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The Puerto Rico Electric Power Authority (PREPA) filed for bankruptcy in July 2017, with a debt of over $9 billion. The root cause of PREPA’s bankruptcy can be traced back to several factors including:

Dependence on oil: In the 1970s, PREPA began relying heavily on imported oil to generate electricity, which was expensive and subject to volatile price fluctuations. This dependence continued for decades, even as other energy sources made fuel diversity a potential option.

Mismanagement and corruption: Over the years, PREPA’s management was plagued by corruption and mismanagement. Nepotism, cronyism, and the misuse of funds were rampant.

Hurricane Maria: In September 2017, Hurricane Maria devastated Puerto Rico’s infrastructure, including PREPA’s power grid. The storm caused extensive damage to transmission lines, distribution systems, and power plants, leaving most of the island without power for months.

Inadequate maintenance and investment: Prior to Hurricane Maria, PREPA had been criticized for its failure to invest in maintenance and upgrades to its infrastructure. This neglect left the power grid vulnerable to storm damage and caused frequent blackouts and brownouts.

Incompetent contract negotiation: Economically unfavorable Purchase Power Agreements were signed under the PURPA law granting grid access to cogeneration facilities. This is germane to the executive mismanagement described above.

Debt restructuring: In 2014, PREPA entered into a debt restructuring agreement with bondholders to avoid defaulting on its debts. However, the terms of the agreement were onerous, with high interest rates and a lack of flexibility, making it difficult for PREPA to meet its obligations.

Political corruption gridlock: Puerto Rico’s political gridlock and financial crisis made it difficult for PREPA to get the funding and support it needed to address its problems. PREPA like many other government run agencies, failed to invest the funds available for reconstruction; politicians knew well that a close federal oversight was going to be maintained on these funds. They rather leave this funds untouched than use them for their intended purpose if they can’t derive a direct financial benefit.

Overall, the root cause of PREPA’s bankruptcy was a combination of factors, including dependence on imported oil, mismanagement and corruption, inadequate maintenance and investment, a debt restructuring agreement and political corruption gridlock. These factors left PREPA vulnerable to the catastrophic effects of Hurricane Maria, which ultimately pushed the utility over the edge.