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Puerto Rico Utility Chief Sheds Light on Energy Overhaul

By on January 31, 2019

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

The executive director of the bankrupt Puerto Rico Electric Power Authority (Prepa), José Ortiz, said he is sure the power utility will not be put under a receiver because he is executing plans this year to retain certain essential workers, add 330 megawatts of renewable energy to the grid and focus on obtaining needed federal funds to complete repairs to the energy system.

A hearing is slated for March in which a group of Prepa bondholders is asking a judge to impose a receiver to implement sound and prudent management. Judge Laura Taylor Swain rejected a previous motion for a receiver to hike Prepa rates.

“That is not going to happen,” Ortiz said about the possibility of Prepa being put under receivership. “We have managed to give stability to the system.”

Do you have a Plan B if that happens? Caribbean Business asked. “If the court says ‘yes’, then people have to be aware of the fact that bondholders are here to collect. If rates are increased, business and people will leave and that would be worse. If bondholders want to collect, then they have to allow our plan to be executed,” he said.

Ortiz and other government officials recently visited Washington, D.C. to meet with some of the top officials from agencies such as the Federal Emergency Management Authority (FEMA) and the U.S. departments of Housing and Energy to discuss the disbursement of federal funding to continue making the grid more resilient. He noted that the disbursement of the funds has been delayed because of the federal government’s partial shutdown.

However, Ortiz said he wanted to make sure all federal agencies were in agreement among themselves about the disbursement of funds. He went to Washington with Elí Díaz, who is a member of the Prepa board, and with Omar Marrero, director of the Central Office for Recovery, Reconstruction & Resiliency (COR3) and the Public-Private Partnerships Authority (P3A).

The officials gave the federal agencies copies of the island’s plan for using the funds but found roadblocks during their visit because workers in charge of executing the plans were not working.

“For instance, at FEMA, we could discuss things, but then when you went to legal or corporate at FEMA, those people were not working. So, decisions are put on hold,” he said.

Ortiz acknowledged that FEMA is having misgivings about giving Prepa funding because the power utility is undergoing privatization. “We had to show them that we are putting the transmission and distribution system under a private concession, but the government is keeping the title deed,” he said.

In Fed we trust?

While Prepa is putting its transmission and distribution systems under a private concession, it is planning to sell its powerplants or power generation systems. Ortiz, however, said that if FEMA expresses misgivings about providing money to repair damaged powerplants that are slated to be privatized, Prepa will not hesitate about keeping ownership of the plants.

“It would not make sense to reject such a grant,” he said.

However, Ortiz said that right now, local officials are waging a battle in Washington to obtain allocated federal funding that has yet to be disbursed. Federal officials owed Puerto Rico about $100 million in reimbursement for repairs.

“We are battling to obtain the funds already. We have submitted the PW [project worksheets] and not a cent has arrived,” he said.

By October, Prepa is slated to submit to federal officials all the estimates for work that needs to be done, which totals about $23 billion. Besides fixing public lights, Prepa wants to strengthen infrastructure, set up wind-resistant energy poles and bury energy lines in critical areas.

Last November, a top FEMA official said Puerto Rico’s power grid was not ready for another hurricane similar to Maria, which destroyed the grid in September 2017. Ortiz said Prepa is prepared to recuperate faster from another natural disaster. “We made an agreement with 33 power companies that will come to the island to help with repairs the following day, and we have inventory…. There was a time when we had work brigades around the island but not materials to work with,” he said.

Ortiz said he is also working on a plan to help retain field energy workers and powerplant operators at Prepa. Right now, the utility is suffering a shortage of critical energy workers, especially those who help repair powerlines. Many of these workers have left the island, lured by better salaries in other U.S. jurisdictions. Electrical workers in Puerto Rico are used to working in very difficult terrain, which makes them more attractive to recruiters.

Ortiz said he should be completing a package of benefits for these workers, by the end of the first trimester, to stop the drain of these workers.

Still, he said he will continue to do outside contracting for some jobs at Prepa. “It is a cheaper alternative,” he said, adding that he will do what needs to be done despite any complaints from the Irrigation & Electrical Workers Union (Utier), the union that represents Prepa’s workers. “The union will have to align itself to our standards,” he said.

While electric power rates are between 22 cents to 24 cents per kilowatt-hour on average, Ortiz said he wants to lower rates even further. How is he planning to do that? Ortiz said that by transforming powerplants to use natural gas.

“We expect to lower rates [through] efficiencies but, most importantly, through the use of natural gas and by having good negotiations in contracts for renewable energy projects,” he said.

Since 2010, Prepa has had 14 contracts for renewable energy projects pending completion. By the end of next month, Ortiz said he expects to complete contract renegotiations, so construction of the different projects can start later this year.

The projects, comprising 330 megawatts of renewable energy, will increase Prepa’s renewable portfolio by 13 percent. These projects, he said, are expected to be put on a fast-track permitting process.

A study in the past has shown that Prepa has limitations related to the amount of new energy the grid can absorb. How is the Prepa system going to absorb the additional renewable energy?

Ortiz said that it will be through the use of peaking units, which are devices that help the powerplants deal with fluctuations in energy flow, which will be caused by the change. Bidding on the project is slated to be announced soon. However, Pratt & Whitney, an aerospace manufacturer, has already approached Prepa about providing 18 peaking units, Ortiz said.

Despite legislative efforts to include waste-to-energy plants in Prepa’s portfolio of energy alternatives, Ortiz said Prepa does not need it. “Waste-to-energy plants and coal plants are proven technologies. The problem is that local culture does not want them. No matter how much I tell you that things in a coal powerplant are under control, no one wants them next to their homes,” he said.

Prepa does not need a waste-to-energy plant to supply the island’s power needs. “It is the Solid Waste [Management] Authority and not Prepa that needs it to be able to deal with waste management. In reality, we don’t need to burn trash to generate power. We have a deal to buy power if they do, but we do not need it,” Ortiz said.

Prepa is currently in the process of putting its transmission and distribution system under a private concession. Ortiz said the four power companies that have been preselected are all very qualified but, ultimately, the chosen one will have to prove that it can manage and stabilize the system.

He said the company must also show it can manage the use of federal funds and change the utility’s working culture to one centered on the consumer.

Ortiz insisted, as he did in prior interviews with Caribbean Business, that there are numerous firms also interested in buying Prepa’s powerplants. “We are moving toward natural gas, so we have to make a lot of private investment as well as invest in renewables. By 2040, 50 percent of the energy must come from renewables and 100 percent by 2050. So, there will be a mixture of natural gas and renewables,” he said.

The utility is also putting its subsidiary PrepaNet, which deals with communications, on the market. The utility’s fiscal plan requires Prepa to sell its subsidiary.

Ortiz revealed, however, that he is looking for other alternatives to a sale. “I am looking for proposals to avoid a sale. If PrepaNet becomes an entity that provides service to a lot of small companies, it can make a lot of money. But if it competes at the retail level, then it won’t,” he said.

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