by Jane O’Malley and Elizabeth Arnold
The Puerto Rico Electric Power Authority (PREPA), Puerto Rico’s only electric utility, is the largest public utility in the United States. PREPA is a vertically integrated monopoly utility, which means they own and operate electric generation, transmission, and distribution without competition. What is now PREPA, began in 1926 as Utilización de las Fuentes Fluviales (Water Resources Authority). The bulk of their energy generation for the first decades of existence was hydroelectric power, but it is now dominated by imports of diesel. PREPA’s major issues are a crushing debt and lack of consumer confidence. It has been suffering from rising debt since the 2008 economic recession, and now holds debt over $9 billion. PREPA has no easy route to solving this crisis, even with planned rate hikes. Electricity prices in Puerto Rico are already the highest in the U.S., averaging over 22 cents/kWh for residential, commercial and industrial customers. Customer dissatisfaction with PREPA has also grown following Hurricane Maria as many Puerto Rican’s have blamed PREPA for the length of the blackout following the hurricane. Since PREPA is a monopoly, customers are unable to opt-out in search of more reliable service and better prices. The government is seeking to solve these issues through privatization. In this context, we talked with C.P. Smith, one Puerto Rican seeking to transform the organizational structure of electricity services in his community through the formation of what would become Puerto Rico’s first electric cooperative (co-op).
Hurricane Maria not only revealed the physical vulnerability of Puerto Rico’s grid to high intensity storms but also PREPA’s inability to execute an emergency response plan and quickly restore power back to Puerto Rican citizens. Governor Rosselló and PREPA have looked toward privatization, or the transfer of assets from public to private entities, as a way to bring the organization out of debt, reduce inefficiencies, and develop a clear strategic vision. Rosselló signed a bill in June of last year, known as Act 120, the Act for the Transformation of the Puerto Rico Electrical System (No. 120-2018), which set the legal framework for privatization of PREPA’s energy generation assets. [Note: Act 120 specifies that transmission and distribution contracts cannot be granted to entities that also hold a contract for energy generation. Transmission and distribution contracts are subject to the Public-Private Partnership Act (PPP), and just yesterday it was announced that a PPP agreement was reached to manage distribution.]
Privatization is seen as a way to manage PREPA’s debt and resolve perceived issues with mismanagement. However, privatization does not necessarily promise cheaper electricity prices and could even increase the cost of electricity to consumers. To generate stable revenue and sustain infrastructure investments, private companies are able to increase rates more frequently than their public counterparts might be able to -- particularly if a public utility is held to greater account to their tax-paying customer base (CityLab, 2015). Whether or not privatization of all of PREPA’s generation assets will be good for Puerto Ricans is up for debate; but in our conversations in Puerto Rico, this debate is beginning to feel moot. PREPA’s aging generation systems and its reliance on imported diesel fuel have made it exceedingly difficult for PREPA to find buyers for its assets, particularly its older fossil fuel generators.
Electric co-ops offer a different structure for procuring and purchasing electricity from PREPA’s model. Co-ops constitute a “bottom-up” approach to energy services. Under a cooperative model, participating members act as shareholders to both own and manage their energy resources. Electric rates are determined by a board of directors elected through a democratic process. Energy generation services may also be more localized, benefiting from minimized line losses due to generation assets located within the communities they serve. Electric co-ops are non-profits and thereby allow for excess revenue to be reinvested in electric infrastructure and local community project financing.
Energy cooperatives represent a fundamentally different way of organizing the electric system, in that benefits are kept within the community. The concept of electric cooperatives proliferated in the U.S. during the New Deal in the 1930s-40s as a way to service rural areas that were under-serviced by investor-owned utilities that couldn’t make a profit on building lines to serve more remote areas. The electric cooperative model is now spreading to Puerto Rico, with some similarities but some significant differences. Senate Bill 984, signed by Rosselló late last year, has come at a timely moment. It allows for communities and businesses to establish electric cooperatives for the first time. Similar to rural America in the 1930s, the mountainous regions of Puerto Rico are not being effectively served by the status quo utility structure -- and so thinking about new ways of organizing the utility’s “natural monopoly” to put more control at the local level is a priority for mountain communities.
Co-ops are a way for the local community to have more control over where and how their electricity is generated, whether that be hydroelectric or solar. Puerto Rico has no fossil fuel energy reserves and its economy still relies heavily on imported fuel. However, the island has huge capacity for renewable energy generation, especially solar. Approximately half of Puerto Rico’s energy comes from petroleum; the remaining makeup comes from natural gas and coal, with only roughly 2% attributed to renewable energy (EIA). Solar and wind energy make up the majority of renewable resources, although hydroelectric generation assets have significant underutilized capacity. The Dos Bocas hydroelectric plant, located in Utuado, has 43 MW of power capacity, although only 6 MW of it is used. A 2001 USGS report noted that the system’s water storage capacity has been cut by over half -- decreasing from 37.5 to 18 million cubic meters of capacity due to sediment infilling. Additional buildup of silt and debris in water delivery lines, some of which was caused by Maria, have limited all generators from operating optimally, and PREPA has taken no steps to remediate the issue.
We toured the Dos Bocas plant along with C.P. Smith, a retired military officer who has spent his life between the island and the mainland. He returned to the small city of Utuado, the place where his mother was born and buried, in early 2017. Following the devastation of Hurricane Maria, Smith committed to serving the citizens of the mountainous city. After helping with rapid-response recovery needs, he then turned to building longer-term resilience for Utuado. Smith developed the non-profit organization, Unidos por Utuado (UPU), to provide the community with basic goods and services in the immediate aftermath of the storm, such as potable water, solar lights and clean clothing. Unidos por Utuado has since partnered with academic institutions such as Harvard, Cornell and Penn State and the private sector through the GE Social Impacts program. Sandia National Laboratory and others have helped UPU broaden its technical capacity and funding streams. UPU is also on the verge of incorporating a community energy co-op, known as La Cooperativa Hidroeléctrica de La Montaña (Hydroelectic Co-op of the Mountain), to provide long-term energy services to Utuado and neighboring towns. The cooperative seeks to provide the rural community with more democratic control and greater access to affordable, clean energy sources, first from the Dos Bocas dam and with distributed solar generation.
La Cooperativa Hidroeléctrica de La Montaña is just one of a few alternatives to large utility ownership being considered in Puerto Rico’s mountain communities, where interest in more local control is high because of the desire to produce energy closer to home and to prevent future service disruptions. Toro Negro in the mountain community of Ciales is the first community solar project in Puerto Rico, serving 28 families. The mountain town of Villalba is in the process of municipalizing their energy system, which means they would own energy generation and supply themselves and neighboring towns with more reliable electricity service. We look forward to seeing how the new energy co-op progresses in Utuado. With nearly fifty electric co-ops in the state of Minnesota, there is potential for future collaboration between Minnesota co-ops and La Cooperativa Hidroeléctrica de La Montaña.