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

Yes, the tourists are coming back. :

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 :

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 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 as it were, is materiel. Many reports mention the need to import telephone poles from the mainland. :

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, the concrete for the foundations and those metal rungs to climb the poles.

(As of now, . So that’s only 41,000 to go!) So, why do poles have to be imported from the mainland? :

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) to lead their “fiscal and operational restructuring,” and . 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. :

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 , 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)

(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 :

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, .

Vulture Capital: The Aurelius Lawsuit

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: (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, :

[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 :

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 ). 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, “S.2165 – Puerto Rico and Virgin Islands Equitable Rebuild Act of 2017 on November 28, 2017, to render “proper assistance” to the island colony. , 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 :

“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. 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, :

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.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

13 comments

    1. Larry

      I suspect we can see some of this in Florida and Texas after their recent bouts with hurricanes. I suspect the aid is ample and quick in the tony neighborhoods, and wanton and late in the undesirable neighborhoods. Hell, we already have this in the mainland U.S., only in slow motion as our entire social safety net is gutted and winners and losers are chosen with things like trade agreements and federal contracts.

    2. rjs

      at least Puerto Rico is warm…what if this big east coast storm knocks out power to all of New England till spring?

      or worse yet, what if Kim Jung Un, cornered by Mr Trump, decides to detonate the big one in the atmosphere over the center of the country, frying the US grid for eternity…

      1. MK

        Kim Jung Un, cornered by Mr Trump

        If Kim decides to execute that detonation, the world will be fried for eternity, not just the US.

    3. Wukchumni

      Getting used to greatly lessened expectations will take some effort, in regards to lack of effort. The idea that the utility had scant resources in the guise of backups is par for the course in our just-in-time way of thinking. If we were to get hit with a Carrington Event or EMP attack replicating what has gone down in PR, there would be no way to shuttle resources to the needy, and the only thing that would function w/o a hiccup would be hand cannons, and it could get messy.

  1. rd

    The obvious solution is to send the people of San Francisco to Puerto Rico and let the Puerto Ricans live in San Francisco, since the new craze in SF is to drink unfiltered and untreated water. Puerto Rico has that in spades and its almost free instead of exorbitant SF prices. The PR folks would presumably like to have safe drinking water again, so they could be up for the swap.

      1. Derek

        Good article. This number is telling. I would just add that some people have been without power and without water for that long. And some have been powerless even longer than 105 days, since they lost power when Irma grazed Puerto Rico.

        Of course, this number of days in the cold would be deadly, but the intense heat after María has also been said to have caused loss of life, especially among the elderly.

  2. dbk

    Far be it from humble readers to try to disentangle such a tangled web as PR debt re-structuring.

    Clearly Aurelius wants to jump the repayment queue. Their super-smart lawyer(s) found an ingenious (constitutional) argument against the current oversight board, the end goal being to earn tens of millions on millions of investment in a legal challenge.

    Could it be they originally anticipated this administration would bow before them and appoint a new FOMB more to their liking?

    Mark Brodsky is the protegee of Republican mega-donor Paul Singer; however, something must have happened, and the administration is now ticked off with Singer. A google search shows that zerohedge reported at the end of October that the Washington Free Beacon, largely sponsored by Singer, was (via Fusion GPS) behind the creation of The Dossier. And Steve Bannon apparently declared war on Singer and other “establishment” Republican donors … of course, Bannon and the president are now on the outs, but that happened, like, yesterday.

    Is this payback by the administration through the Solicitor General’s office? What a tragic mess. And it will be PR that will pay, no matter what happens.

  3. highway200

    Being an electrician residing in PR full time since 1979, I would like to point out that poles are seldom in concrete, although some may be made of concrete or steel. The ones arriving on Vieques now are treated wood.
    The metal spikes on the poles are very rare for a long time now since work is almost always done with bucket booms. if climbing occurs, the lineman (celador) has spikes.
    I think you must be referring to linear feet of conductors.
    Thank you very much for addressing our situation here. And for the record: Recently, the SCOTUS declared PR absolutely a colony. And Vieques is a colony of that colony.
    Check out recent stories on endi.com. We are somewhere between Moliere and Kafka. But mostly screwed. The official skullduggery and incompetence (for the last 500 years) on Vieques has one fine result: it keeps the population down. The Chinese tourists just love it when they find 100 dreamy beaches and no one on them.

  4. highway200

    and BTW, Lambert, how about getting into the fact that Natalie Jaresko is paid $625,000 a year (yes, well over $2000 a day, every working day) to dictate terms to we the peasants. YES, THAT NATALIE.

  5. ennui

    1) the people who run the US never forgave Fidel for shutting down Batista’s playground.
    2) much of the Caribbean is too “black” for all of the interests of elite tourists.
    3) Puerto Rico is unfortunately subject to the US justice system.

    —-> 4) expect a vibrant and well-funded PR-independence campaign in 2020.

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