Can Title V in Promesa Revamp Prepa?
SAN JUAN – The tug-of-war in rallying consensus to pass the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) will go down in the Congressional Record as a truly herculean task headed by a handful of people on Capitol Hill, among whom were Bill Cooper, a senior policy adviser to Rep. Rob Bishop (R-Utah) and the point man in the House Subcommittee on Energy & Mineral Resources, and Maryam Brown, former senior energy & environment counsel to House Speaker Paul Ryan.
Although much has been written about sticking points in Promesa’s Title III on debt restructuring, the need to bind the holdouts in Title VI and firewall provisions for pension plans, little attention has been given to the statecraft driving Title V until it was made public that Cooper, the former president of the Center for Liquefied Natural Gas (CLNG), a trade association of LNG producers, shippers, terminal operators and developers, had been offered the post of executive director of the newly formed federal fiscal-control board for Puerto Rico.
In an exclusive interview with Caribbean Business that took place last week, Cooper was asked if it would be inaccurate to report that he had been sought out to become the candidate to hold the post of executive director. His response: “No, it would not be inaccurate. We have to see how events unfold. People have been kicking my name around quite a bit—there are so many variables at this point in time that I don’t want to categorically deny that I might be interested if they talk to me, nor would I say that I will accept it under any terms. We’ll just have to wait and see. Irrespective of the outcome, we just want to be helpful where we can.”
The many interests and subplots underpinning the legislation enabling Promesa are now bringing conflicts of interest to the forefront. Early on, when Puerto Rico’s debt crisis came knocking on Congress’ door, the ghost of bailouts past came to the fore in epic infighting among creditor groups battling for priority of their credits.
Some lobbyists on the Hill are saying there are diverging perspectives on the role of the fiscal board’s executive director as outlined in Promesa. Cooper’s recruitment to become the eventual nominee points to the strategic importance of energy in the eyes of the GOP. Sources tied to Republicans on the Hill have told Caribbean Business that GOP lobbyists with Puerto Rico ties were instrumental in seeking out Cooper—asking for his availability to hold the post and that members of the board were ready to confirm Cooper once the board chairman was named. Two sources in Washington, one tied to the GOP and the other tied to the Democrats, confirmed that Republican José Carrión III was the consensual favorite to hold the post. He has since been confirmed as chairman. Although Cooper was a shoo-in to be confirmed as the executive director, he is having second thoughts about his availability to hold the post and names of other candidates have been sought out.
“Cooper’s involvement and Brown’s role in the work done on Title V, and their ties to the energy sector are no coincidence,” said one high-level source on the Hill with knowledge of the amendments that went into Title V.
When confronted with the potential conflict of interest, one congressional staffer tied to Ryan’s office replied: “Of course, you’re going to want an energy expert working on the overhaul of energy. We aren’t going to want a chef, right?”
Cooper’s experience is not in question. Before joining the Energy & Mineral Resources Subcommittee in March 2015, he worked on energy issues for over three decades. Cooper also served as counsel to the U.S. House Energy & Commerce Committee and previously practiced law in Tennessee, according to press reports.
For her part, Brown became an important figure in the drafting of Promesa. Brown is a veteran operative on the Hill who has served on both the House Energy & Commerce Committee and the Senate Republican Policy Committee, who recently resigned from her post with the speaker to join the Washington, D.C., office of the San Diego-based Sempra Energy as its vice president of federal government affairs.
Between Cooper and Brown, they managed to insert language in Title V that appeased environmentalists in order to maintain important provisions to expedite energy projects.
Challenges to overhauling energy
The first indication of challenges to overhauling the energy sector in Puerto Rico came to the forefront during congressional hearings in January. The issue of permits and the need to expedite the process caught the attention of lawmakers in attendance.
“Bill played an important role in adding language for the creation of an interagency environmental subcommittee. So, we were analyzing the laws that are here and how those can be expedited—that is part of the reason why we have Title V,” said one staffer on the Hill who worked on Title V.
“The interagency environmental subcommittee was one of the inserts that appeared in one of the last rounds as I would review the text. I can’t tell you which of the legislators inserted that,” one staffer who worked closely on the text told Caribbean Business. “It’s a very irrelevant provision because the way Title V reads, if I am a project proponent, I have to try to convince the Revitalization Coordinator and the government of Puerto Rico that the project I am proposing would be a critical project, which means that it should meet many of the criteria under the definition of a critical project. With some of the energy projects there are additional criteria, such as the diversification of energy resources, the development of renewables, reducing a reliance on oil and that sort of thing.
