Sunday, October 20, 2019

[Editorial] Passing Natural Gas at the Prepa Corral

By on April 11, 2019

If Prepa’s plan hinges on 10-year deals with the producers of natural gas, how likely is it that Puerto Rico will achieve the 100 percent renewable formula, so essential to resilience…?

Editor’s note: The following was first published in the April 11-17, 2019, issue of Caribbean Business.

Whoever is at the helm of the House Committee on Natural Resources in U.S. Congress, had better pay attention to the overhaul of the Puerto Rico Electric Power Authority (Prepa); taxpayers and stakeholders demand no less. The current chairman Raúl Grijalva (D-Ariz.) knows this full well.

The bankrupt utility, which spent decades becoming the poster child for inefficiency and graft, is once again prepping for an extreme makeover. It is not the first time the bloated power company is targeted for reform—under previous political administrations, Puerto Rico’s power company has fallen short of gasification goals, seen renewable energy deals shelved, and undergone pricey rehab that depleted inventory of essential parts and materials, while attempts to restructure debt were imploded by the advisers hired by Gov. Ricardo Rosselló’s administration.

In its latest incarnation, the Integrated Resource Plan (IRP) had designs on privatizing some of Prepa’s generation assets while it put out bids for private companies to run its Transmission & Distribution (T&D) assets. The complete devastation of Prepa’s fragile power grid by the wind beast named Maria served to expose grid frailty and managerial shortcomings of the maligned power company. Thus, representatives on the Hill, who have invested considerable political capital attempting to restructure Prepa’s towering $9 billion debt, are bound and determined to make certain the mistakes of the past are not repeated.

So, on Tuesday, April 9, 2019, the Committee on Natural Resources held yet another oversight hearing on “The Status of the Rebuilding & Privatization of the Puerto Rico Electric Power Authority.” House Natural Resources Committee Chairman Grijalva saw how much political capital was invested by his predecessor, Rep. Rob Bishop (R-Utah). Grijalva is hoping not to see Prepa languish again—on his watch. Buena suerte.

To his credit, Grijalva held panels, the first of which included the Assistant Secretary of the Office of Electricity for the U.S. Department of Energy Bruce J. Walker; Prepa Executive Director & CEO José F. Ortiz Vázquez; Policy Director for the Center for a New Economy Sergio M. Marxuach; University of Puerto Rico Prof. Marla D. Pérez Lugo; Puerto Rico Manufacturers Association President Rodrigo Masses; and former Revitalization Coordinator Noel Zamot.

Think of the first panel exchange as a salad bar—a few cool policy cucumbers, some shredded Prepa lettuce, congressional jalapeños and plenty of renewables bologna.

In a first serving, true to form, committee members took in testimonies that were more valuable for the information shared between the lines than the perfunctory rhetoric of self-serving treatises taken up during opening turns. For instance, when the U.S. Department of Energy’s Walker told the committee that the generation capacity in the South (70 percent generation) is not where the load center is in the North (70 percent of the consumption), he is seemingly sharing information known to most attending that hearing. In truth, he was paving the way for the argument that Prepa is putting front and center a plan to gasify Units Five and Six at San Juan under a contract with New Fortress to build offshore terminals and to supply liquefied natural gas over the next five years. Walker, in no uncertain terms, let it be known that LNG on Puerto Rico’s North shore is the end all-be all in a beginning toward resilience because it reduces reliance on lines to the South, so vulnerable in the event of natural disasters.

He punctuated those comments with the assertion that the renewable energy portfolio in the Prepa IRP is not realistic—it will take, says Walker, some $2 billion to generate. Walker was not alone in his favoring natural gas over renewables. Prepa chief Ortiz let on that although policy is to focus on renewables, LNG is the best option at this time. Perhaps, Ortiz shared the most important piece of information in his testimony when he tipped his hand to tell about a deal that will be announced next week involving a Power Purchase Agreement and the retooling of a contract that will help Prepa achieve the $450 million in savings sought by the Financial Oversight & Management Board in the power company’s fiscal plan.

At this writing, Prepa has requested through the Central Office of Recovery, Reconstruction & Resiliency (COR3) some $2.5 billion. And, oh, by the way, the $1.9 billion allocated thus far for Prepa recovery by the Federal Emergency Management Agency remains in a bureaucratic holding pattern because the Puerto Rico Energy Bureau sent the Prepa IRP back to the power company for revisions after determining it was not compliant with the renewable mantra pushed by the Rosselló administration.

The market, says Ortiz, is responding strongly to Prepa’s offer and plan, but if it hinges on 10-year deals with the producers of natural gas, how likely is it that Puerto Rico will achieve the 100 percent renewable formula, so essential to resilience and rates that can be kept in check and free of market influence? Those are questions that should be answered now. The people of Puerto Rico have been gouged for too long.

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