How to Get Power to the People of Puerto Rico

(Bloomberg View) -- With Puerto Rico sweltering in the dark, restoring electricity as soon as possible is vital to averting a humanitarian disaster. The island's long-term recovery, however, will depend not only on repairing its battered grid but on reforming its feckless power company.

The Puerto Rico Electric Power Authority, the biggest public utility in the U.S., is notorious for its mismanagement and is currently bankrupt, with $9 billion in debt. Puerto Ricans pay more for electricity than nearly all of their fellow Americans (except Hawaiians). They get most of it from dirty oil-fired plants -- many of them decades old -- on a system prone to outages and blackouts. By some accounts, the system loses as much as 12 percent of its revenues to power theft and faulty billing, three times the U.S. average.

The collapse of the grid, which will cost billions of dollars just to restore, has amplified calls to privatize Prepa. But making the shift to a well-regulated private utility will depend on resolving its messy bankruptcy, which embroils bondholders, the utility, Puerto Rico's government, and the federally appointed Financial Oversight and Management Board that now supervises the island's finances.

However that process plays out -- and some form of privatization seems both desirable and likely -- a few goals should be paramount. For starters, Puerto Rico needs to replace its oil-burning plants with those that burn cleaner natural gas. It also needs to expand its use of renewables, which provide less than 3 percent of electricity -- well below the 15 percent in the U.S. as a whole and trifling for an island blessed with sunshine and wind.

Prepa has stymied that switch, all but ignoring the island's renewable energy goals. It has also done little to encourage energy efficiency by consumers, putting Puerto Rico near the bottom of some U.S. rankings. A regulatory commission created by Puerto Rico in 2014 has tried to hold Prepa to account; it needs more political independence and resources to do so.

In Hurricane Maria's wake, Congress and the Department of Energy have made encouraging noises about using Puerto Rico as a laboratory for promising new energy technologies. Steps such as extending investment tax credits for renewables would also help. Disaster assistance funds can go some ways toward patching up the existing grid.

The larger challenge, for both Puerto Rico and Prepa, is creating a stable, pro-growth environment that will attract investors. That will require as-yet-unrealized levels of cooperation and leadership from San Juan and Washington.

--Editors: James Gibney, Michael Newman.

To contact the senior editor responsible for Bloomberg View's editorials: David Shipley at davidshipley@bloomberg.net.

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