“The insert of the environmental interagency review came in from—let’s call it left field. My sense is that it came from some of the voices that cry foul because anything that says expediting the process is screwing the environment, which is not true. In this case it is inapplicable because when you submit a project for critical project designation, you don’t have an environmental project statement done; you do that as part of a regular permitting process once you file officially before an agency in Puerto Rico, which you will have to do anyway under Title V,” the staffer added.
Failed efforts to diversify
The nuances of Puerto Rico politics seemingly extend to the overhaul of energy. Fortuño, a Republican and supporter of statehood, was all for the diversification of energy—reducing the island’s reliance on oil and converting to natural gas—while his predecessor, Democrat and pro-commonwealth supporter Gov. Aníbal Acevedo Vilá, failed to construct the Gasoducto del Sur (Southern Gas Pipeline) due to objections from the environmental sector that succeeded in derailing the permitting process.
Fortuño has long touted energy independence because it gives Puerto Rico a fighting chance to promote a healthier business climate; most businesses are discouraged from establishing operations in Puerto Rico precisely because the island has a cost per kilowatt-hour that hovers at 17.75¢. That is nearly triple the U.S. national average.
Fortuño was quick to endorse Sen. John McCain’s (R-Ariz.) Lexington Project for energy independence during the 2008 Republican National Convention. “McCain is my kind of Republican, and he understands that we need full energy independence for economic reasons as well as national security reasons,” Fortuño said during an interview with this reporter at the time. “He understands that means, to a degree, that we will exploit our natural resources but we will move to alternative energy sources in the near future. That we cannot postpone this any further and we have to act now.”
McCain’s Lexington Project for energy independence convinced Fortuño that the federal government would be supporting jurisdictions seeking diverse energy options. “I knew if I became governor I was going to have opportunities with the federal government to move in that direction,” said Fortuño, who was negotiating an agreement to sell Puerto Rico’s excess energy capacity to the Dominican Republic.
“Latin America: Energy Supply, Political Developments & U.S. Policy Approaches,” a report by the Congressional Research Service, examined Latin America’s political environment and the apparent effect on energy in the region. There is a shared vision in Congress and the U.S. State and Energy departments that dependence on oil in the region is a threat to national security. According to the Energy Department, oil dependency is a major problem among Caribbean island nations, where oil accounts for more than 90% of total energy consumed.
Fortuño first witnessed shifting energy paradigms in the hallowed halls of Congress during his days serving on the House Energy & Resources Committee. In 2009, when he became governor, he issued an executive order under Law 76 that designated the energy sector as being in a state of emergency. At that time, Puerto Rico was 80% dependent on oil. The number has gone down to about 60% today, mainly due to gas conversion.
Through that executive order, Fortuño activated the Permits & Endorsements Management Office, Environmental Quality Board, the P.R. Aqueduct & Sewer Authority and the P.R. Electric Power Authority (Prepa)—the principal agencies that review energy projects—to have their own expedited regulations; these agencies issue those regulations, as permitted under Title V.
Importance of Title V
“The critical projects are submitted and evaluated based on a process in which you are going to designate for fast tracking, but it will require, as applicable, a full environmental compliance review—so it doesn’t substitute anything that is legally required of a critical project that could have a major impact on the environment,” explained Jorge San Miguel, an attorney who has long worked on energy issues in Puerto Rico and is an expert on Title V.
Title V, however, contains provisions that allow the Revitalization Coordinator—selected by the governor from a list of at least three names, or by the board, if the governor fails to do so within 10 days of receiving the nomination—to determine the exact conditions under which to expedite permits. Under the subsection titled Establishment of Certain Terms and Conditions, “no Puerto Rico Agency may include in any certificate, right of way, permit, lease or other authorization issued for a Critical Project any term or condition that may be permitted, but not required, by any applicable Puerto Rico law, if the Revitalization Coordinator determines the term or condition would prevent or impair the expeditious construction, operation or expansion of the Critical Project.”
