November 24, 2020 [Brief Report] The Current Status of ’s Power Grid

Figure 1. Map showing Puerto Rico’s location in relation to the continental United State

Source: Wikimedia Commons Figure 2. Picture showing damage caused by

Source: WYNC

Figure 3. Map of Puerto Rico showing Hurricane Maria’s path, primary transmission lines, and biggest power plants.

Source: Kwasinski,A., Andrade,F., Castro-Sitiriche, M.J., O’neillCarrillo,E. (2019) On September 19th, 2017, Hurricane Maria was just off the coast of Puerto Rico and its 280 kph winds were hitting the island, toppled transmission towers, snapping concrete power poles, entangling lines, and battering power plants (Figure 1) (Figure 2). At 2 a.m. on September 20, 2017, Puerto Rico entered a total blackout. Four hours later, Maria made landfall as a Category 4 hurricane and tore a diagonal 160-km-long path from the island’s southeast to its northwest, taking out much of the island’s transmission (Figure 3). In the aftermath of Hurricane Maria, all of the Puerto Rico Electric Power Authority’s (PREPA), a government agency that owns the electricity transmission and distribution systems as well as 80% of the electricity generating capacity, 1,570,000 electricity customers were without power after the storm and many did not have power restored for months after. As of 2020, the island relies primarily on large petroleum-fired power plants, which account for nearly half of the island's total 5,839 MW of generation capacity. Imported natural gas makes up 29% of generation, coal 19%, and renewables 2.5%. Nearly two-thirds of Puerto Rico’s electricity generation capacity is located in the southern portion of the island while the population is concentrated in the north which makes the island dependent on its 2,400 miles of transmission and 30,000 miles of distribution lines. This dependency leaves the island especially exposed during storms such as Hurricane Maria. Despite significant recovery work, Puerto Rico still faces rolling blackouts three years later and observers say that rebuilding the island’s grid is key to reaching energy security.

1. Puerto Rico's Power Grid Plans and Rebuild Efforts after Hurricane Maria Figure 4. Timeline of power grid recovery and rebuild efforts in Puerto Rico after Hurricane Maria.

September 20, 2017 October 2017 February 2018 March 2018 •Hurricane Maria makes landfall •FEMA awards Cobra •The Bipartisan Budget Act of •PREB ordered PREPA to file an in Puerto Rico Acquisitions the contract for 2018 is passed, allocating updated IRP rebuilding Puerto Rico's FEMA funding for Hurricane transmission and distribution Maria network

February 2019 June 2019 October 2019 June 2020 •PREPA files its IRP, but PREB •PREPA files its IRP •PREPA announces a $20 billion •LUMA Energy wins the PREPA determines it was incomplete plan to rebuild the power grid transmission and distribution contract

August 2020 September 2020 •PREB approves PREPA's IRP in •The Trump Administration part announces $9.6 billion in FEMA funding for rebuilding Puerto Rico's power infrastructure

Source: Utility Dive, White House, PREB

Figure 5. Shows the relationship between different entities for Hurricane Maria recovery and rebuild efforts

Source: USACE In October 2017, the Federal Emergency Management Agency (FEMA) awarded Cobra Acquisitions, a subsidiary of Oklahoma-based fossil fuel company Mammoth Energy Services, the $200 million contract for rebuilding Puerto Rico’s transmission and distribution network (Figure 1 and 2). The contract was increased multiple times due to the size and scope of the rebuild, ending up at $1.8 billion. For the most part, Cobra rebuilt Puerto Rico's grid to PREPA’s original specifications which were widely regarded as being out of date. While the company reconstructed to more modern specifications in some areas, the need for a quick recovery necessitated a simpler rebuild. Many utility leaders and other stakeholders in Puerto Rico have called for building smaller regional grids that can operate independently if other parts fail. In October 2019, PREPA announced a $20.3 billion plan to rebuild the island's electric grid that would incorporate solutions to these concerns. The utility’s plan included installing nearly 1.4 GW of solar generation and 920 MW of battery storage, with the ultimate goal of transitioning the island into eight self-sufficient minigrids. Under this plan, PREPA will spend about $2 billion annually for the next decade to reconstruct and update its system. In total, PREPA plans to spend $6.5 billion on transmission, $5.7 billion on its distribution system and $3.9 billion for generation. PREPA acknowledged that federal and private investment will be necessary to fund the rebuild, with at least $13 billion of the total cost coming from the federal government.

