Monday, September 24, 2018

Senators concerned about USACE exit amid Puerto Rico grid repair

By on May 8, 2018

SAN JUAN – The U.S. Army Corps of Engineers (USACE) is officially leaving Puerto Rico next week, on May 18, even though as of Tuesday, an estimated 22,000 electric utility customers remained without service since September, raising concerns among members of the U.S. Senate Natural Resources and Energy Committee about whether the Puerto Rico Electric Power Authority (Prepa) will be able to continue the needed restoration and rebuilding efforts on its own.

On several occasions during the hearing, senators wondered, “Who is in charge?” USACE’s departure was seen as problematic because the agency manages contracts and is in charge of the receipt of materials for rebuilding the grid.

Contrary to popular perception, the hearing was not about establishing federal oversight for the power utility but rather for the committee to “examine the current status of Puerto Rico’s electric grid and proposals for the future operation of the grid.”

Senate Energy and Natural Resources Committee Chair Sen. Lisa Murkowski, R-Alaska (Screen capture of www.energy.senate.gov)

Chairwoman Lisa Murkowski said officials wanted clarity about such issues as why the island continues to suffer blackouts and where have federal dollars been directed. “And then as we enter a new hurricane season, they are asking whether or not the grid is more stable and more resilient.  They are asking, what efforts are being made to incorporate alternative energy sources so that the island is not dependent on the global price of oil? And then they are also asking what the status of the PREPA privatization proposal is,” she said.

Charles Alexander Jr., director of Contingency Operations and Homeland Security for  USACE, said the agency’s authority to stay in Puerto Rico rests with the Federal Emergency Management Agency (FEMA). “We will do whatever the mission is but right now we were told [by FEMA] midnight on the 18th, there would be a transition,” he said.

Senators raised concerns involving an orderly transition after USACE leaves, following several past problems including the “raid” of supplies stored in a Prepa warehouse.

Alexander said the entity has conducted an audit of materials that would be turned over to Prepa, which include those needed to complete the restoration.

Prepa’s newly appointed executive director and CEO, Walter Higgins, said material acquisition was no longer an issue because supplies are either on the island or on their the way. While there could occasionally be a localized incident in which materials are not available to a crew at a particular time, it could be resolved by getting the materials from central to regional warehouses and out to the crews, he said.

“The important things now is the assumption by Prepa of the logistics operation that the Army has capably performed. Now we are in the process of Prepa’s material acquisition, people taking over the inventories, all the materials the Army has acquired for this; taking over the replenishment of future materials, receiving materials that the Army borrowed from Prepa and in addition…being fully prepared to operate the logistics of material activities in a way that supports continuing restoration,” Higgins added.

Asked if Prepa was up to the task, Higgins replied, “It’s going to be a challenge and we are probably going to get some help by FEMA for that but our people feel they are ready.” He acknowledged, however, there “will be growing pains.”

Asked about the challenges, Higgins explained difficulties in transferring the massive amount of materials from USACE to Prepa warehouses as well as complying with FEMA requirements for reimbursements. However, he said FEMA is willing to provide help.

Some of the senators raised concern about possible mismanagement and corruption at Prepa. Higgins said he is an independent CEO with the power to remove senior management as he sees fit and implement policy as dictated by the governor.

“I can tell you this with respect to Prepa, there is going to be in an organization of 6,000 people someone that is not doing the job that they have to…. I told senior management it’s time to be a part of the solution. If you don’t do things differently, I will have to make changes and it’s not going to be nice,” he said, adding that he will deal strongly with corruption.

Christian Sobrino, the governor’s representative to the Financial Oversight and Management Board that was congressionally established for the island, noted that Prepa has several entities overseeing the utility. He said the recently created Central Recovery and Reconstruction Office (CRRO) must approve all of Prepa’s contracts as does the fiscal control panel.

Some senators pointed to the fact that USACE’s mission has yet to be completed since there are more than 20,000 customers without power eight months after the island was hit by hurricanes Irma and María.

Puerto Rico Manufacturers Association President Rodrigo Masses (Screen capture of www.energy.senate.gov)

In response to a question about rate costs, the president of the Puerto Rico Manufacturers Association, Rodrigo Masses, said there were barriers to companies owning their own power generation through renewables. He said that if it were possible, they could share energy with communities in an emergency. “We have not been able to do that in the past because typically Prepa protects its invoices. We are the biggest invoice. They may be concerned about this kind of threat,” he said.

To that, Higgins said Puerto Rico needs to change the way power is supplied because it is reliant on oil and, in addition, there is not enough generation where needed, referring to the widely understood issue that power is produced in the southern part of the island, while most of its consumption occurs in the north.