Indeed, there are many gray areas in Title V as pertains to the overhaul of Puerto Rico’s decrepit energy infrastructure. For instance, Prepa, which has been in a four-year debt-restructuring process, is still evaluating areas in the entire law pertaining to its overhaul. For instance, Title V stipulates that critical energy projects must comply with an Integrated Resources Plan (IRP) approved by the Puerto Rico Energy Commission (PREC). Yet the IRP already contains many projects deemed critical, so some people are wondering how the energy sector will avoid potential redundancy in the process.
“We thought a lot about that because our goal was to navigate through the transformation of Prepa complying with Act 57, which is what required Prepa to pull together an IRP,” explained Prepa Chief Restructuring Officer Lisa Donahue whose AlixPartners Inc. has been contracted to the tune of some $43 million to engineer the restructuring of the bankrupt utility’s more than $9 billion debt.
“Promesa was being formulated so that we could take advantage of some of the benefits of Title V. Our interpretation is that the approved IRP will set the roadmap for Prepa to modernize the system and we will work in conjunction with the Revitalization Coordinator. Our thought is that we would be working together with the energy commission to implement the plan. We are hopeful that Title V will help us with local permitting, will help us to accelerate our timeline and hopefully can make the process go faster,” Donahue said.
Last week, PREC issued a resolution disapproving Prepa’s IRP, including the Aguirre Offshore GasPort, which was to provide cheaper energy to consumers. PREC cited three reasons for not approving the GasPort: unreliable fuel forecasts, Prepa’s failure to test alternative portfolios and the uncertainty of the GasPort’s permitting. Reportedly, PREC also opted to substantially modify Prepa’s IRP because it was almost entirely designed by Siemens PTI, a subsidiary of Siemens AG, the parent company of a manufacturer of generating units.
“There are two paths that we are exploring. As pertains to Aguirre Offshore GasPort, they felt that it wasn’t compelling and they needed more information. So, we intend to sharpen our pencils and work with the commission,” Donahue told Caribbean Business. “We are required to submit a modified IRP, on which the commission was very prescriptive and helpful on what should be included. We have 30 days on that and we intend to comply.”
The massive outage at Aguirre that took place two weeks ago likely helped underscore the urgency of an IRP, said Donahue, who shared that Prepa had already identified the need to upgrade the transmission and distribution (T&D) system and already had significant dollars included in the existing IRP to invest in the T&D systems. That was a key element of the IRP that was approved.
“Look, everyone realizes this is a system that is sorely in need of investment and capital projects and we will continue down the path of investing in critical projects,” Donahue explained.
Aguirre is a key component in Prepa’s plan to comply with the Environmental Protection Agency’s Mercury & Toxic Standards compliance. “The most critical way that the Revitalization Coordinator can help is accelerated permitting process, which tend to be some of longest lead time pieces for some of these major infrastructure projects,” Donahue emphasized. “So, if we could get some of these projects online faster than traditionally had happened, that would be a win for everyone.”
Some of those close to Prepa’s overhaul, including Donahue, agree that they will not have a concrete timetable—the exact number of months by which a project will be fast-tracked until they commence the first critical project. Many scenarios and milestones exist in Title V. “Our literal reading of Title V is not yet clear on how it can help; so we have to figure out how much faster the local permitting will be pertaining to the projects that we want to do, in terms of transmission and distribution and repowering of some of the units,” Donahue told Caribbean Business. “But if we can get started on some of the local permitting, and we have the energy commission on board for some of those critical projects, that would be great. How we will be able to accelerate it, I’m not sure, but I’m hopeful that it will significantly shorten the process.”
At this writing, Prepa’s restructuring brigades were yet uncertain of Promesa’s impact on the Restructuring Support Agreement that the bankrupt utility has negotiated with a majority of its creditors. “There are three paths that we are exploring, the first is a pre-existing deal and Prepa is not a designated entity [prior to board meeting]. The second is Prepa is a designated entity and we go under Title VI, which allows us to bind the holdouts,” Donahue explained. “And the third path is Prepa is a designated entity and we go under Title III [for debt restructuring], as you would in a pre-arranged deal [working under a bankruptcy proceeding]. We are in the process of looking at the pros and cons of going under Title III or Title VI, and what you are able to gain as far as incremental value for Prepa and the people of Puerto Rico to the extent that there are liabilities that may be compromised under Title III.”