Separately, on March 15, 2018, the Puerto Rico Energy Bureau (PREB), the regulatory body that oversees PREPA, authorizing PREPA to file an updated Integrated Resource Plan (IRP) in order to determine the impacts of Hurricanes Irma and Maria on the island. On February 13, 2019, PREPA filed its IRP, but PREB determined that the IRP filing was incomplete. After a series of delays and extensions, on June 7, 2019, PREPA filed its IRP. In August 2020, PREB finally approved PREPA’s IRP. PREB partially rejected PREPA’s preferred scenario, which included significant new gas capacity, in favor of more renewables. While there is some natural gas in the plan, it is not prioritized the way PREPA originally did in its Energy System Modernization plan. The IRP directed PREPA to procure at least 3.5 GW of solar and 1.36 GW of battery storage by 2025. PREB also slated PREPA’s plan for eight minigrids to maintain island resilience for more study before development. Instead, the utility is authorized to begin developing only one of the grids around the San Juan and Bayamón region. PREB says it is not ruling out minigrids altogether and it will hold a separate hearing on the minigrids idea. PREPA was also directed to explicitly include analysis of virtual power plants (VPP) and distributed resources in its next IRP. The final IRP also includes $2 billion for improvements to transmission and distribution assets. 2. Federal Government Aid After Hurricane Maria and Recent Actions

In response to Hurricane Maria, the Bipartisan Budget Act of 2018 included funding for FEMA to support Hurricane Maria response and recovery. FEMA, the Department of Energy (DOE)1, the U.S. Army Corps. of Engineers (USACE)2, and other federal agencies provided about $3.9 billion to help restore electricity service, which included temporary or partial repairs. However, local entities still face the longer-term and more expensive task of grid recovery to more fully rebuild the grid. Although the federal government has appropriated billions in funding to support electricity grid recovery in Puerto Rico, FEMA has not funded long-term grid recovery projects in Puerto Rico. Progress on grid recovery projects has been hindered because FEMA has not provided clear guidance on what is eligible for funding. The Trump Administration announced on September 18, 2020 that FEMA authorized $9.6 billion to rebuild Puerto Rico's power infrastructure. The funding will go to PREPA to repair and replace transmission and distribution lines, electrical substations, power generation systems, office buildings, and make other grid improvements. It is unclear when Puerto Rico will have access to the aid. PREPA must first produce a plan showing how the money will be used. While observers celebrated the announcement of FEMA funds to assist in a much-needed grid rebuild, many questioned the timing of the announcement. It is highly unusual for FEMA to announce

