- OVERSIGHT HEARING ON THE TRANSFORMATION OF THE PUERTO RICO ELECTRIC POWER AUTHORITY (PREPA)

[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]

THE TRANSFORMATION OF THE
PUERTO RICO ELECTRIC POWER
AUTHORITY (PREPA)

=======================================================================

OVERSIGHT HEARING

BEFORE THE

COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTEENTH CONGRESS

SECOND SESSION

__________

Tuesday, July 23, 2020

__________

Serial No. 116-39

__________

Printed for the use of the Committee on Natural Resources

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

Available via the World Wide Web: http://www.govinfo.gov
or
Committee address: http://naturalresources.house.gov

__________

U.S. GOVERNMENT PUBLISHING OFFICE
41-341 PDF WASHINGTON : 2020

--------------------------------------------------------------------------------------

COMMITTEE ON NATURAL RESOURCES

RAUL M. GRIJALVA, AZ, Chair
DEBRA A. HAALAND, NM, Vice Chair
GREGORIO KILILI CAMACHO SABLAN, CNMI, Vice Chair, Insular Affairs
ROB BISHOP, UT, Ranking Republican Member

Grace F. Napolitano, CA Don Young, AK
Jim Costa, CA Louie Gohmert, TX
Gregorio Kilili Camacho Sablan, Doug Lamborn, CO
CNMI Robert J. Wittman, VA
Jared Huffman, CA Tom McClintock, CA
Alan S. Lowenthal, CA Paul A. Gosar, AZ
Ruben Gallego, AZ Paul Cook, CA
TJ Cox, CA Bruce Westerman, AR
Joe Neguse, CO Garret Graves, LA
Mike Levin, CA Jody B. Hice, GA
Debra A. Haaland, NM Aumua Amata Coleman Radewagen, AS
Joe Cunningham, SC Daniel Webster, FL
Nydia M. Velazquez, NY Liz Cheney, WY
Diana DeGette, CO Mike Johnson, LA
Wm. Lacy Clay, MO Jenniffer Gonzalez-Colon, PR
Debbie Dingell, MI John R. Curtis, UT
Anthony G. Brown, MD Kevin Hern, OK
A. Donald McEachin, VA Russ Fulcher, ID
Darren Soto, FL
Ed Case, HI
Steven Horsford, NV
Michael F. Q. San Nicolas, GU
Matt Cartwright, PA
Paul Tonko, NY
Jesus G. ``Chuy'' Garcia, IL
Vacancy

David Watkins, Chief of Staff
Sarah Lim, Chief Counsel
Parish Braden, Republican Staff Director
http://naturalresources.house.gov

----------

CONTENTS

----------
Page

Hearing held on Tuesday, July 23, 2020........................... 1

Statement of Members:

Bishop, Hon. Rob, a Representative in Congress from the State
of Utah, prepared statement of............................. 103

Gonzalez-Colon, Hon. Jenniffer, a Delegate in Congress from
the Territory of Puerto Rico............................... 4

Grijalva, Hon. Raul M., a Representative in Congress from the
State of Arizona........................................... 2
Prepared statement of.................................... 3

Statement of Witnesses:

Aviles-Deliz, Edison, Chair, Puerto Rico Energy Bureau (PREB) 44
Prepared statement of.................................... 46
Questions submitted for the record....................... 52
Figueroa-Jaramillo, Angel, President, Electrical Industry and
Irrigation Workers Union (UTIER)........................... 72
Prepared statement of.................................... 73
Fontanes, Fermin, Executive Director, Puerto Rico Public-
Private Partnerships Authority............................. 30
Prepared statement of.................................... 32
Questions submitted for the record....................... 35
Ortiz, Jose, Executive Director, Puerto Rico Electric Power
Authority (PREPA).......................................... 5
Prepared statement of.................................... 6
Supplemental testimony submitted for the record.......... 11
Questions submitted for the record....................... 14
Rossi, Josen, President, Puerto Rico Institute for
Competitive and Sustainable Economy (ICSE)................. 83
Prepared statement of.................................... 85

Santiago, Ruth, Member, Queremos Sol Coalition............... 57
Prepared statement of.................................... 59

Additional Materials Submitted for the Record:
List of documents submitted for the record retained in the
Committee's official files................................. 104

Submission by Mr. Ortiz as Supplement to Testimony

-PREPA, July 17, 2020 Letter to Kimberly D. Bose, FERC
Secretary.............................................. 27

OVERSIGHT HEARING ON THE TRANSFORMATION OF THE PUERTO RICO ELECTRIC
POWER AUTHORITY (PREPA)

----------

Tuesday, July 23, 2020

U.S. House of Representatives

Committee on Natural Resources

Washington, DC

----------

The Committee met, pursuant to notice, at 3:36 p.m., in
1324 Longworth House Office Building, Hon. Chair Raul M.
Grijalva [Chairman of the Committee] presiding.
Present: Representatives Grijalva, Napolitano, Sablan,
Lowenthal, Gallego, Cox, Haaland, Cunningham, Velazquez,
DeGette, Soto, Case, Tonko, Garcia; Gosar, Westerman, Graves,
Radewagen, and Gonzalez-Colon.

The Chairman. Thank you. The Committee on Natural Resources
will come to order.
The Committee is meeting today to hear testimony on the
transformation of the Puerto Rico Electric Power Authority,
PREPA.
Under Committee Rule 4(f), any oral opening statements at
the hearing are limited to the Chair and the Ranking Minority
Member or designee. This will allow us to hear from the
witnesses sooner and help Members keep to their schedules.
Therefore, I ask unanimous consent that all other Members'
opening statements be made part of the hearing record if they
are submitted to the Clerk by 5 p.m. today or the close of this
hearing, whichever would come first.
Hearing no objection, so ordered.
Without objection, the Chair may also declare a recess
subject to the call of the Chair. As described in the notice,
statements, documents, or motions will be submitted to the
electronic repository at [email protected].
Additionally, please note that as with our solely in-person
meetings, Members are responsible for their own microphones. As
with our fully in-person meetings, Members can be muted by the
staff only to avoid inadvertent background noise.
Anyone present in the hearing today must wear a mask
covering their mouth and nose. The Speaker of the House and the
Sergeant at Arms acting upon the recommendations of the
Attending Physician require face coverings for all indoor
gatherings over 15 minutes of length; such as, committee
meetings.
Accordingly, to maintain decorum and protect the safety of
Members and the staff, the Chair will not recognize any Member
in this hearing to speak who is not wearing a mask.
According to House Rule 17 and Committee Rule 3(d), the
Chair retains the right to a recognition of any Member who
wishes to speak or offer a motion. This right includes the
responsibility to maintain decorum.
Please note that as is permitted by the Sergeant at Arms
guidance, the Chair will make limited exceptions for Members
briefly removing their mask to facilitate lip reading by
viewers who are deaf or hard of hearing.
Finally, Members or witnesses who experience technical
problems should inform the Committee staff immediately.
With that, I will now recognize myself for the opening
statement.

STATEMENT OF THE HON. RAUL M. GRIJALVA, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ARIZONA

The Chairman. In May 2019, when this Committee held a
hearing on the status of the rebuilding and privatization of
PREPA, I stated that my primary concerns were determining the
best way to guarantee that PREPA would be rebuilt so that it
can withstand future extreme weather conditions; provide the
residents of Puerto Rico with reliable, inexpensive, and clean
power; and prevent the displacement of PREPA's workers.
Nearly 3 years after the onset of Hurricanes Irma and Maria
and billions spent by FEMA and the Army Corps to turn the
lights back on, Puerto Rico's electric grid, unfortunately,
remains fragile and vulnerable, in part due to recent
earthquakes that have further impacted PREPA's infrastructure.
We will hear today from a diverse group of witnesses who
will speak to the issues currently concerning PREPA, as well as
if and when PREPA will be able to deliver reliable,
inexpensive, and clean power to the people of the island.
We can all agree that reform of PREPA is necessary to
provide clean, low-cost electricity, but is the course that
PREPA has embarked on the correct one to accomplish these goals
remains a question.
Last year, the government of Puerto Rico adopted a mandate
of achieving 100 percent renewable energy by 2050. Currently,
less than 3 percent of Puerto Rico's energy production comes
from renewables.
The fact is, however, that PREPA's current contracts with
companies who are tied to the U.S. natural gas industry and
designed only to retool existing infrastructure can only lead
one to the conclusion that adding sufficient renewables to the
grid will be difficult to achieve, to say the least.
Last, in the weeks leading up to today's hearing, headlines
about PREPA, such as: ``The Privatization of Puerto Rico's
Power Grid, is Mired in Controversy,'' and ``Puerto Rico's
Troubled Utility is a Goldmine for U.S. Contractors,'' suggests
much still needs to be done to accomplish the goals that were
outlined.
Today's hearing will also discuss PREPA's recently
announced privatization and long-term concession of its power
generation and distribution assets.
Questions have been raised about the lack of transparency
in finalizing the concession contract with LUMA Energy and
PREPA's employee union, UTIER. UTIER recently sued the utility
and the government of Puerto Rico alleging that the LUMA
contract violated local laws.
In closing, let me welcome our witnesses and thank them for
joining us for this important hearing. The residents of Puerto
Rico deserve an electric company that is reliable and
efficiently run, does not charge excessive rates, and is
operated with a mind toward a future that generates electricity
using clean and sustainable renewable energy.

It is our intention to do all we can to assist PREPA in
achieving these goals. The efficiency, public openness, and
reliability are essential to the economic recovery and growth
of the island as well.

[The prepared statement of Mr. Grijalva follows:]

Prepared Statement of the Hon. Raul M. Grijalva, Chair, Committee on
Natural Resources

In May 2019, when this Committee held a hearing on ``The Status of
the Rebuilding and Privatization of PREPA,'' I stated that my primary
concerns were determining the best way to guarantee that PREPA will be
rebuilt so that it can withstand future extreme weather; provide the
residents of Puerto Rico with reliable, inexpensive, and clean power;
and prevent the displacement of PREPA's workers.
Today, nearly 3 years after the onset of hurricanes Irma and Maria,
and billions spent by FEMA and the Army Corps to turn the lights back
on, Puerto Rico's electric grid unfortunately remains fragile and
vulnerable, in part due to recent earthquakes that have further
impacted PREPA's infrastructure.
We will hear today from a diverse group of witnesses who will speak
to the issues currently confronting PREPA as well as, if and when,
PREPA will be able to deliver reliable, inexpensive, and clean power
for the people of island.
We can all agree that reform of PREPA is necessary to provide clean
low-cost electricity, but is the course that PREPA has embarked on the
correct one to accomplish these goals?
Last year, the Government of Puerto adopted a mandate of achieving
100 percent renewable energy by 2050. Currently, less than 3 percent of
Puerto Rico's energy production comes from renewables.
The fact is, however, that PREPA's current contracts with companies
who are tied to the U.S. natural gas industry and designed only to
retool existing infrastructure can only lead to the conclusion that
adding sufficient renewables to the grid will be difficult to achieve.
Last, in the weeks leading up to today's hearing, headlines about
PREPA, such as: ``The Privatization of Puerto Rico's Power Grid is
Mired in Controversy'' and ``Puerto Rico's Troubled Utility is a
Goldmine for U.S. Contractors'' suggests much still needs to be done to
accomplish the goals I outlined.
Today's hearing will also discuss PREPA's recently announced
privatization and long-term concession of its power generation and
distribution assets.
Questions have been raised about a lack of transparency in
finalizing the concession contract with LUMA energy, and PREPA's
employee union, UTIER, recently sued the utility and the Government of
Puerto Rico alleging that the LUMA contract violated local laws.
In closing, let me welcome our witnesses and thank them for joining
us for this important hearing.
The residents of Puerto Rico deserve an electric company that is
reliably and efficiently run, does not charge excessive rates, and is
operated with a mind toward a future that generates electricity using
clean and sustainable renewable energy. It is our intention to do all
we can to assist PREPA in achieving these goals.

______

The Chairman. With that, I now yield to the Ranking Member
designee for her opening statement, Ms. Colon.

STATEMENT OF THE HON. JENNIFFER GONZALEZ-COLON, A DELEGATE IN
CONGRESS FROM THE TERRITORY OF PUERTO RICO

Miss Gonzalez-Colon. Thank you, Mr. Chairman. In 2017,
Hurricane Maria completely destroyed the power grid, and it
took almost a year to restore its service to every citizen.
Earlier this year, a series of earthquakes in the
southwestern region of the island severely damaged and took out
the Costa Sur power plant which used to generate approximately
25 percent of the island's electricity and is still off line.
The transformation of Puerto Rico Electric Power Authority,
or PREPA as we know it, is long overdue. We need a modern,
resilient energy system that can recover quickly from natural
disasters.
We need to pursue policies to at-risk high electricity
costs that hinder economic growth including efforts to reduce
our dependence on foreign oil imports and to lower
environmental impact. And we need to improve management
practices to increase reliability and provide better services
to our customers.
I look forward to hearing from today's witnesses about the
steps PREPA and the government of Puerto Rico have pursued to
achieve these and other necessary changes.
I know that recently a contract was awarded to LUMA Energy
to manage and operate utilities transmission and distribution
systems for the next 15 years. I have long argued that private
partnership investment is crucial to transform Puerto Rico's
energy system if properly executed. So, I expect to hear more
about this agreement and their implications.
Moreover, Federal support has and will continue to be
crucial for PREPA's transformation. As Members of Congress, we
must conduct oversight on how Federal funds to rebuild and
modernize the island electrical system have been spent to date.
However, we must also ensure funding allocated in the
aftermath of Hurricane Maria is no longer delayed by
bureaucratic processes and finally reaches the island. This
includes the $1.9 billion in CDBG funds provided under the
bipartisan Budget Act of 2018 to improve the electrical power
system that are not yet there after 2 years.
I want to hear from witnesses about the status of these and
other Federal funds, including recent efforts and conversations
with HUD, FEMA, the Department of Energy, and other important
stakeholders. I will also ask what recommendations will the
panel make as how Congress can help facilitate the
modernization of Puerto Rico's energy system.
Last, I must state that we are moving in the direction of a
sustainable energy--right now, we need to be able to provide
reliable electricity to enable the recovery of Puerto Rico's
economy, but we need to ensure reliable electricity until we
get there. There is a long way to go, and we must be able to
use all resources available.
According to the U.S. Energy Information Administration for
Fiscal Year 2019, the sources of electricity in Puerto Rico
were petroleum, 40 percent; LNG, 39 percent; coal, 18 percent;
and renewables, 2.3 percent.
Industry in Puerto Rico has the potential to contribute to
our national supply chain for medical products and devices. We
also need to ensure providing our people's residential needs
for having a reliable system. And that requires a reliable
supply. We must not deny ourselves fixed line alternatives. I
look forward to testimony and questioning of witnesses.
With that, I yield back my time.
The Chairman. Thank you very much. Let me now turn to our
panel and the witnesses that have come, and like I said
earlier, I want to thank you very much for taking the time. It
is an important subject.
Given everything else that is going on and the difficulties
of being able to get together to have these kinds of oversight
hearings, I appreciate your presence and the presence of all my
colleagues that are joining us today.
Let me begin now with 5 minutes each for your oral
presentation. Anything that was submitted as your written
testimony is all made part of the record. Let me begin with Mr.
Jose Ortiz, the Executive Director of the Puerto Rico Electric
Power Authority.
Mr. Ortiz, the floor is yours.

STATEMENT OF JOSE ORTIZ, EXECUTIVE DIRECTOR, PUERTO RICO
ELECTRIC POWER AUTHORITY (PREPA)

Mr. Ortiz. Thank you, Chairman Grijalva. PREPA has made a
good deal of progress on several fronts despite the devastation
of Hurricanes Irma and Maria, the massive damage by multiple
earthquakes, and the near shutdown of the Puerto Rico economy
due to COVID-19.
The utility is better positioned and in compliance with the
requirements of PROMESA, as evidenced by the recent
certification of PREPA's 2020 Fiscal Plan by the Financial
Oversight and Management Board of Puerto Rico. Some highlights
of this potential progress toward achieving the operational
initiatives and projects are included in the certified fund.
And those are as follows: (1) the selection of an
independent T&D operator to assume responsibility for
operating, maintaining, and improving PREPA's transmission and
distribution system. That operator, LUMA Energy, is a Puerto
Rico company owned by two experienced utility sector companies,
ATCO and Quanta Services, working with the Innovative Emergency
Management for its Federal funding expertise.
Under a public-private partnership, LUMA will work to
implement the energy sector transformation required by the
bipartisan supported laws. LUMA also brings an experienced
leadership team and a comprehensive plan for the operation,
maintenance, and renewal of PREPA's modern grid system.
The completion of the work of converting the San Juan power
station to a dual field capability and commissioning of the
liquified natural gas handling facility allows PREPA to achieve
significant reductions in greenhouse gas and particulate
emissions, both providing important public health benefits.
In addition, their increased availability enhances the
security and reliability of electricity supply in a
metropolitan region. The conversion project should save PREPA
and its customers around $280 million during the 5-year term of
the contract.
Another point is the renegotiation of a power purchase and
operating agreement with EcoElectrica and of a long-term gas
supply agreement with Naturgy, approved by the FOMB, the Energy
Bureau, and granted by the Federal District Court presiding
over PREPA's PROMESA 523 proceeding. Combined both contracts
are estimated to reduce PREPA's net cost by approximately $100
million annually through September 2032.
Another point is the renegotiation of 23 purchase and
operating agreements with 7 operational and 16 new renewable
generating project developers, totaling 600 megawatts,
achieving 30 to 40 percent lower contract pricing then under
the original contract and 10 percent contract pricing discount
with the operational projects as well.
Substantial progress in the repair of PREPA's Costa Sur
generating facility after significant damages from January's
earthquake have been achieved. The 820 megawatt generating
facility unit, Unit 5, should be completed by early August
2020. The more heavily damaged Unit 6 is expected to be
operational before year end.
Development and submission of a new integrated resource
plan, which has undergone extensive technical, evidentiary, and
community hearings, is currently before the Energy Bureau for
approval. This will enable PREPA to pursue the rapid uptake of
renewable and energy storage systems while preserving options
that would permit it to procure natural gas-fired, generating
resources as well.
Still, Federal support is needed. PREPA expects to reach an
agreement with FEMA on a fixed cost estimate on all permanent
repair and reconstruction work very soon.
We have already prepared a 2-year plan which starts
addressing various individual projects, including distribution
energy resources, microgrids, and a robust system to critical
assets such as hospitals, shelters, and water services. The
target is to make Federal funding available to reconstruct a
more modern and resilient energy grid.
In conclusion, PREPA has made significant progress in
rebuilding Puerto Rico's electric system and restructuring
PREPA itself. We have undertaken these efforts with real
financial constraints during the transformation of Puerto
Rico's energy sector, a truly complex challenge.
The Federal Government support remains critical to our
success, and we continue to look forward for ways to expediate
the flow of Federal funds. Efforts to achieve the resolution of
PREPA Title III restructuring under PROMESA were temporarily
suspended earlier this year at FOMB's request given the
uncertainties COVID-19 has created for PREPA and its customers.
Thank you for the opportunity to appear before this
honorable Committee and to provide this testimony.

[The prepared statement of Mr. Ortiz follows:]
Prepared Statement of Jose F. Ortiz Vazquez, Executive Director and
Chief Executive Officer, Puerto Rico Electric Power Authority
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee, thank you for the opportunity to appear before you today to
discuss the current status and ongoing transformation of the Puerto
Rico Electric Power Authority (``PREPA'').

As the Committee knows, following Hurricane Maria, Puerto Rico
embarked on an historic effort to transform its energy system and to
reform itself. At the same time, PREPA tackled the enormous task of
restoring a severely damaged transmission and distribution system,
improving system reliability and addressing generating resource
adequacy issues. That work has continued, even as Puerto Rico and PREPA
have had to recover from massive damage caused by multiple earthquakes
and, more recently, have had to contend with the near shutdown of
Puerto Rico's economy to address the threats posed by the COVID-19
virus.

PREPA has made a good deal of progress on several fronts despite
the devastation of Hurricanes Irma and Maria, massive damage caused by
multiple earthquakes and the near shutdown of the economy due to the
COVID-19 emergency. The utility is better positioned than it has been
for many years to confront the many challenges it faces. And we have
done this in compliance with the requirements of the Puerto Rico
Oversight, Management, and Economic Stability Act (``PROMESA''), as
evidenced by the recent certification of PREPA's 2020 Fiscal Plan by
the Financial Oversight and Management Board for Puerto Rico
(``FOMB'').

During FY2020, PREPA has made substantial progress toward
achievement of the 12 operational initiatives and 27 projects included
in PREPA's certified FY2020 Fiscal Plan. Among the major milestones
PREPA has achieved over the past several months are:

renegotiation of existing power purchase and operating
agreements (``PPOAs'') with the owners of the large
EcoElectrica gas-fired generating facility and with the
developers of numerous operating and planned renewable
generation projects, reducing the cost of energy PREPA will
purchase from these suppliers;

renegotiation of a natural gas purchase and sale agreement
with Naturgy under which the EcoElectrica facility and
PREPA's Costa Sur generating plant acquire their gas
supply, achieving better pricing, more quantity flexibility
and the ability to accommodate renewable generation
additions as they occur;

the conversion of San Juan Power Plant Units 5 & 6 to
natural gas (preserving the ability to use diesel fuel),
which will yield significant emissions reductions, cost
savings and grid reliability improvements;

advancement of several customer service initiatives
(including private outsourcing and increased customer
access to e-billing platforms) that have achieved
significant reductions in customer call wait times and
improvements in PREPA's revenue collections;

the completion and filing of a revised Integrated Resource
Plan (``IRP'') that establishes an Action Plan for the
acquisition of new generation resources that will enable
PREPA to accelerate the transformation of Puerto Rico's
grid to one that is more reliable, cleaner, efficient and
sustainable; and

completion of an historic transmission and distribution
(``T&D'') operation and maintenance outsourcing process,
with the selection of a world-class consortium to assume
responsibility for operating, maintaining and renewing the
PREPA grid.

With some pride, I note that PREPA achieved these and other
significant milestones within the context of Puerto Rico's and PREPA's
bankruptcy in 2017, ongoing economic uncertainty, very limited
liquidity, a shrinking employee pool, two devastating hurricanes in
2017, earthquakes in 2019-2020, continued uncertainty regarding the
availability and timing of Federal funding commitments for grid
reconstruction and, most recently, a worldwide pandemic that has
severely affected our island's economy.
Recent PREPA Accomplishments

PREPA has achieved a great deal over the past year and even in the
past few months. I want to emphasize that much of what PREPA has done
has been intended to improve customer service, reduce costs, improve
efficiency, enhance reliability, support the legally mandated move
toward renewables, and reduce generating facility air emissions. At the
same time, PREPA has had to respond to the unexpected, including
substantial earthquake-induced damage to its largest generating
facility early this year and a major decline in demand following the
shutdown of economic activity to address the COVID-19 pandemic. It has
worked in all of this to satisfy the requirements of PROMESA Section
201(b) relating to the identification of operational improvements, and
to implement guidance provided by the FOMB as ultimately reflected in
PREPA's certified Fiscal Plan.
Among PREPA's key accomplishments for FY2020 have been:

The selection of an independent T&D operator to assume
responsibility for operating, maintaining and improving
PREPA's transmission and distribution system. That
operator, LUMA Energy LLC (``LUMA''), is a Puerto Rico
company owned by to experienced utility sector companies,
ATCO Ltd. and Quanta Services, Inc., working with
Innovative Emergency Management, Inc. for its Federal
funding expertise. LUMA has entered into a public-private
partnership with PREPA and Puerto Rico's Public Private
Partnership Authority (the ``P3 Authority'') under which it
will work to implement the energy sector transformation
required by Act 120-2018 and Act 17-2019. LUMA brings to
the task of operating, maintaining and improving the T&D
system an experienced leadership team and a comprehensive
plan for the operation and renewal of PREPA's grid system
going forward. I will defer for additional details on this
historic transaction to my fellow witness, Fermin Fontanes,
the Executive Director of the P3 Authority, who was deeply
involved in the LUMA negotiations.

