Says board shut administration out of drafting of plan, which calls for a ‘comprehensive rate review’
By The Star Staff
The administration of Gov. Jenniffer González Colón, represented by La Fortaleza Chief of Staff Francisco Domenech, criticized the Financial Oversight and Management Board (FOMB) on Wednesday over the final certified fiscal plan for the Puerto Rico Electric Power Authority (PREPA).
“The Government is currently reviewing the final Certified Fiscal Plan of the Electric Power Authority. The FOMB did not share this document with the Government at any point before its certification and publication, despite multiple requests made to the executive director to do so,” stated Domenech, who is also the director of the Fiscal Agency & Financial Advisory Authority of Puerto Rico (AAFAF by its initials in Spanish). “This lack of communication from the FOMB is completely unacceptable to the administration of Jenniffer González Colón.”
As a result, he said, the central government -- namely AAFAF, the island’s energy czar, Josué Colón Ortiz, and PREPA) is analyzing the certified fiscal plan and its financial projections to assess whether the information provided by the operators of Puerto Rico’s energy grid is accurate and whether the expected results are realistic.
“This is the first time the oversight board’s fiscal plan for PREPA has relied on cost projections directly requested from the grid operators,” LUMA Energy (transmission and distribution) and Genera PR (generation), “regarding potential expenditures to improve the electrical system, projections that were accepted,” Domenech pointed out, “without verifying the realism or reasonableness of the expenses, and without considering potential limitations that the [Puerto Rico] Energy Bureau [PREB] could impose.”
“Based on information from the press, it appears that the oversight board will validate the information after the publication of the Certified Fiscal Plan [for PREPA] and will conduct additional modeling, which we find unprofessional since a Certified Plan has been issued without prior analysis,” the governor’s representative added. “We understand that there will be no rate increases without the review and approval of the Energy Bureau, which will conduct its own analysis independent of the Board’s findings.” Domenech added: “While the Certified Fiscal Plan highlights the significant challenges facing PREPA and Puerto Rico’s energy system, it overlooks the new energy policies of the González Colón Administration.”
“These policies aim to create a more efficient and stable electrical grid for the people of Puerto Rico, ultimately reducing fuel costs, among other efficiencies,” he said.
Later on Wednesday, the governor accused the oversight board of acting in bad faith when certifying the amended fiscal plan.
“I am willing to sit down and talk, but it cannot be at gunpoint,” González Colón said at a press conference.
“That is not dialogue, that is a threat, that is coercion, that is imposition,” González Colón said. “And I believe that with professional people and with openness, I want to work, I want to get out of debt. I want to get out [from under] the [oversight] board. I will comply with the audited financial statements. I want to reduce debt payments. I want to lower the cost per kilowatt-hour. I believe that the board has never met a governor who was willing to step in to cut all those things. But it cannot be that you have the old book to do it and I don’t care what the [federal] government thinks of me. So I ask that [...] the channel of communication be opened and that the government of Puerto Rico be respected in the presentation of data and that a debt plan certification not be unilaterally given without correct information, correct information.”
The governor concurred with her chief of staff that the numbers that the oversight board used for its conclusions in the fiscal plan are wrong.
The current energy policies of the González Colón administration, meanwhile, include strategic structural changes designed to enhance the reliability, affordability and operational efficiency of the island’s electrical grid. Those changes consist of:
* Initiatives to stabilize the generation system, such as extending the useful life of Puerto Rico’s lowest-cost generating unit, converting existing plants to liquefied natural gas (LNG), and developing new, reliable LNG power generation facilities.
* Setting realistic renewable energy targets and procurement assumptions that consider cost and affordability. The current administration does not support a renewables-at-all-costs approach. New renewable sources will be integrated into Puerto Rico’s energy system to the extent that they are economically and operationally efficient.
* Implementing strict and coordinated oversight of private operators through the executive branch and regulatory authorities, which includes reviewing and possibly restructuring existing Public-Private Partnership Authority contracts to ensure better value and quality of service for all consumers in Puerto Rico.
Fiscal board: Higher rates needed to pay debt, fix ailing system
In the new certified fiscal plan for PREPA it released late Tuesday, the oversight board outlined what it said would be the investments necessary to restore and operate a deteriorating energy system. The plan, the board said, aims to enable PREPA to provide more reliable electricity both now and in the future.
