PREPA says it is ready for a hurricane, although its grid not fully rebuilt

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While the Puerto Rico Electric Power Authority assured a congressional committee Thursday it is prepared for the next hurricane, the utility hasn't fully rebuilt its hurricane- and earthquake-damaged grid, it has large debts and an underfunded pension system.

PREPA CEO Jose Ortiz presented a mixed picture to members of the House Natural Resources Committee, acknowledging delays in rebuilding the grid that was extensively damaged by Hurricanes Irma and Maria, and that $4.3 billion in pension underfunding remains unresolved.

PREPA’s debt restructuring also remains on hold because of the COVID-19 pandemic.

Puerto Rico bankruptcy Judge Laura Taylor Swain in April agreed to postpone the June hearings on the Restructuring Support Agreement and also postponed an April 14 deadline for government and other RSA parties to file replies in support of the deal approval motion.

“A true transformation of PREPA cannot be achieved without finally exiting bankruptcy and regaining capital markets access,” a PREPA Ad Hoc Group spokesman said Thursday, following the House hearing. The group supports privatization and restructuring of PREPA.

The Puerto Rico Financial Oversight and Management Board late last month certified its 2020 fiscal plan for PREPA, which warned that without restructuring, “PREPA would need to repay approximately $4.5 billion of legacy debt service obligations over the next five years.”

“In the longer term, PREPA’s estimated annual debt service obligation based on term out of all long-term financial liabilities at a 5% interest rate over 25 years, is approximately $657 million per year,” the Oversight Board said.

“PREPA has maintained a growing and unsustainable debt balance over the past decade,” the Oversight Board added. “As long as PREPA remains in Title III, the utility will not have effective access to capital markets to fund critical grid modernization and improvement plans.”

Congressional lawmakers expressed bipartisan concern Thursday about the continuing fragility of the utility’s electrical grid caused, in part, by earthquakes earlier this year, and delays in reconstruction.

They also raised questions about the utility’s slow conversion to renewable energy.

PREPA is set to receive $1.9 billion in federal funding to help repair the damage caused by Hurricanes Maria and Irma but has not yet signed an agreement with the Federal Emergency Management Agency for the permanent repair and reconstruction work.

Ortiz told the committee the contract is expected to be signed “very soon.”

“We prepared already a two-year plan,” said Ortiz, noting it improves resiliency and includes “a robust system” to ensure service to “assets such as hospitals, shelters, and water services.”

The average household monthly bill will decline by $12 — to $138 from $150 — when major generation plants are converted to natural gas.

PREPA recently signed a contract with LUMA Energy LLC to operate, maintain and modernize Puerto Rico’s transmission and distribution system for 15 years.

LUMA is a Puerto Rico company formed by Canadian Utilities Ltd., ATCO Ltd.’s energy company, and Quanta Services Inc., which will work in conjunction with Innovative Emergency Management Inc. to assist with the administration of federal funding.

LUMA estimates it will be able to reduce operational costs about 30% by fiscal year 2026, according to Fermin Fontanes, executive director of the Puerto Rico Public-Private Partnerships Authority.

Fontanes estimated the annual savings will be $293 million by 2027.

Under the P3 with LUMA, PREPA will retain ownership of utility lines and other assets.

Rep. Nydia Velazquez, D-N.Y., asked whether the $1.5 billion, five-year contract PREPA signed last year with New Fortress Energy — to supply natural gas from container ships, construct a liquefied natural gas terminal in San Juan and convert the power plant there from diesel to gas — is appropriate in light of documents she has, showing an undisclosed conflict of interest for consultants to PREPA, who also are consultants to SoftBank Group, which is an investor in New Fortress Energy.

Democratic Rep. Nydia Velazquez of New York raised questions at the hearing about a $1.5 billion, five-year contract PREPA signed last year with New Fortress Energy.

“We haven’t seen it,” Ortiz said. “I cannot you give my opinion on a document I haven’t seen,” but he said he would respond to her question after he reads the document.

Velazquez also asked why PREPA did not seek approval from the Federal Energy Regulatory Commission prior to the construction of the new liquefied natural gas terminal in San Juan. FERC on June 18 issued a show cause order asking why the utility didn’t seek its approval prior to construction of the terminal.

Ortiz said that FERC previously told PREPA the project was too small to require approval.

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Infrastructure Puerto Rico Electric Power Authority Distressed Debt Coronavirus Washington DC PROMESA