As the Tourists Return, Half of Puerto Rico Remains Without Power, Thanks to PROMESA, while Workers Leave, and Vulture Capital Circles

By Lambert Strether of Corrente

Yes, the tourists are coming back. Travel Weekly:

On the beach, the upscale Vanderbilt Condado hotel was hosting a holiday party, its second in as many nights, and people stayed at Isla Verde’s beach late into the afternoon. To people who know San Juan, this will seem like a normal weekend.

However:

Conversations with smiling restaurant workers reveal that their homes have no electricity or WiFi, almost 80 days after the storm passed. Some stores have reopened without power and accept only cash. Personnel from FEMA and Con Edison and other recovery workers are working on power lines and spending evenings at bars and restaurants…. Only 65% of the island has power restored and many residents have left in a mass exodus to the mainland United States.

(“Smiling restaurant workers….”) As it turns out, 65% is an over-estimate, since it refers to power generation capacity, and not to actual humans (or, as we say, “accounts”) with or without power[1]. From the Times-Picayune:

Officials said 55 percent of the nearly 1.5 million customers have power, marking the first time the government has provided that statistic since the Category 4 storm hit on Sept. 20 with winds of up to 154 mph. Officials had previously reported power generation, which stands at nearly 70 percent of pre-storm levels.

Let me break out my date duration calculator: From September 20, 2017 to January 3, 2018: 105 days (inclusive). That seems rather a lot.

In this post, I’ll look first at one reason the PROMESA oversight board made rebuilding the power grid has been so hard. Then I’ll look briefly at that exodus from Puerto Rico, and finally I’ll look once again at the suit vulture capital fund Aurelius brought, challenging the very existence of PROMESA.

PROMESA and the Missing Telephone Poles

In rebuilding the Puerto Rican power grid, once personnel and equipment are in place, the “long pole in the tent,” as it were, is materiel. Many reports mention the need to import telephone poles from the mainland. Marketplace:

Col. Jeff Lloyd is in charge of that arm in Puerto Rico right now. The Army Corps is getting 62,000 telephone poles from the mainland, plus the concrete for the foundations and those metal rungs to climb the poles.

(As of now, 21,000 have been shipped or are on the way. So that’s only 41,000 to go!) So, why do poles have to be imported from the mainland? Caribbean Business explains:

In Puerto Rico, a culture of austerity in the transformation of the utility under AlixPartners shrunk the inventory of concrete, wood and metal distribution poles down to a bare minimum[3] that left Prepa without the necessary materials to rebuild its devastated grid. All told, some 116 towers for 230 kV lines and 574 poles for 115 kV lines were destroyed—of that total 43 of the 230 kV towers and 122 of the 115 kV towers have been repaired to date.

And they conclude:

When the [Mutual Assistance (MA)] crews from New York, Georgia and Florida arrived, they did not have enough materials to fix the distribution lines they targeted for recovery

I think that “a culture of austerity in the transformation of the utility under AlixPartners” is a bit mild. The Puerto Rican electrical utility (PREPA) signed up AlixPartners to lead their “fiscal and operational restructuring,” and they did that as a “covered entity” at the bidding of Promesa’s Fiscal Oversight Board. It looks to me like the gimlet-eyed bean counters at Alix ran down the inventory, in the best case because that’s the sort of balance sheet thing that MBAs do, and in the worst case as a form of asset stripping to repay the bondholders. So we have a lovely confluence of events. As we wrote back in October:

In words:

Puerto Rico officials say it will likely be four to six months before power is fully restored across the U.S. territory of 3.5 million people…

This week, for the first time since the storm, electrical crews began appearing not just in the capital, but in neighboring Carolina and Rio Grande. Faced with a tangle of downed poles, lines and transformers on nearly every street, it wasn’t clear how much progress they were making.

So, the wires are all down. And why? Deferred maintenance demanded by austerity. Buzzfeed:

That general neglect has been coupled with a more specific one in Puerto Rico’s case: In recent years, as part of sweeping cuts to the government budget, many public services were slashed, including preventative maintenance of the electricity network. That meant trees were left untrimmed and allowed to intertwine with power lines — with disastrous results. After a big storm in the United States, the power company may have one break in the lines every few miles from a downed tree. In Puerto Rico today, the lines are broken every few yards.

So, austerity brings the wires down. And then austerity makes it impossible to get them back up!