The new utility chief said there are plans to power plants in the north with liquefied natural gas. He added that while Prepa needs to be mindful of customers who want to generate their own power, they would need to be able to connect to the grid safely.

Some of the senators noted that if Puerto Rico wants to be resilient and produce 30% of the energy with renewable sources, system redundancy must be in place. Bruce Walker, the assistant secretary of the U.S. Energy Department’s Office of Electricity Delivery and Energy Reliability, spoke at length about strategies to make the grid more resilient.

Distributed sources

One effort involves the Energy Department’s National Laboratories, which are employing a Microgrid Design Tool to examine the feasibility of localized power sources and their optimal distributed siting, which could potentially enhance the reliability and resilience of the electric infrastructure.

“The Labs have completed preliminary microgrid assessments for industrial facilities that are on Puerto Rico Industrial Development Company [Pridco] sites, provided technical input and reviews for Pridco’s ‘Industrial Microgrid Solutions in Puerto Rico’ request for information, and provided assistance to Puerto Rico Electric Power Authority activities related to microgrids and distributed energy resources. These microgrids have the potential to offer Prepa further operational efficiency and reliability for Puerto Rico’s electric grid,” Walker said in his written testimony.

The Energy Department’s effort is developing a near real-time model of the island’s power system that will not only be used as an operational tool, but also for planning purposes. A modeling effort will also point out priorities to prepare Puerto Rico for the upcoming hurricane season as well as for long-term infrastructure investments.

The Southern States Energy Board, in association with the Energy Department, is working in coordination with the governor and the island’s legislature to establish a reliable grid and to develop a policy and legal framework to provide a regulatory process for possible privatization efforts.

The department has also prepared an “Energy Resilience Solutions” report for FEMA and Prepa that includes recommendations on investments in energy infrastructure.

Regarding Puerto Rico’s preparedness for another hurricane, Walker said the governor and Prepa should immediately ensure that mutual aid agreements are worked out ahead of time for quick support to be provided where there to be another disaster.

He also said the Puerto Rico Energy Commission (PREC) should coordinate a joint study with the Puerto Rico Telecommunications Board to determine and enforce safe loading requirements for utility poles carrying both electric and telecommunications infrastructure.

“Electricity transmission towers installed specifically for temporary emergency restoration should be considered for replacement, potentially by monopoles; many of the round monopole structures survived the 2017 storms. The PREC should finalize microgrid regulations,” he said.

Higgins explained that after receiving a $300 million loan from the government, Prepa has consistently collected slightly more than $50 million in accounts receivable a week, and that collections are projected to remain near that level through the end of Prepa’s fiscal year on June 30.

“It is worth noting that the continuity of restoration and mitigation-hardening work on the grid is dependent on the continuing receipt of federal funding, which is being closely coordinated with FEMA. Moreover, current liquidity at Prepa – including the $300 million loan from the Government of Puerto Rico – amounts to a reserve of less than two months of necessary operating expenses, which in my view is low for a company of this magnitude that is now entering another hurricane season,” he said in written testimony. The utility and the Puerto Rico Fiscal Agency and Financial Advisory Authority are exploring various options to address potential liquidity needs, he added.

Puerto Rico grid reconstruction to follow USDA Rural Utilities Service standards

Prepa’s CEO said the utility is going to carry out several emergency drills to ensure it is ready for another natural disaster.

Prepa has submitted requests for reimbursement of $1.6 billion in projects, $997 million of which has been advanced by FEMA, Higgins said. The power company is in the process of preparing additional project worksheets totaling $193 million, and service restoration will continue until all of Prepa’s customers receive service and are paying on a regular basis, he added.

When Congress approved the Stafford Act in February, it eliminated a provision that required facilities to be rebuilt to their pre-existing conditions in favor of allowing Prepa facilities to be redesigned. However, Higgins said that before facilities could be redesigned, power needs to be restored.

During the hearing, PREC’s interim chairman, José Roman, complained that the fiscal oversight board and the government were interfering with the regulator’s authority. However, Higgins said, “There is nothing better for a customer than a fair well-managed regulatory entity. And utility knows what rules are.”

In January, Gov. Ricardo Rosselló announced a transformation of Puerto Rico’s energy sector that is expected to take at least 12 to 18 months. It is expected to entail the sale of the public corporation’s power generation assets and private sector operation of the energy transmission and distribution system.

When Murkowski asked who would be interested in acquiring the utility’s old powerplants, Sobrino said a market-sounding process was being conducted.

“We see a lot of the Prepa generation fleet, part of their value is their location, part of their value is in operating them as new generation is being built. We are open not only to having an outward sale but having intermediate agreements throughout this process,” he said.

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