Puerto Rico’s electrical system, the board noted, is underperforming compared to its counterparts in the U.S., and its performance has worsened since March 2023, resulting in customers experiencing more frequent and longer service interruptions.
The oversight board said it has concluded that PREPA cannot implement rate increases sufficient to cover all expenses and debt service without imposing a significant financial burden on customers. The proposed rate hikes would exceed acceptable affordability levels, according to the utility’s current fiscal plan, the board said.
“Puerto Rico’s energy system is clearly deteriorating faster than PREPA and the operators of the grid and power plants can make repairs, and the new Fiscal Plan the members of the Oversight Board certified reflects that reality,” said the oversight board’s executive director, Robert F. Mujica Jr. “The system is failing families and businesses, and the Fiscal Plan defines the path that will lead to more reliable electricity.”
The final certified plan notes that according to the most recent data available, in the calendar year 2023 Puerto Rico experienced 7.8 times more service interruptions and endured outages that were 13.2 times longer than those of the median customer in the mainland U.S. That is an increase from the previous year’s figures, which showed 6.6 times more interruptions and 12.5 times longer outages. Additionally, performance has declined since March 2023, which was the reference point for the previous fiscal plan certified in June 2023.
“On average, customers experienced 15% more service interruptions and 21% longer outages when comparing the most recent available data (December 2024) to metrics from March 2023. Efforts have been made to address these challenges,” the plan states, highlighting the extended use of two temporary emergency generation units through Dec. 31, 2025, to ensure grid stability and adequate generation capacity.
Efficient and coordinated use of both federal and non-federal funds is crucial for the necessary repair and maintenance of Puerto Rico’s energy system, according to the plan. Although the Federal Emergency Management Agency (FEMA) has committed $14 billion, only 22% of those funds have been disbursed, indicating a need for faster deployment. Furthermore, current revenue generated under the PREB’s 2017 Rate Order is insufficient for adequate operation, maintenance, repair and transformation of the energy system. The estimated cost for reconstructing the grid to meet industry standards is $21 billion over eight to 10 years, with only $15.4 billion identified as of March 2024.
Aligning rates with new realities
“The Oversight Board intends to engage an independent consultant to further assess and scrutinize the operators’ estimates of the system needs,” the board stated in the fiscal plan. “A comprehensive rate review will need to be conducted, considering the evolving demands of Puerto Rico’s energy system and rate-making principles. Ultimately, PREPA’s rates will require PREB’s approval, but it is evident that the system cannot operate sustainably in the long term if PREPA’s rates remain capped by the 2017 Rate Order.”
The new projections, unconstrained by the rate order, reflect the outlook for Puerto Rico’s economy, a declining population, energy demand, and other assumptions. By 2040, the operators project expenses of running Puerto Rico’s energy system to be more than 60% higher than in the fiscal plan certified in 2023, which had limited expenses to revenue generated under the 2017 rate order.
Additionally, operators anticipate an increase in fuel and purchased power cost projections due to recent market price observations, as the generation mix shifts toward 100% renewable energy sources to comply with Act 17-2019, the Puerto Rico Energy Public Policy Act, by 2050, the plan noted. For instance, amended power purchase and operating agreements (PPOAs) for renewable energy projects are 34% more expensive than the initially approved PPOAs.
In light of affordability concerns and the high estimated costs for operating and maintaining the system, the oversight board said it has determined that PREPA will not be able to implement rate increases sufficient to cover all expenses and debt service without imposing excessively burdensome rates on customers.
Prioritizing needed investments, ‘holding all parties accountable’
Nonetheless, the oversight board aims for PREPA to exit Title III bankruptcy and successfully access capital markets. To achieve this goal, the board said it is committed to taking actions that will allow it to maintain creditor recoveries in line with those offered to PREPA’s settling creditors in the February 2024 Plan of Adjustment while also addressing the allowable nonrecourse claims of non-settling bondholders, which will be assessed by the federal Title III bankruptcy court.
“We must prioritize the needed investments in the energy grid above all else, while holding all parties accountable,” Mujica said. “Coordinated deployment of federal funds is crucial to adequately repairing and maintaining the system, but it won’t be enough. The cost of sustaining a system that can properly serve the people and businesses of Puerto Rico far exceeds previous projections as the system continues to weaken and fail. Our goal is to strengthen the electrical system, complete the energy transformation, and lift PREPA out of bankruptcy with a Plan of Adjustment that is fair and reflects the reality PREPA faces today so it can serve Puerto Rico tomorrow.”
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