IEEFA Puerto Rico: Hearings on Proposed Gas Port Conclude Amid Cloud of Financial Uncertainty

In an eventful – and unprecedented – series of actions affecting Puerto Rico’s energy-transition debate,  the federal board overseeing the resolution of the island’s enormous debt burden last week sent the Puerto Rico Electric Power Authority into a bankruptcy-like process known as Title III.  The board’s actions came two days after the Puerto Rico Energy Commission concluded its hearings on the Authority’s proposed Aguirre Offshore Gas Port, a liquefied natural gas import terminal.

The PREPA bankruptcy is the largest for a municipal electric system in American history, and no one knows how the proceedings will affect the utility’s proposed capital expenditures.

IEEFA testified against the proposed gas terminal, on behalf of El Puente Enlace Latino de Acción Climática, along with a witness from the Brattle Group representing the Puerto Rico Institute for Competitiveness and Sustainable Economy (ICSE-PR) and a representative of Arctas Capital Group.

PREPA has argued that the gas port is necessary in order to enable its transition away from oil-fired generation. However, the agency presented very different versions of its future to the Energy Commission and to the PROMESA fiscal control board, the entity charged with approving PREPA’s debt restructuring plans.

In Energy Commission proceedings, PREPA has presented a vision of continued reliance on large, centralized power generation, which it would own and operate.  To the PROMESA Board, however, PREPA has presented a vision of becoming a distribution-only utility, allowing generation on the island to become privatized. In the latter scenario, PREPA has also told the PROMESA Board that Puerto Rico will be able to generate 18% of its electricity from renewables by 2026, more than double what it has projected to the Energy Commission.

How PREPA arrived at this forecast of higher renewable energy penetration is unclear, but it certainly has relevance for the economic benefit of the gas port. If PREPA is able to integrate more renewable energy faster, then it is possible that PREPA would not need to import as much natural gas, which could make some of the alternative methods for delivering natural gas to Puerto Rico more feasible.

Unfortunately PREPA did not present any economic analysis of its Fiscal Plan scenario to the Energy Commission, nor did it provide any economic analysis of bulk delivery of LNG to northern Puerto Rico, even though PREPA considers this the most technically feasible alternative to the gas port.

Regardless of the potential economic benefit of the gas port, the question of how PREPA could finance such a project remains.

During last week’s hearings, PREPA witnesses emphasized that they would not be able to develop a financing plan for the port until a plan for PREPA’s overall financial restructuring is finalized. PREPA’s negotiations with bondholders and insurers over its $9 billion debt burden resulted in a Restructuring Support Agreement that was put before the PROMESA fiscal control board for approval earlier this year. In a surprise move, however, the PROMESA Board voted last week not to approve the Restructuring Support Agreement. Instead, PREPA will be placed into a bankruptcy-like process, in which its debt will be restructured through a court proceeding.  It is impossible to predict how long this process will take.

The PROMESA Board’s decision throws additional uncertainty into the gas port project, which has already been delayed for several years. It does, however, provide more time for the Energy Commission to conduct a thorough evaluation of alternatives.

Cathy Kunkel is an IEEFA energy analyst.

IEEFA Puerto Rico: The Aguirre Offshore Gas Port Is Unbankable