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Swain’s World: Oil, Gas Industry Donations Affect Renewables for Prepa

By on August 3, 2018

Editor’s note: This story first appeared in the Aug. 2-8 issue of Caribbean Business.

Because some members of the U.S. Congress have received huge donations from the oil and gas industry, including Rob Bishop (R-Utah), the House chair of the Natural Resources Committee with jurisdiction over Puerto Rico, there are concerns Washington may try to derail the bankrupt P.R. Electric Power Authority’s (Prepa) path toward increased use of renewables by taking away local control of the utility and impacting its future debt-adjustment plan.

The U.S. House Natural Resources Committee convened a hearing prompted by a spate of events two weeks ago, when Prepa Executive Director Walter Higgins, who had been at the utility’s helm for only four months, suddenly resigned when the legality of his bonus compensation was called into question by P.R. Justice Secretary Wanda Vázquez, and five independent members of Prepa’s governing board suddenly resigned over the governor’s refusal to rubber stamp the salary of Higgins’ successor, Rafael Díaz Granados.

The committee has been talking about privatizing Prepa and also putting the utility under the U.S. Department of Energy (DOE). At the start of the House hearing, Bishop said that contrary to what he had heard his goals were for the hearing, “we’re not talking about federalizing anything,” nor “selling assets to the highest bidder” or “making Puerto Rico a fossil-fuel island.” However, that does not explain why Prepa’s current CEO José Ortiz is in Washington this week for discussions with Congress and the DOE about the power utility’s future.

Two days before the Natural Resources Committee’s July 25 hearing on Prepa, Siemens Corp., a global electrification, automation and digitalization conglomerate that is devising Prepa’s Integrated Resource Plan (IRP), released a white paper proposing new electrical infrastructure for Puerto Rico.

The company said that since its last IRP in 2015, Puerto Rico’s electric-power system “has experienced significant upheaval” after being severely struck by hurricanes Irma and Maria—“combined with a steep drop in the cost of renewables and battery-based energy storage.”

The developments, Siemens said, “offer Puerto Rico a rare and powerful opportunity to redesign its power system, producing a significantly more resilient grid by design that will ensure a steady flow of cleaner and higher-quality power for its residents and businesses.”

The company-commissioned white paper outlines an approach to a distributed energy system (DES) with 10 mini-grids throughout the island that would incorporate and enhance existing energy infrastructure. “The mini-grid solution incorporates energy storage, renewables and existing conventional infrastructure that will operate both connected to the grid as well as in island mode, in case of natural disasters,” as explained in a release.

Mini-grids differ from microgrids in that they incorporate “existing distribution infrastructure, and can be sized much larger than typical microgrids, for example, encompassing the San Juan region,” the paper’s authors explained.

During the July 25 hearing, several lawmakers questioned the local government’s insistence to move into renewables. The government is interested in a DES in which energy production is close to the consumer to avoid islandwide blackouts.

Tom McClintock (R-Calif.) reportedly used his time at the hearing to paint the image that recommendations in favor of clean energy were politically motivated. According to the Intercept, oil and gas companies have donated $208,100 to McClintock’s campaigns, including $41,500 from Occidental Petroleum.

“We’re hearing a lot about renewables, presumably wind and solar. Those are the most expensive ways of generating electricity that we have available to us,” he said, as quoted by The Intercept. “In a system that is impoverished and in desperate need of simple generation—particularly on an island favored by trade winds—why aren’t we pursuing much less expensive and much more reliable conventional electricity generation?”

Assistant U.S. Energy Secretary Bruce Walker responded that on an island where residents pay 21 cents per kilowatt-hour, renewables would not be expensive. At McClintock’s insistence that decisions on energy sources were politically motivated, Walker noted the fact that high-voltage transmission lines in Puerto Rico currently have to cross the island’s mountainous center at tremendous cost to bring energy from centralized coal- and oil-fired plants in the south to where most of the energy demand is in the north. On top of that, all fossil fuels used in Puerto Rico need to be imported, tacking on significant costs.

Rep. Don Young (R-Alaska), which The Intercept says received $1,405,113 from oil and gas interests since 1989, is the author of legislation to privatize Prepa that would also allow for the construction of a liquified natural gas facility the Energy Committee has already paralyzed.

Rep. Doug LaMalfa (R-Calif.) spoke at the hearing about the abundance of natural gas in the United States and the merits of exporting it to the island. On wind and solar, LaMalfa said: “Those alternatives seem terrible to me,” compared to building new natural gas infrastructure. LaMalfa, however, has accepted $95,750 in campaign contributions from the oil and gas industry, according to The Intercept.

Meanwhile, Bishop has taken $452,866 from the oil and gas industry, according to the same story. During a recent visit to Puerto Rico, he advocated in favor of the use of natural gas as a cheap energy source, adding that Puerto Rico could be a Caribbean energy hub.

Washington lawmakers will be on recess until September but there is already talk about putting Prepa under the DOE’s jurisdiction or pushing for a privatization bill from Washington. The Institute for Energy Economics & Financial Analysis recently issued a report stating the local privatization bill does not address Prepa’s mismanagement when it comes to contracting. The proposed privatization would cause Prepa to engage in more deals with private contractors. Prepa has at least one Racketeer-Influenced & Corrupt Organization Act lawsuit pending resolution in federal court for allegedly paying high prices for low-quality oil for years and then passing the costs on to consumers.

While Congress has talked about making the Energy Commission stronger in its regulation of Prepa, those efforts could also be watered down, a source said. The source, however, told Caribbean Business investors would be out of their mind to invest in a company with an unresolved bankruptcy and would most probably wait until the court rules on a debt-adjustment plan for the utility’s $9 billion debt.

“Any debt-adjustment plan has to go before the oversight board and before Judge Laura Taylor Swain, but if the utility is privatized before it completes the bankruptcy process, which I doubt, it will be out of Promesa. Anything can happen, unless there are strict controls. My fear is that once it is privatized, you will have all these private interests that may want to continue to rely on fossil fuels instead of moving to more efficient sources of energy,” the source said.

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