The Puerto Rican Exodus

One of the more distasteful aspects of Hurricane Maria’s aftermath was partisan hopes to pick up the votes of Puerto Rican exiles, especially in swing states. For example:

DITTO..! FLA will definitely be blue if new Puerto Rico residents have appropriate Voting ID. (DEMS need to take majority to demand proper assistance for Puerto Rico. )

— Carol York (@carolfromindy) December 29, 2017

(I’ll have more to say about “proper assistance” below.) Why, it’s almost as if the Puerto Ricans were a colonized people, without autonomy, of interest only insofar as they serve the needs of the metropolis! And where partisans were the first to turn a crisis (for others) into opportunity (for themselves), business was not slow to follow. From the Washington Post:

U.S. companies see opportunity in exodus from storm-ravaged Puerto Rico

The airport terminal doors slid open and out came 22 people from Puerto Rico, walking a few weeks ago into the whipping South Dakota wind, not quite ready for what was ahead. One person still wore shorts. Another zipped up a hoodie. The group climbed into three waiting vans.

And where were the vans going? That’s right! A meatpacking plant:

When Velez and the others arrived in Huron after a two-hour ride from the airport, it was after midnight, and on the horizon were the lights of a turkey plant called Dakota Provisions….

The story includes an eerie description of a winter landscape, with turkey feathers scattered over the snow for miles and miles.

This was her first time inside the plant. Her eyes darted. To her right, she saw plucked and headless turkeys arriving into the room on a chute, where workers picked them up and hooked them by their feet to a conveyor belt. She saw the turkeys then move into deeper recesses of the room, where people with knives hacked and disassembled them, separating drumsticks and wings, scapulas and wishbones. Finally, plump pieces of breast meat arrived on conveyors at a table of 16 workers, who used knives and meat hooks to trim a piece every four or five seconds.

Quite a transition for Velez. I certainly hope, for all their sakes, that Dakota Provisions has a decent safety record.

Vulture Capital: The Aurelius Lawsuit

The Times summarized why Aurelius urged that PROMESA’s Financial and Oversight Management Board (FOMB), was unconstitutional:

In a lawsuit filed in United States District Court in San Juan, the hedge fund, Aurelius Capital, cited the “appointments clause” of the United States Constitution, which calls for all principal officers of the federal government to be appointed by the president, and then confirmed by the Senate.

(As they were not, instead being selected from “an intricate system of Balkanized lists.” For detail, see our post on the Aurelius lawsuit back in November). The United States government has now filed its response: “UNITED STATES’ MEMORANDUM OF LAW IN SUPPORT OF THE CONSTITUTIONALITY OF PROMESA.” (PDF).

Not being a lawyer, I will avoid analyzing the memorandum[3]. Rather, I’m going to pivot to two posts from Credit Slips, which show that greater minds than mine are just as puzzled as I am. The first, from Credit Slips:

[W]hat puzzles me about this case though is its economics, particularly from the perspective of Aurelius. What do they get by undermining the Control Board? My assumption here is that a ruling that the Control Board is unconstitutional and that all of the actions it has taken so far are void will be hugely expensive for Puerto Rico’s debt restructuring effort. After all, one of the key aspects of the Control Board is that it has been given the power to solve the traditional collective action problem that bedevils every sovereign or quasi-sovereign debt restructuring. Remove the Control Board, and we go back to square one where the creditors are fighting with each other about who has what level of priority and how to avoid giving the holdouts a disproportionate share of the pie. End result: Lawyers get paid a lot, but both the people of Puerto Rico and the creditors (including Aurelius) have a much smaller pie to divide up.

The folks at Aurelius, best I can tell, are highly sophisticated and really good at making oodles of money in crisis situations (remember Argentina and pari passu). But I cannot figure out what their game is. How do they win by turning over the applecart?

Interestingly, there’s only one proposal in comments, which Credit Slips does not endorse. And the second:

I’ve read or skimmed almost all of the anti-Aurelius briefs in the Aurelius v. The Control Board case now (for background on this, see here). Two things puzzle me about them. I should say at the outset though that my being puzzled may stem directly from not understanding how these fancy constitutional law cases play out.

Puzzle One: None of the anti-Aurelius briefs provide a clear and coherent explanation of exactly what would be at stake for Puerto Rico, financially, if the Control Board were to be deemed unconstitutional. More crassly, they don’t answer the following question at the outset: How much is it going to cost Puerto Rico if Aurelius wins?…. Puzzle Two: Isn’t it a high-risk strategy to base key parts of one’s argument (as some of the anti-Aurelius briefs do) on cases that are, for want of a better word, “odious”? The cases here are the Insular Cases, that are an embarrassment….

