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Energy issues underpin transformation

By on October 12, 2018

Editor’s note: The following originally appeared in the Oct. 11-17, 2018, issue of Caribbean Business.

Recovery of Puerto Rico’s water systems after destruction by hurricanes Irma and Maria in September 2017 not only relies on eliminating water loss but is also very much intertwined with the transformation of Puerto Rico’s energy systems.

“Our weakest point is ensuring service when there is no power,” said Elí Díaz Atienza, chief executive officer of the Puerto Rico Aqueduct & Sewer Authority (Prasa).

The Puerto Rico Economic & Disaster Recovery Plan, however, lists numerous deficiencies in water production, management and distribution. Besides lacking a plan for dredging and maintaining water reservoirs, Prasa loses 50 percent of its water through leaks in the distribution lines.

Prior to the hurricanes, Puerto Rico’s government agencies took a wide range of precautionary measures to protect the Island. Prasa and the Puerto Rico Electric Power Authority (Prepa) pre-emptively lowered water in reservoirs and stockpiled some fuel and materials, both preliminary steps that proved insufficient after the storms.

The lack of power, however, was the main disrupting element for Prasa’s systems. With much of Puerto Rico’s power grid offline, wastewater treatment plants were out of service. Some sewage plants were upstream from the drinking water supply, so their failure increased the risk of contamination to drinking water.

As of Feb. 28, all water and wastewater treatment plants in each of Prasa’s principal service regions were operational but due to constraints on energy availability, 88 percent of water treatment plants and 98 percent of wastewater treatment plants were operating below their normal capacity. As all systems are currently fully operational, Prasa is now focusing on making the water infrastructure resilient to natural disasters and on enhancing its capability to launch capital improvements by restructuring its $4 billion debt.

Prasa infrastructure

What are the plans to strengthen Prasa’s infrastructure? The utility’s fiscal plan notes that about $3 billion may be spent on resiliency efforts and about $2 billion in capital improvements.

“The government is pushing forward the ‘Construimos’ effort through which we intend to carry on Puerto Rico’s transformation, as established by Gov. Ricardo Rosselló,” Díaz said while reading from prepared notes.

The effort rests on four pillars, he said. The first consists of the strengthening of infrastructure through redesign and reconstruction. “Through FEMA [Federal Emergency Management Agency], we have important opportunities through [Section] 428 of the Stafford Act. We are going to be able to redesign a lot of these services, so they can meet industrial standards without taking into account damage prior to Maria. The idea here is to see how we can strengthen the infrastructure, by rethinking design and construction,” he said.

The second pillar is resiliency. The goal of the pillar is to help Prasa resist future natural disasters or increase “the ability to bounce back…. We have to create systems that can be redundant, to be able to stabilize water supply in the event we have problems with electrical systems,” he said.

To make water systems more resilient, Díaz said Prasa will try to operate with renewables in the areas where such systems can be implemented and is also fiscally beneficial. For example, Prasa is operating the sanitary systems of Vieques and Culebra with solar systems and batteries, he said. “If there is a problem in Vieques and Culebra now, those water plants can continue to operate. Whenever we have those opportunities, we will pursue them,” he said.

Not all of Prasa’s facilities will be able to operate with solar panels and batteries because installing these systems requires space, which some facilities do not have.

To make water systems resilient to natural disasters, Díaz said Prasa will install power generators at those facilities in which redundancy is needed because they serve critical infrastructure such as hospitals, airports or schools.

More importantly, Prasa is also counting on the fact that some of its facilities will not need to have energy redundancy because they will be served by facilities that Prepa is making more resilient.

“The most important initiative we have is one with Prepa, because we have to take advantage of the fact that they are reinforcing their power systems, so we won’t need to invest in our facilities so much, because we would be relying on a strong energy system. As we are making our water system resilient, Prepa is making its energy system more resilient, too, and that is going to remove us from the pressure of having to engage in efforts in all of Puerto Rico,” Díaz explained.

Hydropower?

What about using the hydroelectric powerplants for energy needs? Prasa’s fiscal plan mentions plans to rehabilitate hydroelectric facilities to supply 40 percent of Prasa’s energy facilities. Díaz, who is a member of Prepa’s board, said hydroelectric plants require a strong link between water production to drink and the use of the water for energy. While Prasa is still negotiating management of the hydroelectric power plants with Prepa, Díaz said the water utility should be controlling them because they are the ones who can tell Prepa when they can use water to produce energy.

Water that is used to produce energy, he said, cannot be used as drinking water. At Dos Bocas Dam, the hydroelectric plant is shut down while it is producing drinking water. When the water reservoir is full, the excess water can be used to produce energy, he added.