The completion of the work of converting PREPA's San Juan
Power Station Units 5 and 6 to dual fuel capability and the
commissioning of the NFEnergia LLC (``NFE'') liquified
natural gas (``LNG'') handling facility. PREPA's agreement
with NFE required NFE to convert the Unit 5 and 6
combustion turbines to run on natural gas as well as diesel
and to supply natural gas through a new LNG receiving and
regasification facility adjacent to the San Juan Power
Plant in San Juan Harbor. NFE is now supplying natural gas
to Units 5 and 6, PREPA's most efficient generating
facilities. NFE can also transfer LNG through the facility
to trucks that can deliver LNG to other energy users
throughout Puerto Rico. NFE obtained all local and Federal
environmental and U.S. Coast Guard approvals required for
the construction and operation of its LNG handling facility
and the transit of LNG carriers through San Juan Harbor.
PREPA secured a modification to its air emissions permit
for San Juan Units 5 and 6 that reflects their capability
to consume natural gas.

Now that it is consuming natural gas in San Juan Units 5 and 6,
PREPA is achieving significant reductions in greenhouse gas
and particulate emissions. PREPA's ability to run these
units more economically and more of the time while reducing
air emissions offers important public health benefits. The
increased availability of the Units will enhance the
security and reliability of electricity supply in the San
Juan metropolitan region. As of the time the FOMB and the
Puerto Rico Energy Bureau approved the NFE-PREPA Fuel Sale
and Purchase Agreement, FOMB projected on the basis of
then-current market prices for natural gas and diesel that
the conversion project could save PREPA and its customers
between $180 and $280 million during the 5-year term of the
contract.

A question has arisen as to whether NFE was required to obtain
Federal Energy Regulatory Commission (``FERC'')
authorization to site, construct and operate its LNG
handling facility; that question is currently before the
FERC for resolution in response to an Order to Show Cause
FERC issued in June 2020. NFE concluded on the basis of its
analysis of prior FERC decisions and informal discussions
it held in 2017 and 2018 with FERC Staff representatives
that FERC authorization would not be required. PREPA's
independent discussions with FERC Staff on this subject in
2018 led PREPA to conclude that NFE's position was correct.
I have summarized the controversy and PREPA's position
concerning it in a letter PREPA filed with FERC on July 17,
2020, which I attach to this testimony for the Committee's
information.

Renegotiation of a Power Purchase and Operating Agreement
with EcoElectrica and of a long-term gas supply agreement
with Naturgy. Earlier this year, PREPA completed the
renegotiation of the EcoElectrica PPOA and a long-term
natural gas supply agreement with Naturgy for the supply of
natural gas both to EcoElectrica and PREPA's adjacent Costa
Sur generating facility. This was the culmination of
extensive discussions with the counterparties that started
in 2018. The FOMB and the Energy Bureau both approved
PREPA's execution of these agreements, and in June of this
year the Federal District Court presiding over PREPA's
PROMESA Title III proceeding granted PREPA's motion to
assume them. The renegotiation of the EcoElectrica PPOA and
Naturgy gas supply agreement is critical in providing a
reliable platform for efficient and more economic
electricity in Puerto Rico for the next 12 years as PREPA
launches its mandated transformation plans.

PREPA estimates that the revised EcoElectrica PPOA will generate
average customer savings of $71 million annually. PREPA
estimates that changes in the Naturgy agreement will result
in average savings in the cost of gas consumed in the Costa
Sur Facility of approximately $29 million. Combined, the
renegotiated EcoElectrica and Naturgy contracts are
expected to reduce PREPA's net costs of power and fuel by
approximately $100 million annually through September 2032.

Renegotiation of PPOAs with operational and non-
operational renewable generating project developers.
Beginning in 2010, in order to comply with Puerto Rico Act
82-2010, PREPA undertook a large-scale renewable
procurement process to increase renewable power capacity in
Puerto Rico. Over the course of several years, PREPA
entered into 64 PPOAs for over 1,000 MW of renewable
generation with average year-1 contract prices of 15-16
cents per kWh and 1-2 percent annual price escalation. As
of the beginning of FY2020, 11 of these projects were
operational and currently provide energy at an average cost
of 18 cents per kWh, after factoring in several years of
price escalation. Against the backdrop of the ongoing
bankruptcy proceedings under PROMESA, PREPA has been
working to renegotiate or cancel agreements with the
remaining non-operational renewable contract holders.
Following concerted efforts and negotiations on financial
and technical engineering matters, PREPA was able to revise
these PPOAs for the benefit of its customers.

To date, PREPA has advanced discussions and commercially agreed
to terms with developers of 16 projects, totaling
approximately 500 MW, achieving 30-40 percent lower
contract pricing than was provided under the original
contract. PREPA has also renegotiated PPOAs with most of
the operational projects to achieve a 10 percent contract
pricing discount. It has recently initiated proceedings
before the Energy Bureau for approval of the renegotiated
PPOAs and will seek Title III Court approval to reject
PPOAs covering projects that are not operational and as to
which contract renegotiation has not been successful. The
process of obtaining new and amended renewable PPOAs will
continue into FY2021.

Substantial progress in the repair of PREPA's Costa Sur
generating facility. Seismic activity that occurred between
December 28, 2019 and January 15, 2020 inflicted
significant damage on the Costa Sur power plant, an 820 MW
generating facility that has been converted to consume
natural gas. Repairs of Costa Sur Unit 5 are ongoing and
expected to be completed by early August 2020, at an
estimated cost of $25.2 million. The more heavily damaged
Costa Sur Unit 6 is in the early stages of being repaired,
and the current expectation is that these repairs could be
completed before year end 2020.

Development and submission for Puerto Rico Energy Bureau
review and approval of a new Integrated Resource Plan.
Under the PREPA enabling act, Act 57-2014 and Act 17-2019,
PREPA is required to adopt an IRP for a 20-year planning
period. The IRP is to be revised every 3 years. The
proposed IRP which PREPA submitted to the Energy Bureau on
June 7, 2019 has undergone extensive technical, evidentiary
and community hearings and is currently before the Energy
Bureau for approval.

The Proposed IRP offers a comprehensive and robust analysis of
the challenges and opportunities PREPA faces in planning
and executing on a fundamental transformation of Puerto
Rico's electric power system. The preferred resource plan
that emerged from this analysis--the Action Plan--will
guide Puerto Rico as it moves toward a future of increased
reliance on renewable sources of energy and improved energy
efficiency. The Action Plan also provides leeway to manage
variable future costs of generation and storage resources.
If approved and implemented, the Action Plan will enable
PREPA to pursue the rapid uptake of renewable and energy
storage systems while preserving options that will permit
it to procure natural gas-fired generating resources as
necessary given the pace of other resource development
efforts. The result of the implementation of the Action
Plan will be an energy system that will be able to meet
electrical demand at all times in an efficient,
environmentally responsible way.
The Proposed IRP recommends the adoption of three fundamental
changes to the Puerto Rico electric system:

-- Increasing the share of renewable generation, including
the additions of new solar PV generation, energy storage,
natural-gas-fueled generation and supply infrastructure, and
retiring or converting all existing coal-fired and heavy fuel
oil-fired generation;

-- Enhancing grid resilience, including capital investment
in the transmission and distribution system to support
establishment of minigrids and microgrids that can be separated
and independently restored and operated following grid
disturbances; and

-- Enabling customer choice, including changes to the system
that will support the incorporation of rooftop solar
photovoltaic installations and new energy efficiency and demand
response programs, allowing the customer to play a meaningful
role in Puerto Rico's electricity grid.

Critical Initiatives PREPA Is Currently Pursuing

I would also like to highlight several actions PREPA is taking to
build on its recent successes and to advance the goal of rebuilding
Puerto Rico's electric grid and achieving a sustainable energy future.
These include:

The impending launch, in conjunction with the P3
Authority, of a solicitation for proposals for needed new
generation resources, much of which we anticipate will be
renewable in compliance with Puerto Rico energy policy and
law.

Commencement of multiple grid reconstruction projects.
This year PREPA has completed a ``T&D roadmap'' that
defines transmission and distribution system reconstruction
projects that are necessary to improve the grid's
reliability and resiliency following catastrophic events.
The T&D roadmap will enable PREPA to optimize and
streamline the process for designing, developing, and
constructing T&D projects. It is intended to ensure that
the most important projects are constructed in the most
efficient way possible so that PREPA can make optimal use
of scarce resources, including anticipated FEMA funds, and
ensure accountability for the use of public funds.

In addition to its pursuit of Federal funding, PREPA is
currently engaged with its insurers to adjust its Hurricane
Maria claim and a claim arising out of the 2020 earthquake.
To date, PREPA has received $100 million in advance
funding, not including the $25 million deductible with
respect to the Hurricane Maria claim, and has requested $25
million in advances related to the earthquake claim.

Continued efforts to achieve enhanced operational
efficiencies, through procurement of new generation
capacity, implementation of generating resource economic
dispatch, enhanced vegetation management programs and T&D
infrastructure improvements. Success in these efforts will
enable PREPA to realize overall generation cost reductions.
While we are making progress on a number of these fronts,
that progress has been slowed by the need to respond to the
recent earthquakes and measures required to respond to the
COVID-19 pandemic.

A renewed effort to achieve resolution of PREPA's Title
III restructuring under PROMESA. PREPA, the FOMB, a group
of PREPA creditors and the Puerto Rico government reached
agreement last year on elements of a consensual debt
restructuring agreement and early this year developed
proposed legislation that would implement this agreement.
Efforts to obtain passage for this legislation and to
complete the process of Title III restructuring were
suspended earlier this year at the FOMB's request given the
uncertainties which the COVID-19 pandemic and response
measures have created for PREPA and its customers. PREPA is
hopeful that a renewed effort to achieve a resolution of
the Title III proceeding can be mounted early in 2021.

Federal Support Is Still Needed

As a result of the 2017 hurricanes, PREPA qualified for Federal
funding support. PREPA, the Federal Emergency Management Agency
(``FEMA'') and the Central Office of Recovery, Reconstruction, and
Resiliency (``COR3'') have been working to define the universe of
necessary T&D reconstruction projects, estimate costs, and determine
the path toward making Federal funding available to reconstruct the
energy grid.

PREPA's main sources of Federal funding are: (1) FEMA's Public
Assistance Program; and (2) the Federal Department of Housing and Urban
Development's (``HUD'') Community Development Block Grant-Disaster
Recovery (``CDBG-DR'') Program. Funds may also be available through
HUD's Community Development Block Grant Mitigation (``CBDG-MIT'')
program.

PREPA remains eligible for FEMA disaster relief funding and for
funding of permanent works. To date, a total of $20.2 billion in CDBG-
DR and CDBG-MIT funding has been apportioned for Puerto Rico, including
approximately $1.9 billion specifically designated for energy-related
projects. PREPA is required to meet a 10 percent cost share requirement
for its FEMA-funded permanent work projects, to which it plans to apply
CDBG-DR and CDBG-MIT program funds, as they become available. Access to
CDBG funds, however, is subject to various HUD actions. The current
Fiscal Plan assumes CDBG funds will cover the cost share required for
Federal funding. If these funds are not available, PREPA will need to
find savings elsewhere or will have to seek to adjust rates to cover
the cost share obligation.

Through April 2020, PREPA had received $1.42 billion in FEMA public
assistance funds. Additionally, PREPA expects to receive a portion of
the $20.2 billion in post-hurricane assistance appropriated to Puerto
Rico through HUD-approved CDBG-DR and CDBG-MIT grants to be used for
matching or cost share purposes.

PREPA has been actively working with FEMA on a cost estimate since
2018 in a collaborative effort to reach estimates for each asset
classification. PREPA expects to reach an agreement with FEMA on a
fixed cost estimate for all permanent repair and reconstruction work
very soon. A FEMA team has worked directly with PREPA's Disaster
Funding Management Office (``DFMO'') project formulation team to
finalize all cost estimates. At FEMA's request, PREPA's DFMO prepared a
2-year plan which presents an initial estimate addressing various
individual projects, rolled up by asset classification, that may be
prioritized by PREPA. The 2-year cumulative cost included in the
estimate totals $1.4 billion across five asset categories (T&D,
distribution, Distributed Energy Resources and microgrids, technology,
and other).

The successful transformation of Puerto Rico's energy system will
require significant capital investment over the next 10 years. Federal
funding will play a critical role in mitigating the burden of the cost
of these investments on ratepayers. With adequate Federal funding, the
overall impact on energy rates would be minimal. If adequate Federal
funds were not to be made available, Puerto Rico would have to choose
between increasing energy rates to meet unfunded capital investment
needs, or forgoing the implementation of the grid repairs and system
modernization called for in the IRP, PREPA's T&D roadmap, and PREPA and
Commonwealth Fiscal Plans. Moreover, a lack of Federal funding would
have serious consequences for the reliability and resiliency of Puerto
Rico's electric system and would impede the achievement of PREPA's
long-term energy vision. Federal funding support is also critical for
delivering on system improvements necessary for resiliency and
environmental compliance, including deployment of microgrids,
distributed generation, and renewable resources.
Conclusion

PREPA has made significant progress in rebuilding Puerto Rico's
electric system and restructuring PREPA itself, with the support and
cooperation of AAFAF, the P3 Authority, COR3, the FOMB and the Energy
Bureau. PREPA has undertaken these efforts within real financial
constraints during the transformation of Puerto Rico's energy sector--a
truly complex challenge. The Federal Government's support remains
critical to our success, and we continue to look for ways to expedite
the flow of Federal funds.

Thank you for the opportunity to appear before this Honorable
Committee and to provide this testimony.

______

SUMMARY STATEMENT OF JOSE F. ORTIZ VAZQUEZ
Chairman Grijalva, Ranking Member Bishop, and members of the
Committee, thank you for the opportunity to appear before you today to
discuss the current status and ongoing transformation of the Puerto
Rico Electric Power Authority (``PREPA'').
PREPA has made a good deal of progress on several fronts despite
the devastation of Hurricanes Irma and Maria, massive damage by
multiple earthquakes and the near shutdown of the Puerto Rico economy
due to the COVID-19 pandemic. The utility is better positioned than it
has been for many years to confront the many challenges it faces. And
we have done this in compliance with the requirements of the Puerto
Rico Oversight, Management, and Economic Stability Act (``PROMESA''),
as evidenced by the recent certification of PREPA's 2020 Fiscal Plan by
the Financial Oversight and Management Board for Puerto Rico
(``FOMB'').
recent prepa accomplishments
During FY2020, PREPA has made substantial progress toward
achievement of the 12 operational initiatives and 27 projects included
in the certified FY2020 PREPA Fiscal Plan. Among PREPA's key
accomplishments are:

The selection of an independent T&D operator to assume
responsibility for operating, maintaining and improving
PREPA's transmission and distribution system. That
operator, LUMA Energy LLC (``LUMA''), is a Puerto Rico
company owned by two experienced utility sector companies,
ATCO Ltd. and Quanta Services, Inc., working with
Innovative Emergency Management, Inc. for its Federal
funding expertise. LUMA has entered into a public-private
partnership with PREPA and Puerto Rico's Public Private
Partnership Authority (the ``P3 Authority'') under which it
will work to implement the energy sector transformation
required by Act 120-2018 and Act 17-2019. LUMA brings an
experienced leadership team and a comprehensive plan for
the operation, maintenance and renewal of PREPA's grid
system. I expect that you will hear more on this from my
fellow witness, Fermin Fontanes, the Executive Director of
the P3 Authority, who was deeply involved in the LUMA
negotiations.

Now that it is consuming natural gas in San Juan Units 5 and 6,
PREPA is achieving significant reductions in greenhouse gas
and particulate emissions. The ability to run these units
more economically and more of the time while reducing air
emissions provides important public health benefits. In
addition, their increased availability enhances the
security and reliability of electricity supply in the San
Juan metropolitan region. The conversion project should
save PREPA and its customers between $180 and $280 million
during the 5-year term of the contract.

Renegotiation of a power purchase and operating agreement
with EcoElectrica and of a long-term gas supply agreement
with Naturgy. Earlier this year, PREPA completed the
renegotiation of its power purchase agreement with
EcoElectrica. At the same time it renegotiated a long-term
agreement with Naturgy for the supply of natural gas both
to EcoElectrica and PREPA's adjacent Costa Sur generating
facility. The FOMB and the Energy Bureau both approved
PREPA's execution of these agreements, and last month the
Federal District Court presiding over PREPA's PROMESA Title
III proceeding granted PREPA's motion to assume them. PREPA
estimates that the revised EcoElectrica agreement will
generate average customer savings of $71 million annually.
PREPA expects that savings in the cost of gas consumed in
the Costa Sur Facility will amount to approximately $29
million per year. Combined, the renegotiated EcoElectrica
and Naturgy contracts are estimated to reduce PREPA's net
costs of power and fuel by approximately $100 million
annually through September 2032.

Renegotiation of 23 power purchase and operating
agreements with operational and non-operational renewable
generating project developers. To date, PREPA has advanced
discussions and commercially agreed to terms with
developers of 16 renewable generation projects, totaling
approximately 600 MW, achieving 30-40 percent lower
contract pricing than was provided under the original
contract. PREPA has also renegotiated power purchase
agreements with most of the operational renewable projects
to achieve a 10 percent contract pricing discount. PREPA
has recently initiated proceedings before the Energy Bureau
for approval of the renegotiated agreements.

Substantial progress in the repair of PREPA's Costa Sur
generating facility. Seismic activity between December 28,
2019 and January 15, 2020 inflicted significant damage on
the Costa Sur power plant, an 820 MW generating facility
that has been converted to consume natural gas. Repairs of
Costa Sur Unit 5 are ongoing and should be completed by
early August 2020, at an estimated cost of $25.2 million.
The more heavily damaged Costa Sur Unit 6 is in the early
stages of being repaired, and the current expectation is
that these repairs could be completed before year end 2020.

Development and submission of a new Integrated Resource
Plan (``IRP''). PREPA is required by law to adopt an IRP
for a 20-year planning period. PREPA's proposed IRP, which
it submitted on June 7, 2019, has undergone extensive
technical, evidentiary and community hearings and is
currently before the Energy Bureau for approval. If
approved and implemented, the IRP Action Plan will enable
PREPA to pursue the rapid uptake of renewable and energy
storage systems while preserving options that will permit
it to procure natural gas-fired generating resources as
necessary given the pace of other resource development
efforts. The result will be an energy system that will be
able to meet electrical demand in an efficient,
environmentally responsible way.

critical initiatives prepa is pursuing
PREPA is taking several steps now to build on its recent successes.
These include:

The impending launch of a solicitation for proposals for
new generation resources, which PREPA and the P3 Authority
will handle jointly. We expect that this solicitation will
yield proposals for the addition of substantial amounts of
renewable generation in compliance with Puerto Rico energy
policy.

Commencement of multiple grid reconstruction projects.
This year PREPA has completed a ``T&D roadmap'' that
defines transmission and distribution system reconstruction
projects that are necessary to improve the grid's
reliability and resiliency following catastrophic events.
PREPA is currently engaged with its insurers to adjust its
Hurricane Maria claim and a claim arising out of the 2020
earthquakes. To date, PREPA has received $100 million in
advance funding for system reconstruction.

Continued efforts to achieve enhanced operational
efficiencies. These efforts include procurement of new
generation capacity, implementation of generating resource
economic dispatch, enhanced vegetation management programs
and T&D infrastructure improvements.

A renewed effort to achieve resolution of PREPA's Title
III restructuring under PROMESA. Efforts to obtain passage
of legislation and to complete the process of Title III
restructuring were suspended earlier this year at the
FOMB's request given the uncertainties COVID-19 has created
for PREPA and its customers. PREPA is hopeful that a
renewed effort to achieve resolution of the Title III
proceeding can be mounted early in 2021.

federal support is still needed
As a result of the 2017 hurricanes, PREPA qualified for Federal
funding support. PREPA, the Federal Emergency Management Agency
(``FEMA'') and the Central Office of Recovery, Reconstruction, and
Resiliency (``COR3'') have been working to define the universe of
necessary T&D reconstruction projects, estimate costs, and determine
the path toward making Federal funding available to reconstruct the
energy grid.
PREPA expects to reach an agreement with FEMA on a fixed cost
estimate for all permanent repair and reconstruction work very soon.
PREPA has been actively working with FEMA on a cost estimate since
2018. A FEMA team has recently been working directly with PREPA's
Disaster Funding Management Office project formulation team to finalize
all cost estimates. At FEMA's request, this Office prepared a 2-year
plan which presents an initial estimate addressing various individual
projects, rolled up by asset classification, that may be prioritized by
PREPA. The estimated 2-year cumulative cost totals $1.4 billion across
five asset categories (T&D, distribution, Distributed Energy Resources
and microgrids, technology, and other.) Federal funding support is also
critical for delivering on system improvements necessary for resiliency
and environmental compliance.
conclusion
PREPA has made significant progress in rebuilding Puerto Rico's
electric system and restructuring PREPA itself, with the support and
cooperation of AAFAF, the P3 Authority, COR3, the FOMB and the Energy
Bureau. PREPA has undertaken these efforts within real financial
constraints during the transformation of Puerto Rico's energy sector--a
truly complex challenge. The Federal Government's support remains
critical to our success, and we continue to look for ways to expedite
the flow of Federal funds.

Thank you for the opportunity to appear before this Honorable
Committee and to provide this testimony.

______

Questions Submitted for the Record to Mr. Jose Ortiz

Government of Puerto Rico
Puerto Rico Electric Power Authority

September 1, 2020

Hon. Raul Grijalva, Chairman,
House Committee on Natural Resources,
1324 Longworth House Office Building,
Washington, DC 20515.

Re: Committee on Natural Resources Hearing on The Transformation of the
Puerto Rico Electric Power Authority held July 23, 2020--
PREPA's Responses to Committee Member Questions

Dear Chairman Grijalva:

On behalf of the Puerto Rico Electric Power Authority (``PREPA''),
I write in my capacity as Interim Executive Director to respond to
questions directed to my predecessor, Jose Ortiz, following up on his
testimony before the House Committee on Natural Resources on The
Transformation of the Puerto Rico Electric Power Authority on July 23,
2020. Those questions included several asked of Mr. Ortiz during the
hearing as well as questions which you and members of the Committee
included in your letter to Mr. Ortiz of August 6, 2020.

In the following pages I summarize or reproduce each of the
questions directed to Mr. Ortiz. I then offer PREPA's response. Please
note that several of the questions directed to Mr. Ortiz inquire about
matters that are principally the responsibility of the Puerto Rico
Public-Private Partnerships Authority (the ``P3 Authority''); as to
these questions I defer to Fermin Fontanes Gomez, the P3 Authority's
Executive Director, whose separate responses are provided as an
Addendum to this letter.
Questions Asked to Mr. Ortiz During the July 23, 2020 Hearing

Question 1. Resident Commissioner Gonzalez asked PREPA to submit a
list detailing all Federal funds appropriated and utilized by PREPA to
date and a list of future or pending Federal funds still to be
utilized/implemented and those funds' uses. She asked for similar
information concerning the $1.9 billion in CDBG-DR funds.

Answer. We provide below the requested list and follow it with
additional explanation.

