PREPA: Fiscal board’s rejection of renegotiated green energy projects was ‘unexpected’
By The Star Staff
The Puerto Rico Electric Power Authority (PREPA) on Wednesday said it was surprised by the position taken by the Financial Oversight and Management Board (FOMB) essentially rejecting as non-operational the 16 renegotiated renewable energy projects submitted by PREPA, because the board had monitored the renegotiation process.
The news comes as several creditors are asking the court to end PREPA’s bankruptcy process.
PREPA’s director of administration and fiscal affairs, Francisco Padilla, said PREPA has worked extensively to secure a renegotiation process that achieved the recommendations made by New Energy Partners and the oversight board, and that it was unfortunate to have received the board’s letter undermining the efforts of the stakeholders involved.
“This unexpected turn of events has significant impact for the development of solar renewable energy projects given that it not only affects the timeline for transition to renewable energy sources but also the investment environment on the island,” Padilla said. “The after-the-fact fiscal plan certified by the FOMB did not provide a realistic price structure that allowed PREPA to renegotiate with project sponsors. Even if PREPA is fully committed to the development and implementation of new renewable energy projects, the FOMB’s decision is an indisputable setback for the transition to renewable energy sources and adversely affects the economic environment of the island.”
The oversight board on Monday said some 16 PREPA renewable energy agreements renegotiated recently would result in electricity rates higher than projected in the 2020 certified fiscal plan.
“Despite achieving improved prices (when compared to original prices) and contract terms more favorable to PREPA, the approval and development of all 16 Proposed Contracts (representing a total renewable energy capacity of 593 MW [megawatts]), 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,” the oversight board said. “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.”
Padilla said he was surprised by the oversight board’s remarks because PREPA negotiated the non-operational power purchase and operating agreements (PPOAs) with the guidance and pricing input suggested by the board during the past 18 months.
“Both PREPA management and its governing board was thoroughly advised by New Energy Partners, a global expert on solar development, which provided the price structure that would secure the lowest price for the rate payer while allowing realistic development of the PPOAs for compliance with Act 17-2019,” Padilla said.
The news comes as the Official Unsecured Creditors Committee (UCC) asked the U.S. District Court to end PREPA’s bankruptcy process under Title III of the federal Puerto Rico Oversight, Management and Economic Stability Act, commonly known as PROMESA.
Over a year ago, officials filed a restructuring support agreement (RSA) for PREPA’s $9 billion debt which has yet to bear fruit.
In its status report filed on July 31, the Puerto Rico government conceded that there were grave doubts about the PREPA RSA’s viability, but claimed that “additional time is required to understand how and if the situation will impact PREPA and to what extent (if any) they should seek to amend the RSA.”
The request was granted by the court.
The UCC submitted that, notwithstanding the government’s desire to continue indefinitely adjourning their 9019 Motion or bankruptcy motion, unless the government says it is prepared to immediately move forward with its bankruptcy, the court should dismiss it.
The UCC said that all available evidence demonstrates that the RSA — which forms the sole basis for the case or controversy underlying the relief requested in the 9019 Motion — no longer exists as a viable agreement and the government parties have no intention of moving forward with their motion seeking approval of the RSA.