(task) Lousy Service is Expensive: The Case of Puerto Rico | Branko D. Terzic | Pulse | LinkedIn

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electricity, grid, social crisis, economy
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> https://www.linkedin.com/pulse/lousy-service-expensive-case-puerto-rico-branko-d-terzic/ <https://www.linkedin.com/pulse/lousy-service-expensive-case-puerto-rico-branko-d-terzic/>
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> Lousy Service is Expensive: The Case of Puerto Rico
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> April 30, 2018
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> Lousy service is expensive. Expensive service is not as expensive as lousy service.
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> The case of the Puerto Pico Electric Power Authority (PREPA) is one example. The Washington Post, in its April 27, 2018 editorial The Darkness of Puerto Rico: Government need to step up to upgrade the island’s power grid” reports that “Puerto Rico was vulnerable to blackouts because of an aging electric grid and abysmal management by the state-owned power authority.” The damage to Puerto Rico’s by economy from the prior lousy service and slow recovery after Hurricane Maria is massive. The editorial’s solution is that “…your government take action” with no specifics on what that action should be or even why it’s the federal government’s responsibility.
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> Under our US electric regulatory scheme, the Federal Energy Regulatory Commission (FERC) regulates electric transmission and the wholesale sale of electricity, both considered to be in interstate-commerce. The states regulate investor-owned (IOU) electric utilities providing retail electricity services. Government owned electric utilities such as those owned by municipalities or federal government agencies such as the Tennessee Valley Authority are municipally or self-governed. In Puerto Rico the islands electricity is provided by the state owned PREPA.
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> The failure of PREPA before and after the damage of Hurricane Marta on September 20, 2017 demonstrates that governance in Puerto Rico is unable to operate and regulate an electricity system. Giving federal funds to PREPA to build a new electric system will not cure the governance problem.
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> The Post mentions that the Governor of Puerto Rico supports privatization, yet the Post does not endorse that option. A look at the performance of any of the IOU electric utilities experiencing hurricanes on the mainland in Florida, Louisiana, New Jersey New York and elsewhere should convince the Times or anyone else that these utilities could do a better job of running Puerto Rico’s electric system than PREPA.
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> The new adequate, reliable and safe service available from a privatized Puerto Rican electric utility would be an economic benefit to the island without unnecessarily high rates. One way to do this is to privatize at zero value and allow the new IOU to earn only on new asset investment, called “rate base”. In other words, consider the existing system fully depreciated with a net book value of zero and allow the new entrant to raise rates and earn only on new investment. Possibly even keep the current rates to start.
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> The island would need an expert regulatory agency probably with a strong regulatory law and possibly a requirement that for a transition period the regulators be selected from a list of experienced former state and federal regulator provided by an independent commission set up from US regulatory experts from the mainland.
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> Adequate, reliable and safe electric service need not be “expensive.”