Fiscal board oversees Puerto Rico power company under its fiscal plan
SAN JUAN – The federally established Financial Oversight and Management Board (FOMB), which in November lost a legal dispute to take control of the Puerto Rico Electric Power Authority (Prepa) after appointing a “chief transformation officer” for the public utility, will be able to do just that under its version of the power company fiscal plan it is expected to certify Thursday.
The oversight board’s version of Prepa’s fiscal plan also states that the utility has delayed the selection of the entity that will design its new integrated resource plan (IRP) to meet forecasted energy demand, which should be ready by September. As in the fiscal plan unveiled earlier this month by the administration, the document does not dismiss the possibility of having only one private company take over the island’s energy needs as part of Prepa’s privatization instead of having several buying the public utility’s assets.
The new fiscal plan is one of three the board made public Wednesday ahead of its two public meetings Thursday and Friday to certify them.
Providing insight into the regulatory structure, the plan posits that the “climate [is] not sufficiently stable and predictable to attract private participation or support private investment.” Island lawmakers are currently planning to incorporate a regulatory framework for the transformation of Prepa to a private utility.
The board says it wants independent regulators with relevant expertise, but also wants the “advisory and advocacy staff and functions strictly separated.” The regulators should improve cost and reliability.
Prepa must develop a “bridge rate case that sets rates until a concession is finalized and incorporates some rate design tools,” the board stresses in the document, adding that the regulator must be able to approve a new rate case established using public comment afterward.
A transition to a new regulatory structure is “immediately” required that would ban the Public Services Commission from hearing appeals of the Energy Bureau.
“This shall be done through amendment to PREC [Puerto Rico Energy Commission] Organic Act so that structure and funding are established before bids are solicited for the transaction,” the draft plan reads.
The Energy Bureau’s authority and funding would have a transition period–the pretransformation phase–in which the fiscal board takes control.
“FOMB approves a capital plan, budget, and revenue requirements, and the issuance of new debt and the structuring of existing debt through the Plan of Adjustment. The regulator authorizes bridge rate in line with certified budget to maintain PREPA during transition. The regulator will approve the FOMB-guided IRP (Integrated Resource Plan), but any budget / debt service implied by the current rate case will be superseded by the FOMB-approved budget. The regulator will be able to hear cases pertaining to microgrids and distributed generation development during the transition period,” states the fiscal plan, which also calls for the board to maintain oversight of Prepa because it is a covered entity.
On the other hand, Prepa, which has 12 times more power outages than the stateside average and a high dependence on fuel oil, has delayed its selection of a firm to oversee the drafting of the IRP, which it was supposed to have picked last month. The IRP should be ready by September.
Previously, the utility prepared an IRP that was approved with changes by PREC. However, the new IRP must include a “re-examination” of Prepa’s system and capital plan in the aftermath of hurricanes Irma and Maria, as well as considering lower demand forecasts, increased estimates for distributed generation, and the increasingly lower cost of renewable-energy sources.
Regarding Prepa’s transformation into a private utility, which would entail the sale of powerplants and the leasing of transmission and distribution (T&D) facilities, the plan does not dismiss the possibility that the structure may take various forms. The pervading tone at the legislature and the fiscal plans indicate that each component, power generation and T&D, could end up being run solely by one firm, respectively.
These include “new franchises created for one or more privately owned generation companies. Generation franchises create right to operate utility-scale generation and sell to delivery utility,” the plan reads. “Franchisees can acquire useful generation assets now owned by PREPA under Title III process.”
Regarding T&D, the plan calls for the “delivery and retail utility functions provided by single private concessionaire using publicly-owned wires and retail service assets subject to conditions and rate and performance regulation.” The winning concessionaire would have to make and fund “necessary investments.”
Five monoline insurers have said the proposed privatization model is unrealistic. In a letter to the board, National Public Finance; Assured Guaranty Municipal Corp.; Syncora Guarantee Inc.; the U.S. Bank National Association, as Prepa trustee; and the Ad Hoc Group of Bondholders urged the board to reject the fiscal plan.
“For a privatization model to succeed, Prepa must, at a minimum, be able to provide parties with basic information such as audited financials. Further, it must specify to interested parties what assets it intends to use and expectations regarding system operations and payment,” the letter reads.
Prepa’s draft fiscal plan: