WASHINGTON -- Some lawmakers and experts are skeptical the Puerto Rico Electric Power Authority’s effort to lower its costs through generating more electricity from natural gas plants will help lead to a settlement with the holders of $9 billion in debt obligations.
The practicality of PREPA's approach came under fire at a Tuesday House Natural Resources Committee hearing examining the agency's plans.
PREPA says it needs federal money to complete the work of rebuilding the commonwealth’s electrical grid following the destruction caused by Hurricanes Maria and Irma, but the Trump administration has been slow to disburse funds already approved by Congress.
And President Trump is pressuring the Republican-controlled Senate to not approve any additional disaster aid to the island.
Natural Resources Committee Chairman Raul Grijalva, D-Ariz., told reporters at the end of Tuesday's hearing he’s considering introducing legislation in the next few weeks to provide accountability and transparency to how PREPA handles its federal aid, including the possible appointment of a federal coordinator for PREPA.
The title of federal “overseer sounds like its usurping whatever is left of autonomy for the Puerto Rican government and its people, but a check and balance doesn’t. So it’s how you craft it and define it,” Grijalva told reporters.
The reason for creating the position, Grijalva said, “is because I think we should oversee what we are doing and not just what the government [of Puerto Rico] is doing.”
Grijalva plans to confer with the committee’s ranking Republican, Rep. Rob Bishop of Utah, on drafting the legislation.
The need for oversight was highlighted in testimony from Noel Zamot, president of the Atabey Group who resigned last month as revitalization coordinator for the Puerto Rico Financial Oversight Board.
Zamot left that position because of frustration with the situation in Puerto Rico, which he described as “the impossibility of working in an environment where difficulties in doing business cause an astounding flight of private capital that the American citizens in Puerto Rico desperately deserve.”
Zamot acknowledged that he has turned over information to federal investigators from what he learned while working for the Oversight Board.
Puerto Rico needs a federal recovery coordinator similar to what was done after Hurricane Katrina, Zamot suggested. “A federal coordinator for recovery funding may provide the transparency and advocacy needed to properly execute the funds, without resorting to additional bureaucratic layers, and without diminishing, delaying or disrupting the execution of federal funds,” Zamot said in his written testimony.
The current inefficiencies at PREPA mean that it employs six times as many employees to produce one megawatt of electricity than comparable public utilities on the mainland, Zamot said.
Tom Sanzillo, director of finance for the Institute for Energy and Financial Analysis, told The Bond Buyer that there’s an active proposal under discussion to pay bondholders 65 cents on the dollar, but he thinks they will get nothing in the end.
“The claim is that the natural gas generation will save them money that will free up money for them to do other things, including paying debt service,” Sanzillo said.
PREPA’s latest estimate that it will save $100 million from natural gas generation is down from an earlier estimate of $300 million. “Nothing’s in their contracts, nothing has been published, I called it in my testimony, hype,” Sanzillo said.
Tuesday’s hearing also raised questions whether Puerto Rico’s recent passage of legislation setting a goal of transitioning to 100% renewable fuel by 2050 could hinder efforts to produce the revenue needed to pay off bondholders through natural gas power generation.
There’s disagreement over how many megawatts of natural gas electrical production is needed, with the U.S. Department of Energy recommending more natural gas generating capacity than PREPA’s CEO thinks is needed.
The goal of transitioning to 100% renewable energy by 2050 is not achievable with current technology, Bruce Walker assistant secretary from the Office of Electricity at the U.S. Department of Energy said.
Walker testified that the DOE used modeling by five national laboratories to recommend “the ideal amount of generation for the north side of the island and the optimal siting of microgrids” in the wake of the destruction caused by Hurricane Maria.
The commonwealth’s well publicized problem is that most of the power generation is on the south side of the island and requires the use of transmission lines which are vulnerable to weather-related damage to deliver power to the heavily populated northern side.
“The principal finding of DOE’s analysis is the cost and reliability benefits of increasing natural gas generation capacity in the San Juan metropolitan area, to include the current Palo Seco generating site,” Walker said. “DOE’s analysis found 1,200 to 1,600 megawatts (MW) of capacity would greatly enhance the reliability and disaster resilience of Puerto Rico’s power system, while lowering power commodity costs island-wide.”
Jose Ortiz Vazques, the executive director and CEO of PREPA, said 480 megawatts in new natural gas electrical generation in San Juan will be online by August.
DOE has suggested over 1,000 megawatts in additional natural gas generation at a second the new plant in nearby Palo Seco.
But PREPA disagrees on the size.
“Conceptually yes, size no because if we go that big that will harm the growth under renewables,” Ortiz Vazquez told reporters in a hallway interview.
Ortiz Vazquez said the goal of 100% renewables by 2050 “depends on technology.”
He noted that the cost of solar energy dropped by 80% from 2010 to 2017. “If you keep dropping then you will become competitive against the other fuels,” Ortiz Vazquez said. “The problem with this is that many times politicians try to dictate how to move forward and how quick. Technology will dictate that at the end of the day.”
“National Laboratory work has also identified critical assets related to grid protection equipment, and locations for emergency equipment reserves that will improve reliability, disaster resilience, and potentially dramatically lower the cost of power,” Walker said.
The Puerto Rico legislature passed the Puerto Rico Energy Public Policy Act (Senate Bill 1121) on March 25 that would set a renewable energy target of 100% by 2050, up from the current 2% at present.
