In the two weeks since Puerto Rico Governor Ricardo Rosselló announced plans to privatize the island’s public Electric Power Authority (PREPA), the utility has submitted a new fiscal plan to the island’s financial oversight board, released a “New Vision” for the energy transformation, and participated in a public fiscal meeting on the future of the island’s energy sector.
Stakeholders also seem to be coalescing around a common goal of privatization for the embattled utility’s future.
But even as that vision solidifies, the many groups invested in the island’s system -- the Puerto Rico Energy Commission, the governor’s office, and the Financial Oversight and Management Board created by the Puerto Rico Oversight, Management, and Economic Stability Act -- have found themselves occasionally at odds. And cooperation seems more important now than ever.
An integrated resource plan is due from PREPA in July. Privatization means that over the next 18 months the agencies must begin to select a new custodian for the utility’s resources. And this week, conflicting reports on whether the federal government would continue critical food and water aid through the Federal Emergency Management Agency caused anxiety over what humanitarian help Puerto Ricans can rely on while the energy situation remains dire.
Meanwhile, over four months since Hurricane Maria hit the island, more than 400,000 customers remain without power, according to a Jan. 31 status report from the Department of Energy.
“If you privatize, you want to do it the right way,” said one mainland energy industry expert whose organization has participated in negotiations about Puerto Rico’s grid. The source asked to remain anonymous in order to speak freely. “All the stakeholders need to commit to working together as opposed to doing their own thing.”
A plan for privatization
PREPA submitted its latest fiscal plan to the Financial Oversight and Management Board on Jan. 25. The 79-page document assumes PREPA will “cease to operate in its current form in 18 months.” It describes a medium- to long-term concession process that involves selling off existing generation, creating new generation, and transferring management of the transmission and distribution system to a concessionaire. According to Rosselló, PREPA's assets may be worth between $2 billion and $4 billion.
Under the plan, an infusion of funds would come from the concessionaire as well as the federal government. A single concessionaire would assume all responsibilities (including maintenance) related to transmission and distribution, while other generation assets would be privatized and additional private generation added. PREPA would maintain public ownership of the infrastructure, though it would be externally managed.
In his announcement on privatization, Rosselló called for at least 30 percent of generation to come from renewables. Because PREPA cites the need for significant outside funds to support a change in the energy system, the plan offers more specifics on reforms and ownership structures than on clean energy goals. But how much cash a private company is willing to invest in the grid and development of renewables both factor into PREPA’s selection criteria.
PREPA also writes that “the need to rebuild the system due to the damages caused by Hurricanes Irma and Maria represents a unique opportunity to leverage locally available renewable energy sources and battery storage capacity and lower the dependence on external sources of fuel.”
The plan calls for $930 million in private renewable generation investment and retirement of “old and inefficient units.”
This week, PREPA and its Transformation Advisory Council went further, releasing its “New Vision” for the energy system. It outlined priorities for a customer-centric, resilient and financially viable approach.
“Our goal is not just emergence from bankruptcy and restoration of power, but instead, the establishment of a model for power generation and delivery in Puerto Rico that sets a global example,” said Ernesto Sgroi, chair of the PREPA governing board, in a release. “PREPA’s privatization is a key step to its recovery in the short and medium term and indispensable to its transformation in the long term.”
According to the energy industry source, if PREPA wants modernization and generation reform -- as it has repeatedly claimed -- in addition to privatization, the plan needs to further detail goals of selling off generation or putting management in the hands of another operator.
“The question is: Are they privatizing to raise some cash and is that the only reason they’re privatizing?” the source said. “Or are they privatizing because they see an opportunity to do a more fundamental reset of the energy system?”
Power play
PREPA’s fiscal plan is explicit in critiquing the energy commission. The utility wrote that its future will require a “reasonable regulatory process” and added that the Puerto Rico Energy Commission "consistently tries to assert direct and excessive operating control over PREPA.”
Those criticisms underscore the three-way tangle of tensions at the heart of PREPA’s privatization. The energy commission, the fiscal board and the governor are now on the same page about moving forward with the privatization process, but remain divided over each other’s responsibilities.
The same day Rosselló announced the privatization, the Puerto Rico Energy Commission released a statement outlining its failed attempts to reach the financial oversight board in the past nine months to create “logical allocation of regulatory responsibilities.” A 2014 law created the energy commission to regulate and supervise PREPA, while The Puerto Rico Oversight, Management, and Economic Stability Act created the fiscal board to oversee Puerto Rico’s bankruptcy proceedings in 2016.
“Cooperation has not occurred,” reads the statement. “At no time has the Financial Oversight and Management Board given any reason for its non-responsiveness.”
José Román Morales, the energy commission chair, said only recently had communication channels solidified between the Puerto Rico Energy Commission and the fiscal board.
“The conversation is open and is ongoing,” he said. “We agreed to coordinate our efforts to have more discussions. That’s as much as I can tell you right now.”
Recently, Gov. Rosselló also proposed converting the energy commission into a body of three commissioners, chosen by the governor, with authority over energy, telecommunications and transportation. That body would have significantly less enforcement power than the commission in overseeing PREPA.
That knot of authority and power has each agency sorting out its role at the same time that they are attempting to chart a course for the utility’s future. When asked if cooperation around future plans was increasing, Román Morales demurred.
“Ask me that in a few weeks,” he said.
A third way
Outside the purview of politics, views on privatization remain mixed. Ingrid Vila Biaggi, a civil engineer who served as chief of staff for Gov. Alejandro García Padilla, said the plan won’t bring the fundamental shift that Puerto Rico needs.
“This is not a transformation,” she said. “It’s just a change of hand.”
According to Vila Biaggi, PREPA needs to focus on a plan that will bring increased wealth to the island while keeping power in the hands of residents -- not a private company.
“The privatization model is not the one that best benefits the people of Puerto Rico and our future,” she said. “We should be focusing on distributed generation, on microgrids, on community solar, on providing ample participation in renewables. [...] That is not what is envisioned in this plan.”
Biaggi pointed to member-owned energy co-ops in Vermont as suitable models that could be applied to Puerto Rico’s unique circumstances. These models, she said, allow for active stakeholder participation, local wealth creation and an increase in clean energy.
“The solution and transformation of Puerto Rico's energy sector has to be designed for Puerto Rico, with the needs, constraints, aspirations and opportunities of Puerto Rico in mind,” she said. “We cannot keep copying models that are unsuitable.”
For others, though, privatization seems inevitable -- especially because of the political weight that the fiscal board, the governor and PREPA have thrown behind it.
“It may well be that there’s no other way of going about it considering the fiscal situation that PREPA is in,” said Carlos Fernández-Lugo, chairman of the environmental, energy and land use practice group at Puerto Rico’s largest law firm, McConnell Valdés LLC. “This presents a possibility of new investment, of modernization, of bringing in a new world-class system operator that can manage the system and address all the issues that we have.”
The fiscal board said it hopes to certify the fiscal plans by February 23. Román Morales said the energy commission is also still reviewing the plan.
Gov. Rosselló announced Wednesday that the government plans to announce the legal framework for privatization this summer, but the proposal does need approval in bankruptcy court.
