Oversight board: PREPA agreements would result in higher electricity bills
By The Star Staff
The Financial Oversight and Management Board says that some 16 Puerto Rico Electric Power Authority (PREPA) renewable energy agreements that were renegotiated recently would result in electricity rates higher than projected in the 2020 certified fiscal plan.
In a statement issued Monday, the oversight board said that while it believes the energy system needs to be changed, the July 1 submission of 16 renegotiated non-operational renewable energy power purchase and operating agreements (PPOAs) would result in higher rates.
“Despite achieving improved prices (when compared to original prices) and more favorable contract terms to PREPA, the approval and development of all 16 Proposed Contracts (representing a total renewable energy capacity of 593 [megawatts] MW), would result in overall retail energy rates that are higher than the average retail energy rates projected in the 2020 Certified Fiscal Plan,” the oversight board said.
Specifically, the 2020 certified fiscal plan assumes new utility scale solar generation prices of 8 cents per kilowatt-hour (c/kWh) in fiscal year (FY) 2023, increasing to 9.7 c/kWh in FY 2049, while the proposed contracts, on average, start at 9.9 c/kWh, increasing to 14.1 c/kWh by FY 2042. Consequently, if PREPA were to integrate all of the proposed 593 MW solar capacity at the renegotiated price, projected energy rates in FY 2035 would be 33.6 c/kWh, 0.5 c/kWh higher than the energy price forecasts in the 2020 certified fiscal plan.
On the other hand, integrating half of the proposed contracts’ capacity (some 300 MW) reduces this difference by 0.3 c/kWh by FY 2035, while integrating a quarter (about 150 MW) of the proposed contracts’ capacity reduces the difference by 0.4 c/kWh by FY 2035, providing some $20-30 million in annual fuel and purchased power savings over the next 25 years.
“Puerto Rico’s energy system needs to change. The people and businesses of Puerto Rico need more reliable, more affordable, and cleaner electricity and the oversight board will continue to work with PREPA and the Puerto Rico Government on this wholesale transformation,” the oversight board said. “Increasing renewable energy generation is an important part of that transformation, as well as a requirement under Puerto Rico Act 17-2918.”
“PREPA must also ensure that renewable energy is delivered at a reasonable and affordable price. However, the sheer scope proposed by PREPA – delivering 593 megawatts (MW) of renewable energy at once through the 16 proposed contracts – would result in electricity rates higher than projected in the 2020 certified fiscal plan for PREPA,” the board said.
“Therefore, to ensure consistency with the electricity rate projections included in the 2020 certified fiscal plan, the total renewable energy capacity developed through the proposed contracts should be initially only 150 MW. PREPA should pursue an objective assessment of each proponents’ technical and financial qualifications, alongside any additional qualifications PREPA deems relevant, to qualify those proponents with the highest degree of technical and financial capabilities,” the oversight board said. “It is important for Puerto Rico to start increasing the share of renewable energy as soon as possible, and the shovel-ready PPOAs provide a unique opportunity. PREPA should then gradually expand renewable energy to take advantage of technological improvements that increase efficiency even further, a more competitive bidding process, and improved contract pricing once Puerto Rico emerges from bankruptcy.”
“The oversight board believes renewable energy and more affordable electricity prices should not be a tradeoff,” the board added. “The people and businesses of Puerto Rico deserve both.”
Another area of concern to the oversight board relates to the possibility that the completion of the proposed contracts may be delayed or impeded by the contractual ability of the proponents to, in certain circumstances, sell the facility and/or transfer a majority of their equity interest in the project to a third party.
“As is customary in competitive procurement processes, the Oversight Board believes PREPA should aim to ensure that the party with which PREPA enters into a Proposed Contract has an interest in (i) fulfilling its obligations under the agreement and (ii) remaining a party to the agreement for a sufficient amount of time to fulfill such obligations,” the board said, while proposing other changes.