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Passage of bill paves way for Puerto Rico to sell power assets

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Essential Energy Insights - February 2021

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Passage of bill paves way for Puerto Rico to sell power assets

Puerto Rico's plan to rebuild and modernize its hurricane-ravaged electric grid took a step forward recently.

On June 14, the Puerto Rico Senate approved a bill authorizing the island's public utility, the Puerto Rico Electric Power Authority, or PREPA, to sell its generating assets to one or more private buyers. The island's House of Representatives passed the "Law to Transform the Electric System of Puerto Rico" on June 12.

Under the bill, PREPA and Puerto Rico's Authority for Public-Private Partnerships will carry out the sales process. Any resulting agreements, however, must be ratified by Puerto Rico's legislature and governor. The bill also requires the Puerto Rico Energy Commission to sign off on the sales and regulate tariffs and other charges for electricity following the transactions.

A preamble to the bill said Puerto Rico's electric grid has suffered from managerial dysfunction, financial constraints, and old and deteriorated infrastructure. Those headwinds were exacerbated by Hurricanes Maria and Irma in September 2017, which decimated PREPA's transmission and distribution system and initially left almost the entire island without power.

By selling PREPA's generating assets through a competitive process Puerto Rico's energy system could be transformed to a modern, sustainable, reliable and cost-efficient one that can better withstand hurricanes and other natural disasters, the preamble said.

To that end, the newly passed legislation called for Puerto Rico's governor and legislative leaders to form a working group focused on the island's grid modernization. The working group must be informed by the recommendations of the Southern States Energy Board, to which the U.S. Department of Energy gave money to evaluate possible energy policies and regulatory frameworks to transform Puerto Rico's bulk power system.

The governor and presidents of both chambers of Puerto Rico's legislature must designate the workgroup within 15 days of the bill's approval. The legislature must approve the resulting public policy and regulatory framework for upgrading the grid no later than 180 after approval of the act.

Following Senate passage of the bill, the legislation headed to Puerto Rico Gov. Ricardo Rosselló's desk for signing. The governor's office did not return requests for comment on whether Rosselló will sign the bill or when he may do so.

Sales process

The bill also details the criteria the Puerto Rico government will use to conduct the asset sales.

It said a separate request for proposals will be issued for each of PREPA's generation facilities. The proposals must strike a "fair balance" between commercial interests and a "sense of social responsibility," the bill said. The government will also evaluate bidders' ability and interest in transforming the assets to cleaner energy sources when possible and at a reasonable cost.

Under the bill, the Puerto Rico Energy Commission would have 15 days after it receives preliminary contracts to decide whether to authorize the sales and issue an "energy compliance certificate." To aid the asset sales, the bill would expand the agency's members to four associate commissioners and one president. Currently, the commission is made up of one chairman and two associate commissioners.

Rosselló and PREPA announced plans in January to sell the utility's generation assets and lease its transmission lines through long-term contracts, a process they said would take about 18 months. At the time, PREPA said Puerto Rico had a combined 5,839 MW of electric generating capacity, of which PREPA owns 4,878 MW. The rest is owned by independent power producers.

Most of PREPA's generation is from fossil fuel-fired plants, with only 4% of the utility's electric output coming from renewable resources.