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What the State [Puerto Rico] Giveth [Monopoly Power to Its Electric Utility PREPA] the State Is Proposing to Taketh Away…

On October 17, Senate Vice President Larry Seilhamer and Minority Leader Eduardo Bhatia introduced Senate Bill 1121, The Puerto Rico Energy Public Policy Act, which would bring widespread change to the state’s electric utility industry. The most notable provision of SB1121 is the elimination of monopoly status for the island’s electric utility, Puerto Rico Electric Power Authority (PREPA). PREPA is a government run agency that is responsible for the generation, transmission, and distribution of electricity for the vast majority of Puerto Rico’s population. The utility, which is currently $9 billion in debt, filed for bankruptcy in 2017 and is in the midst of a multi-year effort to rebuild the island’s electric grid which was severely damaged last year by Hurricanes Irma and Maria.

According to Seilhammer, “The purpose [of SB1121] is to have a Puerto Rico with a robust, resilient, affordable, and reliable system. To this end, we are promoting the reconstruction, modernization, and updating of the transmission and distribution system of the network. The monopoly is put to an end as we know it today to give way to competition in power generation and fuel diversity.”

Highlights of The Puerto Rico Energy Public Policy Act are outlined below:

Key Provisions

  • Rescinds PREPA’s exclusive right to produce, transmit, distribute, and commercialize energy supply and prohibits vertically integrated monopolies in the energy sector and horizonal monopolies for electric generators
    • Though PREPA may continue to operate, the proposed legislation would give the governor of Puerto Rico significant authority over the members of its board of directors
  • Requires PREPA to delegate and/or transfer the operation, administration, and/or maintenance of its transmission and distribution system by December 31, 2019, to a concessionaire that commits to investing capital into the islands energy grid (delegation/ transfer must be approved by the island’s regulatory body Puerto Rico Energy Bureau (PREB)
    • The new operator would be required to allow all electric service companies, distributed generation assets, and microgrids to interconnect to the system, if technically feasible
  • Prohibits any one company from controlling more than 50% of the island’s generation capacity (there is an exception to this threshold if PREPA were to retain control of its legacy assets)
  • Requires that all non-renewable generation plants (new/existing) be upgraded to ensure they are “highly efficient” and able to operate on two or more fuels
  • Establishes minimum standards for electric infrastructure to improve reliability and resiliency (e.g., replacing temporary transmission structures with monopoles that can withstand sustained winds of 150mph, diversifying black-start capable generating units, and evaluating/relocating substations located in flood-prone areas)
  • Establishes financial and criminal penalties for electric service companies that do not comply with established standards

Energy Goals

  • Establishes a goal of 100% renewables by 2050 with interim targets of 20% by 2025 and 50% by 2040 (renewables currently comprise approximately 3% of total generation)
  • Prohibits the use of coal to generate electricity and the issuance of new permits/licenses to operate carbon-based generation plants after 2027
  • Promotes energy storage technologies across all customer classes and programs to transition customers from passive consumers of energy to “prosumers” via net metering and new tariff designs to increase engagement in their energy use

Though SB1121 received its first public hearing on October 26, the bill is still in draft form, and it is unknown what changes will be made as it moves through the legislative process or even if it will move through the process. Beyond the “sausage making” that will undoubtedly occur in the Puerto Rico legislature, there is also an effort by some of PREPA’s creditors to transfer regulatory oversight of the utility to the Federal Electric Regulatory Commission (FERC), as they believe the PREB has not provided the “required meaningful reforms” demanded by creditors as conditions for entering into restricting support agreements for PREPA’s outstanding debt. If these creditors are successful, SB1121 may become moot, as the FERC would replace PREB as the entity regulating PREPA.

More Information

This report is part of ScottMadden’s Regulatory Minute series. To view all featured Regulatory Minutes, please click here.

Additional Contributing Author: Eric Hanson

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