Oversight board responds to members of Congress on rejected green power agreements
By The Star Staff
The federal Financial Oversight and Management Board has answered three members of the U.S. Congress who wanted responses regarding the board’s rejection of 16 power purchase and operating agreements, according to a letter.
The Dec. 21 letter was sent by Natalie Jaresko, the oversight board’s executive director, to House Natural Resources Committee Chairman Raúl Grijalva (D-Ariz.) and Reps. José E. Serrano (D-N.Y.) and Darren Soto (D-Fla.), who had requested answers on Dec. 7 about the board’s decision to approve only 150 megawatts (MW) of 593 MW of renegotiated non-operational renewable power purchase and operating agreements (PPOAs) proposed by the Puerto Rico Electric Power Authority (PREPA).
The oversight board replied that after a thorough review of the proposed contracts, it concluded that such contracts, and PREPA’s determination to enter into all 16 PPOAs, were neither consistent with PREPA’s certified fiscal plan nor promoted market competition, given that the proposed prices represent incremental costs to Puerto Rico’s residents in excess of the certified fiscal plan’s projections and none of the proposed contracts were procured competitively.
The oversight board proceeded to address the specific concerns.
Regarding the avoidance of fines associated with not achieving renewable energy goals mandated by Puerto Rico law and not complying with federal mercury and air toxic standards (MATS) regulations, the oversight board determined that there was significant uncertainty as to whether a significant portion of the projects represented by the proposed contracts would be successfully completed. In a June 11 letter to the board, PREPA stated that “we would not be surprised if the majority of these projects did not reach completion.” As such, it is uncertain whether the proposed contracts would help meet Puerto Rico’s renewable portfolio standard (RPS) targets or federal MATS regulations, the oversight board said.
“Additionally, even if all the proposed contracts had been approved, meeting Puerto Rico’s RPS targets or complying with federal MATS regulations would require additional procurement of renewable capacity,” the oversight board wrote. “Therefore, the oversight board’s decision will not impact PREPA’s ability to meet RPS or MATS regulations, since PREPA would not have reached them even if the proposed contracts had been approved.”
The oversight board noted further that during its board meeting on Oct. 28, PREPA stated that it expected to issue requests for proposal that would enable it to comply with Puerto Rico’s RPS mandates.
Regarding concerns about economic (job creation, investments and increased tax base) and environmental benefits, the oversight board said that since 2017, it has been consistent in its belief that Puerto Rico’s energy system must dramatically and drastically increase its renewable energy resources. Such a transition from fossil fuels to renewable energy would unlock significant economic and environmental benefits for the people of Puerto Rico.
“However, these benefits are not unique or only tied to the proposed contracts. Rather, these benefits can be achieved through any renewable energy project,” the oversight board wrote. “Consequently, the oversight board is focused on enabling PREPA to procure renewable energy at the lowest possible price to ensure the greatest benefit to the people of Puerto Rico.”
On the issue of savings to PREPA ratepayers, the oversight board said that even after renegotiation, prices in the proposed contracts (a starting price of 9.9 cents per kilowatt-hour (kWh), increasing to 14.1 cents/kWh by fiscal year [FY] 2042) are considerably higher than the price assumptions underlying PREPA’s approved fiscal plan (starting price of 8 cents/kWh increasing to 9.7 cents/kWh in FY49), which assumes that oil-fired capacity is replaced by renewable generation. As a result, the board said, implementing the proposed 593 MW of solar capacity would increase projected retail electricity rates above those forecasted in the 2020 certified fiscal plan, resulting in PREPA’s customers having to pay up to $460 million in additional costs between 2023 and 2047.
Additionally, the prices in the proposed contracts are higher than benchmarks elsewhere in the United States, the oversight board said. For instance, PPOAs in Hawaii for solar + storage installations have recently been awarded for prices as low as 6-8 cents/kWh, and mainland solar PPOAs have even reached levelized prices of 2-4 cents/kWh. In Florida, for instance, Gainesville Regional Utilities earlier this year, in May, signed a PPA for the “FL Solar 6 – Sand Bluff” solar plant (a 50 MW solar photovoltaic system with 12 MW of storage), with a levelized PPA price of 2.6 cents/kWh, the board wrote.
Regarding litigation costs, the oversight board said that in recent years it has consistently encouraged PREPA to follow competitive procurement processes and apply robust, transparent, and objective supplier evaluation and selection criteria.
“Such practices not only promote market competition, but also minimize the risk of litigation by increasing the likelihood of the projects being delivered on budget and on time, and reducing the likelihood of arbitrary supplier selection, which would provide reasonable grounds for litigation,” the oversight board wrote.