Op-Ed: PREPA privatization plan overlooks unionized workers as best asset

Puerto Rico’s Senate and House of Representatives are finalizing an energy policy bill that amends the existing privatization plan for the Puerto Rico Electric Power Authority.

One of the remaining issues is
whether to require future private utility owners to honor existing PREPA
collective bargaining agreements with labor unions. The legislature should
protect these agreements.

According to PREPA’s Certified
Financial Plan in FY 2020, labor expenses are projected to be $281 million (8
percent of total expenses.) These expenses cover salaries, benefits and
pensions. Although this item is the smallest part of PREPA’s budget, it has the
greatest consequence for Puerto Rico’s residents.

PREPA’s workforce supports
approximately 6,000 households, and the utility is a major source of jobs on
the island. Fuel, subsidies, contracts and maintenance all cost more than
labor. If some level of legacy debt payment were to be included, the percentage
of dollars required for employees would drop even further.

Labor costs are not the problem
Labor expenses are not and never have been PREPA’s main problem. About half of
PREPA’s $3.4 billion in annual expenses goes off island to pay for oil, gas and
coal. Historically, a significant amount of ratepayer dollars went also to
investors, most of whom do not live in Puerto Rico.

PREPA’s intention is to save
$500 million in fuel costs by using natural gas and renewable energy. The
agency must also lower its annual debt payments by hundreds of millions of
dollars if it is to survive financially.

PREPA’s fiscal plan contains a
number of statements that suggest that workforce rules, medical benefits and
pension costs are at the root of PREPA’s financial problems. However, there are
currently no publicly released studies or analyses that offer evidence for this
problem or specific solutions.

Making unsubstantiated
complaints with unspecified solutions does not balance budgets. It does,
however, cause division and frustration at a time when stakeholders must pull
together.

Indeed, the fiscal plan points
to a different labor problem: the difficulty of attracting and retaining
skilled labor. News articles have highlighted the exodus of skilled electrical
workers from the island for better-paying jobs on the mainland.

Workforce shortages add to the
utility’s risk and require the hiring of high-priced, short-term consultants
who have historically overcharged and underperformed.

The labor problem is not labor
costs but the political mismanagement of PREPA. A Financial Oversight Board
study revealed that there are more than 200 political employees on the
Authority’s payrolls.

The constant turnover of
management to serve political ends has created chaos and inefficiency. The
Puerto Rico Energy Commission has also found widespread mismanagement within
PREPA.

The claim that new private
companies coming into Puerto Rico to manage PREPA will not accept union
contracts is wrong. PSEG, a qualified bidder for PREPA’s transmission and
distribution system, currently holds a large operations contract with the Long
Island Power Authority (LIPA) which is being held up as a model for Puerto
Rico’s privatization program.

Collective bargaining
agreements are, in fact, part of longstanding privatized operations at LIPA.
PSEG took over LIPA operations in 2013 from National Grid. Both companies
honored pre-existing collective bargaining agreements as contractual
obligations. PSEG is required to honor the union and its wage, benefits and
salary agreements.

The International Brotherhood
of Electrical Workers is a named organization in the operating agreement and
was acknowledged in most public reporting of the contract. PSEG has 12,000
employees across the company’s entire operations, 8,000 of whom are union
workers covered by collective bargaining agreements, a fact the company proudly
displays in its investor presentations.

LIPA’s bond rating is A+ and
PSEG’s is BBB. Both of them are investment-grade utilities and have been thus
rated for decades. Both companies barely mention labor risks as part of their
formal SEC filings. Honoring the labor agreement is seen as a positive part of
their privatization deal.

The wages paid to PREPA workers
are part of Puerto Rico’s remaining middle class. The dollars spent in the
local economy are precious to the rebuilding effort and essential if local
businesses are to survive.

Political leaders who want to
abandon the principle of a unionized workforce at PREPA harm Puerto Rico’s economic
recovery. They continue the misguided policies of the past which took money
made in Puerto Rico and shipped it out to off-island economic interests.

Labor is an economic asset with
a very human face. After Hurricane Maria, PREPA’s management could not keep the
lights on. They made one misguided, life-threatening decision after another.
The governor was nowhere to be found.

The equipment did not work and
management was paralyzed, but the unionized employees at PREPA showed up every
day to do their jobs and to rebuild Puerto Rico.

The way out of Puerto Rico’s
fiscal and economic problems is for all stakeholders to work together to become
part of the solution. All sectors–business, policy, community, labor, academic
and finance–need to pitch in. As long as political leaders continue to divide
opinion in order to achieve short-term political gains, they will continue to
sabotage Puerto Rico’s recovery.

The way out of Puerto Rico’s fiscal and economic problems is for all stakeholders to work together to become part of the solution. All sectors–business, policy, community, labor, academic and finance–need to pitch in. As long as political leaders continue to divide opinion in order to achieve short-term political gains, they will continue to sabotage Puerto Rico’s recovery.

Authors Tom Sanzillo and Cathy Kunkel are IEEFA Puerto Rico executives.