Strong regulatory framework needed to attract Puerto Rico power utility buyers
SAN JUAN – If Puerto Rico wishes to privatize its bankrupt Electric Power Authority (Prepa), it must count on a strong regulatory framework to attract buyers and modernize its grid, energy industry experts said Monday.
During a panel discussion at the Puerto Rico Investment Summit moderated by Caribbean Business Executive Editor Philipe Schoene, Prepa Project Management Officer Fernando Padilla and Julia Hamm, president and CEO of Smart Electric Power Alliance, said Prepa should not dismiss the use of small modular reactors for Puerto Rico. There is a debate, nonetheless, within the energy community about whether to classify SMRs as distributed energy resources.
“I don’t see why any option should be off the table. Now is the time for Puerto Rico to think about all options,” said Hamm, a renewable energy advocate, who is widely considered a world expert on distributed energy resources.
Padilla said that once there is a final version of Prepa’s integrated resource plan, Prepa will have a clear vision as to what is needed.
When asked how to privatize a bankrupt entity, Padilla said the first consideration is the Promesa federal law, which will give Prepa the “oxygen tank” needed to reorganize. Between the law’s Title III, the bankruptcy process, as well as Promesa’s Title V, which would help expedite permits for projects, there is room to privatize Prepa.
Hamm said the bankruptcy process was not a “showstopper” for privatization because there was a lot of interest in Puerto Rico and a desire to bring investors. But she stressed the need for strong regulatory framework designed in a way that can truly draw private capital to the island.
As for how much solar could Prepa use, Padilla said one of the issues will be the transformation to renewable sources to meet demand because the system is not flexible enough to allow for such integration. It also involves making changes to the energy transmission system, which was virtually destroyed by Hurricane Maria in September.
“I do see larger generation coming in the North. I do see more flexible and lower capacity in the South,” he said.
The two experts agreed with the Financial Oversight and Management Board on the need for a strong regulatory body overseeing Prepa. The fiscal board asked the government to introduce legislation by this summer to create a robust and independent regulatory body for Prepa, rejecting proposed government legislation to merge it with other entities.
Hamm said there are different types of regulatory bodies. While Puerto Rico could have an independent energy regulator as it does now, she also noted that some power utilities have their own governing bodies that exercise oversight.
“It is not the style of regulatory body, but it is absolutely critical that there is a strong and independent regulator, looking out for customers and to ensure things are done in a transparent manner,” she said. “That is what will attract private capital to the island.”
Padilla said that as Prepa shifts into “Prepa 2.0,” the regulatory framework not only should help attract private investment, but also contain a mix of customer protections.
The experts posited that it will be difficult for the utility to keep its billing rates low as its customer base shrinks. Hamm also stressed it will be important to take into account the needs of all stakeholders during Prepa’s transformation.