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Promesa Watch: Consumer Rep Warns of Challenges in New Puerto Rico Energy Public Policy

By on April 18, 2019

Prepa headquarters in San Juan (File)

Prepa IRP’s Payment $9 Billion Debt, Pension Plan Adds 6.2 cents per kWh to Consumers’ Utility Rate Over 10 Years

Editor’s note: The following was first published in the April 18-24, 2019, issue of Caribbean Business.

The consumer representative on the Puerto Rico Electric Power Authority (Prepa) Board of Directors, Tomás Torres Placa, applauded the new energy public policy being converted into law but warned about challenges in its implementation.

“The project is historic and positive for Puerto Rico,” he said. “Now, the challenge is implementation, and everything should be for the benefit of the consumer,” he said.

Torres Placa is referring to Prepa’s Integrated Resource Plan (IRP), which presents various portfolios and scenarios to provide electricity to consumers in the future, projects that payment of the $9 billion debt and pension plan will add 6.2 cents to consumers’ utility rate over 10 years.

The new energy policy establishes as a goal that utility rates will be less than 20 cents per kilowatt-hour (kWh).

The IRP, which is being reviewed by the P.R. Energy Bureau, which had rejected it before for being defective, establishes that there is a component in the tariff that Prepa cannot ignore. This component reflects the charges for inherited liabilities, such as pensions and debt. The amount included is about 3 cents per kWh to pay for the debt and 2 cents per kWh to serve pension funds, which translates with increments to 6.2 cents per kWh. “This component is static and does not change with the portfolio’s asset mix,” the plan reads.

Torres said the 6.2-cent increase projected in the IRP and pension plan, which is to be added to the current rate, cannot come exclusively from the pocket of the 1.5 million Prepa consumers.

“That would raise energy costs in such a way that even if savings of about 3 cents per kWh is achieved, the rate would increase to 25 cents per kWh. Alternatives should be sought to help pay some of this debt value and not fall exclusively on consumers,” Torres said. “Therefore, once the debt is restructured, we must look for other ways to pay it,” he added.

Torres said the adjustment in the basic rate that would take effect May 1 is not “important” because, in the end, the adjustment would be about 0.3 cents per kWh for the consumer.

The new law provides for the modernization of the energy grid to develop an intelligent and flexible system that can integrate new technology and renewable energy. It establishes a timeline for implementation of renewable energy on the island: the elimination of 20 percent of fossil fuel use by 2022; 40 percent by 2025; and 60 percent by 2040. By 2050, the island should be using only renewable energy sources.

The law orders Prepa to transfer its power generation assets through their sale or via public-private partnerships (P3s). It also points out that no company can own more than 50 percent of those assets.

The contractors that acquire or operate Prepa’s powerplants must modernize or replace them with efficient plants within five years.

Likewise, the new plants established during the transition to 100 percent renewable energy will have to be smaller-scale.

The plants must also have the capacity to operate with multiple fuels that minimize greenhouse-gas emissions, with more modern technology and higher efficiency, and with the capacity to integrate distributed generation and renewable electric power.

The law also establishes the transfer of the operation and maintenance of the transmission & distribution (T&D) of energy to a P3 concessionaire by Dec. 31.

Asked how he plans to guarantee reasonable rates under the proposed privatization model, Gov. Ricardo Rosselló said contracts under P3s would be monitored.

Prepa CEO José Ortiz Vázquez said: “The low cost of solar energy and battery systems will make the implementation of this law possible, providing many options to consumers and making the energy grid more resilient.”

The new law promotes the distribution of renewable energy by establishing retail net metering for participants in the Net Measurement Program, under which customers with eligible renewable energy-generation systems can export their excess energy to Prepa’s network.

The utility will measure the energy that customers export to the network and invoice them for their net energy consumed. Net energy is equal to the energy consumed by the customer minus the energy exported to the grid.

The law also strengthens the Energy Bureau as the regulatory entity in charge of executing the implementation of the public energy policy.

The bureau’s budget will be increased to $20 million. It will be granted greater operational autonomy and given new powers to regulate through mechanisms based on performance metrics. The measure also creates a Green Energy Trust that will promote consumers becoming consumer-suppliers.

If a customer exports more energy than they consume from Prepa, the excess will be posted to their account so it can be used in subsequent months.

Through the Net Measurement Program, the network operator will compensate the consumer-provider for the energy they export to the network at the same kWh rate at which they purchase the energy.

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