----------------------------------------------------------------------------------------------------------------
Federal Funding Source Appropriated/Obligated Funded Expenses Incurred
----------------------------------------------------------------------------------------------------------------
FEMA Public Assistance (`PA') Emergency $2,078.6M $1,422.8M $2,372.0M
Work
----------------------------------------------------------------------------------------------------------------
FEMA Public Assistance (`PA') 428 $0 $0 $0
Permanent Work
----------------------------------------------------------------------------------------------------------------
CDBG-DR $1.9M $0 $0
----------------------------------------------------------------------------------------------------------------
404 HMGP $0 $0 $0
----------------------------------------------------------------------------------------------------------------

Federal Emergency Management Agency (``FEMA'') Public Assistance
(`PA') Emergency Work--To date, FEMA has obligated $2,078.6M in Federal
funding, of which PREPA has received $1,422.8M. There are various
administrative adjustments FEMA has proposed to certain emergency
Project Worksheets (``PWs''). Once the adjustments are processed, PREPA
will be able to request the additional funding.

FEMA Public Assistance (`PA') 428 Permanent Work--PREPA and FEMA
have tentatively agreed to a fixed cost estimate for permanent work
repairs which is continuing to move through the FEMA required approval
processes. PREPA is working to identify projects to commence in the
first 2 years, scheduling collaboration meetings with FEMA, the Central
Recovery and Reconstruction Office of Puerto Rico (``COR3'') and LUMA
Energy, LLC (``LUMA'') to initiate design work required to develop
Requests for Proposals (``RFPs'') and to draw down Federal funding.

CDBG-DR--As of the date of this communication the Puerto Rico
Housing Department is still waiting for the U.S. Department of Housing
and Urban Development to publish the program guidance and thus
determine PREPA's project eligibility. PREPA expects to use Community
Development Block Grant Disaster Recovery (``CDBG-DR'') funds, as and
to the extent they become available, to satisfy its obligation to fund
10% of the cost of permanent work projects funded by FEMA. PREPA's
current Fiscal Plan assumes that CBDG-DR funds will cover all of this
cost share requirement. PREPA does not anticipate redirecting CBDG-DR
funds from grid reconstruction support to the financing of individual
consumer-owned rooftop solar installations, which would not qualify as
grid reconstruction activities for which FEMA or HUD CDBG-DR funds
could be committed consistent with applicable law and regulations.

404 HMGP--PREPA is actively working with COR3 on the project
formulation for various hazard mitigation projects. FEMA Hazard
Mitigation Grant Program (``HMGP'') projects totaling $1.5 billion in
the aggregate have been submitted and are currently awaiting FEMA's
final determination. A summary of these projects submitted appears
below.

El Yunque Line $35,000,000
Undergrounding
Early Warning System 100,000,000
Palo Seco Generation 571,432,000
Plant
Gas Turbines 280,822,500
Patillas Dam 558,530,000
-------------------
Total $1,545,784,500

Question 2. Rep. Cox asked PREPA to submit a worksheet outlining
all PREPA contractors that have not been paid to date and a schedule of
when they can expect their payments.

Answer. The Excel files accompanying this letter provide the
requested information first at a summary level and then at a detailed
level.

Question 3. Rep. Velazquez questioned Mr. Ortiz over the contract
PREPA awarded to New Fortress Energy to build a natural gas project in
San Juan. She criticized PREPA for failing to identify potential
conflicts of interest held by specific consultants to the PREPA board
who, she stated, are also consultants to the SoftBank Group, which
acquired ownership of New Fortress Energy affiliate company, Fortress
Investment Group, in 2017. Rep. Velazquez asked Mr. Ortiz if the
relationship among New Fortress, McKinsey, and SoftBank is appropriate,
and then submitted documents said to describe the alleged conflicts of
interest for the record. She requested that Mr. Ortiz be provided the
documents and be directed to respond to the Committee in writing, which
the presiding Chairman, Rep. Tonka, ordered.

Answer. PREPA recently obtained from this Committee's Staff the
documents which Rep. Velazquez introduced into the record, and which
she apparently had in mind when questioning Mr. Ortiz during the July
23, 2020 hearing on The Transformation of the Puerto Rico Electric
Power Authority. These documents include:

a pleading entitled ``Sixth Interim Fee Application of
McKinsey & Company, Inc. Washington D.C. as Consulting
Services Provider to the Financial Oversight and Management
Board for Puerto Rico, as Representative of Debtor, Puerto
Rico Electric Power Authority (`PREPA') for the Period from
February 1, 2019 through May 31, 2019,'' filed on July 15,
2019 in the United States District Court for the District
of Puerto Rico in the PROMESA Title III proceeding styled
In re: The Financial Oversight and Management Board for
Puerto Rico, as Representative of Puerto Rico Electric
Power Authority (``PREPA''), Debtor, Case No. 17-04780
(LTS), including a Summary Sheet and supporting
documentation (the ``McKinsey Fee Application'');

a pleading entitled ``Declaration of Dmitry Krivin in
Support of WLB Debtors' Application for Entry of an Order
(I) Authorizing the Retention and Employment of McKinsey
Recovery & Transformation Services U.S., LLC and Certain of
its Affiliates as Performance Improvement Advisors for the
WLB Debtors Effective Nunc pro Tunc to the Petition Date
and (II) Granting Related Relief,'' filed on July 3, 2019
in the United States Bankruptcy Court for the Southern
District of Texas, Houston Division, in the matter styled
In re: Westmoreland Coal Company, et al., Reorganized
Debtors, Case No. 18-35672 (DRJ), including Exhibits and
Schedules;

a pleading entitled ``Declaration of Dmitry Krivin in
Support of the Debtors' Application Pursuant to 11 U.S.C.
Sec. Sec. 363(b) and 105(a) for Authority to Enter Into,
Perform Under and Make Payments Under Certain Consulting
Contracts with McKinsey & Company Inc. United States,''
filed on February 26, 2020 in the United States Bankruptcy
Court for the Northern District of California, San
Francisco Division, in the matter styled In re: PG&E
Corporation and Pacific Gas and Electric Company, Debtors,
Bankruptcy Case No. 19-30088 (DM), including disclosure
schedule;

a link to a Fortress Investment Group LLC Web page which
presents a description of New Fortress Energy; and

a link to a Fortress Investment Group LLC Web page which
contains a press release entitled ``SoftBank Group
Completes Acquisition of Fortress Investment Group'' dated
December 27, 2017.

The McKinsey Fee Application sought an order of the PROMESA Title
III Court allowing for payment for professional services performed by
McKinsey & Company, Inc. Washington D.C. (``McKinsey''), as consulting
services provider to the Financial Oversight and Management Board for
Puerto Rico (``FOMB''), for the period from February 1, 2019 through
May 31, 2019. Those services were provided to the FOMB pursuant to the
``Title III Support for PREPA'' Scope of Work set forth in the July
2017 Consulting Agreement between McKinsey Washington and the FOMB, as
amended. During the February-May 2019 period, according to the McKinsey
Fee Application, McKinsey's work included development of PREPA's Fiscal
Plan for eventual FOMB approval, development of submissions related to
the Title III proceedings for FOMB approval, oversight of the
implementation of measures for PREPA's transformation and analysis on
behalf of the FOMB of financial and operational reports. McKinsey Fee
Application at pp. 8-9. It also included, in February 2019, an analysis
on behalf of the FOMB of New Fortress Energy's contract with PREPA to
supply natural gas to San Juan Units 5 & 6 and to convert the facility
to dual fuel capability, for the purpose of ``ensuring that this
contract was aligned with the Fiscal Plan and did not pose a material
risk in achieving its goals.'' Id. at p. 9.
The two other pleadings include disclosure schedules showing that
various affiliates of the SoftBank Group have been clients of various
McKinsey & Company entities. The two links to Fortress Investment Group
Web pages show that New Fortress Energy is owned in part by Fortress
Investment Group and that in December 2017 SoftBank Group Corp.
completed the previously announced acquisition of Fortress Investment
Group LLC.

During the July 23 hearing, Rep. Velazquez criticized PREPA for
failing to identify what she characterized as potential conflicts of
interest involving entities she described as consultants to PREPA
which, she asserted, are also consultants to the SoftBank Group, owner
of New Fortress Energy affiliate company, Fortress Investment Group. I
respectfully submit that this criticism of PREPA is unfounded, for the
following reasons:

First, McKinsey's professional services relationship is not with
PREPA, but rather with the FOMB. The FOMB engaged McKinsey in July 2017
to advise it on various Title III matters involving PREPA. PREPA had no
participation in and was not consulted in the process through which
McKinsey was selected as advisor to FOMB, PREPA did not engage
McKinsey, and PREPA therefore had no role to play in identifying and
evaluating any conflicts of interest McKinsey may have had. The
Consulting Agreement between McKinsey and the FOMB (attached to the
McKinsey Fee Application) identifies the FOMB as the ``Client;'' the
Second Amended Scope of Work for Commonwealth Title III Support states
that McKinsey's role would be to ``advise the FOMB,'' ``work alongside
the FOMB,'' ``coordinat[e] with other FOMB advisors,'' ``[p]erform
scenario analyses as requested by FOMB'' and ``support FOMB counsel.''
McKinsey Fee Application, Exhibit B, Consulting Agreement Second
Amended, Attachment 1. McKinsey may provide advice and analysis
relating to matters involving PREPA, but its client is the FOMB, and it
is therefore the FOMB, not PREPA, that bears responsibility for
identifying and evaluating conflicts of interest involving McKinsey.

Second, McKinsey personnel were not involved in the processes by
which PREPA solicited the proposals that resulted in its selection of
New Fortress' proposal to supply natural gas to San Juan Units 5 & 6,
nor were any McKinsey personnel involved in the negotiations between
PREPA and New Fortress representatives that resulted in the Fuel Sale
and Purchase Agreement which was ultimately executed. As indicated
above, McKinsey personnel analyzed the completed PREPA-New Fortress
agreement on behalf of the FOMB when PREPA sought the FOMB's approval,
but that analysis and the eventual recommendation that the FOMB approve
the agreement did not lead to any changes to any of the agreement's
terms. That is, McKinsey's involvement as an advisor to the FOMB did
not influence either PREPA's selection of New Fortress Energy or the
commercial terms to which PREPA and New Fortress Energy agreed.
Therefore, any relationships McKinsey may have had or may today have
with entities affiliated indirectly with New Fortress Energy had no
bearing on the PREPA-New Fortress Energy agreement.

Finally, I want to state for the record that neither PREPA's
selection of New Fortress Energy for the role of natural gas supplier
to San Juan Units 5 & 6 nor PREPA's negotiation of the terms of the New
Fortress Energy Fuel Sale and Purchase Agreement were improperly
influenced. PREPA followed a transparent process in selecting New
Fortress Energy, as was confirmed on administrative review of that
process and its results. The New Fortress Energy agreement was approved
as being consistent with the Fiscal Plan by the FOMB and as being in
the public interest by the Puerto Rico Energy Bureau. No conflicts of
interest affected the process or its outcome. PREPA maintains its
position that the New Fortress Energy agreement, the conversion of San
Juan Units 5 & 6 to dual fuel capability and the ability to run San
Juan Units 5 & 6 on natural gas will bring substantial benefits to the
PREPA system and Puerto Rico electric consumers.

Questions Submitted to Mr. Ortiz after the Hearing
Questions Submitted by Chair Grijalva

Question 1. The U.S. Energy Information Administration estimates
that--as of November 2019--renewables supplied only 2.3% of Puerto
Rico's energy.

1a. Why does the number continue to be so low?

Answer. PREPA has sought for many years to increase the amount of
renewable generating capacity available to serve Puerto Rico's
electricity requirements. From 2009 to 2012, PREPA made significant
efforts to support renewable energy project development, primarily
through solicitations for third party development of renewable
resources. These efforts achieved modest success, in the sense that
PREPA executed over sixty (60) long-term power purchase and operating
agreements (``PPOAs'') with renewable energy project developers
(primarily developers of solar photovoltaic (``solar PV'') generating
facilities, but including some wind and landfill generation projects).
Many of these projects did not proceed past the contract execution
phase into active development and, of these, only a handful were
ultimately developed, financed, constructed and placed into commercial
operation. Only eleven (11) renewable generation projects are currently
operational and sell energy and/or Renewable Energy Certificates to
PREPA.\1\
---------------------------------------------------------------------------
\1\ Hurricane Maria destroyed one renewable generation project, the
Punta Lima Wind Farm. PREPA has ongoing negotiations relating to the
reconstruction of this 26 MW project.
---------------------------------------------------------------------------
That so few developers were successful in advancing renewable
generation projects for which PREPA executed contracts is the reason
why renewable resources currently supply only a small percentage of the
electric energy produced and consumed in Puerto Rico. A number of
factors contributed to the stalling of many renewables projects,
including (i) the difficulties projects encountered in their efforts to
obtain financing due to PREPA's lack of credit and bankruptcy, (ii)
multiple rounds of renegotiations necessitated by declining solar
project costs and the need to reduce costs that would put upward
pressure on PREPA's rates, and (iii) the general challenges of
developing major projects in Puerto Rico, including the disruptive
impacts of natural disasters, permitting issues, and high costs. It
should also be noted that most renewables developers had not developed
projects in Puerto Rico before and needed to surmount a steep learning
curve regarding local challenges.
In 2019, PREPA management reinvigorated efforts to integrate
renewable energy into the grid, while aiming to align PREPA's finances
with the objectives of PREPA's Fiscal Plan and reduce costs borne by
Puerto Rico electricity consumers. As part of these efforts, PREPA
determined that it would be necessary to renegotiate nine (9) of the
eleven (11) PPOAs with operating renewables projects.\2\ PREPA recently
reached commercial agreement with six (6) of these counterparties to
amend PPOAs covering operating renewable generation facilities
amounting to more than 260 MW of renewable capacity. The renegotiated
PPOAs, if executed and performed, would deliver (i) price reductions in
excess of 10%, which would produce approximately $200 million in
savings (non-discounted) over the remaining lives of the amended
agreements, and (ii) approximately 30 MW of new renewable generation
capacity to the Puerto Rico grid.
---------------------------------------------------------------------------
\2\ PREPA management determined that the two (2) landfill gas
projects satisfied its pricing requirements and accordingly those
projects' PPOAs did not need to be renegotiated.
---------------------------------------------------------------------------
Of the remaining renewable projects covered by executed PPOAs,
PREPA entered into negotiations in early 2019 relating to sixteen (16)
(representing over 590 MW of new renewable generation), which PREPA or
other government agencies had generally determined to be in more
advanced stages of development than others. The results of these
negotiations were revised PPOAs reflecting lower pricing, changes in
the allocation of responsibility for interconnection costs and enhanced
clarity regarding technical requirements. These revised PPOAs require
approval from both the Energy Bureau and the FOMB. Anticipating the
need for these approvals, PREPA took steps periodically to keep the
Energy Bureau and the FOMB abreast of its renegotiation efforts,
project pricing and the quantity of renewable capacity involved. In
late 2019, as negotiations progressed, PREPA's Board of Directors
independently engaged New Energy Partners (``NEP''), global experts in
the development of renewable power purchase agreements, to study the
pricing levels on which the negotiation efforts were settling. NEP
found that the final pricing, which was one half cent below a guideline
price the FOMB had at one point identified, provided both reasonable
returns to the developers and savings to the ratepayers of Puerto Rico.
By letter dated August 17, 2020, the FOMB informed PREPA that it
would not accept the price and other terms to which PREPA and its
counterparties had agreed as to 75% of the capacity that would be
furnished by the renegotiated renewables projects. As of today, the
FOMB has authorized PREPA to enter into renegotiated PPOAs amounting in
the aggregate to no more than 150 MW of capacity.
The Energy Bureau, for its part, has proceeded with its own
analysis of the renegotiated PPOAs (approaching each agreement
individually rather than as a group). As of August 30, 2020, the Energy
Bureau has come to a consistent resolution on each of the seven (7)
PPOAs it has considered, approving in substance all of the PPOAs it has
reviewed to date. As of this writing, PPOAs covering in the aggregate
268.5 MW of renewable generating capacity have received Energy Bureau
sign-off.
PREPA continues to seek clarity from the FOMB and the Energy Bureau
regarding the path it should take going forward in renegotiating and
ultimately executing renewable project PPOAs. The balance of the
projects having executed PPOAs have not made material progress in their
development and/or have not been able to reach agreement with PREPA on
price reductions on terms comparable to those agreed with the group of
projects mentioned above. Importantly, all of these projects have
contracts that include pricing terms that would impose an unnecessary
financial burden on the ratepayers of Puerto Rico. PREPA has recently
terminated some of these projects' PPOAs and has filed to reject these
agreements in its ongoing restructuring proceeding being conducted
under Title III of the PROMESA law. With these projects having been
addressed as I have described, PREPA is now in a better position to
conduct, and has commenced preparation of, a new request for proposals
(``RFP'') for the development of new renewable generation resources
that would essentially replace the projects that have not proceeded
with new, competitively priced projects.\3\
---------------------------------------------------------------------------
\3\ Please note that PREPA does not intend to preclude any of the
developers of rejected/terminated projects from bidding into future
RFPs.
---------------------------------------------------------------------------
1b. Can you provide an update about PREPA's current numbers?

Answer. The amount of existing operational solar PV capacity under
contract to PREPA at the time PREPA commenced its PPOA renegotiation
efforts was approximately 150 MW. PREPA has negotiated amendments to
PPOAs covering these projects that, if implemented, would result in the
expansion of the capacity they can supply by approximately 30 MW. An
additional 95 MW is available from an operating wind generation
project, but its actual output is limited by the need to comply with
applicable Minimum Technical Requirements to 75 MW. A total of 4.8 MW
of capacity is available from landfill gas generation facilities.
Currently, operational renewable generation projects under contract
to PREPA amount to total of slightly more than 250 MW of available
capacity.

1c. Please provide an explanation of how PREPA plans to meet the
renewable energy goals required by Act 17-2019.

Answer. PREPA faces a number of challenges as it strives to meet
the renewable energy portfolio requirements of the Puerto Rico Energy
Public Policy Act (Act 17-2019) (``Act 17''). That law requires that
40% of the generation required to satisfy PREPA's requirements will
come from renewable sources by 2025.
In the draft Integrated Resource Plan (``IRP'') which PREPA
submitted to the Puerto Rico Energy Bureau (``PREB''), PREPA proposed
the addition of at least 2,000 MW of solar PV to meet the Act 17-2019
RPS mandate in all scenarios. Of that amount, PREPA planned to procure
up to 1800 MW of solar PV in the first 5 years of the plan (2019 to
2023). Puerto Rico Integrated Resource Plan 2018-2019, PREB Case No.
CEPR-AP-2018-0001 (submitted June 7, 2019), Main Report at Section
10.1.1. Under the proposed IRP, 300 MW of new solar projects would be
added in 2020, and an additional 780 MW would be added in 2021. The
proposed IRP envisioned that PREPA would maximize the amount of solar
PV installed in the first 4 years of the plan (2019 to 2022) (IRP Main
Report at Section 1.2.1).
PREPA's proposed IRP envisioned the addition of as much solar PV as
practical as quickly as PREPA considered possible. In its August 24,
2020 Final Resolution and Order on PREPA's Integrated Resource Plan
issued in Case No. CEPR-AP-2018-0001, the Energy Bureau has rejected
PREPA's Preferred Resource Plan and directed PREPA to pursue a Modified
Action Plan that would result in the installation of significantly
greater amounts of solar photovoltaic generation and battery energy
storage resources. Final Resolution and Order on PREPA's Integrated
Resource Plan, In re Review of the Puerto Rico Electric Power Authority
Integrated Resource Plan, Case No. CEPR-AP-2018-0001 (Aug. 24, 2020) at
Sec. Sec. 18, 94-98, 836-837, 847-855. The Energy Bureau has found that
``maximizing the rate of adoption of solar PV and battery storage
technology is clearly indicated from the modeling results of the
Proposed IRP,'' and has ordered PREPA to pursue a Modified Action Plan
that is intended to maximize the rate at which solar PV and battery
storage will be installed in Puerto Rico. Id. at Sec. 855.
Assuming it can come to some form of accommodation with the FOMB on
the quantity of renewables it should seek to procure, PREPA anticipates
moving forward in collaboration with the P3 Authority with multiple
RFPs seeking an initial tranche of solar PV capacity promptly following
PREPA's receipt of Energy Bureau approval to proceed.

Question 2. Why is PREPA binding public funds in long-term natural
gas projects, when the Integrated Resources Plan has not been approved
by the Puerto Rico Energy Bureau (PREB), and Act 17-2019 requires
reaching a minimum of 40% renewable energy integration by 2025; 60% by
2040; and 100% by 2050?

Answer. PREPA assumes that the ``long-term natural gas projects''
referenced in the question include the recently completed conversion of
San Juan Power Plant Units 5 & 6 to dual fuel (natural gas and diesel)
capability, the Amended and Restated Natural Gas Sale and Purchase
Agreement, dated as of March 23, 2020, with Gas Natural
Aprovisionamientos SDG, S.A. (``Naturgy''), under which PREPA will
continue to procure natural gas supplies to fuel its Costa Sur
generating facility and the adjacent EcoElectrica L.P. cogeneration
facility, and the Amended and Restated Power Purchase and Operating
Agreement, dated as of March 27, 2020, with EcoElectrica, under which
PREPA will continue to procure generating capacity from EcoElectrica.
Each of these generating facilities currently supplies capacity and
energy to PREPA, and PREPA relies on them (since they are among the
most efficient and lowest cost generating resources available to PREPA)
to satisfy Puerto Rico's electric demand day in and day out.
In converting San Juan Units 5 & 6 so that they may consume natural
gas, PREPA has been able to achieve significant air emissions
reductions relative to operation of those units on diesel and, with
these emissions reductions, has positioned itself to make greater use
of the two newest and most efficient baseload generating facilities in
PREPA's fleet. As Mr. Ortiz noted in his testimony before this
Committee, PREPA's ability to run these units more economically and
more of the time while reducing air emissions offers important public
health benefits. In addition, the increased availability of San Juan
Units 5 & 6 will materially enhance the security and reliability of
electricity supply in the San Juan metropolitan region. PREPA
anticipates achieving significant savings from the use of natural gas
in place of diesel, as Mr. Ortiz has stated. On the basis of then-
current market prices for natural gas and diesel, the Financial
Oversight and Management Board for Puerto Rico has estimated that the
San Juan 5 & 6 conversion project could save PREPA and its customers
between $180 and $280 million during the 5-year term of the conversion
and natural gas supply contract.
By entering into the amended and restated Naturgy and EcoElectrica
agreements, PREPA addressed the impending expiration of an existing
fuel sale and purchase agreement supporting operation of Costa Sur
Units 5 and 6 and of a PPOA with EcoElectrica, the second-largest
independent supplier of power to PREPA. As Mr. Ortiz testified, the
renegotiation of the EcoElectrica PPOA and Naturgy gas supply agreement
is critical in providing reliable and efficient sources of electricity
in Puerto Rico for the next 12 years. The renegotiated EcoElectrica and
Naturgy agreements will generate significant customer savings--on the
order of $100 million annually through 2032.
I should emphasize that given the mix of generating resources
currently available to it, PREPA must continue to call upon San Juan
Units 5 & 6, the EcoElectrica facility and the Costa Sur generating
facility to meet Puerto Rico's electricity requirements. It will need
to do this for several years while renewable resources are being
developed, financed, constructed and commissioned. PREPA's proposed IRP
and the Modified Action Plan which the Energy Bureau has recently
adopted assume that the San Juan, EcoElectrica and Costa Sur generating
facilities will continue to be available to supply capacity and energy
even as the renewable generation build-out proceeds. As PREPA has
documented, even with its continued reliance on San Juan Units 5 & 6
and the EcoElectrica facility, it should be possible to add quantities
of renewable generation that will satisfy Act 17's Renewable Portfolio
Standard in 2025 and thereafter. IRP Main Report at Section 10.1.1. So
PREPA's commitment to the San Juan 5 & 6 conversion and to the amended
and restated Naturgy and EcoElectrica agreements is entirely consistent
with PREPA's compliance with the Act 17 renewable energy integration
goals cited in the question.
The Energy Bureau has approved the San Juan 5 & 6 conversion
project and the amended and restated Naturgy and EcoElectrica
agreements. In each case it found that the proposed agreements were
consistent with the public interest and with PREPA's proposed IRP. This
is noted in the August 12, 2020 response of Edison Aviles-Deliz, Chair
of the Energy Bureau, to the same question I address in this response.
The Energy Bureau reiterates its approval of these projects in its
Final Resolution and Order on PREPA's Integrated Resource Plan issued
on August 24, 2020 at Sec. Sec. 876 and 877.

