Oversight board certifies updated Prepa fiscal plan

Financial Oversight and Management Board for Puerto Rico release

San Juan, PR – June 30, 2022 – The Financial Oversight and Management Board for Puerto Rico announced that it certified the updated Fiscal Plan for the Puerto Rico Electric Power Authority (PREPA), the roadmap to more reliable, more affordable, and cleaner electricity in Puerto Rico.

The updated PREPA Fiscal Plan defines the next steps in the transformation of Puerto Rico’s energy system that will improve the quality of life for every resident of Puerto Rico and help boost economic development. Although PREPA had shown modest improvement since 2017, Puerto Rico residents and businesses continue to experience far too many power outages.

“Puerto Rico’s economic recovery depends on the comprehensive and overdue transformation of its energy sector,” said the Oversight Board’s Chairman David Skeel. “When fully implemented, PREPA’s transformation will provide Puerto Rico with a resilient and modern electric grid and more efficient and cleaner power generation. The Oversight Board has been working to reduce PREPA’s debt to sustainable levels and aims to reach consensual agreements with creditors and other interest parties as soon as reasonably possible.”

The Fiscal Plan defines the steps necessary to complete PREPA’s transformation, including the completion of the process by the Puerto Rico Public–Private Partnerships Authority (P3A) to transfer operation and maintenance of PREPA’s legacy generation assets to professional and independent private operators before the end of calendar year 2022.

PREPA must support and promote efforts to modernize power generation resources and increase renewable energy generation. Until a private and independent operator is in place, PREPA must prioritize critical maintenance works to ensure its units are available to meet Puerto Rico’s energy demand, while also taking the steps become a lean and efficient organization, as envisioned in its reorganization plans. Further, PREPA must support the transition of energy generation to renewable systems led by the Puerto Rico Energy Bureau (PREB) through an appointed Independent Coordinator for procurement.

In addition, the Fiscal Plan outlines almost $11 billion in available federal funding to reconstruct and improve the electrical system, mainly the energy grid under the management of LUMA Energy.

Finally, all parties involved must continue to work towards restructuring PREPA’s unsustainable debt and pension obligations.

Electricity consumption and its underlying drivers is crucial for accurate planning of investments into energy generation and the grid. Energy consumption and peak demand, which are PREPA’s most critical billing determinants, have been in decline for approximately 16 years, and the PREPA Fiscal Plan projects that electricity consumption in Puerto Rico will continue to decline because of lack of long-term economic growth and a declining population. The Fiscal Plan projections assume that PREPA continues to work towards, and makes considerable progress in, achieving the energy efficiency and renewable energy target set in Act-17-2019.

The Fiscal Plan also includes for the first time an alternative forecast that reflects expected energy consumption based on existing market conditions in Puerto Rico and elsewhere, including expected delays in the deployment of energy efficiency measures and the adoption of electric vehicles. The alternative energy forecast is meant to reflect the uncertainties in future energy demand resulting from Puerto Rico not meeting the targets set by Act 17 and the Integrated Resource Plan (IRP). The alternative forecast illustrates a scenario with lower energy efficiency savings and higher electricity consumption from electric vehicles, when compared to the projections in the Fiscal Plan base scenario developed by PREPA and LUMA Energy. The alternative forecast projects energy consumption about 26% higher by fiscal year 2050 than the Fiscal Plan base case.

While the Oversight Board continues to support the Government of Puerto Rico’s objectives of achieving the maximum benefits from distributed generation resources and energy efficiency measures, the delays seen in the procurement of renewable resources, the lack of an established and well-funded energy efficiency program, and the macroeconomic and market changes experienced since the approval of the IRP, require all stakeholders to review and update their plans and expectations of future energy demand, so that the necessary resource planning determinations can be made with enough time to ensure an affordable and reliable source of power.

During fiscal year 2022, PREPA made substantial progress on several transformation initiatives.

PREPA undertook a competitive procurement process to obtain the best available market prices for major fuel supply contracts, leading to an important reduction in cost to customers. It also advanced the deployment of renewable energy by selecting 18 solar contracts totaling approximately 845MW of energy generation, submitted over $200 million in generation projects to FEMA, and supported P3A and the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF) in the final stages of the PREPA legacy generation asset procurement process for the selection of one or more private operators.

LUMA Energy, the operator of Puerto Rico’s energy grid, reduced customer call-wait times by over 95% to less than one minute and increasing customer accessibility to e-billing platforms with over a million customers, reduced the Injury Severity Rate of its linemen by over 80%, cleared the inherited backlog of distributed generation applications, and gained regulatory approval for 190 initial scopes of work representing $7.8 billion in federal funding.