The Financial Oversight and Management Board (FOMB) announced today that it certified the 2019 Fiscal Plan for the Puerto Rico Electric Power Authority (Prepa).
The fiscal plan provides the framework for the transformation of Prepa into an efficient provider of electricity for Puerto Rico residents and businesses through private management and cost reduction, the FOMB indicated. Puerto Rico’s recovery depends on affordable, reliable, resilient and compliant power delivered by an efficient and financially sustainable utility.
“PREPA has made progress in several areas,” said the Oversight Board’s Executive Director Natalie Jaresko in a statement. “The fiscal plan the Oversight Board certified includes 19 initiatives with defined targets and milestones addressing Prepa’s longstanding operational deficiencies.”
The fiscal plan outlines the separation of the generation and transmission and distribution services into separate entities, each to be independently operated by experienced electric utility service providers. The competitive process to select a private operator for the management of the grid is underway, and a contract is expected to be signed before the end of calendar year 2019. It also outlines the modernization of Puerto Rico’s energy generation, with current Prepa units expected to be privately managed and replaced with new and efficient renewable and natural gas units, consistent with an Integrated Resource Plan (IRP) to be approved by the Puerto Rico Energy Bureau.
A significant increase in the use of renewable resources over the five-year period of the fiscal plan and a substantial decrease in the use of oil-fired generation is expected to reduce the cost of fuel and put Puerto Rico on a path towards environmental and energy sustainability.
The IRP proposes an increase of energy generation from renewable resources to 35 percent by fiscal year 2024, mostly through solar energy and the use of battery storage. Natural gas is expected to account for 35% of energy generation. Oil-fired resources are expected to account for only 9 percent of generation, a substantial decrease from current levels of approximately 38 percent. The remaining 21 percent of energy production would rely on coal, which the government plans to phase out as a source of energy in 2028.
“The transformation plan the Puerto Rico government and the Oversight Board agreed to with bipartisan legislative support enables a complete overhaul of Prepa,” Jaresko said. “Its implementation reduces the cost of operating and maintaining the grid, and the cost of fuels.”
The Oversight Board announced in May that, together with Prepa and the Fiscal Agency and Financial Advisory Authority, it reached a restructuring support agreement with certain bondholders to reduce certain Prepa debt by more than 30%.
“Resolving the debt is important not only to reduce electricity rates from what they would have otherwise been under the contracted debt, but also to enable Prepa to exit bankruptcy, which reduces uncertainty, important to any potential private operator and investors in new generation,” Jaresko said.