Draft bill brings U.S. Treasury into Puerto Rico electric power fray
SAN JUAN – Draft legislation for the U.S. Treasury Department to oversee and partially fund the privatization of the Puerto Rico Electric Power Authority (Prepa) is making its way through the hallowed halls of Congress with language that also brings the Federal Energy Regulatory Commission (FERC) and Department of Energy into the fold. The Puerto Rico Electricity Modernization & Reform Act of 2018, as the legislation is denominated in the draft document obtained by Caribbean Business, empowers the secretary of the Treasury, “in consultation with the governor and oversight board to initiate a program to modernize and privatize the electricity system in Puerto Rico.”
“Treasury is increasingly concerned about the economic viability of Puerto Rico moving forward; they are concerned that the lack of stable electricity is going to impact the ability to create new jobs and all that,” one source with ties to the Trump administration told Caribbean Business on the condition of anonymity. “Congress is also concerned that the governor is going to pick a fight with the fiscal control board, every step of the way. You take those two concerns and the easiest thing to do is to pass a federal law that the governor can’t just say: I’m not going to follow it.”
Two sources from the GOP, one on the Hill and the other in the Trump administration, coincide in their perspective that there is no real hope that the board and governor, and the government and Puerto Rico Legislature can come to grips with what it takes to privatize Prepa.
The draft bill, if passed in its present form, would empower the Treasury secretary to review proposals submitted and set the terms for eligible applicants interested in investing private capital “to purchase Puerto Rico’s electricity generation, transmission and distribution systems, and modernize and enhance the reliability, resiliency and efficiency of such systems.”
The measure includes provisions for the creation of the Puerto Rico Electricity Investment Assurance Program to provide assurance of up to a total of $3 billion. In essence, funding from the program would go to cover any revenue shortfalls incurred by transmission and distribution entities, which would be evaluated in six-month blocks. The funding will come from the Puerto Rico Electricity Assurance Account. “The secretary of Treasury, in consultation with the secretary of Energy, shall establish such procedures as the Treasury secretary shall determine necessary to deposit funds in, and transfer funds from, the Puerto Rico Electricity Investment Assurance Account,” according to the draft.
The draft legislation includes language on FERC’s role to bring the entity into the regulatory fold that would reduce the Puerto Rico Energy Commission (PREC) to an advisory function in the initial stages of the utility’s transformation. FERC, in coordination with PREC, would: “(3) establish or approve a tariff for the transmission of electricity from a generator to a distributor; (4) authorize the siting and construction of onshore or near-shore liquefied natural gas facilities, issue certificates of public convenience and necessity for facilities that are used for natural gas transportation by pipeline, approve tariffs for transportation of natural gas by pipeline, and such other rules and regulations that FERC deems necessary and in the public interest regarding the use of natural gas for the generation of electricity; and (5) in exercising this authority, [FERC] shall approve a tariff containing rates, charges, terms and conditions of service that it finds to be just and reasonable and not unduly discriminatory or preferential.—Not later than five years after the date of enactment of this Act, and every two years thereafter, FERC shall submit to Congress a report on the status of the adoption of best practices by the Puerto Rico Energy Commission.”
The view on the Hill suggests it may be necessary to federalize the regulatory process because local legislation in the Prepa privatization bill attempts to water down the regulatory body.
At this writing, the Financial Oversight & Management Board (FOMB) created by the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) had filed its own version of a fiscal plan for the bankrupt utility, which was to have superseded the draft fiscal plan filed April 5 by the administration of Gov. Ricardo Rosselló. Although the FOMB’s version of the fiscal plan for the beleaguered power company was certified during the first day of two public meetings, the plan makes specific reference to a pending Integrated Resource Plan (IRP) and the likelihood that the regulatory framework would be handed over to the Southern States Energy Board (SSEB), which is composed of governors and state legislators from 16 states, Puerto Rico and the USVI. In the certified fiscal plan, the SSEB, along with the Rosselló administration, is tasked with drafting a bill that would include the regulatory framework and the public energy policy for Puerto Rico.
“It is imperative that they have a strong regulatory body there to govern this; and I would say that if the Puerto Rico Energy Commission is the entity that can do this, then so be it; that said, it was such a fledgling entity to begin with and it only got through one IRP process that you really couldn’t tell whether it was going to be strong or not,” one House Natural Resources Committee aide told Caribbean Business during an interview held last week. “So, there is broad recognition on the Hill, broad recognition in the Trump administration and on the oversight board that there needs to be a strong independent regulator.”
That there is already a federal law Promesa in place through which the commonwealth is restructuring debt and privatizing Prepa seems not to be enough to ascertain the utility’s transformation. The source with ties to the Trump administration put the initiative to draft a bill into context with this statement: “The issue here is that Promesa doesn’t really tell you to privatize Prepa or how to go about that. And as I understand it, Prepa is not under FERC oversight. I think this is one of the few issues where both sides of the aisle have come together to try to address the problem. The focus of the legislation is to provide a sustainable, replicable, dependable electrical system for Puerto Rico.”