Question 3. The Federal coordinator for the reconstruction of
Puerto Rico, Peter Brown, recently expressed that nuclear energy is an
option to diversify Puerto Rico's energy sources. PREPA's Integrated
Resources Plan does not integrate nuclear energy as an option. Will
PREPA maintain this position in compliance with Act 17-2019, which
requires reaching 100% renewable energy by 2050?

Answer. PREPA did not include nuclear resources as potential
sources of generation in its IRP. Nuclear energy is not listed among
the sources of energy that qualify as ``renewable'' under Act 82-2010
(Ley de Politica de Diversificacion por Medio de la Energia Renovable
Sostenible y Alterna en Puerto Rico), and therefore the addition of
nuclear generation resources would not assist PREPA in achieving
compliance with the renewable portfolio standard imposed by Act 17.
Moreover, PREPA is not aware of any commercially proven nuclear
generation technology that has been licensed by the Nuclear Regulatory
Commission that could be developed, licensed, constructed and
commissioned in Puerto Rico within the time frames envisioned in the
IRP's Action Plan and the Modified Action Plan with the Energy Bureau
has recently directed PREPA to pursue.

Question 4. Puerto Rico is expecting around $1.9 billion of CDBG-DR
funds for the electric grid reconstruction. Those funds represent a
great opportunity to help low- and moderate-income families to finance
rooftop solar projects in their residences. Also, it is an opportunity
to promote community energy resiliency projects. Is PREPA committed to
use these funds for these purposes?

Answer. PREPA is expecting that it will receive funds through the
Department of Housing and Urban Development's CDBG-DR Program that will
support reconstruction of Puerto Rico's electric grid. PREPA expects to
use CDBG-DR funds, as and to the extent they become available, to
satisfy its obligation to fund 10% of the cost of permanent work
projects funded by FEMA. PREPA's current Fiscal Plan assumes that CDBG-
DR funds will cover all of this cost share requirement. PREPA does not
anticipate redirecting CDBG-DR funds from grid reconstruction support
to the financing of individual consumer-owned rooftop solar
installations, which would not qualify as grid reconstruction
activities for which FEMA or HUD CDBG-DR funds could be committed
consistent with applicable law and regulations.

Question 5. PREPA's retirees and the Electrical Industry and
Irrigation Workers Union (UTIER) have expressed concerns with the
possibility of PREPA's pension system being affected by the LUMA
contract. Can you explain if the pension system will be affected? If
so, how?

Answer. As Mr. Ortiz testified in response to a similar question
during the July 23, 2020 hearing, PREPA employees transferring to
employment with LUMA will have the choice as to whether to stay with
their existing pension plan or transfer to a new plan to be sponsored
by LUMA. Mr. Fermin Fontanes offers additional detail on this subject
in a supplemental response included in the attached Addendum.

Question 6. Have Federal agencies played a role in PREPA's long-
term concession of its transmission and distribution system? For
example, has FEMA or DOE conditioned the disbursement of Federal
disaster aid to this contract?

Answer. Please note that the process that has resulted in the
execution of an agreement with LUMA for the operation, maintenance and
modernization of PREPA's transmission and distribution (``T&D'') system
was led by the P3 Authority; PREPA played a supporting role in the
process. The result of the process was not a long-term concession, but
rather a 15-year operation and maintenance agreement.
Federal agencies were not involved in the formulation of the
Request for Proposals (``RFP'') for assumption of responsibility for
the T&D system. Nor were they involved in the process by which the P3
Authority evaluated responses to this RFP, selected LUMA as the
preferred proponent and ultimately entered into LUMA agreement. Neither
the Federal Emergency Management Agency nor the Department of Energy
has conditioned the disbursement of Federal disaster relief funds in
any way on the award of or performance under this contract. Mr. Fermin
Fontanes offers additional detail on this subject in a supplemental
response included in the attached Addendum.

Question 7. Why did PREPA recently award former New Jersey Governor
Chris Christie a contract, through his company Christie 55 Solutions,
for $28,750 a month? Given the limited amount of Federal disaster funds
that have been disbursed to PREPA, why is this contract appropriate?
How were you put in contact with Mr. Christie?

Answer. PREPA executed a professional services agreement with
Governor Christie in early 2020. That agreement, which has a term
concluding December 31, 2020, provides that Gov. Christie and his team
will provide support for PREPA in connection with its interactions with
Federal agencies including FEMA, HUD, the Office of Management and
Budget, the Department of Energy, the Department of the Treasury, the
Environmental Protection Agency and The White House. The principal
focus of Gov. Christie and his team has been in assisting PREPA in
seeking the timely disbursement of both FEMA settlement funds and CDBG-
DR funds and support PREPA's efforts to secure other Federal assistance
for its efforts to rebuild the Puerto Rico grid and meet renewable
energy goals. They will also assist the Puerto Rico Federal Affairs
Administration in providing high-level briefings to Trump
Administration officials regarding many PREPA-related Federal issues.
Both the executive team at PREPA and the PREPA Board of Directors feel
that this relationship has been beneficial to PREPA and has advanced
its efforts to secure Federal attention to its funding needs.
Governor Christie and Governor Rossello initially met at a National
Governors Association meeting at which they discussed Puerto Rico's
needs for post-Maria Federal support and the processes that govern the
disbursement of Federal disaster relief funds. Given his experience
with both the Trump Administration and the Federal response to New
Jersey's need for disaster recovery assistance following Super Storm
Sandy, Governor Christie was able to provide substantial advice to
Governor Rossello. After Gov. Christie left office, he was asked by
Gov. Rossello to consider providing support to PREPA as a consultant to
assist primarily with Federal funding issues. PREPA subsequently
entered into discussions with Gov. Christie to this end, and ultimately
entered into the professional services agreement I have described.

Question 8. In April, I joined my colleges in a letter to the
Federal Energy Regulatory Commission (FERC) urging them to examine New
Fortress Energy's natural gas project in San Juan, since the company
failed to ask FERC for approval. How does PREPA justify expediting a
project and making excuses to not have to comply with Federal
regulations, which have health, safety and environmental risks for
surrounding communities? Aren't these factors as important as achieving
lower energy costs?

Answer. Mr. Ortiz acknowledged in his July 23, 2020 testimony that
a question has arisen as to whether NFE was required to obtain FERC
authorization to site, construct and operate the LNG handling facility
through which it is supplying natural gas to PREPA's San Juan Units 5 &
6. As Mr. Ortiz testified before this Committee, both New Fortress
Energy and PREPA conducted informal discussions with the FERC Staff
concerning the regulatory status of the planned LNG handling facility
before PREPA selected New Fortress Energy's proposal to convert and
supply San Juan Units 5 & 6. Through those discussions, PREPA
concluded, as had New Fortress, that in FERC Staff's view FERC siting
approval for the LNG handling facility would not be required. Mr. Ortiz
described these discussions in the letter PREPA submitted to FERC in
the New Fortress show cause proceeding; a copy of this letter was
attached to the written statement Mr. Ortiz submitted to this Committee
on July 23, 2020.
PREPA sought to expedite the San Juan 5 & 6 conversion project
because it offered, and has delivered, significant reductions in
greenhouse gas emissions that will yield public health benefits for
communities surrounding the San Juan Power Plant, for the San Juan
region and for Puerto Rico generally. The availability of natural gas
should enable PREPA to run San Juan Units 5 & 6 at higher capacity
factors without exceeding air permit limitations, and therefore will
enhance grid reliability. This, too, will benefit the public. Moreover,
given the historic spread between natural gas and diesel prices, the
San Juan 5 & 6 conversion project promises substantial fuel cost
savings, which will flow directly to electricity consumers in the form
of lower rates.
PREPA has complied with the applicable Federal and Commonwealth
environmental regulations governing the amendment of permits limiting
air emissions from the San Juan Power Plant. New Fortress has
responsibility under its Fuel Sale and Purchase Agreement with PREPA
for ensuring compliance with Federal and Commonwealth regulations
applicable to the New Fortress LNG handling facility. PREPA notes that
New Fortress has sought and obtained required U.S. Coast Guard
authorizations relating to the transit of LNG carriers through San Juan
Harbor and the maintenance of safety zones and security around the New
Fortress floating LNG storage vessel and the New Fortress LNG handling
facility. PREPA understands that the New Fortress LNG handling facility
has been designed and constructed in accordance with applicable
National Fire Protection Association safety standards, which are the
basis on which the U.S. Department of Transportation's Pipeline and
Hazardous Materials Safety Administration evaluates safety-related
aspects of LNG handling facilities. PREPA therefore believes that the
New Fortress facility does not expose surrounding communities to
significant health, safety or environmental risks.
PREPA will cooperate in any further project review or permitting
proceedings involving the New Fortress LNG handling facility that may
be required.

Questions Submitted by Rep. Napolitano
Question 1. What government agencies in Puerto Rico are receiving
disaster aid from Federal agencies, such as DHS or the Army Corps of
Engineers? How much is supposed to come in to rebuild the grid and how
much has been received?

Answer. Amounts that have been received to date to support grid
reconstruction are summarized in our response to the question Resident
Commissioner Gonzalez asked during the July 23, 2020 Hearing (response
#1 above). PREPA is not confident that it can provide a complete
listing of the Puerto Rico government agencies receiving disaster aid
from Federal agencies, and would refer the Representative to COR3 for
this information.

Question 2. What process did the Government of Puerto Rico follow
for the long-term concession of PREPA's transmission and distribution
system to LUMA? How was the company vetted?

Answer. The P3 Authority is the Puerto Rico government entity
charged with executing the transformation of PREPA. In testimony
presented to this Committee on July 23, 2020, Mr. Fermin Fontanes, the
P3 Authority's Executive Director, addressed in some detail the
procurement process through which the P3 Authority sought to advance
the transformation of PREPA's T&D system. That process involved the
solicitation of proposals from experienced utility sector participants
to assume responsibility for the operation, maintenance and
modernization of the T&D system. I refer the Committee to Mr. Fontanes'
statement and testimony for additional detail on the process.
Mr. Fontanes offers additional detail on the process through which
LUMA was vetted in a supplemental response included in the attached
addendum.

Question 3. What process did PREPA follow to award a contract to
former New Jersey Governor Chris Christie? Was there a vetting process?
Please explain.

Answer. Governor Christie was hired by PREPA, with the knowledge
and assent of PREPA's Governing Board, after consultation with and
approval by the Governor of Puerto Rico, the Puerto Rico Federal
Affairs Administration, the Puerto Rico Fiscal Agency and Financial
Advisory Authority (``AAFAF'') and the executive team at PREPA. The
Financial Oversight and Management Board for Puerto Rico (``FOMB'') was
also informed of the Christie professional services agreement. That
agreement was written and its execution overseen by PREPA's legal
department. Governor Christie's firm was hired to provide support for
the FEMA Section 428 process for public assistance and for support of
other PREPA efforts to secure Federal disaster recovery funds. See my
response to Chair Grijalva's Question #7 above.

Question 4. Why is renewable energy in PREPA's power generation
portfolio so low?

Answer. Please see my response to Chair Grijalva's Question #1,
above.

Questions Submitted by Rep. Costa
Question 1. There have been concerns over private energy
contractors not receiving reimbursement for emergency restoration work.
In the event of another disaster, it is critical to have all hands on
deck ready to respond. For those who haven't been reimbursed by FEMA,
what is the status of receiving the reimbursement? Additionally, for
those who haven't received reimbursed, is there progress toward
reaching a determination in a timely manner?

Answer. The Excel files accompanying this letter provide
information regarding contractor reimbursement status both at a summary
level and at a detailed level.
Please note that there are various administrative adjustments to
certain emergency PWs pending before FEMA. Priority is being given to
those projects with payment amounts outstanding. Once the adjustments
are processed by FEMA, PREPA will be able to request the additional
funding.

Questions Submitted by Rep. Cox
Question 1. I heard some concerns from early in the disaster about
how the contract to Whitefish Energy was awarded by PREPA, but the
subsequent reports we have heard suggest that Whitefish Energy
performed good work on the island. Can you confirm whether Whitefish
Energy performed good work for PREPA?

Answer. The process by which the Whitefish Energy contract was
awarded and subsequent actions relating to that contract are described
in detail in a Report of the Department of Homeland Security's Office
of Inspector General (``OIG'') entitled ``FEMA's Public Assistance
Grant to PREPA and PREPA's Contracts with Whitefish and Cobra Did Not
Fully Comply with Federal Laws and Program Guidelines'' (OIG-20-57),
issued July 27, 2020 (available at https://www.oig.dhs.gov/sites/
default/files/assets/2020-07/OIG-20-57-Jul20.pdf). Because some issues
identified in that report remain open and unresolved, PREPA cannot
comment on matters relating to Whitefish Energy's performance.

Question 2. From PREPA's financial status reports, it appears that
FEMA has not yet obligated funds for some work performed immediately
following the disaster, including for the work performed by private
contractors such as Whitefish Energy and some of the mutual aid
entities, which has resulted in those contractors and utilities not
being paid for emergency restoration work performed. What is the status
of FEMA's review of the Project Worksheets for the work of those
private contractors and mutual aid entities, and when does PREPA expect
to receive FEMA funding for that work?

Answer. PREPA is actively engaged with FEMA and has responded to
requests for additional information relating to work performed by
contractors and Mutual Aid entities.
It is PREPA's understanding that FEMA has advised the OIG that it
expects to complete its final determination regarding eligibility of
the actual Cobra contract costs for Federal reimbursement by May 2021.
With respect to Mutual Aid contractors, FEMA is processing
administrative adjustments, and PREPA has no estimate of the timing of
FEMA's administrative process. While PREPA has been actively working
with FEMA to adjust the PWs, a definitive timeline for funding has not
been shared with PREPA.
Priority is being given to those projects with payment amounts that
remain outstanding. Currently, projects are in the final stages of
project formulation and should be versioned within the next few months.
But because PREPA is not the process owner of the project formulation
task, a definitive timeline for funding is unknown.

Questions Submitted by Rep. Velazquez
Question 1. Mr. Ortiz, during the hearing on July 23, I asked you
whether PREPA did any due diligence to ensure that consultants with
access to the procurement documents did not have conflicts of interest
to which you responded: ``Yes, that's a normal procedure.''

What were the steps that were taken as part of the normal due
diligence process that PREPA carried out to ensure that consultants
with access to the procurement documents did not have conflicts of
interests during the award process of the New Fortress Energia
agreement?

Answer. Various Puerto Rico laws codify mandatory requirements for
contracting with private consultants including issues of conflicts of
interest. Act 237-2004, as amended, codifies government contracting
processes and requirements between private parties or consultants and
governmental entities including public corporations like PREPA.
Specifically, Article 5(G) mandates that:

No public official or employee may grant or authorize a
contract with a private person or knowing that this person, in
turn, is representing particular interests in cases or matters
that involve conflicts of interest or public policy conflicts
of interest between the contracting government agency and the
private interests that said private person represents.
Accordingly, every government agency shall require from every
private person with whom it contracts the inclusion of a
contractual clause in which said private person certifies that
they are not involved in a conflict of interest or public
policy conflicts of interest as described in this subsection.

Further, the Anticorruption Code for a New Puerto Rico, Act 2-2018,
Article 3.2(n), states that:

No person may contract with the executive agencies [including
public corporations] if there is any conflict of interests.
Every person must certify that they do not represent particular
interests in cases or matters that imply a conflict of
interest, or of public policy, between the executive agency and
the particular interests that they may represent.

Additionally, the professional services contracts between PREPA and
private consultants includes dispositions which require that PREPA
consultants who have access to confidential information must take all
steps necessary to keep such information confidential and ensure that
such information is not disclosed or distributed by the consultant's
employees or agents in violation of the terms of the agreement with
PREPA.
PREPA's Guide for Requests for Proposals (RFPs) (attached in the
original Spanish), at Section 3.5, requires PREPA advisors or
consultants who assist PREPA during the evaluation of proposals as well
as during selection and negotiation of RFP processes to comply with
ethics guidelines and conflicts of interest required by PREPA as
specified in the professional services contract.
All PREPA consultants must comply with these dispositions for
handling matters for PREPA and all PREPA consultants associated with
the process by which the NFEnergia agreement was awarded.

Follow-up: Is there a PREPA regulation in place that codifies how
the due diligence process should be carried out? If yes, could you
share the regulation with the Committee?

Answer. Attached please find copies of Act 237-2004 and Act 2-2018.
Please note as well that PREPA's standard contract with consultants
includes dispositions which require the consultant to maintain the
confidentiality of PREPA documents in accordance with the agreement.

Questions Submitted by Rep. Garcia
Question 1. Since the execution of PREPA's Restructuring Support
Agreement with the FOMB and Financial Advisory Authority, in your view,
it that agreement still alive? If so, is it workable given the current
economic pressures that are projected for the island?

Answer. The Definitive Restructuring Support Agreement, dated May
3, 2019 (as amended, the ``RSA'') remains in effect; however, (i)
certain provisions are not required to be implemented until an order is
entered on a motion to approve settlements in the RSA (the ``9019
Motion'') and (ii) parties to the RSA currently have certain
termination rights. On July 31, 2020, FOMB, AAFAF and PREPA (the
``Government Parties'') filed a status report before Judge Swain in
PREPA's Title III case, informing the Court of the following:

RSA discussions have been postponed due to uncertainty
resulting from the COVID-19 pandemic. Therefore, the
Government Parties have focused on other key initiatives
that, alongside a debt restructuring, will enable PREPA to
exit Title III and provide reliable and affordable power to
its customers. These initiatives include bringing in
private operators as part of a transformation of PREPA's
transmission and distribution system and generation assets;
and

It is currently not possible to propose a schedule for the
continuation of PREPA's 9019 Motion hearing on the
settlements embodied in the RSA, as the Government Parties
continue to monitor the island's fiscal and economic
conditions amid the impact of the continuing COVID-19
pandemic and other recent events.

In light of the above, the Government Parties asked the court to
allow for the submission of an updated status report on or before
September 25 to provide them additional time to assess PREPA's
performance against the PREPA 2020 Fiscal Plan and to analyze the
Oversight Board's Commonwealth status report that is due September 11.
On August 5, 2020, Judge Swain granted the request to extend the date
to September 25 for filing a status report on PREPA's financial
condition, proposed next steps regarding the 9019 Motion and related
adversary proceedings.
The Government Parties remain committed to working with the RSA
creditors, as well as other stakeholders, to execute a plan of
adjustment that allows for PREPA's exit from Title III.

Question 2. As the Oversight Board has certified, the contract with
LUMA Energy will put PREPA in a deficit of at least $125 million. Also,
the Front-End Transition Plan contemplates acquiring a PREB rate order.
Will PREPA be requesting a rate increase to cover that deficit? If so,
when and how will the increase take place?

Answer. PREPA currently expects to fund the initial Front-End
Transition costs out of funds that are currently available, and does
not believe that a rate increase will be required. Mr. Fermin Fontanes
offers additional detail on this subject in a supplemental response
included in the attached Addendum.

Questions Submitted by Rep. Bishop
Question 1. How has PREPA been able to respond to the concerns of
those who claim this latest deal signed with LUMA will lead to massive
layoff of workers at PREPA?

Answer. The Puerto Rico Transmission and Distribution System
Operation and Maintenance Agreement among PREPA, the P3 Authority, LUMA
Energy, LLC and LUMA Energy ServCo, LLC dated as of June 22, 2020 (the
``O&M Agreement'') provides that LUMA Energy and LUMA ServCo (a LUMA
subsidiary service company formed to provide substantially all of the
services required under the O&M Agreement) are to offer both employment
and advancement opportunities to current PREPA employees. As Mr. Fermin
Fontanes testified before this Committee on July 23, 2020, the jobs of
PREPA employees ``are protected under existing law.'' Statement by
Fermin Fontanes Gomez, Executive Director of the Puerto Rico Public
Private Partnerships Authority before the House Committee on Natural
Resources dated July 23, 2020 at 4. Mr. Fermin Fontanes offers
additional detail on this subject in a supplemental response included
in the attached Addendum.

Question 2. The Committee has heard from witnesses today that claim
under the terms of the newly signed LUMA contract, LUMA would actually
have veto power of PREPA's Title III proceedings. How do you respond to
such a claim? Is that indeed the case, that LUMA somehow under the
terms of the new contract, are going to be awarded final say over
PREPA's plan of adjustment?

Answer. The O&M Agreement does not grant LUMA Energy any control
over PREPA's Title III proceedings. The Puerto Rico Transmission and
Distribution System Supplemental Terms Agreement among PREPA, the P3
Authority, LUMA Energy, LLC and LUMA Energy ServCo, LLC dated as of
June 22, 2020 (the ``Supplemental Agreement''), which comes into effect
only if LUMA Energy takes over prior to PREPA's exit from Title III,
provides only that PREPA's future plan of adjustment must be
``reasonably acceptable to'' LUMA Energy. Under PROMESA, only the
Oversight Board can propose a plan of adjustment for PREPA and this
provision does nothing to give control over that task to LUMA Energy.
Mr. Fermin Fontanes offers additional detail on this subject in a
supplemental response included in the attached Addendum.

Question 3. Will the new T&D Operator (LUMA) be allowed to act
freely without the political interference that has plagued PREPA for
years? What assurances can you give us?

Answer. LUMA, unlike PREPA, is a private entity that will not be
subject to political interference but instead will be subject to the
requirements of the O&M Agreement. That Agreement and related Annexes
and Supplemental Agreement set forth detailed criteria that will govern
LUMA Energy's and LUMA ServCo's performance of the roles of T&D
Operator. LUMA Energy and LUMA ServCo have, in the O&M Agreement, a
clearly articulated basis on which to resist political efforts to
secure treatment not consistent with the terms of that Agreement. Mr.
Fermin Fontanes offers additional detail on this subject in a
supplemental response included in the attached Addendum.

Question 4. Does LUMA have free reign in deciding how to staff its
new operations?

Answer. Decisions as to staffing of its operations are for LUMA
Energy and LUMA ServCo to make, but those decisions must comply with
specific criteria set forth in the O&M Agreement. Among these is the
requirement that LUMA give preference in hiring to existing PREPA
employees currently engaged in T&D-related operations. Mr. Fermin
Fontanes offers additional detail on this subject in a supplemental
response included in the attached Addendum.

I hope these responses adequately address the Committee members'
questions. Please let me know if you or members of the Committee have
additional questions for PREPA.

Cordially,

Efran Paredes Maisonet,
Interim Executive Director

*****

The following documents were submitted as attachments to the above
responses to questions. These documents are part of the hearing record
and are being retained in the Committee's official files:

--Addendum providing P3 Authority Supplemental Responses

--Excel spreadsheets with Contractor Payment Summary and Contractor
Payment Detail

--GUIA PARA PROCESOS DE ADQUISICIONES DE BIENES Y SERVICIOS A
TRAVES DE SOLICITUD DE PROPUESTAS (Request For Proposals)
2016

--Act 237-2004

--Act 2-2018

______

Submission for the Record by Mr. Ortiz

GOVERNMENT OF PUERTO RICO
Puerto Rico Electric Power Authority
San Juan, Puerto Rico

July 17, 2020

BY ELECTRONIC FILING

Ms. Kimberly D. Bose, Secretary
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426

Re: Order to Show Cause Directed to New Fortress Energy LLC, Docket No.
CP20-466-000--Comments and Statement of Support of the Puerto
Rico Electric Power Authority

Dear Secretary Bose:

On behalf of the Puerto Rico Electric Power Authority (``PREPA''),
I write in response to the Order to Show Cause which the Commission
issued to New Fortress Energy LLC (``New Fortress'') on June 18, 2020
in Docket No. CP20-466-000. For the several reasons I set forth below,
I urge the Commission to conclude that New Fortress had a legitimate
basis for concluding that the liquified natural gas (``LNG'') handling
facility which its affiliate NFEnergia, LLC (``NFE'') has constructed
on an existing wharf in San Juan Harbor did not require this
Commission's authorization under Section 3 of the Natural Gas Act. I
also urge this Commission, if it chooses to assert jurisdiction over
any portion of the NFE LNG handling facility, to do nothing to disrupt
its ongoing operation, given the very substantial emissions reductions
and cost savings the facility is enabling PREPA to achieve.

