-of-charge to city-owned institutions and private businesses, though not to private citizens. The justification for this is the generous amount of economic benefits which Aguadilla and other municipalities have reaped from the deal, like fewer local tax increases and revenue from city-owned businesses (hotels, restaurants, etc.). The downside to this, of course, is that PREPA has had to borrow tremendously every year to plug the holes in its budget. PREPA’s debt stands at $9 billion because of these decisions.
The dilemma with PREPA illustrates how complicated and interwoven the economy and politics are in Puerto Rico. Everyone and everything ultimately relies on the central government institutions, really whether they want to or not. This particular situation is compounded by PREPA not following its own rules. When it was created by Rexford Tugwell, one of the New Deal architects we’ve referenced here before, it was intended to be a power company of the people and for the people – but it had limits. The no-charge use was conditional on a cost cap, after which cities were required to pay for continued use. Ostensibly, city and central government payments for increased usage of electricity would make up for loss in revenue from PREPA’s tax exemption.
As of 2014, though, municipalities and government institutions owe a combined $720 million to PREPA, of which there has been sparse efforts to collect. The last time PREPA threatened to turn off power for delinquent payments, the government had to sell off the Luis Muñoz Marín International Airport to cover the difference. It’s now the only privatized airport in the nation, and yet the Puerto Rican port authority is still falling behind on its debts to PREPA. Other government entities with delinquent payments owed have publicly challenged PREPA’s legal authority to enforce its threats of power shutdowns.
PREPA has been criticized for its over-reliance on oil, of which prices fluctuate constantly and generate significant costs in importation, only adding to fiscal decline. Though some scoff at the idea of introducing alternative energy plans as a way to decrease the debt, it’s fast approaching the point at which the current situation cannot be physically maintained. A $72 billion debt and a fiscal control board will spell big changes in the way Puerto Rico’s run, and the doomsday predictions of more collapsing services in the future could end up becoming a reality. The reality now, though, is that the government-run corporations are virtually unable to sustain themselves, whether due to corruption, incompetence, flawed practices or circumstances outside their control. That in turn could lead to the reality of drastic budget cuts, which could lead to the dreaded reality of incidents like September 21 blackout becoming common occurrences.