Thursday, November 15, 2018

[Editorial] Electricity, Camera, Action

By on October 19, 2018

Editor’s note: The following editorial originally appeared in the Oct. 18-24, 2018, issue of Caribbean Business.

Actually, the saying is “Lights, Camera, Action.” That classic film director’s phrase from the realm of tinsel town—these days they just say ‘rolling’—might be a fitting instruction for a recent announcement by Gov. Ricardo Rosselló pertaining to rate reductions by the Puerto Rico Electric Power Authority (Prepa).

In a two-shot take, Gov. Rosselló together with Prepa Chief José Ortiz shared that a rate reduction of between 3.5 cents and 3.9 cents per kWh would be coming down the pike as soon as October, thus saving businesses hundreds of thousands of dollars while average consumers will save as much as $30 on their monthly electric bills.

Although the scene played well with the general public, some of the government’s detractors in the creditor camp are still not convinced of the rate reduction’s authenticity. They see the possibility that this is a rerun of rate reductions past, such as the one that took place prior to the November 2012 election under then-Gov. Luis Fortuño—a drop that then spiked as soon as Fortuño left office.

In a move supporting the creditor audience’s reserved enthusiasm, no sooner had the rate scene gone public than the Financial Oversight & Management Board (FOMB) was denouncing the move as a populist ploy that ran contrary to Prepa’s fiscal plan. The FOMB has since ordered Gov. Rosselló’s administration to crunch numbers that would give credence to the rate reduction as a feasible strategy for a bankrupt utility that is having trouble rubbing two nickels together.

The Rosselló administration explained the math as Prepa’s Ortiz went on a media tour—much as Hollywood does with film stars who promote their movies—where he explained how the rate reduction is possible thanks to natural gas efficiencies achieved at Central Costa Sur.

His comments failed to pass muster with members of the energy community who know that Prepa had often been using Bunker-C Crude Oil at some generation sites because it was cheaper. This was told to Caribbean Business by more than one person working on the generation side during reporting done in the aftermath of Hurricane Maria.

Although the fiscal viceroys on the FOMB insist the rate reduction is under the Puerto Rico Energy Bureau’s (PREB) purview, the Rosselló administration insists it is not necessary to consult the energy regulator because it has no impact on the fiscal plan.

Nor did they feel the need to consult their overhaul of Units five and six of Central San Juan, which they intend to gasify by building tri-fuel units. Rosselló’s restructuring brigades insist the overhaul of Unit 5 and Unit 6 is more a fuel-supply issue for which a request for proposal (RFP) was issued. At this writing, firms in the running—AES Puerto Rico, Arctas Capital, New Fortress Energy, Puma Energy Caribe, Tropigas, Naturgy and Sea Once Caribe—are vying for the contract to supply those units with liquefied natural gas (LNG) worth $700 million across five years.

The FOMB says there is more than just fuel supply to the deal. Two sources in the energy sector told Caribbean Business that Prepa’s operational brigades will be forced to overhaul existing infrastructure—they will be forced to change the burner tips, so they can accommodate dual fuels, because those units are designed for diesel. Additional infrastructure work must be completed for the import and receiving of natural gas.

Sources with knowledge of the bidding process have let on that the infrastructure component was included as a cost in the fuel-supply deal because the bankrupt Prepa is unable to pay for the overhaul.

Thus, other observers, including significant creditor constituencies holding Prepa debt, agree that deal must come under the purview of the newly created PREB, a watered-down version of the Puerto Rico Energy Commission. Their quarrel with the Rosselló administration is that it is “a deliberative abandonment of the process by which the bureau must review such matters using the argument that it is a fuel issue.”

That the Rosselló administration is pressing on with its Central San Juan initiative has given important creditor constituents reason to pause. It has also inspired a guarded stance in the possibilities of achieving a consensual deal with important creditors, some of which remain reluctant to agree with Prepa’s current restructuring terms.

Failing to achieve a deal would be significant collateral damage in this movie, as consensual negotiations would help restructure more than $9 billion of debt—an act that would go a long way toward helping Puerto Rico to inspire confidence in the markets and help Prepa obtain money it does not have to undergo that essential transformation.

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