PREPA is the offtaker of natural gas delivered via the liquified
natural gas handling facility which NFE has constructed in San Juan,
adjacent to PREPA's San Juan Units 5 and 6, two combined cycle
generating facilities which have been converted to consume natural gas
as well as diesel fuel. Units 5 and 6 are now running on natural gas in
place of diesel. Their ability to use this significantly cleaner fuel
enables PREPA to reduce its reliance on other generating units that
consume heavy fuel oil and produce significant emissions. PREPA
therefore has a direct and substantial interest in the outcome of this
proceeding.

In early 2019 PREPA entered into a Fuel Sale and Purchase Agreement
with NFE under which NFE undertook to convert PREPA's San Juan Units 5
and 6 to dual-fuel capability, and to supply natural gas to fuel the
facilities. The agreement obligates NFE to transport LNG to San Juan
Harbor, where the LNG is transferred to a floating storage vessel
docked opposite the San Juan Power Station. From that vessel, LNG is
processed through vaporizers that deliver natural gas to Units 5 and 6.
LNG will also be transferred via the NFE facility to onshore truck
loading facilities for transportation of LNG to industrial and
commercial consumers throughout Puerto Rico.

The conversion of Units 5 and 6 and their use of natural gas in
place of diesel will significantly reduce greenhouse gas, particulate
and other air emissions from the San Juan Power Station. Units 5 and 6
are the newest and most efficient generating facilities in the PREPA
fleet and, with natural gas now available, PREPA can take advantage of
these efficiencies by running the units at higher capacity factors
without exceeding air permit emissions limits. This is important,
because the San Juan Power Station is located in the heart of the San
Juan metropolitan area, the largest load center in Puerto Rico. PREPA's
enhanced ability to run San Juan Units 5 and 6 will enhance the
reliability of PREPA's system in the San Juan area and throughout the
island. Consumption of natural gas in Units 5 and 6 should also yield
significant fuel cost savings for Puerto Rico electricity consumers,
since natural gas has historically been available at lower cost than
diesel. PREPA has projected that its delivered fuel costs will decrease
substantially with the ability to consume natural gas, even considering
the costs NFE must incur to procure LNG from non-U.S. sources given the
prohibition on bulk shipments of LNG from the U.S. mainland imposed by
the Jones Act.

The Puerto Rico Energy Bureau has approved the PREPA-NFE contract
as being in the public interest. The Financial Oversight and Management
Board for Puerto Rico has approved the contract as being consistent
with PREPA's certified Fiscal Plan. The United States Coast Guard has
found that the waterways approaching San Juan Harbor and leading to the
wharves where the NFE LNG storage vessel is docked are suitable for the
transit of LNG, has established safety zones within the Harbor to
accommodate LNG vessels, and has accepted NFE's security plans for its
LNG receiving and transfer operations. The U.S. Environmental
Protection Agency has recommended, and the Puerto Rico Environmental
Quality Board has made, amendments to the permits governing air
emissions from San Juan Units 5 and 6 that recognize the ability of
those units to burn either natural gas or diesel. Now that natural gas
is available to San Juan Units 5 and 6, PREPA will make the most
significant reductions in air emissions it has ever been able to
achieve. With the increased availability of San Juan Units 5 and 6,
PREPA will be able to rely less on generating facilities consuming more
polluting heavy fuel oil, and as a result will be well on the way to
achieving compliance with the Clean Air Act's Mercury and Air Toxics
Standard (``MATS'').

On June 18, 2020, this Commission issued an ``Order to Show Cause''
directing New Fortress ``to show cause why the liquified natural gas
(LNG) handling facility it has constructed adjacent to the San Juan
Combined Cycle Power Plant at the Port of San Juan in Puerto Rico is
not subject to the Commission's jurisdiction under section 3 of the
Natural Gas Act (NGA).'' The order suggests that NFE's facilities may
meet criteria that would make it subject to the Commission's Natural
Gas Act jurisdiction. I note that the Order to Show Cause does not
reach any final conclusions regarding the jurisdictional status of the
NFE LNG handling facility and does not require the suspension of the
NFE facility's operations.

PREPA is aware that NFE is responding to the Order to Show Cause
with arguments why, given previous FERC decisions, the Commission
should conclude that the San Juan LNG handling facility does not
require NGA section 3 authorization. PREPA is familiar with these
arguments, having discussed similar points with representatives of the
Commission's Staff nearly 2 years ago. PREPA urges the Commission to
consider these arguments carefully before reaching any final
determination in this proceeding.

PREPA conducted a competitive procurement in early 2018 through
which it sought proposals for the conversion of San Juan Units 5 and 6
to dual-fuel capability. In response to a PREPA Request for Proposals,
several project proponents submitted proposals, some of which
contemplated the supply of natural gas derived from LNG. NFE submitted
a proposal that relied on development of an LNG handling facility in
and adjacent to San Juan Harbor. While consideration of the various
conversion proposals was underway, PREPA representatives independently
analyzed the question whether FERC authorization of an LNG handling
facility that would supply natural gas to San Juan Units 5 and 6 was
likely to be required. As part of this effort, I, the then-Chairman and
a member of PREPA's Governing Board, PREPA's Chief Financial Advisor
and PREPA counsel met on September 5, 2018 with ten representatives of
this Commission's Staff to discuss alternative LNG receiving facility
configurations that might be developed to serve PREPA generating
facilities. We specifically discussed a facility configuration that
would involve deliveries of LNG from a docked storage vessel via
cryogenic hoses to a shoreside vaporizer located on an existing wharf
in San Juan Harbor, with natural gas to be delivered from the vaporizer
to San Juan Units 5 and 6 through power plant piping located entirely
within San Juan Power Station property. We compared this configuration
with the configurations of other LNG and compressed natural gas
facilities over which the Commission had previously declined to assert
jurisdiction under NGA section 3.\1\
---------------------------------------------------------------------------
\1\ Among the Commission decisions we discussed were Shell US Gas &
Power, LLC, 148 FERC Sec. 61,163 (2014), Emera CNG, LLC, 148 FERC
Sec. 61,219 (2014), Pivotal LNG, Inc., 148 FERC Sec. 61,164 (2014),
Pivotal LNG, Inc., 151 FERC Sec. 61,006 (2015), and The Gas Company,
LLC, 142 FERC Sec. 61,036 (2013).

FERC Staff representatives observed that the fewer dedicated
natural gas facilities there are, the less likely it was that FERC
would assert jurisdiction over an LNG project. Staff representatives
focused on the absence of a natural gas pipeline extending a
substantial distance from the LNG vaporizers to a natural gas
transmission or distribution system or to multiple end user facilities,
suggesting that the absence of such facilities would make it less
likely that the Commission would assert jurisdiction. They also deemed
it significant that the proposed configuration involving a docked LNG
storage vessel did not include a large onshore LNG storage tank. Staff
representatives noted that the Commission does not assert jurisdiction
over LNG vessels, although it has asserted jurisdiction over purpose-
built pier or mooring facilities and related pipelines. They offered
the view that the Commission would probably consider the San Juan
Harbor ``facilities light'' configuration we described to be one over
---------------------------------------------------------------------------
which FERC be unlikely to claim jurisdiction under NGA section 3.

Our meeting left us confident that, in FERC Staff's view, the
configuration which NFE ultimately proposed made it like other LNG
facilities which the Commission had concluded did not require its
authorization under the Natural Gas Act. PREPA took comfort in the
indications it received from FERC Staff, and we later concluded that
NFE had a legitimate basis for concluding that the facilities
configuration it proposed would not require NGA section 3
authorization. PREPA subsequently negotiated the terms of the NFE Fuel
Sale and Purchase Agreement and obtained the approvals required to
execute it. The Agreement was executed on March 5, 2019.

PREPA entered into the NFE Fuel Sale and Purchase Agreement on the
assumption that FERC approval for the NFE LNG handling facility would
not be required. It did so on the basis of communications PREPA and NFE
separately had at different times with senior members of the
Commission's Staff that involved assessments of FERC precedents
addressing what PREPA, NFE and the Commission's Staff all considered
analogous LNG facilities configurations. I believe that it was
reasonable for PREPA to move ahead with the San Juan Units 5 and 6
conversion project and for NFE to proceed with construction of the
related LNG handling facility given the informal guidance PREPA and NFE
separately received from FERC Staff and the analyses we independently
conducted. I ask that you take this history into account in evaluating
NFE's response to the Order to Show Cause and in considering what
further action may be appropriate in this proceeding.

PREPA believes that the Commission should conclude that NFE did not
require authorization under the Natural Gas Act to site, construct and
operate any portion of its San Juan Harbor LNG handling facility. But
the Order to Show Cause suggests that the Commission could come to a
contrary conclusion, and as a result could require that NFE seek
section 3 authorization. I have been advised that in other cases in
which a natural gas project developer has been found to lack a required
FERC authorization, FERC has not required the developer to cease or
suspend operations while the required authorization is sought.
Nevertheless, I wish to address the possibility that the Commission may
consider directing NFE to cease operation of its San Juan LNG handling
facility pending its receipt of authorization under the Natural Gas
Act.

As I have stated, San Juan Units 5 and 6 are now running on natural
gas. As a direct result, the Units' greenhouse gas emissions have been
substantially reduced, as have their emissions of particulates. These
emissions reductions are particularly significant given PREPA's
longstanding inability to achieve MATS compliance. Given these
emissions reductions and the expectation that natural gas will be
available to the Units at lower cost than diesel, the NFE fuel supply
arrangement will enable PREPA to run Units 5 and 6 at a higher capacity
factor than they have historically. This is significant, because Units
5 and 6 are critically important as sources of local generation in the
San Juan metropolitan area. By enabling San Juan Units 5 and 6 to be
dispatched more of the time, the availability of natural gas supplied
by NFE has enhanced the reliability and resiliency of PREPA's still-
vulnerable transmission system.

Air emissions permits governing San Juan Units 5 and 6 have
recently been amended to recognize the ability of those units to burn
either natural gas or diesel. These permits establish annual emissions
limits for each air pollutant regulated under the U.S. Environmental
Protection Agency's New Source Review program. There are no
restrictions in the hours of operation for Units 5 and 6 as long as the
Units comply with the annual emissions limits established for each
pollutant. That is, PREPA is obligated to manage actual emissions from
Units 5 and 6 so that their combined emissions remain below the annual
limits on a 365-day rolling basis, on a per regulated pollutant basis,
and at any time during the initial 364 days. PREPA can make maximum use
of San Juan Units 5 and 6, given the controlling annual emissions
limits and the greater emissions that result from the combustion of
diesel fuel, only if natural gas continues to be available.

If NFE were to be directed to cease operation of its LNG handling
facility, PREPA would no longer have ability to consume natural gas in
Units 5 and 6. As a consequence, PREPA would need to reduce its
dispatch of these units on diesel to ensure that their emissions remain
below the applicable annual limits. We are now entering hurricane
season, and PREPA must be able to rely on San Juan Units 5 and 6 to
maintain service to the San Juan region and beyond if PREPA's
transmission system again were to sustain hurricane-related damage.
Moreover, given the impacts of this winter's earthquake activity on
PREPA's Costa Sur generating facility, two of PREPA's largest
generating units remain unavailable, and will not be fully available
until the end of this year. This makes the continued availability of
San Juan Units 5 and 6 even more critical. It is, therefore, absolutely
essential that NFE be permitted to continue to supply PREPA with
natural gas for use in San Juan Units 5 and 6 during the period in
which this Commission considers NFE's response to the Order to Show
Cause, and during any subsequent proceeding on an NFE application for
Commission authorization under the Natural Gas Act, should the
Commission require it.

Thank you for your consideration. PREPA stands ready to provide any
additional information the Commission may require.

Sincerely,

Jose F. Ortiz Vazquez
Chief Executive Officer
Puerto Rico Electric Power Authority

______

The Chairman. Thank you, Mr. Ortiz.
Let me now turn to Fermin Fontanes, Executive Director of
the Puerto Rico Public-Private Partnerships Authority.
The time is yours, sir.

STATEMENT OF FERMIN FONTANES, EXECUTIVE DIRECTOR, PUERTO RICO
PUBLIC-PRIVATE PARTNERSHIPS AUTHORITY

Mr. Fontanes. Chairman Grijalva, Ranking Member Bishop, and
Committee members, thank you for the opportunity to appear
before you today to discuss the transformation of the Puerto
Rico Electric Power Authority.
My name is Fermin Fontanes. I am the Executive Director of
the Puerto Rico Public-Private Partnerships Authority. My
testimony today addresses the transformation of PREPA's
transmission and distribution system.
As Executive Director, I am leading the efforts related to
PREPA's transformation and over several procurement processes
that resulted in the agreement between LUMA Energy and PREPA
pursuant to which LUMA will operate, maintain, and modernize
Puerto Rico's transmission and distribution system.
This agreement marks the culmination of a more than 18-
month procurement process and represents a historic milestone
in the government of Puerto Rico's objective of providing
modern, affordable, resilient, and reliable power to the
island.
LUMA is a Puerto Rico company formed by ATCO and Quanta
Services which will work with Innovative Emergency Management
to assist with the administration of Federal funding.
In recent years, PREPA has faced a number of significant
challenges, including: a lack of managerial continuity and
long-term planning; a dated electrical system that is in poor
condition; significant leverage, that led to the inability to
access credit markets; and a geographic mismatch between supply
and demand.
PREPA's challenges were aggravated by Hurricanes Irma and
Maria. After the hurricanes, the government sought not only to
rebuild the electric grid but to transform it into a reliable,
resilient, modern, and eco-friendly system.
The most effective way to achieve these goals was to
partner with a world-class private operator with the expertise,
experience, and know-how to complete the much-needed
transformation. A procurement process was designed to address a
number of key considerations.
The government was keenly focused on implementing a robust,
competitive, and transparent procurement process to identify
the private partner best positioned to accomplish the
transaction's objectives. The process was also carried out in
coordination with the Financial Oversight and Management Board
for Puerto Rico.
During the RFP proposal process, the P3 Authority provided
proponents with extensive access to information related to
PREPA and the T&D system.
LUMA's proposal presents concrete and detailed plans and
timelines for achieving substantial gains in safety, customer
service, reliability, and resiliency. The contract also
establishes clear obligations and performance metrics which
LUMA must comply with. LUMA projects that it will be able to
generate significant cost savings throughout the life of the
contract.
Between the reduction in O&M costs and the improvement in
lost energy, LUMA estimates a savings of $293 million per year
in 2027. This results in significant annual and cumulative net
savings for Puerto Rico and demonstrates that the contract will
pay for itself, an estimate of $323 million in cumulative
savings by 2027.
Notwithstanding these savings, critics of the transaction
have argued that the customer's rates will go up. That premise
is incorrect. LUMA is subject to regulatory oversight of the
Puerto Rico Energy Bureau, and the contract specifically
provides that all budgets prepared by LUMA must comply with
rate orders established by PREB. The contract does not require
a rate increase or establish a minimum rate for LUMA to
operate.
In addition, I wanted to make clear that no employee will
lose their job as a result of this transaction. Their jobs are
protected under existing law.
Moreover, for those employees who end up working for LUMA,
they will have access to world-class safety training and
professional development opportunities, all of which have not
been available to date for PREPA employees. PREPA's employees
are essential for this transformation.
Finally, with LUMA we are bringing accountability to meet
our goals of a renewable energy future. LUMA's commitment to
complying with and achieving the renewable energy target set
forth in these plans is evidenced in its proposal. This is a
first step toward achieving the government's renewable energy
goals.
The T&D transformation process took place against the
background of unique and unprecedented challenges.
Notwithstanding these significant challenges, the P3 Authority
was undeterred and forged ahead with its vision to transform
PREPA.
In partnership with LUMA, PREPA will finally deliver to the
people of Puerto Rico what they deserve, a modern, affordable,
resilient, and reliable electric energy system that will serve
as a driver of economic recovery and growth. This partnership
represents the most efficient and effective way to make this
transformation a reality for Puerto Rico and its people.
Thank you.

[The prepared statement of Mr. Fontanes follows:]
Prepared Statement of Fermin E. Fontanes Gomez, Executive Director of
the Puerto Rico Public Private Partnerships Authority
Chairman Grijalva, Ranking Member Bishop and Committee Members,
thank you for the opportunity to appear before you today to discuss the
transformation of the Puerto Rico Electric Power Authority (``PREPA'').
My name is Fermin Fontanes Gomez and I am the Executive Director of the
Puerto Rico Public Private Partnership Authority (the ``P3
Authority'').
Created pursuant to Act 29 as a public corporation of the
Government of Puerto Rico affiliated with the Puerto Rico Fiscal Agency
and Financial Advisory Authority, the P3 Authority is the government
entity charged with executing the transformation of PREPA. As Executive
Director of the P3 Authority, I am leading the efforts related to the
transformation and recently oversaw the successful procurement process
that resulted in the signing of an agreement between LUMA Energy, LLC
and PREPA pursuant to which LUMA will operate, maintain, and modernize
Puerto Rico's transmission and distribution (``T&D'') system for a 15-
year term.
The agreement with LUMA marks the culmination of a more than 18-
month procurement process and represents a historic milestone in the
Government of Puerto Rico's objective of providing modern, affordable,
resilient, and reliable power to the island, which will help serve as a
driver of economic recovery and growth. The agreement with LUMA is also
the first transaction of its kind since the Government enacted Act 120,
a new legal framework for infrastructure PPPs, in June 2018. LUMA is a
Puerto Rico company formed by Canadian Utilities Limited, ATCO Ltd.'s
energy company, and Quanta Services Inc., which will work in
conjunction with Innovative Emergency Management Inc. to assist with
the administration of Federal funding.
My testimony today will address the transformation of the T&D
system and will address the following six topics: (i) the background
and goals of the transformation that the contract with LUMA seeks to
achieve, (ii) the procurement process for selecting LUMA, (iii) the
benefits that LUMA will bring to the people of Puerto Rico, (iv) the
impact of the transaction on rates, (v) the impact of the transaction
on employees, and (vi) the first step that this transaction represents
in terms of transitioning PREPA to renewable energy sources.
Background and Goals of the Transformation

PREPA serves approximately 1.5 million customers and employs
approximately 6,000 people in Puerto Rico. As the sole utility for the
island of Puerto Rico, PREPA's purpose is to provide the people of
Puerto Rico with reliable electric power, assist the sustainable
development of Puerto Rico, and contribute to the general welfare as a
service provider and employer on the island.
In recent years, PREPA has faced a number of significant
challenges, including: (i) a lack of managerial continuity and long-
term planning; (ii) a dated electrical system that is in poor condition
due, in part, to substandard practices and chronic infrastructure
underinvestment; (iii) significant leverage, which has led to the
inability to access credit markets for long term capital investment;
and (iv) a geographic mismatch between supply and demand since much of
the generation is located in the South of the island while a majority
of the demand is in the North, thereby exacerbating the fragility and
instability of the whole system.
Puerto Rico's dated and fragile electric system has suffered
operational and reliability challenges and has struggled to provide
residents with reliable and affordable power, as evidenced by
reliability, customer satisfaction, and safety metrics that stand well
below U.S. mainland and other island utility industry standards.
PREPA's challenges were highlighted and significantly exacerbated by
hurricanes Irma and Maria, which struck Puerto Rico within 2 weeks of
each other and led to mass destruction of PREPA's infrastructure and a
complete failure of the electrical grid.
In the aftermaths of hurricanes Irma and Maria, the Government
sought not only to rebuild the electric grid but to transform it into a
reliable, resilient, modern and eco-friendly system and bring to bear
U.S. mainland and other international best industry practices to PREPA.
The Government determined that the most effective way to achieve these
goals was to partner with a world-class private operator with the
requisite expertise, experience, and know-how to effect the much-needed
transformation of the electric system.
Procurement Process

The procurement process to select a partner for the T&D system was
carefully designed to address a number of key considerations. First,
the Government was keenly focused on implementing a robust, competitive
and transparent procurement process to identify the private partner
best positioned to accomplish the transaction's objectives. Second,
from its inception, the procurement process was carried out in
coordination with the Financial Oversight and Management Board for
Puerto Rico (the ``FOMB'') given the need to align the process with the
efforts to address PREPA's financial challenges and the Certified
Fiscal Plan. Finally, given the importance of Federal funding to
support the transformation, the procurement process was designed to
provide potential private partners with various opportunities to better
understand the state of the recovery effort and the status of the
various applications for Federal funding.
The more than 18-month procurement process officially commenced
with a market sounding in the summer of 2018 followed by the issuance
of a request for qualification (``RFQ'') on October 31, 2018. Based on
the RFQ process, four proponents were qualified for the request for
proposal (``RFP'') phase. The RFP phase was launched on February 1,
2019 and culminated with the submission of proposals on November 25,
2019. From the end of November 2019 through the end of January 2020,
the P3 Authority worked with the partnership committed established to
oversee the process to extensively review and analyze the proposals and
then to negotiate and agree on a form of contract with LUMA as the
preferred bidder. From February through June 2020 the P3 Authority
worked with LUMA to obtain the requisite consents and approvals to sign
the contract.
During the RFP process, the P3 Authority provided proponents with
extensive access to information related to PREPA and the T&D system--a
data room with approximately 18,000 documents (totaling 149,181
megabytes of data), responses to over 700 diligence questions, and more
20 diligence calls and in-person meetings with bidders. Proponents were
given the opportunity to review and comment on seven successive drafts
of transaction documents and to discuss their comments in person at
eight meetings. The robustness of the process is evidenced by the fact
that LUMA expended over $15 million of its own funds throughout the
process to both diligence PREPA's assets and prepare its proposal.
Benefits of Transaction to the People of Puerto Rico

LUMA's proposal, which was largely translated into the contract,
presents concrete and detailed plans and timelines for achieving
substantial gains in safety, customer service, reliability, and
resiliency, all of which result in immeasurable benefit to the Puerto
Rican economy, a demonstrable leap in economic competitiveness,
tangible and meaningful improvements in the every-day quality of life
of Puerto Ricans, and better work conditions for employees.
In addition, LUMA projects that it will be able to generate
significant cost savings throughout the life of the contract based on
its approach to the O&M services and the expertise and know-how that it
will bring to bear in performing the services. LUMA estimate that it
will be able to reduce operational costs by fiscal year 2026 by
approximately 30 percent, as compared to PREPA's 2019 fiscal plan. This
represents a net reduction in costs of approximately $100 million per
year. LUMA also intends to implement a plan to reduce technical and
non-technical energy losses, which will result in a reduction of
approximately $150 million in annual energy system costs. Between the
reduction in O&M costs and the improvements in lost energy, LUMA
estimates a savings of $293 million per year in 2027, as compared to an
annual service fee under the contract of $141 million. This results in
significant annual and cumulative net savings for Puerto Rico--$323
million in cumulative savings by 2027--and demonstrates that the
contract will pay for itself.
LUMA's approach to the O&M services is also expected to result in
Federal disaster funding dollars being obligated for PREPA more
effectively and rapidly. Indeed, the responsible management and
administration of Federal dollars by an experienced and qualified
private operator is key to facilitating the disbursement of the funds,
one of the most critical component to the ability to rebuild and
upgrade the electric grid.
Finally, the contract establishes clear obligations and performance
metrics with which LUMA must comply, and parent company guarantees
backstop these obligations. Unlike a government entity, LUMA must
perform in accordance with metric designed specifically to improve
safety, reliability and resiliency of the system or else is held
accountable for its failure to do so. Thus, LUMA is contractually
incentivized to deliver results for the people of Puerto Rico.
Impact of the Transaction on Rates

