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In Kowtowing to Bondholders, Puerto Rico’s Electric Company Neglects the Future

August 11, 2016
Cathy Kunkel and Tom Sanzillo

[This is one in a series of commentaries over the past few days on mismanagement at the Puerto Rico Electric Power Authority.]

The Puerto Rico Electric Power Authority’s debt crisis happens to be unfolding at a time when the agency is out of compliance with federal air quality regulations and should be moving aggressively toward renewable energy—and away from fossil-fuel-fired power generation.

Yet PREPA’s debt restructuring, approved last month by the Puerto Rico Energy Commission, serves essentially as a roadblock to such progress, diverting resources to bondholders rather than investing in system modernization.

Puerto Rico, blessed with abundant sunshine, today generates only about 3 percent of its electricity from renewable energy sources. Its potential for solar-powered electricity is vast, however, a fact that seems lost on PREPA officials who say they plan to increase renewable generation to only 12 percent by 2025—a goal that, even by modest standards, lacks ambition. In fact, Puerto Rico’s own laws mandate that renewables make up 15 percent of PREPA’s energy portfolio by then.

Nonetheless, PREPA is forging ahead with plans to build a Liquefied Natural Gas (LNG) import terminal and to convert most of its generation system from oil to natural gas. This is a risky, high-cost move that neglects the development of cleaner, more affordable renewable energy (see our September 2015 report, “Opportunity for a New Director for Puerto Rico’s Electricity System”).

PREPA unfortunately, to, appears to be furthering its plans in private. Although the agency has not received the requisite approval from the Puerto Rico Energy Commission, it is in back-room negotiations for financing for one of its planned natural gas plants, according to published reports. The lack of transparency around the talks is probably strategic: it works to the advantage of entrenched interests that favor such an approach.

Also working against the development of a robust Puerto Rican renewable-energy industry: some of the fine print in PREPA’s recent bond-restructuring agreement. While PREPA’s integrated resource plan calls for $2.33 billion in capital investment over the next five years for transmission upgrades and for various projects related to natural gas infrastructure and the retirement of existing capacity, the agency’s debt-restructuring plan budgets for only $1.94 billion in capital expenditure. Even that figure is suspect, though, because it is predicated on PREPA being able to issue new bonds starting in 2018, an unlikely scenario.

Regardless, the debt deal fails to free up enough money to allow PREPA to realize its five-year capital investment plan, much less prioritize renewable-energy development over onerous debt service.

The Puerto Rican economy is in trouble, and it needs help.  Renewable energy holds the potential for much-needed job creation, new investment, and  new industry. Yet PREPA looks the other way.

As it stands—between the debt restructuring and PREPA’s plans for natural-gas dependency—Puerto Rico residents and businesses will be sending most of their electricity payments to bondholders and to oil, coal and gas companies rather than to the Puerto Rican economy.

Cathy Kunkel is an IEEFA energy analyst. Tom Sanzillo is IEEFA’s director of finance.


New Debt Deal Was Supposed to Solve PREPA’s Financial Problems. It Doesn’t.

Puerto Rico’s Proposed Electricity Turnaround Banks Largely on Hope

PREPA Is Paying a High Price for Consultants Who Didn’t Get the Job Done

Cathy Kunkel

Cathy Kunkel is the Energy Program Manager at CAMBIO PR, a non-profit organization based in Puerto Rico that designs, promotes and implements sustainable policies and practices. 

Cathy also served as an IEEFA Energy Finance Analyst for 7 years, researching Appalachian natural gas pipelines and drilling; electric utility mergers, rates and resource planning; energy efficiency; and Puerto Rico’s electrical system. She has degrees in physics from Princeton and Cambridge.

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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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