The Risk of Unrealistic Expectations: Rebuilding Puerto Rico’s Electrical System and the Rosselló Administration’s Credibility Crisis

The Puerto Rican government currently faces two crises. One caused by Hurricanes Irma’s and Maria’s destruction of the island’s infrastructure. The other is a credibility crisis caused by  the government’s incapacity to address Puerto Rico’s post-Maria challenges and worsened by Governor Ricardo Rosselló’s unrealistic expectations about the recovery efforts.

The efforts to restore electricity to the island’s customers is a good example of these unrealistic expectations. On October 14, 2017, Rosselló promised that the Puerto Rico Electric Power Authority (PREPA) would reestablish electricity to 95% of customers before December 15.  During the news conference, he also ordered PREPA and the U.S. Army Corps of Engineers to meet a set of short-term goals, captured in the table below.

Date Electricity Generation Goal
Difference Between Actual Generation & Stated Goal 
October 31 30% +3%
November 15 50% -21%
December 1 80% -14%
December 15 95%   ?

The following graph help us see the pace of power restoration. The horizontal colored lines each represent one of the goals listed in the above table, while the blue trend line represents the percentage of electricity generated from September 21 to December 1, 2017.

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The graph also illustrates some of the challenges the electrical system has faced in this time period. For example on November 15, PREPA met the goal of 50% electricity generation, but a problem with one of the high voltage transmission lines reduced the figure to 29%.

Why did Rosselló set in place these ambitious goals? After all, the U.S. Army Corps of Engineers (USACE), as I noted in a previous post, explained that these goals were unrealistic from the get go. One explanation is that Rosselló may have set these goals to encourage PREPA, private contractors and the USACE  to work harder and faster. Another more cynical explanation is that “groupthink” has affected the governor’s decision-making process,  forcing his advisors to conform with Rosselló’s understanding of the crisis and suppressing any form of dissension amongst his inner circle.

Regardless of the reasons, Rosselló’s decision to set these unrealistic expectations and PREPA’s and the USACE’s inability to meet these goals are starting to wear on Puerto Ricans’ patience. While we do not have any public opinion data, it seems that anger against Rosselló and his government is growing in the island. In Washington, D.C., more and more lawmakers are raising serious questions about the Puerto Rican government’s capacity to lead the island’s recovery efforts.

 

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Puerto Rico’s Residential Electricity Rates (2000-2017)

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As Puerto Rico’s Autoridad de Energia Electrica (AEE) and the U.S. Army Corps of Engineers slowly rebuild the island’s electric grid following Hurricanes Irma and Maria, let’s remember that Puerto Rican residents, especially in the last four years, pay one of the highest rates for electricity in the United States. How high is the price of electricity when compared to the rates by Americans in other states? We will explore this question in a few days.

These rates were obtained from the U.S. Energy Information Agency which started to collect information for Puerto Rico in 2014. The other rates were collected by the Puerto Rico Energy Commission.

 

Electricity Generation in Puerto Rico Following Hurricanes Irma and Maria

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On November 17, 2017, Ricardo Ramos stepped down as the executive director of the Puerto Rico Electric Power Authority (PREPA). Governor Ricardo Rosselló quickly accepted his resignation and noted that controversies connected to Ramos’s decisions post-Maria had become a distraction. Once he appointed an interim replacement, Rosselló reemphasized that the goal is to restore electricity to 95% of PREPA’s customers by Christmas. Is this objective feasible? The U.S. Army Corps of Engineers, as noted in previous posts, has made it clear that they expect to restore power to most Puerto Ricans by February 2018.

In today’s graph, we chart the percentage of electricity generated by PREPA from September 5, 2017 – the day before Hurricane Irma skirted the island’s northeast coast – to November 17.

The data before September 29, 2017 was collected by the U.S. Department of Energy’s Office for Infrastructure Security and Energy Restoration. The rest has been made public in the Puerto Rican’s Government Portal – StatusPR. This is not to say that this portal’s information is accurate. For instance, on November 15 it reported that PREPA’s electricity production was at 50% but the information did not take into account a power outage that reduced production to around 20%, increasing to 37% by that night.

As of today, November 18, PREPA’s electricity generation is still under 50%. It is not clear how many Puerto Ricans actually have electricity at home, as PREPA and the Puerto Rican government claim that they can’t provide an accurate estimate. The U.S. Department of Energy on November 16 noted that 57 out of 78 municipalities “are partially energized or have energized facilities”.

Many Puerto Ricans, especially in the island’s interior, have had no power for over 70 days.

Do Puerto Ricans Pay the Highest Electricity Rates in the United States?

Comparatively speaking, do Puerto Rico’s residents pay the highest electricity rates in the United States (U.S.)? The U.S. Energy Information Administration (EIA) collects data on the price of electricity for residential, commercial and industrial customers for all the U.S. states and, since 2014, for Puerto Rico.  The 2016 and 2017 data is preliminary. Thus, for this analysis we will look at 2015 electricity rates for residential customers.

The average price of electricity for residential customers in 2015 was 12.7 cents per kilowatt-hour (kWh). The scatterplot below helps us visualize the country’s different rates. Hawaii had the highest prices at 29.3 cents kWh, followed by Alaska and Connecticut.  Puerto Rico, at 20.3 cents per kWh, had the fourth highest price in the nation.

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Even though this plot shows that Hawaii had the nation’s highest residential electricity rates in 2015, looking at this rate is not the best approach to see whether Puerto Ricans pay more for electricity than the residents of the other states. For that reason, we should look at how much of the median household’s income is devoted to electricity.

The U.S. Census estimates that the median household income for the U.S. was $56,516. At $40,593, Mississippi’s median household income was the lowest among the country’s 50 states. Maryland has the highest median household income at $75,847, while Puerto Rico’s median household earned around $18,626.

The median U.S. household devotes around 2.5% of its income to pay for electricity. The table below lists the 10 states which devote the least percentage of median household income towards electricity.

States Where the Median Household Devotes the Least Percentage of Income to Electricity (2015)
STATE % OF MEDIAN HOUSEHOLD INCOME DEVOTED TO ELECTRICITY
Utah 1.54%
Colorado 1.57%
Washington 1.64%
District of Columbia 1.73%
Minnesotta 1.75%
California 1.76%
Illinois 1.81%
Wyoming 1.82%
New Jersey 1.83%
Alaska 1.96%

The next table lists the 10 states where residents dedicate the highest percentage of their income to electricity.

States Where the Median Household Devotes the Highest Percentage of Income to Electricity (2015)
STATE % OF MEDIAN HOUSEHOLD INCOME DEVOTED TO ELECTRICITY
Louisiana 3.15%
Arkansas 3.15%
West Virginia 3.19%
Florida 3.21%
Tennessee 3.26%
North Carolina 3.43%
South Carolina 3.66%
Alabama 3.82%
Mississippi 4.06%
Puerto Rico 5.19%

What can we learn from this short analysis?

  • While Hawaii has the country’s highest electricity rates, its median household income is $73,486. Thus, the median Hawaiian household dedicates 3% of its income to pay for electricity.
  • The median Puerto Rican household, in contrast, dedicates more than 5% of its income towards electricity. This is more than double the national average, reminding us that:
    • Puerto Ricans are not only devoting the highest percentage of their income towards their electricity bills.
    • The median Puerto Rican household earns only $18,626, which is $37,890 less than the national average or $21,967 less than Mississippi, the U.S. state with the lowest median household income.