Various critics of the transaction have argued that,
notwithstanding the operational and technical savings that LUMA is able
to generate, consumer rates will go up as a result of this contract. In
response to this, it is important to underscore that LUMA is required
to comply with all laws and regulations applicable to its operation of
the T&D system, including those related to tariffs. In addition, LUMA
is subject to regulatory oversight by the Puerto Rico Energy Bureau
(``PREB''), and the contract specifically provides that all budgets
prepared by LUMA must comply with rate orders established by PREB. The
contract does not in any way eliminate, limit or restrict PREB's
authority with respect to establishing rate orders or exercising its
regulatory oversight to protect consumers. Furthermore, the contract
does not require a rate increase or establish a minimum rate for LUMA
to operate.
It is also worth noting that the transaction was structured as a
long-term O&M contract rather than a concession, a common structure for
PPPs, for a variety of reasons but the most critical of which was a
desire to minimize any impact on rates. In addition to potentially
jeopardizing the tax-exempt status of PREPA's legacy and restructured
debt, which would have increased the amount of PREPA debt to be repaid,
a concession posed greater risk to PREPA's current and future
eligibility for Federal disaster relief funding. The Government was
keenly focused on the fact that if a concession structure were to
preclude Federal disaster relief funding, it would likely lead to
increased rates. This is because a key feature of the concession
structure is capital investment by the private sector participant and,
absent Federal funding, the private investor would need to raise
consumer rates in order to recoup its investment in the T&D system.
With the specific view of avoiding these potential rate increases, the
Government elected to pursue an O&M contract that would not have these
effects.
Impact of the Transaction on Employees

Much has also been said about the impact of the transaction on
employees. I want to make clear that no employee will lose their job as
a result of this transaction--their jobs are specifically protected
under existing law. Moreover, for those employees who end up working
for LUMA, they will have access to world-class safety training,
professional development opportunities, and exciting career paths, all
of which has not been available to date for PREPA employees.
LUMA will need to hire thousands of employees, and all current
PREPA employees will be given priority in hiring. The contract
specifically requires LUMA to use reasonable efforts to interview all
PREPA employees and evaluate them for positions at LUMA. It is
important to note that, as recently as 8 years ago, PREPA employed
about 9,000 employees and today the number is closer to 6,000. There is
no doubt that PREPA is currently understaffed, and this is without
taking into account the work that will result from the expected influx
of Federal aid to rebuild the system.
All employees hired by LUMA will benefit from LUMA's culture of
People First, Safety Always, which ensures that every employee has the
proper training, skills, and tools for the job. In accordance with Act
120, all of the LUMA employees will receive a compensation and benefits
package that is equal to or better than the one provided by PREPA. As
part of the transition to LUMA, employees will have the choice to stay
with their existing pension plan or transfer to a new LUMA plan.
Finally, once LUMA hires its workforce, it expects to recognize the
unions with majority status in the various bargaining units, in
compliance with all applicable labor laws.
In addition, LUMA is in the process of establishing the LUMA
College for Technical Training in Puerto Rico. This facility, which is
being developed and built at LUMA's expense, will be used to train new
craft skilled labor and will be open to anyone on the island. The
curriculum and operations will be provided by the Northwest Lineman
College, an accredited technical school recognized by the U.S.
Department of Education with multiple campuses around the United
States. This job training will expose employees of PREPA to training
that will make them competitive not only in Puerto Rico but across the
United States.
Any employee who elects not to join LUMA will have the right to
maintain their employment with PREPA or transfer to another government
agency within Puerto Rico. These rights are clearly established in Act
120 and cannot be taken away--not through the contract with LUMA or
otherwise. Employees continuing with PREPA or another governmental
agency will also retain their acquired rights under applicable law and
the relevant collective bargaining agreement. Nothing in the LUMA
agreement contravenes those acquired rights, and LUMA is required to
comply with all Federal and local laws.
First Step Toward Renewable Energy

Finally, with LUMA comes accountability--the accountability to meet
Puerto Rico's goal of a renewable energy future. LUMA has demonstrated
a deep understanding of the IRP and the Electric Grid Modernization
Plan for Puerto Rico, which contemplate transforming the energy system
through the incorporation of more renewables, micro-grids, and
distributed energy resources. LUMA's commitment to complying with and
achieving the renewable energy targets set forth in these plans is
evidenced by LUMA's proposal to create (i) a detailed program to
maximize the pace and magnitude of increased solar generation, with the
stated goal of identifying opportunities that can be built in 18 to 24
months, and (ii) a transmission expansion plan that will play a key
role in prioritizing which mini-grids are developed first. In addition,
LUMA organizational structure includes the Utility Transformation
Department, a department that will be dedicated to the transformation
of the T&D System and responsible for the technical implementation of
new initiatives, including distributed and renewable generation,
interconnection standards, micro-grid and mini-grid design, and
renewable energy.
LUMA's commitment to and focus on renewable energy is a first step
toward the Government's renewable energy goals. LUMA efforts will be
supplemented by Government initiatives aimed at PREPA's generation
assets with a view toward reducing Puerto Rico's reliance on fuel oil
and increasing the availability of renewable energy and natural gas.
However, this first step with LUMA is a critical one. Puerto Rico will
have an world-class operator that will be accountable for complying
with the renewable portfolio standards and the goals of reaching 100
percent renewable generation by 2050--something for which PREPA, as a
Government-owned monopoly, has not been accountable.
Conclusion

The T&D transformation process took place against a background of
unique and unprecedented challenges: two devastating hurricanes
followed by a series of major in late 2019 and 2020; a prolonged and,
at times, contested PREPA bankruptcy process; the delay of billions of
dollars in Federal aid; an unexpected change in government during the
process; and strict shelter-in-place measures and other restrictions in
mid-March to prevent the spread of COVID-19.
Notwithstanding these significant challenges, the Government was
undeterred and forged ahead with its vision to transform PRPEA. It
launched the T&D procurement process with the objectives of modernizing
the utility, increasing T&D resiliency and reliability, deploying new
technologies, delivering low-cost electricity, and implementing
industry best practices and operational excellence through managerial
continuity and long-term planning. The Government designed a robust,
competitive, and transparent procurement process that attracted world-
class participants and resulted in the selection of LUMA.
In partnership with LUMA, PREPA will finally deliver to the people
of Puerto Rico what they deserve--a modern, affordable, resilient, and
reliable electric energy system that will serve as a driver of economic
recovery and growth. This partnership represents the most efficient and
effective way to ``build back better'' as the Government has promised
the citizen of Puerto Rico.

Thank you.

______

Questions Submitted for the Record to Fermin E. Fontanes Gomez,
Executive Director, Puerto Rico Public Private Partnerships Authority
Questions Submitted by Rep. Grijalva
Question 1. Can you describe the proposal evaluations and selection
process for the long-term concession contract and what mechanisms were
in place to protect its integrity?

Answer. Pursuant to the Public-Private Partnership Authority Act,
Act No. 29-2009, as amended (``Act 29'') and the Puerto Rico Electric
System Transformation Act, Act No. 120-2008, as amended (``Act 120''),
the details for the procedures for evaluating and selecting the bidder
awarded the contract for the management, operation, maintenance,
repair, restoration and replacement of the Puerto Rico electric power
transmission and distribution system (the ``Project'') were established
through the Regulation for the Procurement, Evaluation, Selection,
Negotiation and Award of Partnership Contracts and Sale Contracts for
the Transformation of the Electric System under Act No. 120-2018, as
amended (the ``Regulation''). The purpose of the Regulation is to
establish a procurement, evaluation, selection, negotiation and award
process for public-private partnerships (``PPPs'') with respect to any
function, service or facility of PREPA that is fair, consistent,
transparent and encourages and supports a climate of private sector
innovation and investment in Puerto Rico. The Regulation provides
guidelines for selecting the entities or individuals that will enter
into partnership agreements, in this case the O&M Agreement, with PREPA
and negotiating the awarding of such agreements.
Further, Act 29 and Act 120 require the Partnership Committee
(``Partnership Committee'') established by the Puerto Rico Public-
Private Partnerships Authority (the ``P3 Authority'') to take into
account certain specific factors in evaluating responses to the Request
for Proposals (``RFP''). The P3 Authority and the Partnership Committee
developed evaluation criteria, which were set forth in the RFP, to meet
the objectives of the Project, including those objectives and
requirements set forth in Act 120, Act 29 and the Regulation, for the
Partnership Committee's use in evaluating the proposals. Addendum No. 7
to the RFP, which was distributed to the proponents prior to the
submission of final proposals, set out the evaluation criteria and
weighting to be applied to the proposals by the Partnership Committee
during the evaluation and selection process. Proponent's proposals were
evaluated on the basis of three elements.

A technical proposal comprised forty-five percent (45%) of the
proponents' final scores. As part of the technical proposals the RFP
required proponents to provide detailed plans and proposals with
respect to:

performing the operation and maintenance services;

transitioning and handing over services and other rights
and responsibilities with respect to the T&D System;

staffing and training of employees and subcontracting of
services; and

development of the performance metrics, which the Operator
must meet or exceed to earn an incentive fee.

An operational and financial proposal comprised fifty percent (50%)
of the proponents' total score. As part of the operational and
technical proposals the RFP required proponents to propose certain
operational and financial terms and conditions with respect to:

the net present value of the fixed fee and incentive fee
over the term of the O&M Agreement;

the proposed amounts of certain operational elements;

certain caps on liability included in the O&M Agreement;
and

the proposed target service commencement date.

A Legal proposal was graded on a pass/fail basis and required the
proponents to submit a letter confirming their acceptance of the draft
O&M Agreement, save for certain terms and conditions. Five percent (5%)
of proponents' total scores were based on proponents' oral
presentations of their final proposals to the Partnership Committee.
For more detailed information regarding the evaluation criteria and
weighting applied to each criteria, please see Amendment No. 7 to the
RFP attached as Exhibit A hereto and Section 5 (Process for Recommended
Award) of the Partnership Committee Report prepared pursuant to Act 29
(the ``Partnership Committee Report'') and attached as Exhibit B
hereto.
Prior to submission of their final proposals, the proponents were
provided access to the same information and had similar access to the
P3 Authority and PREPA management. All proponents were given access to
the data room, and proponents were able to submit any request for
clarification with respect to the contents of the RFP, the information
available in the data room and other matters related to the Project.
The P3 Authority received and answered over 730 requests for
clarification throughout the RFP process and answers were made
available to all proponents, unless a proponent requested
confidentiality and the P3 Authority agreed to such treatment.
Furthermore, the proponents participated in management presentations,
site visits and were given numerous opportunities to comment on the
transaction documents. Proponents were given the same opportunity to
respond to questions and clarify their final proposals as well as amend
and supplement their final proposals after the submission deadline.
On January 11, 2020, the Partnership Committee voted by referendum,
pursuant to Act 29, Act 120 and the Regulation, to designate LUMA as
the proponent chosen to engage in exclusive discussions and
negotiations with the P3 Authority in connection with the Project,
pursuant to Section 5.1 of the Regulation. Each Partnership Committee
member submitted its score of the proposals, and such scores were
averaged to determine a final score for each proposal. The Partnership
Committee granted LUMA a higher average score. Based on its evaluation
of the proposals pursuant to the evaluation criteria, the Partnership
Committee determined that LUMA had clearly demonstrated its ability and
commitment to transform the Puerto Rico electric transmission and
distribution system (the ``T&D System'') into a modern, sustainable,
reliable, efficient, cost-effective and resilient electric system for
the people of Puerto Rico. In order to protect the integrity of the
evaluation and selection process, the Partnership Committee and P3
Authority established an evaluation and selection process that was in
line with the applicable regulatory framework, including the limits
imposed by Act 29, Act 120 and the Regulation. On May 15, 2020, after a
robust and competitive procurement process that lasted more than 18
months, the Partnership Committee determined to recommend to the board
of directors of the P3 Authority that LUMA be selected to execute the
O&M Agreement.

Question 2. Did political appointees participate in the decision-
making process? If so, why?

Answer. Political appointees participated in the decision-making
process as members of the Partnership Committee for the Project. The
members of the Partnership Committee served in their positions by
virtue of the requirements set forth under applicable law.
Article 8 of Act 29 requires that the Partnership Committee be
composed of: (i) the executive director of the Puerto Rico Fiscal
Agency and Financial Advisory Authority (known by its Spanish acronym
``AAFAF'') or his/her delegate; (ii) the officer of PREPA directly
concerned with the project or his/her delegate; (iii) one member of the
board of directors of PREPA, his/her delegate, or an official thereof
selected by the board of directors of the P3 Authority based on him/her
having specialized knowledge pertinent to the project under
consideration by the relevant partnership committee; and (iv) two
officials from any government entity chosen by the board of directors
of the P3 Authority for their knowledge and experience in the type of
project under consideration by the relevant partnership committee.
Pursuant to Article 5(c) of Act 120, the P3 Authority must
designate a Partnership Committee, as required by Act 29, to evaluate
and select qualified proponents and to establish and negotiate the
terms of the O&M Agreement. Furthermore, pursuant to Article 8(b) of
Act 29, the Partnership Committee was tasked with the duty of
evaluating the proposals submitted and selecting that which is best for
the Project and the people of Puerto Rico. The members of the
Partnership Committee made all decisions based on the criteria provided
for in the RFP, which were based on the requirements of Act 29, Act
120, the Regulation and the PREPA Fiscal Plan, as certified on June 27,
2019, by the Financial Oversight and Management Board of Puerto Rico
(``FOMB''). As such, the Partnership Committee's discretion throughout
the evaluation and selection process was restricted within the confines
of applicable law.
As of May 15, 2020, the date the Partnership Committee recommended
to the board of directors of the P3 Authority that the O&M Agreement be
awarded to LUMA, and pursuant to the requirements summarized above, the
Partnership Committee was comprised of the following individuals: (i)
Omar Marrero, Esq., Executive Director & Chairman of AAFAF, CFO of the
Government of Puerto Rico; (ii) Jose Ortiz, PE, Executive Director of
PREPA; (iii) Ralph Kreil, PE, President of the board of directors of
PREPA; (iv) Edison Aviles, PE, Esq., Chairman of the Puerto Rico Energy
Bureau (``PREB''); and (v) Ottmar Chavez, Executive Director of the
Central Office for Recovery and Reconstruction.
As a result of his appointment as executive director of AAFAF, Omar
Marrero became a member of the Partnership Committee on July 30, 2019.
On July 18, 2018, Governor Rossello recommended Jose Ortiz be appointed
as Executive Director of PREPA, and the Governing Board of PREPA voted
unanimously in favor of the appointment on July 19, 2018. As a member
of the board of directors of PREPA, Ralph Kreil was appointed to his
position by Governor Rossello. Edison Aviles and Ottmar Chavez were
appointed to the Partnership Committee for their knowledge and
experience in the energy sector. As Chairman of PREB, Edison Aviles was
appointed to PREB by the Governor of Puerto Rico with the advice and
consent of the Senate of Puerto Rico. Edison Aviles is a professional
engineer, and member of the Engineers and Land Surveyors of the
Commonwealth of Puerto Rico Bar Association, the Institute of
Electronic and Electrical Engineers, and previously served as President
of the Electrical Engineers Institute of the Professional College of
Engineers and Land Surveyors of Puerto Rico. Governor Rossello
recommended that Ottmar Chavez serve as the Executive Director of
Central Office for Recovery and Reconstruction. Ottmar Chavez currently
serves as the Governor's Authorized Representative before FEMA and
serves as the Administrator of the General Services Administration of
Puerto Rico.

Question 3. Can LUMA terminate the contract with PREPA during an
extended force major event? If so, wouldn't an extended force major
event--such as a hurricane--be a time when grid work would be needed?

Answer. LUMA is able to terminate the O&M Agreement for a Force
Majeure Event only if the Force Majeure Event continues for more than
eighteen (18) consecutive months and materially interferes with, delays
or increases the costs of the Front-End Transition Services or the O&M
Services (see Section 14.5(c) (Additional Termination Rights--Extended
Force Majeure Event)). Under the O&M Agreement, hurricanes are not
enumerated as Force Majeure Events. Thus, the disruption to the T&D
System would need to continue beyond eighteen (18) consecutive months--
i.e., longer than the period of time that the electric system was
affected after Hurricanes Irma and Maria--before the Operator would be
able to terminate the O&M Agreement. For the reasons noted above, we do
not think this is a likely event and, if it did occur, the O&M
Agreement provides protections for consumers and rate payers.
Chair Grijalva is correct in stating that an extended force majeure
event--such as a hurricane--would be a time when grid work would be
needed. In fact, that is precisely one of the key reasons the P3A
sought to bring in a private operator with the expertise and know-how
to ensure that what took place after Hurricane Maria or Hurricane Irma
does not happen again. The P3A took steps when negotiating the O&M
Agreement to ensure that if a hurricane as devastating as Hurricane
Maria or Hurricane Irma were to occur the consequences of such event
would not continue for such an extended period of time. The O&M
Agreement, as executed, accounts for this necessity by requiring the
Operator to provide the Administrator and PREB with a plan of action
that takes effect from when the Operator takes over the T&D System for
responding to any emergency affecting the T&D System (the ``Emergency
Response Plan'').
The Emergency Response Plan will provide for storm monitoring and
mobilization of the Operator and Subcontractor workforce in connection
with anticipated storms and other electrical system emergencies, the
repair and replacement of damaged components of the T&D System,
including due to Outage Events or Declared Emergencies or Major
Disasters, and the restoration of the T&D System to pre-emergency
conditions. Further, if at any time the Operator determines that
immediate action must be taken to mitigate the immediate consequences
of an Emergency Event, the Operator must take such action (see Section
5.14(b) (Emergency Action--Emergencies). As such, upon the occurrence
of a hurricane the Operator is obligated to begin work to not only
mitigate the consequences of a hurricane, but to work to restore the
T&D System to pre-emergency conditions.
LUMA has committed to leveraging consortium members' expertise with
respect to Federal funding and emergency and disaster response to work
to harden and modernize the grid. Further, in their proposal, LUMA
stated an intent to develop an interim Emergency Response Plan to
address storm/hurricane season during the Front-End Transition so LUMA
and its employees can be thoroughly prepared for any emergency or
disaster that may occur even before LUMA takes over the operation and
maintenance of the T&D System.
Questions Submitted by Rep. Velazquez
Question 1. Page 14 of the Executed Agreement between PREPA and
LUMA LLC defines force majeure as: to the extent not covered by (A) or
(B) above, any event that causes any Federal or Commonwealth
Governmental Body to declare any portion of the geographic area of the
T&D System part of a ``disaster zone,'' ``disaster area,'' ``state of
emergency'' or any similar pronouncement;

1a. This definition does not specifically exclude when the island
is declared as disaster area after a hurricane makes landfall. Mr.
Fontanes, are there any other safeguards in the agreement that would
prevent the agreement to be terminated by LUMA when a hurricane as
devastating as Maria strikes the island?

Answer. In order to prevent LUMA from terminating the O&M Agreement
if a hurricane as devastating as Hurricane Maria were to strike the
island, the O&M Agreement was drafted to prevent a hurricane, such as
Hurricane Maria, from qualifying as an extended Force Majeure Event. In
the event that a hurricane as devastating as Hurricane Maria were to
strike the island, LUMA is not permitted to terminate the Agreement
unless the consequences of the hurricane last for more than eighteen
(18) months (see Section 14.5(c) (Additional Termination Rights--
Extended Force Majeure Event)). In addition, during the continuance of
a Force Majeure Event, such as a hurricane, the Operator is required,
as promptly as reasonably possible, to use commercially reasonable
efforts to mitigate or eliminate the cause of the Force Majeure Event,
reduce the cost resulting therefrom, mitigate and limit damage to
Administrator and resume full performance under the Agreement (see
Section 17.1(b) (Force Majeure Events--Notice; Mitigation--
Mitigation)). As such, the Operator must work to repair the damages
caused by the hurricane in order to remedy the T&D System and eliminate
the Force Majeure Event as promptly as possible, and before an extended
Force Majeure Event is able to occur.

1b. Why were hurricanes not excluded from the force majeure
definition if they are historically common on the island?

Answer. Although under the O&M Agreement, hurricanes are not
enumerated as Force Majeure Events, the P3 Authority took steps to
ensure that the Operator would work to upgrade and prepare the T&D
System for future hurricanes and other natural disasters. Puerto Rico's
dated and fragile electric system has faced significant operational and
reliability challenges and has struggled to provide residents with
reliable and affordable power. PREPA's challenges were both highlighted
and significantly aggravated by Hurricanes Irma and Maria. Against the
backdrop of these two devastating back-to-back hurricanes that
intensified an economic and fiscal crisis, the Government sought to
move forward in its economic and disaster recovery by investing in
infrastructure, people and the environment. In particular, Hurricanes
Irma and Maria forced the Government to rethink how PREPA's power
supply and delivery infrastructure should be managed and upgraded to
ensure that it is better prepared for inevitable future weather events.
The Project will harness LUMA's resources and expertise to revitalize
and strengthen the T&D System in order to be more resilient against
future natural disasters.
In order to assure that the consequences of a hurricane do not
exist for a consecutive eighteen (18) month period the Operator must
create an Emergency Response Plan before the Operator takes over the
operation of the T&D System. The Emergency Response Plan is meant to
serve as the vehicle for the improvement and strengthening of the T&D
System to withstand future hurricanes and other natural disasters. The
Operator is required to implement an Emergency Response Plan that not
only addresses disaster recovery and emergency response and restoration
of the T&D System, but that also coordinates plans for disaster
recovery and response. The Emergency Response Plan calls for storm
monitoring and mobilization, system condition monitoring, repair and
replacement of damaged components of the T&D System, as well as the
restoration of the T&D System to pre-emergency conditions, among other
things. The Emergency Response further requires the Operator to conduct
periodic drills including, at a minimum, a system wide test of the
Emergency Response Plan three (3) months prior to the commencement of
the Atlantic Hurricane Season, which shall replicate a Category 5
hurricane. Following such drills, Operator will conduct post-event
analysis and incorporate lessons learned from drills and actual events
to improve the readiness of the T&D System to withstand the forces of
nature.

Questions Submitted by Rep. Garcia
Question 1. LUMA has estimated that they can generate a cumulative
net savings of $323 million. Where and how can it produce these
savings? Will this data become public?

