PREPA chief tells congressional panel that funding for combined cycle project is lacking
By The Star Staff
Puerto Rico Electric Power Authority (PREPA) Executive Director Josué Colón Ortiz provided an overview at a congressional hearing in Washington on Thursday on the use of federal funding to repair the island’s power grid, but at one point in his testimony suggested that some $10 billion in funding already allocated may not be enough to build a combined cycle project it needs.
In September 2017, hurricanes Irma and Maria decimated PREPA’s electrical grid, causing an islandwide blackout. However, the rebuilding process has been made more complicated by the fact that the electric utility is in bankruptcy and by the 2020 earthquake and the COVID-19 global pandemic.
In 2020, the Federal Emergency Management Agency (FEMA) announced the FEMA Accelerated Awards Strategy or “FAASt” process, which allows critical infrastructure projects to be grouped together to expedite the energy grid work. In addition to approving the FAASt process, the U.S. government provided additional support by increasing the federal cost share for the Hurricane Maria disaster FEMA-4339-DR from 75% to 90%.
“Federal funds available for permanent work have a cost-sharing structure, which requires the applicant for federal funding to use its own funds for part of the project,” Colón Ortiz said. “Typically, FEMA provides 75% of the investment and the remaining 25% is provided by the local government. Increasing the federal contribution to 90% resulted in a decrease of the local share that the Commonwealth of Puerto Rico, including PREPA, must cover for the reconstruction projects at 10%.”
The Puerto Rico Energy Bureau (PREB), as the island’s electric system regulator for all energy-related matters, has been deeply involved in the reconstruction process.
“Before formally submitting a project for the consideration of FEMA and the Central Office for Recovery, Reconstruction, and Resiliency (COR3), PREPA must obtain regulatory approval from the Energy Bureau to ensure consistency with applicable laws and regulations,” the PREPA chief said. “This requirement applies to the request for all federal funding for development projects in the energy sector.”
PREPA, as part of its transformation’s goal to increase the resiliency, entered into an operation and maintenance contract with LUMA Energy LLC (LUMA), which became the operator of PREPA’s transmission and distribution (T&D) system on June 1, 2021.
Before the LUMA contract, Colón Ortiz said, PREPA had already prepared a total of 73 initial scopes of work, 68 for the T&D system and other facilities and five in the areas of generation, hydroelectric, dams, reservoirs and irrigation systems. As of that date, there were already 46 scopes of work approved by the PREB and with FEMA-assigned numbers of placeholders to continue the formulation process for obligation, 41 for the transmission and distribution system, and five for generation and water assets.
The devastation caused by hurricanes Irma and Maria in Puerto Rico paved the way for the island to receive over $10 billion not including some $194 million in insurance money to repair the grid. Currently, Colón Ortiz said, PREPA is allocating some $1.2 billion for permanent works on the generation system and water assets, which results in about $8.2 billion in FEMA 428 Asset Operator funds.
Under the Public Assistance program, to date, FEMA has obligated some $182 million through the FAASt process, approving 11 Project Worksheets, or PWs, submitted by PREPA for repairs to its power generation plants at Aguirre, Costa Sur, Palo Seco, San Juan, Mayagüez and Cambalache. Those 11 projects group 65 scopes of work approved by the PREB for the repair of PREPA’s generating units.
PREPA completed one of the 11 projects and has requested reimbursement for an amount of $18 million, of which $15.9 million was received in reimbursements. In addition, PREPA is in an advanced stage of construction work in another three of the 11 projects.
PREPA will submit for FEMA approval four additional project worksheets amounting to some $176.35 million, which group 37 scopes of work for the repair of the generation units 7, 8, and 10 in San Juan and unit 1 at Cambalache, once it gets the approval of six scopes of work that are currently under the reconsideration of the PREB, as the regulator already approved 31 from the total of 37 scopes of work that make up the four project worksheets. The PREB denied the six scopes of work mentioned above in its resolution and order on June 4.
“After that order, PREPA submitted two reconsideration motions requesting the approval of these six scopes of work for the repairs of generating units,” Colón Ortiz said. “Currently, PREPA continues assessing the condition of its power plants to prepare additional scopes of work to complete the repairs of all its generating units.”
PREPA is investing some $572.38 million approved by FEMA for feasibility studies of the current projects for the new generation. The utility explored constructing a new combined cycle at San Juan or Palo Seco power plants but that is a long-term project, as it will take about 10 years to complete.
In addition, the original estimated cost of $572.38 million was calculated in 2020 dollars and, when updated to reflect 2023 dollars and inflation, the estimate was some $723.6 million.
“This means that there are insufficient funds to develop the combined cycle project, as there is a deficiency of $151.22 million,” the PREPA chief said. “Given PREPA’s current power generation struggles, and that the development of the combined cycle project is a long-term effort, PREPA must execute short- and medium-term measures to improve the existing thermal generation assets. Considering the constraints described above, PREPA found that, even though the construction of the combined cycle in the North is feasible and beneficial for the electrical system, there are not enough funds for completing the project and there are more imperative actions to be taken in the short- and medium-term, for which the combined 19-cycle project approved funds can be used.”
Therefore, PREPA submitted to the PREB that the combined cycle project would be delayed until sufficient funds are available and it assigned funds of $572.38 million “to other projects,” Colón Ortiz said.
Regarding PREPA’s renewable energy initiatives, 18 solar photovoltaic projects, totaling 844.47 megawatts, have been submitted by PREPA for regulatory approval, the official noted.