1 Department of Energy (DOE): the department responsible for policies regarding energy and safety in handling nuclear material. 2 U.S. Army Corps. of Engineers (USACE): an engineer formation of the United States Army that has three primary mission areas: engineer regiment, military construction, and civil works. funding so long after a disaster. The implication was that the announcement was an effort to cater to Puerto Rican voters living in Florida, which is a key swing state in election years. 3. The Current LUMA Energy Contract Issue As part of PREPA’s restructuring plan following bankruptcy in 2017, the Puerto Rico legislature approved privatizing parts of PREPA in 2018. Under the plan, the utility is privatizing its electricity transmission and distribution system. As a part of this plan, LUMA Energy, a consortium of -based Quanta Services and Calgary-based ATCO, was awarded a 15-year Puerto Rico grid contract in June 2020 to manage PREPA’s energy transmission and distribution. The contract is valued between $70 million and $105 million per year, plus up to $20 million in annual “incentive fees.” PREPA has said it expects the LUMA contract to cut costs by hundred of millions and is optimistic the public-private partnership can help save on operations and solve system inefficiencies. However, critics have pointed out that there are several issues with the contract like the lack of transparency in the selection process and privatization of public services. In October 2020, the Institute for Energy Economics and Financial Analysis (IEEFA), a non-profit focused on energy markets and policies, released a report that concluded that the service contract LUMA signed to operate Puerto Rico's electricity grid will likely result in electricity prices that fail to meet legislative goals and could keep Puerto Rice from reaching its 100% renewable energy target by 2050. The report found that the LUMA contract will create electricity prices of around $0.30/kWh compared with the island's goal of $0.20/kWh. LUMA has responded to finance focused criticisms by saying it is "committed to finding efficiencies in the current system.” It also expects the lower operating and maintenance costs to save $100 million annually by 2026. It is also possible that the consortium could run into financial problems; rebuilding Puerto Rico’s grid is estimated to cost more than $20 billion, but the two consortium companies have a combined market capitalization of only $12 billion. There is also very little accountability in the agreement. The majority of LUMA’s fee for running the grid will be paid regardless of whether the job is done well. The report points out that the three oversight agencies—the Public-Private Partnerships (P3) Authority, PREB, and the Financial Oversight Management Board (FOMB)— are unqualified to oversee the contract due lack of resources and reliability. The IEEFA report cites several other issues with the contract including the encouragement of natural gas, lower transparency, and sidelining of union collective bargaining agreements. The report argues that the contract will essentially privatize the functions of PREPA. 4. Stakeholder Responses to the LUMA Contract Former utility leaders and consumer watchdogs have noted that regulators did not include public stakeholders in the 18-month selection process. José Román Morales, former president of PREPB and now a consultant on distributed generation, said it is unusual that regulators did not include the public in the process. Agustín Irizarry-Rivera, a professor of electrical engineering at the University of Puerto Rico-Mayagüez who has served on the PREPA board, also questioned why details of the selection process were not made public. On the other side, Natalie Jaresko, executive director of FOMB, defended the public entity’s agreement with LUMA Energy. According to Jaresko, in order to transform Puerto Rico’s power grid, generation needed to be separate from transmission and distribution from generation, which is what the LUMA contract does. It does not, she asserted, privatize PREPA. 5. Conclusions Currently, there are several unknowns when it comes to the efforts of Puerto Rico to rebuild its power grid. It is unclear when FEMA funds will be distributed, and it will be up to FEMA to determine what is eligible for funding. The LUMA contract could also change the outlook on rebuilding the grid if IEEFA’s predictions ring true. However, even with these new developments, it is clear rebuilding Puerto Rico’s grid will take years and likely billions to rebuild. References 1. Kwasinski,A., Andrade,F., Castro-Sitiriche, M.J., O’neillCarrillo,E. (2019), “Hurricane Maria Effects on Puerto Rico Electric Power Infrastructure” 2. U.S. Energy Information Administration (2020), “Puerto Rico: Territory Profile and Energy Estimates” 3. Bond Buyer: https://www.bondbuyer.com/articles/puerto-rico-floats-20-billion-overhaul- for-battered-power-grid 4. USACE:https://www.energy.gov/sites/prod/files/2018/03/f49/Puerto%20Rico%20Grid%20 Restoration%20COL%20J%20Lloyd.pdf 5. Puerto Rico Energy Bureau (2020), “Final Resolution and Order on The Puerto Rico Electric Power Authority’s Integrated Resource Plan” 6. Utility Dive: https://www.utilitydive.com/news/puerto-rico-regulators-set-island-on-a-5- year-course-to-procure-renewables/584132/ 7. Government Accountability Office (2019), “Puerto Rico Electricity Grid Recovery: Better Information and Enhanced Coordination Is Needed to Address Challenges” 8. White House: https://www.whitehouse.gov/briefings-statements/statement-press- secretary-largest-fema-infrastructure-grants-awarded-puerto-rico/ 9. Institute for Energy Economics and Financial Analysis (2020), “Contract Between Puerto Rico, LUMA Energy Sets up Full Privatization, Higher Rates for Island Grid”

10. Utility Dive: https://www.utilitydive.com/news/luma-rejects-mounting-criticism-of-puerto- rico-grid-operating-contract-see/586888/ 11. Greentech Media: https://www.greentechmedia.com/articles/read/puerto-rico-selects- new-grid-manager-concern-follows 12. The Weekly Journal: https://www.theweeklyjournal.com/politics/jaresko-defends-prepa-s- contract-with-luma-energy/article_de2a323e-fd0b-11ea-bd84-0febcea36cbc.html