“The main use of our dams is to produce water. In those cases, in which we can improve the efficiency of our plants, there can be excess water used through the hydroelectric plant. Normally, the operation of water distribution excludes the use of hydroelectric. That is why I believe Prasa is in a better position to maximize the hydroelectric [powerplants],” he said.

The third pillar in Prasa’s recovery is society, according to Díaz. “Prasa plays an important role in this aspect because the better our system of water plants and distribution is, the better off will be our society and the people,” he said. The fourth pillar that will sustain Prasa is the economy. “The recovery will also take into account efforts to ensure that within the process of recovery, we are promoting sustainable economic growth and social transformation,” Díaz said.

Water standards

How is Prasa’s recovery going to help the water utility meet water quality standards established by the Environmental Protection Agency (EPA)? National Public Radio (NPR) reported that federal data show that lead is an underreported and undermonitored contaminant in Puerto Rico drinking water. “According to data reported by the island’s water systems between January 2015 and March 2018, 97 percent of Puerto Rico’s population is served by a local drinking water system with at least one recent violation of the Safe Drinking Water Act’s lead and copper testing requirements. That is far higher than any U.S. state,” NPR reported. In 2015, Prasa reached a settlement with the EPA, agreeing to pay about $9 million for, among other things, releasing raw sewage into the water system.

To ensure Puerto Rico has a drinking water supply far into the future, according to the recuperation plan, Prasa will work with the Puerto Rico Environmental Quality Board and EPA to strengthen redundancy and diversification of drinking water sources, including the use of groundwater and greywater, as well as water reuse, Díaz said. In the past, Prasa did its repairs through its capital improvement plan but that was paralyzed three years ago when the water utility was unable to complete a bond issue.

Water meters

The water utility plans to spend $2 billion on capital improvements, of which $770 million will be funded by the federal government. “We have been fixing the system by using our operational budget. That is why it is very important to Prasa and the governor to resume capital improvement projects. That is going to happen through a $2 billion, six-year plan. Of that amount, about $770 million is related to elements damaged by Maria. So, we are going to obtain that amount in federal funding; the rest is going to be through our debt restructuring,” Díaz said.

Prasa is requesting $5 billion from FEMA and Community Development Block Grant (CDBG) funds to finance permanent works that would enhance resiliency and meet building standards to protect the systems.

The public corporation is betting on increasing its revenue and reducing water losses by replacing inaccurate and obsolete meters, more effectively identifying theft and providing more detailed and accurate usage information. By avoiding water loss, reservoirs stay closer to capacity, which in turn reduces costs from a drought and saves money on chemicals. However, to change its meters, Prasa needs more than $300 million. It hopes to install them through a public-private partnership. The meter-replacement project qualifies as one of the critical projects underway through Title V of Promesa, the P.R. Oversight, Management & Economic Stability Act.

“We want intelligent meters, to know how much has gone through the system. We want to bring technology…. The real benefit is to the client because he or she will know how much is being spent and can plan water expenditures, and we can also identify water losses and leaky pipes. Today, we have to go there [to the leak site] personally to see,” he said.

Besides the new water meters, which Díaz said is one of Prasa’s most important capital projects, the water utility is still trying to repair facilities damaged by the hurricanes. The authority lost a laboratory in Caguas, which is currently being repaired. The water utility is also looking to complete major improvements to its sanitary treatment plant in Dorado. Stations that are in flood-prone areas will most probably be relocated.

Is Prasa planning to divest assets? Díaz said Prasa is planning to replace damaged facilities with new ones, such as those that may be relocated. “We are not planning to eliminate any. We are not planning to sell anything,” he said.

Díaz said the utility has already spent $90 million on repairs and emergency work. A little over a year after the hurricanes hit, it is still in the process of identifying projects for permanent works that can be financed by FEMA. It has received $150 million in insurance claims and is expecting reimbursement of another $90 million in emergency repairs. “This is all still ongoing,” he said.

In the past, Prasa obtained loans from the EPA and the U.S. Department of Agriculture’s Rural Development programs but those loans are in forbearance as the water utility restructures its $4 billion debt. Therefore, it is not getting any funding from the federal entities. Discussions to restructure debt are ongoing. Prasa has been servicing the debt to senior Prasa bondholders.

“Once we finish the restructuring, we are going to be able to have access to capital improvement funds from within Prasa, obtain funds from EPA revolving fund and funds from Rural [Development] for capital,” he said.

With $1 billion in revenues, does Prasa truly need to restructure the debt? “Yes, because there are areas we are not covering. There are junior bondholders, such as EPA and Rural, that are not being paid. The restructuring is also to be able to pay our capital improvement plan,” he said. Díaz dismissed the idea of imposing more fees on consumers after a rate hike went into effect in January.

According to the recuperation plan, Prasa has 4,654 workers. Díaz said he is trying to retain workers and will announce an initiative to that effect. “We are going to be recruiting, have more operators. We are below the number we need,” he said.

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