Answer. On December 20, 2019, LUMA provided a clarification letter
to the P3 Authority specifically addressing several requests for
clarification from the P3 Authority. LUMA provided estimates of savings
from their Loss Reduction Program and O&M Cost Improvement Program.
Assuming a Service Commencement Date in 2021, as the Operator, LUMA
estimates, per Appendix 2, a total cumulative Loss Reduction savings of
$648 million over the first 7 years and $536 million of O&M cost
savings over the same period for a total of $1,184 million.
Over the same period the total fees paid to LUMA are $861 million
for a net cumulative savings over the period of $323 million. These
cumulative net savings only cover the first 7 years of the term of the
O&M Agreement. These savings will continue to increase over the
remaining 8 years of LUMA's operation of the T&D System. As actual
savings are generated, the data will become public as LUMA's budgets
and performance metrics are subject to the jurisdiction of the PREB.
In terms of technical and non-technical loss reductions, LUMA has a
program to reduce the resultant system energy losses. LUMA plans to
reduce PREPA's current system total losses' percent from approximately
12.2 percent to 5.5 percent over the 7-year period. LUMA's energy loss
reduction program is based on experience from LUMA's management team
and similar sized utilities in Latin America where successful programs
have been implemented.
LUMA's operation and maintenance cost reductions/savings come from
their extensive due diligence work, benchmarking to other utilities
(i.e.: cost per kWh, cost per customer, and cost per mile) and their
operating utility experience. For example, LUMA expects to achieve
significant cost savings in vegetation management. After an initial 3-
year reclamation period of $50 million per year, LUMA projects
vegetation management costs will drop to $11 million and then reach a
steady state of $9 million per year. Note that the current 2020 Fiscal
Plan for PREPA shows vegetation management costs of over $70 million.
Additionally, although difficult to quantify now, the Partnership
Committee believes there could be substantial additional value at (and
beyond) the end of the term of the O&M Agreement, if, as is
contemplated in the O&M Agreement, there is no need (or limited need)
to retain a new or replacement Operator because of the knowledge
transfer and development of local expertise that is intended to take
place, which was one of the objectives that the Operator committed to
as part of its proposal.

Question 2. Given that LUMA has the right to terminate its contract
with the government in case of either ``prolonged force majeure
events'' or changes in regulatory law, does the government have a plan
in place if the Legislature or Administration in Puerto Rico act to
protect Puerto Rico's residents from energy rate hikes or penalties due
to nonpayment?

Answer. Let me take each of these questions in turn.

First, the Operator may only terminate the O&M Agreement in the
event that a Force Majeure Event continues in excess of eighteen (18)
consecutive months and materially interferes with, delays or increases
the costs of the Front-End Transition Services or the O&M Services (see
Section 14.5(c) (Additional Termination Rights--Extended Force Majeure
Event)). For the reasons noted above, we do not think this is a likely
event and, if it did occur, the O&M Agreement provides protections for
consumers and rate payers.

Second, with respect to changes in regulatory law, the O&M
Agreement limits when a cap on rates would be considered a Change in
Regulatory Law. A Change in Regulatory Law includes change, amendment
or modification to any Commonwealth Applicable Law or any adoption of,
or change to, any administrative or judicial interpretation (having the
force of law) of any Commonwealth Applicable Law that caps, or has the
effect of capping, rates charged to T&D Customers. Notably it expressly
excludes any temporary cap on rates to address an Outage Event, among
other scenarios. The carve out of temporary rate caps for Outage Events
reflects the clear acknowledgment of both the P3 Authority and LUMA
that the Legislature or Administration in Puerto Rico might seek to
protect ratepayers should a devastating hurricane, such as Hurricane
Maria or Hurricane Irma, strike the island and should address the
Committee Members' concern with respect to energy rate hikes or
penalties due to nonpayment during the course of a hurricane and the
aftermath of such event.
Finally, it bears noting that the O&M Agreement does not establish
energy rates (which are set by an independent regulator-the PREB) and
the compensation payable to the Operator, or its duties to perform
under the O&M Agreement, is not linked to nonpayment by customers or
amount of system revenues. Moreover, the amount of revenues and level
of the applicable rate paid by customers should not interfere with the
Operator's duty to perform its obligations under the O&M Agreement. The
Operator's compensation is not tied to the payment of rate charges by
T&D Customers. The Operator's compensation includes a fixed fee payable
to the Operator for each contract year and an incentive fee tied to the
Operator's ability to meet or exceed certain performance metrics. As
such, the Operator is incentivized throughout the term of the O&M
Agreement to continue to operate and maintain the T&D System even if
the Legislature or Administration in Puerto Rico act to protect Puerto
Rico's residents from energy rate hikes or penalties due to nonpayment.
Questions Submitted by Rep. Bishop
Question 1. The Committee has heard from some witness today about
all the negative aspects the newly signed LUMA contract will bring to
the residents of the island. Could you reiterate to us the expected
benefits to the consumers of Puerto Rico that were the basis for
ultimately agreeing to the terms of the contract?

Answer. LUMA's proposal, which was largely translated into the
contract, presents concrete and detailed plans and timelines for
achieving substantial gains in safety, customer service, reliability
and resiliency, all of which result in immeasurable benefit to the
Puerto Rican economy, a demonstrable leap in economic competitiveness,
tangible and meaningful improvements in the everyday quality of life of
Puerto Ricans, and better work conditions for employees.
LUMA will bring to consumers an extensive understanding of the
PREPA context, which will be further developed during the Front-End
Transition Period. LUMA's technical proposal, largely incorporated into
the terms of the O&M Agreement, presents a tailored approach to the T&D
system that demonstrates a clear understanding of the challenges and
opportunities of the Project. With LUMA taking on the role of the
Operator, the people of Puerto Rico will benefit from improvements in
design resiliency standards, storm hardening practices, control
centers, vegetation management, advanced metering infrastructure,
public lighting and fleet solutions to rebuild and upgrade the
performance of the electric grid and customer service. Further, LUMA
projects that it will be able to generate significant cost savings
throughout the life of the contract such that the savings are intended
pay for the service fee under the Agreement and avoid increases to rate
payers.
The people of Puerto Rico will benefit from LUMA's extensive
experience with respect to Federal funding procurement, management and
deployment. LUMA has committed to engaging its consortium member, IEM,
to deal with Federal funds management. IEM is a comprehensive emergency
management and disaster recovery firm that has supported over 300 state
and local jurisdictions with a wide range of energy management
services. IEM has experience with procuring and deploying Federal
funding, including over $51 billion in disaster recovery programs over
the past 35 years.
LUMA has made a commitment to investing in the local community and
Puerto Rico's workforce through leveraging the existing PREPA workforce
and developing a self-sustaining standalone utility at the end of the
contract term. Further, LUMA has committed to building and managing, at
its own expense, a state-of-the-art lineworker and technical training
campus in Puerto Rico to offer customized curriculum and training to
LUMA utility workers and the next generation of Puerto Rico's skilled
workforce. The lineworkers college will significantly improve local
workforce development and retention by providing best-in-class training
programs and facilities. In addition, the lineworkers college is a
critical component of LUMA's holistic approach to improving emergency
response preparedness for the benefit of the people of Puerto Rico.
Part of the lineworkers curriculum includes emergency preparedness
training, which will be integrated into the mindsets of the local
Puerto Rican workforce from the outset of their training.
The central goal of the Project is to transform Puerto Rico's
energy system into a modern, sustainable, reliable, efficient, cost-
effective and resilient one. The Project is intended to achieve the
following objectives for the benefit of the people of Puerto Rico: (i)
delivery of low-cost electricity to the ratepayers of Puerto Rico; (ii)
increase in T&D System resiliency, achieving performance in line with
codes, specification and standards consistent with mainland U.S.
electric utilities; (iii) increase T&D System reliability; (iv)
deployment of new technologies; and (v) implementation of industry best
practices and operational excellence through managerial continuity and
long-term planning.

Question 2. The Committee has heard that the RFP process that
ultimately lead to the contract signed with LUMA was opaque, lacking
input from valuable public member stakeholders, and conducted behind
``closed doors.'' Can you describe the RFP process that the P3
Authority conducted? Would it be fair to claim that the process lacked
transparency?

Answer. The claims you refer to are irresponsible, are born out of
a lack of knowledge, or are simply designed to pursue a self-serving
agenda. The entire procurement process for the PPP related to the T&D
System was conducted in accordance with the highest standards and
industry wide best practices. It also fully complied with applicable
legal requirements including as set forth in Act 29, Act 120, the
Regulation, and the evaluation criteria clearly detailed in the RFP.
Puerto Rico is a leader amongst U.S. jurisdictions with organized
PPP programs. The Government specifically enacted Act 29 and its
regulations in order to finance infrastructure projects that provide
multiple public services. Pursuant to the framework set forth in Act 29
the Government has had success in bringing to bear best industry
practices, expertise, experience and know-how to its infrastructure
projects by entering into PPPs with private sector participants. For
example, the Government has entered into PPPs to revitalize toll roads
PR-22 and PR-5 and the Luis Munoz Marin International Airport, both of
which were awarded Project Finance International's deal of the year in
the Americas award for the successful financing of significant
infrastructure projects. By providing clarity, uniformity, and
certainty with respect to PPP selection and contracting, Act 29 and the
regulation enacted thereunder comprise one of the most robust legal
frameworks for PPPs in the Americas. In particular, Puerto Rico's PPP
program is guided by the following five key components of a successful
PPP program identified by the World Bank Group: clear public policy,
strong legal framework, clear processes and institutional
responsibility, responsible financial management, and good governance
arrangements.
The detailed legal framework set forth in Act 29 includes specific
rules governing the confidentiality of the PPP process and the specific
timing of any disclosures regarding the process, the identity of
participants and resulting agreement, in this case the O&M Agreement.
During the evaluation, selection and negotiation process, including all
proceedings prior to the approval of the proposed partnership by the
board of directors of the P3 Authority and board of directors of PREPA
and by the Governor, all information relating to the PPP process,
including the identity of the participants remaining in the process,
the proposals submitted, and the negotiations between the parties must
remain confidential. Pursuant to Act 29, the relevant information about
the PPP process is only disclosed by the P3 Authority after an
agreement is approved by the Governor and executed by the parties.
Article 9(b) of Act 29 further requires that, in commencing a PPP
process, the P3 Authority must devise processes directed at (i)
guaranteeing the participation of the greatest number of qualified
proponents and (ii) protecting and ensuring a level playing field and
fair competition among such proponents. Protecting and preserving the
confidentiality of the proponents, their proposals and the evaluation
thereof until the execution of the O&M Agreement was essential for
achieving the aforementioned goals as explained in more detail below.
Act 120 makes the confidentiality and other provisions of Act 29
expressly applicable to the PPP process for PREPA. Furthermore, the
Regulation similarly provides for the confidentiality of all
information and documents submitted in connection with a PPP process
prior to the execution of a final agreement.
Finally, Art. 4.7(b)(iii)(3) of the Regulation provides that
proposals received for any PPP process under Act 120 and Act 29 shall
not be read publicly nor shall the P3 Authority generate copies
thereof. Instead, the Regulation requires that during the period for
selection and evaluation for proposals, ``only the members of the P3
Authority, the members of the Partnership Committee or persons
designated by the P3 Authority or its Executive Director may have
access to the Proposals or the results of the evaluation of those
proposals.'' In turn, Article 5.1(ii)(vi), which addresses the review
of proposals and eventual recommendation by the Partnership Committee
requires that proposals, evaluation, discussion and negotiations be
kept confidential through the evaluation, selection and negotiation
process.
Thus, the applicable statutes and regulations provide for the
confidentiality of the draft O&M Agreement and related Partnership
Committee Report, as well as all proposals and other information
received or exchanged during the evaluation, selection and negotiation
process of a Project until the O&M Agreement was executed. These
statutory and regulatory confidentiality requirements are geared at
protecting important interests that are key to the success of the PPP
process, namely the evaluation, selection and negotiation with as many
qualified proponents as possible through a competitive process. It is
only through a robust and competitive process that the Government would
be able to achieve the best terms for the relevant PPP and thus protect
the best interests of the people of Puerto Rico.
As noted above, the confidentiality of the procurement process
serves two purposes, both of which ultimately benefit the people of
Puerto Rico. First, protection of proponents' information and proposals
through the execution of the O&M Agreement (and beyond that for certain
items such as proprietary information and trade secrets) serves to
encourage a greater number of participants to engage in the PPP process
because they are not concerned that their data will end up in the hands
of their competitors. Greater participation in a PPP process enhances
competition and provides the Government with a greater number of
alternatives, inevitably leading to less risk transferred to the
Government and people of Puerto Rico.
Second, ensuring that proponents do not have access to each other's
proposals, the Partnership Committee's evaluation of such proposals, or
information about the negotiations between a proponent and the
Partnership Committee is key to preserving the Partnership Committee's
leverage and ability to negotiate the best terms for the P3 and
ensuring the fairness of the process. In order to maintain the true
competitive tension necessary for the Partnership Committee to
negotiate the best terms for the O&M Agreement, it was necessary to
preserve confidentiality while there were any possibilities of further
negotiation with the other proponent.
It is also worth noting that a PPP process may be of interest to
publicly-traded companies. These public companies may be particularly
sensitive to disclosure of their participation in a PPP process before
the execution of an agreement. Such disclosure could require an
obligation to make certain securities law filings regarding the
potential transaction and could affect the company's share price.
Maintaining confidentiality of the PPP process until an agreement is
executed allows public companies to participate in a PPP process
without concern of material non-public information being disclosed
prior to the point at which the PPP transaction has been formalized
(i.e., upon execution of a final agreement). This increased the
likelihood of public company participation in a Project and thus the
number of potential participants, both of which were critical to the
Project. Against this backdrop and pursuant to the requirements of
applicable law, the procurement process for the Project commenced with
an open and transparent market sounding process and Request for
Qualification (``RFQ'') process. In the summer of 2018, the Government,
including the P3 Authority, AAFAF and PREPA, together with the FOMB,
issued a letter soliciting private sector feedback on the energy
transformation generally and the Project specifically, with the stated
goal of creating a modern, sustainable, reliable, efficient, cost
effective, and resilient energy system. Following the market sounding
process, the P3 Authority issued the RFQ for the Project, as well as a
public notice with respect to the RFQ. The RFQ solicited statements of
qualification, to be reviewed by the Partnership Committee, from
respondents qualified to participate in the RFP process. The RFQ was
made publicly available and requested statements of qualification from
companies and consortia that demonstrated, among other things: (i)
experience operating large-scale electric utilities, (ii) the ability
to operate electric utility T&D infrastructure on an island or other
stranded location, (iii) experience with formal regulatory proceedings
and (iv) experience managing disaster recovery operations. A copy of
the RFQ is available at the P3 Authority's website at https://
www.pr.gov/p3/.
The P3 Authority then conducted a RFP process that was fair and
transparent among participating proponents. The RFP for the Project was
issued in February 2019 pursuant to Article 5 of Act 120 and Article 3
of Act 29. The RFP process sought proposals from companies and
consortium that had been pre-qualified in the Request for Qualification
process. The objective of the RFP process was to enable the Partnership
Committee to determine the proponent best qualified to enter into the
O&M Agreement based on their final proposal. For the following ten (10)
months, the Partnership Committee oversaw (i) a robust due diligence
exercise, which included access to significant information about PREPA
by way of a data room, specifically, 17,988 documents related to PREPA
totaling 149,181 megabytes of data, over 730 diligences questions
submitted by proponents and answered by the P3 Authority, which answers
were made available to all proponents, unless a proponent requested
confidentiality and the P3 Authority agreed to such treatment,
management presentations, site visits and information sessions, and
(ii) extensive discussions with the qualified proponents regarding the
structure and transaction documentation for the proposed Project,
including multiple opportunities for comments on the proposed
transaction documentation and discussion of such comments. The
proponents were provided access to the same information and had similar
access to the P3 Authority and PREPA management. All proponents were
given access to the data room, and proponents were able to submit any
request for clarification with respect to the contents of the RFP, the
information available in the data room and other matters related to the
Project.
The P3 Authority issued seven addenda to the RFP to (i) update the
timeline of the RFP process, (ii) update the processes and procedures
to be used to implement the RFP process, including the evaluation
criteria and weighting to be applied to the proposals and proposal
submission instructions, and (iii) distribute certain transaction
documents provided to the proponents prior to November 25, 2019, the
date on which proposals were due, including the term sheets summarizing
two contemplated transaction structures and various drafts of the O&M
Agreement. During the period from February through November 2019, the
proponents received three draft terms sheets and four drafts of the O&M
Agreement. Pursuant to the process set forth in the RFP, the proponents
(i) provided written comments to and markups of two terms sheets and
three drafts of the O&M Agreement, and (ii) met with the P3 Authority,
certain consultants to the P3 Authority, and representatives of the
FOMB on four occasions to walk through and discuss their comments to
the term sheets and draft O&M Agreements. In order to maintain fairness
and transparency, communications between the P3 Authority and the
proponents throughout the term of the RFP process were solely
distributed via PowerAdvocate^C, a digital platform
specifically designed for the energy industry to make competitive
procurement easy and efficient.
The proponents were required to submit their proposals by 12:00 PM
AST on November 25, 2019. On December 4, 2019, each of the proponents
participated in in-person meetings to discuss their proposals with the
P3 Authority, various consultants to the P3 Authority and
representatives of the FOMB. On December, 6, 2019, the proponents were
given the opportunity to present their proposals to the Partnership
Committee and answer any questions the members had. Following a
detailed review and evaluation of the proposals, and in accordance with
the procedures set forth in Act 120 and its regulations, the
Partnership Committee voted in January 2020 to proceed with
negotiations with LUMA. Thereafter, the Partnership Committee and LUMA
negotiated and finalized the terms and conditions of the O&M Agreement.
For more detailed information on the RFP process, please see Section
4.4 (Request for Proposals) of the Partnership Committee Report
attached as Exhibit B hereto.
Upon execution of the O&M Agreement the Partnership Committee
published the Partnership Committee Report. The Partnership Committee
Report is an extensive 330-page report that details (i) the Project
background and objectives, (ii) procurement process, (iii) selection
process and key considerations relevant to recommending that the board
of directors of the P3 Authority elect LUMA to execute the O&M
Agreement, and (iv) a comparison between LUMA's proposal and other
proposals presented, as well as all other information pertinent to the
procedure followed and the evaluation conducted. This report, as well
as the O&M Agreement itself, are publicly available at the P3
Authority's website at https://www.pr.gov/p3.
In sum, the procurement process for the O&M Agreement was not only
carried out strictly in accordance with the legal requirements of Act
29, Act 120 and the relevant regulations, but also was designed to
allow proponents extensive access to information about PREPA and the
T&D assets, significant opportunity for review and comment on the
transaction documents and the ability to clarify and refine their
proposals to better serve the Government's objectives and the ultimate
day-to-day experience of the people of Puerto Rico.

*****

The following documents were submitted as supplements to Mr. Fontanes'
responses. These documents are part of the hearing record and are being
retained in the Committee's official files:

-- EXHIBIT A--Amendment No. 7 to the Request for Proposals

-- EXHIBIT B--Partnership Committee Report

______

The Chairman. Thank you very much, sir.
Next is the Chair of the Puerto Rico Energy Bureau, Mr.
Edison Aviles.
Sir.

STATEMENT OF EDISON AVILES-DELIZ, CHAIR, PUERTO RICO ENERGY
BUREAU (PREB)

Mr. Aviles-Deliz. Good afternoon Chairman Grijalva, Ranking
Member designee Gonzalez-Colon, and members of the Committee.
My name is Edison Aviles, and I am the Chair of the Energy
Bureau also known as the PREB.
On behalf of the PREB, I appreciate the opportunity
afforded to present our views regarding the transformation of
the Puerto Rico Power Authority, PREPA.
PREB is an independent regulatory body consisting of a
shared commissioner and four associate commissioners, all of
whom have equal voting rights. The PREB has a mandate to
implement and enforce the energy public policy of the
government of Puerto Rico as well as to adopt the regulations
necessary for such implementation.
The PREB was created in 2014 by the Puerto Rico Energy
Transformation and RELIEF Act, serving as a key component for
the full and transparent implementation of the Act's energy
reform goals. The PREB has a mandate to ensure electric service
is safe, reliable, and affordable.
PREB's commissioners are highly qualified professionals.
PREB also engages recognized experts in the regulatory field to
assist its informed and grounded regulatory development. It is
an active member of NARUC.
The U.S. Department of Energy Office of Electricity has
provided and continues to provide significant technical
assistance in the areas of electric distribution planning and
energy efficiency program development.
The New York Department of Public Service is currently
providing support to the PREB by sharing its expertise and
experience with the oversight of the Long Island Power
Authority, LIPA, third party T&D operation services agreement.
The recently adjudicated T&D maintenance and alteration
agreement provides the PREB with tools for enforcement. The
private T&D operator has a financial incentive to improve
system performance according to metrics approved by the PREB.
On the other hand, penalties will be paid by LUMA, not the
ratepayers. Significant positive changes intended to rebuild
public confidence have taken place since the last time the PREB
testified in Congress.
I am proud to report that the PREB is already conducting
numerous proceedings that account for significant steps in
advancing the transformational goals of reliability,
sustainability, and cost effectiveness.
Some notable proceedings include: (1) Rate Case--for the
first time, electric service rates were set in Puerto Rico by
an independent regulator; (2) Regulation Energy Cooperatives in
Puerto Rico--this regulation contributes to the public policy
established by the government of Puerto Rico to promote the
development of a decentralized energy model capable of
providing renewable energy options to the residents of the
island; (3) Energy Efficiency Program Development--the process
to adopt an energy efficiency regulatory program started in
2019, and we expect to have the regulation in place before year
end. This proceeding seeks to ensure an energy efficiency goal
of 30 percent is reached by 2040; (4) Regulation on Electric
Energy Wheeling--as a first step, PREB adopted the regulation
establishing the legal framework on electric energy wheeling.
The second step, already ongoing, encompasses the abundance of
PREPA assets to then adopt the applicable wheeling charges.
PREB expects to complete this process within the next 8 months;
(5) the Integrated Resource Plan, the IRP, is the cornerstone
and roadmap of the energy conservation of the island. The PREB
is currently evaluating the performance of the utility's
proposed IRP with the goal set out from the Puerto Rico Energy
Public Policy Act, and we expect the final resolution to be
issued in August 2020; (6) Preliminary T&D Operation and
Maintenance Agreement--it is important to emphasize: (a) the
Puerto Rico Energy framework; (b) the certificate of compliance
issued by the PREB; as well as (c) the T&D agreement
acknowledging PREB's regulatory authority to ensure LUMA's
compliance with the energy public policy, the applicable legal
framework, and the agreement itself.
In our views, for all energy purposes, LUMA will be in
PREPA's shoes. I look forward to your questions and remain
committed to strengthening the working relationship with the
Committee for the benefit of Puerto Rico.

