Thursday, April 25, 2019

[Editorial] Killing Us Softly With Their Song

By on January 31, 2019

Editor’s note: The following originally appeared in the Jan. 31 – Feb. 6, 2019, issue of Caribbean Business.

When the congressional delegation led by recently anointed U.S. House Natural Resources Committee Chair Raúl Grijalva descends upon Puerto Rico, uncovering sad truths about the Puerto Rico Electric Power Authority (Prepa) will be a core concern driving their oversight of the bankrupt power company’s facilities. What they are likely to find will not be pretty. Prepa is a tangled web generations in the making.

Although the smash Broadway hit “Hamilton” saw its final curtain call on a two-week run in San Juan, thus depriving the members of U.S. Congress from witnessing a classic duel playing out in the final act, they are in time to see plenty of duels playing out between the Financial Oversight & Management Board (FOMB) and the administration of Gov. Ricardo Rosselló in matters pertaining to Prepa’s overhaul.

Grijalva knows this because he was part of the committee that he now chairs. He witnessed how former Chairman Rob Bishop (R-Utah) thought he had codified the Prepa Restructuring Support Agreement (RSA) into law when the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) was passed. This was his belief when language was included in the law expressly stating that term sheets struck prior to June 2016, as was the case with Prepa, qualified as prearranged deals that would head straight to Title VI for consensual negotiations.

Bishop was not counting on the Rosselló administration taking another crack at the deal with new terms, and in so doing, blowing the RSA to kingdom come. Adding insult to injury, Bishop’s supposed minions on the O-Board failed to give the rate structure underpinning the RSA their Good Housekeeping Seal of Approval.

Thus, Prepa remains in Title III bankruptcy proceedings in the U.S. District Court, where it must come to terms with diverse creditor constituencies in attempts to restructure $9 billion of debt. This exercise in quantum physics is taking place parallel to the drafting of an Integrated Resources Plan (IRP) that is six-months tardy and an important precursor to the plan of adjustment certified by Judge Laura Taylor Swain. When you have so many conflicting interests among diverse creditor constituencies, all chomping at the bit for their own Prepa hay, progress stalls.

Monoline bond insurance companies Assured Guaranty and Syncora, and the Prepa Ad Hoc Bondholders have filed to place the utility into receivership. Gov. Rosselló’s restructuring brigades and Prepa’s top brass in operations led by Executive Director José Ortiz will have none of it. Instead they have embarked on a privatization process that intends to lease its Transmission & Distribution (T&D) infrastructure prior to the sale of generation assets.

The qualifying power companies vying for the Prepa T&D concessions—Duke Energy Corp., Exelon Corp., Public Service Enterprise Group and the Quanta Consortium—await selection as an important precursor to generation.

As this newspaper previously reported, the contracts, slated for signing in September 2019, will determine management fees and the rate structure.

With this equation in hand, the Public-Private Partnerships Authority (P3A) hopes to have a charge in place for generation proponents to contemplate the purchase of assets.

Prepa’s Ortiz believes it can be done through a mix of renewables—the Rosselló administration’s plan for energy transformation calls for 50 percent renewables by 2040—and the conversion of Units No. 5 and No. 6 at Central San Juan to natural gas. Ortiz is among many of the energy experts who have said Puerto Rico is best served by tri-fuel units that run on propane, diesel and natural gas.

The problem in this equation traces to cost comparisons that account for the true cost of liquefied natural gas. “In Puerto Rico, propane is less expensive than natural gas,” Ortiz explained in a previous interview. “In the United States, natural gas is cheaper, but when you calculate the importing and having to freeze it at minus-273 degrees for it to become liquid, the cost rises to above $10 per MMBTU [1 million British Thermal Units]. Propane costs you $8—the handling and shipping is much less expensive.”

(Screen capture of www.azpm.org)

Indeed, the rate game is a conundrum as there are wide-ranging estimates of projected energy costs—a population of consumers that is shrinking at an alarming rate, for instance, conjures images of stifling electricity costs not too far afield.

As we move forward on overhauling and storm hardening Puerto Rico’s power grid, Grijalva’s congressional cavalcade must find truthful answers to complex questions. The last thing Puerto Rico needs is a pipe dream of short-term energy relief followed by the rude awakening of soaring energy costs killing economic development before it has yet begun. No more killing us softly.

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