Two years after Hurricane Maria inflicted severe damage on the island’s aging electrical grid, Puerto Rico’s Electric Power Authority (Prepa) unveiled a 10-year plan to transform its energy system at a tag of $20.3 billion.
But Prepa’s to-do list is way longer.
Aside from being tangled in a bankruptcy process at Federal Court, and in the midst of a grid modernization plan, the public utility is also promoting a new Integrated Resource Plan (IRP), looking for a public-private partnership to take over the transmission and distribution system, and seeking private management for its generating plants, all while operating within the boundaries of a fiscal plan and under the scrutiny of the Financial Oversight and Management Board (FOMB).
Although Prepa has already embarked on the upgrade and reorganization of the island’s energy system, experts at the Center for a New Economy (CNE) warned last Friday that the road map to modernization -in so far- seems to contradict the clean energy policy that pledges to produce 40 percent of the territory’s power from renewable sources by 2025, and runs against the grain of other local regulations.
Furthermore, the proposed changes contemplate rate hikes that will increase energy costs by 20 percent for over forty years or more within the next five fiscal years, disincentivize the generation of sustainable energy, in the jurisdiction with the most expensive electricity rate when compared to others in the U.S., and limit economic growth in an island besieged by a decade long recession and a $70 billion plus debt load.
Among other costs, the proposed debt restructuring agreement imposes a transition charge on all consumers that remain connected to Prepa’s grid, even those residents and businesses who generate their own electricity.
“If the changes contained in Prepa’s fiscal plan and the Restructuring Support Agreement (RSA) are adopted, they will cause a negative feedback loop... and reduce electric demand. As a result, Prepa won’t meet revenue expectations to pay bondholders. We will fall into this vicious circle and end up restructuring the debt again,” CNE Policy Director Sergio Marxuach cautioned.
During a roundtable with journalists at the think tank’s headquarters in Old San Juan, Marxuach and Malu Blázquez, executive director of the ReImagina Puerto Rico program, described the complexities of a process that navigates uncharted ground and challenges the legal path that the government-owned corporation is following. ReImagina, which helps align recovery efforts and bring greater coordination and transparency to the process, is one of the current programs of the CNE.
Progress on debt restructuring and budget sustainability translates to “progress on economic development”
“We have a process underway, in accordance with Puerto Rican law, running on one lane, and the federal process established by Promesa (Puerto Rico Oversight, Management, and Economic Stability Act) on another lane. Prepa is running on Promesa’s track. Maybe it finds that lane more convenient or more compatible with its own vision. We don’t know. That’s why we are raising a flag,” Marxuach indicated.
His concerns echoed the apprehension expressed by other sectors and even by U.S. District Judge Laura Taylor Swain, in charge of the island’s bankruptcy process. In open court, Swain has voiced her unease at the lack of information and legal framework that supports the RSA.
Last Tuesday, the judge granted the FOMB’s request to postpone a Jan. 14 hearing on the final approval of the RSA as to give Prepa time to select the company that will take over the transmission and distribution system, and for the commonwealth Legislature to approve legislation enabling the $8.3 billion restructuring deal. Swain didn’t set a new date for the pivotal hearing that has been canceled five times.
Marxuach explained that, as part of the deal, the RSA requires legislative intervention to create a structure, separate from the public utility, to issue the new bonds that will replace existing bonds. The bondholder agreement also calls for the amendment of 16 local laws to facilitate the polemic transaction.
Despite the different legal paths, Marxuach and Blázquez believe that the public utility should stick to the procedure outlined in the Energy Transformation Act, which requires Prepa to submit a 20-year action plan for the approval of the Energy Bureau.
The organizations document deficiencies that lead to erroneous projections about the energy future proposed by the public corporation
They document deficiencies that lead to erroneous projections about the energy future proposed by the public corporation
“We believe that the Integrated Resource Plan should be the master document guiding other plans like the fiscal plan and the grid modernization plan,” Marxuach insisted.
“The IRP should serve as a master plan for the transformation of the electrical system in the next two decades, and major capital investments and generation privatization efforts should not occur until the IRP is approved,” Blázquez added of the ideal scenario.
The Energy Bureau will hold a public hearing on Feb. 11 to discuss the IRP, after rejecting a previous version of the plan that didn’t comply with government regulations and standards.
Marxuach and Blázquez also expressed concern with Prepas’s proposed IRP and favored an option that relied on greener energy options. They noted that the plan calls for massive investments in a new natural gas infrastructure, without identifying a method to subsidize the investment, and ignores the recommendation of Prepa’s own consultants, who advocated for greater investment in sustainable resources instead of natural gas.
“Prepa is working under the assumption that the savings from natural gas are going to be significant and offset the impact of the charges imposed by the RSA. But I haven’t seen any economist validate that theory,” Marxuach said.
On the contrary, studies published by economist Ramón Cao García and Héctor Cordero Guzmán, a sociologist at Baruch College in New York, concluded that, if approved, the RSA would hurt the economy and consumers, particularly the most vulnerable. It will also undermine economic recovery and fail to repay investors.
Last month, worried about its repercussions, a private-sector coalition urged Gov. Wanda Vázquez to withdraw the RSA and renegotiate a new deal, citing Cao García’s conclusions.
He concluded that the RSA and Prepa’s fiscal plan could increase electricity rates by up to 50 percent over the next five years, resulting in the loss of up to 170,000 jobs and causing the gross domestic product to drop 22 percent.
Cordero’s findings also revealed that if the deal is approved, the island’s poor population will end up spending 42 percent of its income on electricity.