GO-Lab Puerto Rico – Stuart Krusell

Director of the MIT Sloan Office of International Programs Stuart Krusell

Director of the MIT Sloan Office of International Programs Stuart Krusell

It has been one year since Hurricane Maria wreaked havoc in Puerto Rico, with 155 mph winds devastating the power infrastructure, shutting down roads, and, damaging an already fragile economy with total losses estimated at $91B.  More tragically, nearly 3,000 people lost their lives.  Recovery continues, but it is, by no means, complete.

Six months after the storm slogged across the island, I had the opportunity to spend a week there, traveling with a group of eleven MIT Sloan EMBA students and award-winning filmmaker Bill Carter.  They were there as part of their GO-Lab class, working on two projects addressing the value and viability of integrating reliable microgrid systems to improve resiliency and reliability in the delivery of power for the Puerto Rican people and economy.  One team focused on the architecture, the other on regulation.  Both are critical to finding a sustainable solution.  Their conclusions included:

• microgrids are viable, but an unbundling of the market needs to occur

• operators must prepare to manage the inevitability of grid defection

• support is needed for providers to pilot and coordinate on microgrids

• development of a full-functioning energy system with robust deployment of microgrids requires a fully modernized grid

• an independent and empowered energy regulator is essential to ensure steady and durable energy policy and attract adequate levels of private investment

• stakeholders must break out of their silos, minimize partisan divides, and work collaboratively to reach consensus to advance their (unrecognized) shared interests in stable, long-range policies

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Why the good people of Illinois should care about a Puerto Rico bailout — Ike Brannon and Michelle Hanlon

MIT Sloan Professor Michelle Hanlon

MIT Sloan Professor Michelle Hanlon

From Crain’s Chicago Business

It’s become increasingly clear that Congress will need to provide some sort of assistance to the bereft government of Puerto Rico. The island has been in recession for a decade and holds $72 billion in debt it cannot fully repay; its pension plan is nearly bankrupt.

While there’s widespread agreement that something must be done, there’s not as yet any unanimity as to what this something should be. How Congress resolves this issue should be watched closely by the taxpayers of Illinois, because it could end up worsening the state’s finances.

Puerto Rico arrived in its current fiscal throes by borrowing money to postpone difficult tax and spending decisions whenever possible—a strategy that everyone in Illinois would recognize. Until quite recently it could borrow at rock-bottom rates, thanks to the generous tax breaks its lenders receive on their interest at the local, state and federal level. Eventually, lenders began to fear that they might not get repaid, and capital markets began demanding sharply higher interest rates before they just stopped lending to them altogether.

One proposed solution is to allow Puerto Rico to avail itself of Chapter 9 bankruptcy. Under Chapter 9, municipalities and public agencies can get court protection to reorganize their finances, but a state cannot. However, the island’s government and the U.S. Treasury argue that this isn’t sufficient: While over two-thirds of Puerto Rico’s debt would be covered under a Chapter 9 bankruptcy, they propose a legislative change that would allow all of its debt to be covered by bankruptcy protection, an unprecedented step.

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