(On the “Insular Cases,” see footnote [3].) Again interestingly, there are no responses in comments. So nobody knows anything! That seems to me to be quite remarkable. There are billions at stake, in addition to Puerto Rico’s colonial status. But it’s such a non-story we can’t even find pundits to comment, or commenters to comment.

Conclusion

As readers know, Bernie Sanders and Elizabeth Warren introduced “S.2165 – Puerto Rico and Virgin Islands Equitable Rebuild Act of 2017 on November 28, 2017, to render “proper assistance” to the island colony. Here are the six co-sponsors, a disgracefully low number:

Sen. Warren, Elizabeth [D-MA]
Sen. Harris, Kamala D. [D-CA]
Sen. Gillibrand, Kirsten E. [D-NY]
Sen. Markey, Edward J. [D-MA]
Sen. Blumenthal, Richard [D-CT]
Sen. Booker, Cory A. [D-NJ]

Also disgracefully, there have been no additional sponsors after the original six (four of whom, interestingly, are likely candidates in 2020, in addition to Sanders). One of the sponsors, Richard Blumenthal, is visiting Puerto Rico, with his fellow Senator Chris Murphy The Hartford Courant:

“I find astonishing and unprecedented the abject failure of our nation to provide basic relief and rebuilding in Puerto Rico,” Blumenthal said Monday. “Think of how Connecticut would react this long after a hurricane if almost half of its electricity was still out, drinkable water was widely unavailable, medical facilities were still running on generators and some roads were still impassable.”

“It’s been 100 days since Maria made landfall, and huge swaths of the island don’t have power — a situation that would be unfathomable on the mainland. We have a lot more work to do,” Murphy said.

“We are building a compelling, fact-based case for expanded disaster relief — evidence of the need for both an immediate supplemental disaster relief package and the major rebuilding plan I have introduced with Sen. Sanders,” Blumenthal said. “We cannot allow this administration to abandon fellow Americans and declare mission accomplished while half of Puerto Rico remains in the dark, clean drinking water is unavailable and thousands of people are living in temporary shelters.”

Then again, in Obama’s words, “Yes we can” (Si, se puede). The problem isn’t just “this adminstration,” or the Sanders/Warren bill would have more than six co-sponsors _{MR SUBLIMINAL Like Chuck Schumer}. I find the Puerto Rican situation so discouraging, from so far away; it’s like watching a cat play with a mouse that’s already dead. It seems that our colony has been so hollowed out and looted — not even enough telephone poles to handle a crisis statistics tell us all must come — that it’s not even worth shock doctrine tactics. And still the restaurant workers smile, as they must do.

NOTES

[1] It’s not even clear that the industrial enclaves have power from the grid. NBC on Humacao, about 45 minutes from San Juan:

But as of mid-December, the U.S.-based pharmaceutical giant Bristol-Myers Squibb — which manufactures cardiovascular and anti-diabetes products and employs about 300 people — was still running on generators.

Further:

[T]he Army Corps is installing “microgrids,” which can operate without a connection to the main grid, in communities in the Humacao municipality. The microgrids are meant to provide power in areas where the grid is not expected to be energized in the near future, Field said.

How much you want to bet those temporary microgrids become permanent?

[2] And it’s not just telephone poles. More: “17 million conductors are needed of which 347,000 have arrived and some 4.5 million are expected to arrive over the next two weeks and there are only 7,639 insulators where 184,750 are needed.”

[3] One major issue raised by Aurelius is whether the FOMB is composed of “principal officers,” and hence subject to the Appointments Clause of the constitution; Aurelius argued that in substance, although on not in form, they were. At least in a quick reading of the Solicitor General’s brief, this layperson was unpersuaded that Aurelius’s position was incorrect. The counterargument is that the FOMB is composed of “territorial officers,” and Congress can do whatever it likes in the territories, since the Appointments Clause does not apply. As I understand it, Aurelius makes the argument that the doctrine of “territorial officers” is based on “Insular Cases,” which it gives the Court an opportunity to overturn because they’re racist and vile — as indeed they are. On this point, Control Board Watch comments:

Surprisingly, the U.S. Government relied much less on Downes v. Bidwell, 182 U.S. 244 (1901), the racist basis of the so-called “Insular Cases,” than the Board or AFFAF/Governor Rosselló did, relying more on older case law…. The January 10 oral argument will be very interesting.

However, footnote 5 of the filing drags Downes right in. I’m entirely ignorant of the chain of precedent here, so I can’t assess whether the Solicitor General dodges the Downey bullet by relying on “older case law” or not. That “relied much less” feels like a confession of weakness, though, to me.