[The prepared statement of Mr. Aviles-Deliz follows:]
Prepared Statement of Edison Aviles-Deliz, P.E., Esq., Chair,
Puerto Rico Energy Bureau
i. introduction
Good afternoon Chair Grijalva, Ranking Member Bishop, Congresswoman
Gonzalez-Colon, and members of the Committee.
My name is Edison Aviles-Deliz, and I am the Chair of the Energy
Bureau of the Puerto Rico Public Service Regulatory Board
(``PREB'').\1\ I am a licensed electrical engineer with a specialty in
power and control systems and an attorney with a Masters in Energy Law
from the Vermont Law School. I joined PREB in June 2018.
---------------------------------------------------------------------------
\1\ Formerly known as the Puerto Rico Energy Commission.
---------------------------------------------------------------------------
PREB is an independent, regulatory body consisting of five (5)
commissioners. The Commissioners have equal voting powers. The PREB has
a mandate to implement and enforce the energy public policy, as well as
to adopt the regulations necessary for such implementation.
We acknowledged receipt of your letter dated July 15, 2020,
inviting us to testify before the Committee on Natural Resources of the
House of Representatives at an oversight hearing concerning The
Transformation of the Puerto Rico Power Electric Authority (PREPA). We
appreciate the opportunity afforded to present our views regarding this
important matter.
As this Committee is aware, in 2017 Hurricanes Irma and Maria
devastated Puerto Rico's already precarious electric system.
Significant efforts have been and continue to be underway to rebuild
the electricity system for Puerto Rico. I am here today to discuss the
significant public policy changes that govern PREPA's transformation as
well as PREB's crucial role in this process to ensure a successful
transformation.
Having a strong and effective regulator is crucial to a stable and
robust electric delivery system. The PREB is an independent regulator
but subject to judicial review. This stability fosters an environment
where long-term plans and strategies can succeed.
Having a strong and effective regulator is a major pillar of the
energy transformation in Puerto Rico. Significant positive changes
intended to rebuild public confidence have taken place since the last
time the energy regulator testified to Congress.\2\
---------------------------------------------------------------------------
\2\ ``Puerto Rico's Electric Grid'', Senate Energy and Natural
Resources Committee, May 8, 2018.
---------------------------------------------------------------------------
ii. a strong, effective regulator
The PREB was created in 2014 by the Puerto Rico Energy
Transformation and RELIEF Act \3\ serving as a key component for the
full and transparent implementation of the Act's energy reform goals.
Specifically, the PREB has the responsibility to regulate, monitor and
enforce the energy public policy of the Government of Puerto Rico. PREB
has a mandate to ensure electric service is safe, reliable, and
affordable. PREB is an active member of the National Association of
Regulatory Utility Commissioners (``NARUC'') with several commissioners
serving key roles within the Association. I serve in the Advisory Board
of NARUC's Regulatory Training Initiative (``RTI'') and Associate
Commissioner Lilliam Mateo-Santos is a member of NARUC's Emergency
Preparedness, Recovery and Resiliency Task Force.
---------------------------------------------------------------------------
\3\ Act 57-2014, as amended.
---------------------------------------------------------------------------
1. Expertise
a. Commissioners

By statute,\4\ PREB Commissioners have diverse professional
backgrounds. The current Bureau has exceptionally professionally
qualified commissioners. Currently, two commissioners hold dual degrees
in engineering and law, and are licensed in both professions, one
commissioner is a seasoned energy, land use, and environmental attorney
that serves as the Second Vice President for the Southeast Association
of Regulatory Utility Commissioners (``SEARUC'') and one commissioner
is a licensed engineer specialized in the design of electrical power
systems. There is one vacancy.
---------------------------------------------------------------------------
\4\ Section 6.6 of Act 57-2014, as amended.
---------------------------------------------------------------------------
b. Nationally Recognized Technical Resources

PREB has recognized experts in the regulatory field to assist its
informed and grounded regulatory development. These resources include
former commissioners and staff from multiple U.S. Public Utility
Commissions (``PUCs'') as well as experts in the areas of energy
regulatory affairs, economics, engineering, energy efficiency and
resource/system/operations planning, among others. These experts also
provide consulting services through the United States and other
international jurisdictions.
c. Department of Energy (``DOE'') Technical Assistance

The DOE's Office of Electricity (``DOE-OE'') has provided and
continues to provide significant technical assistance in the areas of
electric distribution planning and energy efficiency program
development. The interface among stakeholders, the utility and the
subject matter experts facilitated by DOE-OE has provided the PREB a
clear view of the technical current state-of-affairs at the utility,
including the foundational investments that are needed to support the
right sequencing of the resilience buildup efforts that are a
significant operational goal for the grid.
i. NARUC's Exchange Initiative \5\
---------------------------------------------------------------------------
\5\ https://www.fortnightly.com/fortnightly/2020/05/forging-
regulatory-bridge-puerto_rico?auth
key=6e034479ae939210ef3e50f8efae93f75a4580105a3819aa9dfe04b33060e604.
---------------------------------------------------------------------------
With support from DOE, NARUC and PREB resources, a delegation of
nine utility commissions (PR, MI, PA, HI, FL, NY, MO, MS, and NJ)
assembled for an initial exchange in San Juan during February 2020.
This initial exchange represents a preliminary step in laying the
foundation for a future Staff rotational program to send mainland
utility Commission Staff to Puerto Rico to support the PREB with
additional capacity and expertise that targets specific needs.

New York Department of Public Service

Arising from the NARUC's Exchange Initiative, PREB is currently
receiving invaluable support the from the New York
Department of Public Service (``NYDPS''). The NYDPS is
sharing its expertise and experience with the oversight of
the Amended and Restated Operation Services Agreement
entered by the Long Island Power Authority (``LIPA'') and
PSEG Long Island, LLC, in accordance with the LIPA Reform
Act. Under this contractual arrangement, comparable to the
PREPA private third-party transmission and distribution
system maintenance and operating arrangement, LIPA
outsourced the operation and maintenance of its public
utility grid and delivery services to a private third-party
operator, PSEG Long Island. PREPA with the Puerto Rico
Public-Private Partnership Authority (``P3 Authority'') and
LUMA Energy have recently entered a similar contractual
arrangement. Both arrangements resulted from legislation
enacted to address challenges exacerbated by weather
events--Hurricane Sandy in New York (2012) and Hurricanes
Irma and Maria in Puerto Rico (2017). Both New York and
Puerto Rico's third-party arrangements seek to maximize
Federal recovery funds for increasing system resilience.
The third-party contractual accountability of these
arrangements and their independent regulatory oversight are
critical to ensure that performance and rate incentives
align with the public interest. The PREB is currently
developing the Oversight Implementation Plan for the PREPA/
(P3 Authority)-LUMA Transmission and Distribution Operation
and Maintenance Agreement (``T&D OMA'') using the NYDPS's
regulatory oversight \6\ as a model. I want to highlight
our appreciation to our counterparts in New York and look
forward to continued engagement.
---------------------------------------------------------------------------
\6\ The NYDPS provides oversight to the implementation of the LIPA-
PSEG Operations Services Agreement, where PSEG Long Island, LLC took
over management and operation of LIPA's electric system and on January
1, 2014 became responsible for LIPA's day-to-day operations, including:
budgeting, maintenance, storm preparedness and response, infrastructure
improvements, and energy efficiency and renewable activities.

---------------------------------------------------------------------------
2. Notable Proceedings

Although a fairly new regulatory agency, responsible to guide and
oversee the statutory transformation of the electric industry in Puerto
Rico, the PREB is already conducting numerous proceedings that account
for significant steps in advancing the transformational goals of
reliability, sustainability and cost effectiveness.
a. Rate Case \7\
---------------------------------------------------------------------------
\7\ CEPR-AP-2015-0001.

This is a landmark proceeding. For the first time, electric service
rates have been set in Puerto Rico by an independent regulator based on
evidence and testimony produced under oath, eliminating rates that had
not been revised for 27 years. The PREB implemented the new permanent
rates on May 1, 2019 and approved several riders designed to be
reviewed no more than every quarter \8\ to limit the frequency of when
the electric bill could vary. A modified tariff book was also adopted
on May 22, 2019.
---------------------------------------------------------------------------
\8\ In Re: Puerto Rico Electric Power Authority Rate Review, Case
No. CEPR-AP-2015-0001, Final Resolution and Order, January 10, 2017.
pp. 130-131, Sec. Sec. 377-378.
---------------------------------------------------------------------------
b. Integrated Resource Plan (``IRP'') \9\
---------------------------------------------------------------------------
\9\ CEPR-AP-2018-0001.

The IRP is the cornerstone and roadmap of the energy transformation
of the Island. The PREB is currently evaluating the utility's proposed
IRP against the renewable resource goals set out in the Puerto Rico
Energy Public Policy Act (Act 17-2019). The IRP proceeding had numerous
intervenors, five (5) days of technical hearings and five (5) days of
local public hearings (Ponce, Mayaguez, Arecibo, Humacao, San Juan)
during February 2020. Final briefings were completed in April 2020. We
expect the Final Resolution, which will consist of (i) a summary of
PREB's analysis of thousands of pages of technical documentation; (ii)
PREB's findings and conclusions; and (iii) specific actions for
implementation, to be issued in August 2020. IRPs are reviewed on a
three (3) years cycle.
c. Energy Efficiency (``EE'') Program Development \10\
---------------------------------------------------------------------------
\10\ NEPR-MI-2019-0015.

By statute, the PREB has authority over the EE program.\11\ This
proceeding seeks to ensure an energy efficiency goal of thirty percent
(30%) is reached by 2040. Energy efficiency is always the least cost
resource. Lowering demand can be achieved at far less cost than new
generation with its associated transmission and distribution. It also
lessens dependence on oil-fired generation. Finally, with enhanced
ability to better measure demand reduction that allow energy efficiency
to participate as a firm resource, it can increase system stability.
---------------------------------------------------------------------------
\11\ See Section 6.29B(a) Act 57-2014.
---------------------------------------------------------------------------
A successful EE program is key to achieving the energy
sustainability goals of the Puerto Rico Energy Public Policy Act.
However, the insolvency currently experienced by the utility is a
barrier to the successful implementation of energy efficiency programs
for the Puerto Rico electric consumer.
With support from the DOE, we are holding a virtual stakeholder
engagement event on July 31 to consider best approaches to deploy
energy efficiency measures in Puerto Rico. Presenters include
nationally recognized EE experts, resources from the Lawrence Berkeley
National Laboratory, the USDA Rural Development Electric Program, the
American Council for an Energy Efficient Economy (``ACEEE''), the
National Association of State Energy Officials (``NASEO''), the
Arkansas Public Service Commission, and the Ouachita Electric
Cooperative.
d. Regulation on Electric Energy Wheeling \12\
---------------------------------------------------------------------------
\12\ https://energia.pr.gov/wp-content/uploads/2020/02/9138-
Regulation-on-Electric-Energy-Wheeling.pdf.

This Regulation was adopted and enacted in September 2019 to
implement the energy wheeling mechanism in Puerto Rico, in accordance
with applicable legislative mandates. More specifically, to implement a
system that allows an exempt business, dedicated to the production of
energy, as described in Section 2(d)(l)(H) of Article 1 of Act No. 73-
2008, as amended, known as the Economic Incentives Act for the
Development of Puerto Rico, or similar provisions in other incentive
laws, as well as Electric Power Service Companies, Micro grids, Energy
Cooperatives, Municipal Ventures, Large Industrial and Commercial
consumers, and Community Solar and other demand aggregators, to
participate in the energy wheeling mechanism in Puerto Rico.
e. Regulation Energy Cooperatives in Puerto Rico \13\
---------------------------------------------------------------------------
\13\ https://energia.pr.gov/wp-content/uploads/2019/10/9117-
Regulation-on-Energy-Cooperatives.pdf.

Through the adoption of this Regulation in October 2019, the PREB
contributes to the public policy established by the Government of
Puerto Rico to promote the development of a de-centralized energy model
capable of providing renewable energy options to the residents of
Puerto Rico, which strengthens the electric system resilience to
natural disasters.
f. Preliminary T&D OMA Certificate of Energy Compliance \14\
---------------------------------------------------------------------------
\14\ NEPR-AP-2020-0002.

PREPA is required to obtain an Energy Compliance Certificate from
the PREB for every transaction it enters. PREB must certify that a
preliminary contract complies with the energy public policy and
regulatory framework established by Puerto Rico's Energy Public Policy
Act.\15\ On June 17, 2020, the PREB issued a Certificate of Energy
Compliance for the preliminary T&D OMA between PREPA/(P3 Authority) and
LUMA. It is important to note that the T&D OMA acknowledges the PREB's
regulatory authority to ensure this compliance by LUMA, as the T&D
Operator.
---------------------------------------------------------------------------
\15\ Section 5(g), Act 120-2018.
---------------------------------------------------------------------------
3. Strong Regulatory Landscape
The previous notable proceedings demonstrate the strong
comprehensive regulatory landscape created by Act 57-2014 and Act 17-
2019. More significantly, this landscape includes an enforcement
infrastructure for compelling compliance with the statutory
transformational measures to develop a reliable and sustainable
electric system.
a. PREB's Enforcement Mechanisms--Real Incentives/Real Penalties

The recently adjudicated T&D OMA provides the PREB with real teeth
for enforcement. The private T&D Operator has a financial incentive
\16\ to improve system performance according to metrics approved by the
PREB.\17\ The PREB can also fine the T&D Operator for noncompliance
with its regulations.\18\ In the past, imposing fines on PREPA
effectively meant fining the Puerto Rico government, thus negatively
impacting the people of Puerto Rico twice. Third-party accountability
means that any potential penalties imposed on the private T&D Operator
will erode its fixed fee payments under the contract. Having this
regulatory tool available to the PREB is nothing short of
transformational.
---------------------------------------------------------------------------
\16\ See Annex IX and X of the Puerto Rico Transmission and
Distribution System Operation and Maintenance Agreement.
\17\ Id. Section 4.2(f).
\18\ Id. Section 7.6(a)(ii).
---------------------------------------------------------------------------
b. Independent Office of Consumer Protection (IOCP)

The electric regulatory landscape in Puerto Rico is well supported
by a strong legal framework that directs the Independent Office of
Consumer Protection (IOCP) to represent and defend, among others, the
energy services customer in all matters in front of the PREB, including
the IRP, rate revisions, electric utility bill disputes and disputes
originating from customer dealings with electric service companies.
iii. hurricanes irma and maria (2017) and earthquake events (2020)
We are all familiar with the devastating impact that Hurricanes
Irma and Maria had on the electric grid in Puerto Rico in 2017 and its
inability to quickly recover. We all also recognize that this cannot
happen again. Significant actions, including those I have described
earlier, have been taken that together is already advancing this
objective.
1. Puerto Rico Electric Power Transformation Act--Act 120-2018

Act 120-2018 addresses longstanding electric utility deficiencies
that were clearly exposed during the aftermath of hurricanes Irma and
Maria and the earthquake events of 2020. This Act authorizes the legal
framework required for the transfer of the operation and maintenance of
PREPA's Transmission and Distribution systems. This Act enabled the
PREPA/(P3 Authority)-LUMA T&D OMA that went into effect on June 22,
2020.
2. Puerto Rico Energy Public Policy Act--Act 17-2019

Act 17-2019 was enacted for the purposes of establishing Puerto
Rico's public policy on energy in order to set the parameters for a
resilient, reliable, and robust energy system with just and reasonable
rates for all customer classes; make it feasible for energy system
users to produce and participate in energy generation; facilitate the
interconnection of distributed generation systems and microgrids, and
unbundle and transform the electrical power system into an open system.
a. Increased System Resilience

The restoration work is now complete. The next phase of
reconstruction needs to follow an orderly plan based on sound economic
and engineering principles. The recently adjudicated T&D OMA assigns
the T&D Operator with the responsibility of implementing long-term
strategies to plan the electric system for increased resilience and in
compliance with the energy public policy.
b. Fully Accessible Stakeholder Engagement

To increase the transparency of regulatory proceedings affecting
the energy sector in Puerto Rico, the PREB embarked in a series of
stakeholder engagement activities that continue to this date. All
stakeholder engagement events are simulcast in Spanish/English onsite
and over the internet to facilitate participation from all Puerto
Ricans. To our knowledge, we are the only energy regulatory commission
in the United States that offers these accommodations. These
stakeholder activities support the following energy public policy
elements:
Electric Distribution Planning

The DOE-OE has made available subject matter experts during this
comprehensive Initiative that have meaningfully engaged with PREPA's
technical resources on what would be the most effective sequencing to
build up system resilience. Given the multitude of utilities helping to
expedite restoration after the hurricanes of 2017, the electric
distribution system needs to be baselined in the utility GIS to ensure
effective planning/reconstruction. Three (3) working groups were
created to support this Initiative, (1) Electric Infrastructure
Resilience, (2) Hosting Capacity/Data Availability, and (3) Planning
Coordination. This Initiative has also benefited from collaborations
from the Hawaii PUC and the Hawaiian Electric Company (``HECO'').
Interconnection Rules

Considers methods, technologies, and standards to streamline the
interconnection process to best support increased integration of
renewable sources.
Renewable Energy Certificate (``REC'') Market

Considers the elements for the effective creation of the REC market
in Puerto Rico, the challenges arising from its implementation as
reflected in Act 82-2010, and mechanisms to efficiently support its
operation.
Energy Efficiency

With technical assistance from the DOE, the PREB has held several
stakeholder engagements events to consider different approaches to best
deploy an effective energy efficiency program incorporating measures
that address the specific characteristics of the Island.
c. Renewable Portfolio Standard (``RPS'')

The new goals for compliance with the RPS are 20% by 2022, 40% by
2025, 60% by 2040, and 100% by 2050.
iv. strong and efficient oversight of the electric infrastructure
reconstruction [federal recovery funding]
1. The Transmission and Distribution Operation and Maintenance
Agreement (``T&D OMA'') \19\
---------------------------------------------------------------------------
\19\ http://www.p3.pr.gov/assets/executed-consolidated-om-
agreement-td.pdf.

Under the T&D OMA, an independent third-party private operator
assumes operational control and management of PREPA's electric grid.
This operator has responsibility for long-term plans and strategies to
expand and upgrade the Island's grid, proposals for resilience buildup
of the electric infrastructure, and management of Federal recovery
funding. The emphasis is on rebuilding to meet current national codes
and standards and to integrate electric industry best practices that
will make it easier to interface with other U.S. Mutual Aid utilities
during emergency responses. It is important to highlight that even
though system plans may have existed or may still exist for the
electric grid in Puerto Rico, all T&D system planning and operations
are now the responsibility of the T&D Operator, who is subject to the
full oversight of the PREB. It is expected that LUMA, as the T&D
Operator, will be able to commence implementation immediately of well-
studied long-term strategies to improve reliability that assures
Federal recovery funding is effectively and efficiently invested to
build up the resilience of the Island's electric network system.
2. The Private T&D Operator is Subject to PREB's Oversight

The arrangement of the T&D OMA places a private operator to manage
PREPA's electric grid. This operator is the single entity in charge
with orchestrating the long-term plans and strategies for the electric
T&D system.

a. PREB has effective regulatory tools to ensure that the T&D Operator
will comply with Puerto Rico's energy public policy and
contractual performance metrics that include:

Making the electric system more resilient to sustain
weather events;

Aligning restoration and repair time on par with similar
utilities in the United States;

Improving the reliability of the system to sustain
economic and industrial growth; \20\
---------------------------------------------------------------------------
\20\ Consistent with attracting manufacturing opportunities to the
U.S.

---------------------------------------------------------------------------
Charging affordable rates; and

Increasing adoption of clean energy.

b. PREB's New Enforcement Tools

Incentives \21\ are permitted to enhance T&D Operator's
yearly payments, thus incentivizing the Operator to improve
compliance with performance requirements; and
---------------------------------------------------------------------------
\21\ See Section 7.1(c) and Annexes VII, IX and X of the Puerto
Rico Transmission and Distribution System Operation and Maintenance
Agreement.

Fines \22\--incentivize the Operator to improve compliance
with performance requirements, because fines will be paid
directly by the T&D Operator.
---------------------------------------------------------------------------
\22\ Id. Section 7.6(a)(ii).

c. The PREB has already begun interfacing with LUMA's regulatory team
and have identified almost 30 deliverables that the PREB will
approve and/or monitor throughout the span of the T&D OMA, the
---------------------------------------------------------------------------
most notable of which include:

Initial Budgets

System Remediation Plans

Performance Metrics

Vegetation Management Plan

System Operation Principles

Emergency Response Plan

v. conclusion
Two Core Elements of the Energy Transformation of the Island are
well underway:

1. Well-funded, professionally staffed, strong, effective, and
independent electric utility regulator enabled by statute to impose
penalties that will not be paid by ratepayers but will erode the fixed
fee payments \23\ of the contracted T&D Operator.
---------------------------------------------------------------------------
\23\ See Section 7.6(a)(ii) of the Puerto Rico Transmission and
Distribution System Operation and Maintenance Agreement.

2. A selected T&D Operator responsible for daily operations and
long-term planning of the electric system and who is properly
---------------------------------------------------------------------------
incentivized to improve performance.

We all saw the devastation and the aftermath of Hurricane Maria on
the frail conditions of the electric transmission and distribution
systems and the earthquake events that exposed the vulnerability of
legacy generation facilities, risking the safety and security of our
people, particularly our most vulnerable. I was there. Millions of
people were there.

Today, the people of Puerto Rico stand together with a common
objective to never repeat the misfortunes experienced in that dark
period of our Island's history. I am here, representing the public
interest of my fellow citizens through the legal mandate that has been
bestowed upon the PREB, to help lead the recovery and revitalization,
through industry's proven methods, and yield a dependable, resilient,
clean and efficient electrical infrastructure for our people.

The transformation of our public policy regime to secure long-term
benefits to the people of Puerto Rico has been significant. In 3 years,
while the island was recovering from its extreme devastation, the
leaders of Puerto Rico undertook the analysis of the mind-numbing
details of the hallmarks of effective regulation. Today, I am proud to
say that Puerto Rico has now a competent framework, more-than-competent
human resources, and a competent plan for the future. This has come
about with a remarkable effort of many to ensure a resilient and
vibrant future electric sector for the Island. I want to personally
thank this Committee for its support of this transformation.

I look forward to your questions and remain committed to strengthen
the working relationship with the Committee for the benefit of Puerto
Rico.

______

Questions Submitted for the Record to Edison Aviles-Deliz, Chair,
Puerto Rico Energy Bureau
Questions Submitted by Rep. Grijalva
Question 1. Various entities, including the Electrical Industry and
Irrigation Workers Union (UTIER), claim the LUMA contract will increase
electricity prices for consumers. However, government officials and
LUMA deny this.

Answer. The PREB thinks that this statement is the basis of your
next two questions. We hope that the answers to these two questions
provide the information that you seek, please advise otherwise.

Question 2. Has the Puerto Rico Energy Bureau received any
correspondence and requests from LUMA to review the current rate?

Answer. No.

Question 3. What is the probability that the rate will increase and
the potential timeline?

Answer. In Puerto Rico rate revisions are regulated by Act 57-2014,
Act 83-1941, and the Puerto Rico Energy Bureau's (PREB) regulations. A
rate revision could result in a decrease or increase on the electricity
bill. Any rate revision must follow an extensive proceeding before the
PREB with ample public and stakeholder's participation.
Act 57-2014 mandates PREB to formulate and implement the strategies
to achieve the goal of reducing and stabilizing energy prices. These
goals and responsibilities remain unchanged and must be adhered to by
any entity assuming the operation of the Puerto Rico's Electric and
Power Authority (PREPA) Transmissions and Distribution System (``T&D
System''), including LUMA Energy. We are unable to predict the
probability and timeline of a rate increase or decrease because no
evidence supporting one or the other has been presented to the PREB.
The recently signed Puerto Rico's Electric and Power Authority
Transmissions and Distribution Operating and Maintenance Agreement
(``T&D Agreement'') provides a timeline for the beginning of a
process--to be conducted before PREB--to ensure that adequate amounts
are available for inclusion in the T&D System budgets. However, we
should clarify that a rate revision does not merely imply adding LUMA's
Service Fee to other T&D System expenses. We must consider several
factors toward our determination that the resulting rate is fair and
reasonable. PREB is the body vested with the responsibility to
safeguard the public interest and has the authority to provide strong
oversight over the implementation of the LUMA/(PREPA-P3 Authority) T&D
Agreement and any action that has an impact on the enacted energy
public policy.
We reiterate that in any rate revision process the PREB will work
diligently to achieve the goal of reducing and stabilizing energy
prices in Puerto Rico and ensure that all achievable savings identified
and materialized are immediately transfer to the customers.

Question 4. The UTIER and consumer representative at the PREPA
board claim that you participated in both the evaluation and approval
of the LUMA contract. The claims state you served on the government
committee that selected LUMA and, afterward, participated in the PREB
process that granted the certificate of compliance to the LUMA
consortium. Why didn't you recuse yourself from participating in these
processes?

Answer. The Certificate of Energy Compliance issued by the PREB in
connection with the T&D Agreement is being challenged in the Puerto
Rico Court of Appeals (Case Civil No. KLRA2020000170 \1\ and Case Civil
No. KLRA2020000186 \2\). UTIER's claim described in your question is
specifically part of the pending judicial proceeding. Due to fact that
this issue is currently under judicial review we must refrain from
making public expressions. Therefore, we respectfully cannot answer
your specific question.
---------------------------------------------------------------------------
\1\ Filed by Union de Trabajadores de la Industria Electrica y de
Riego, (``UTIER'' by its Spanish acronym).
\2\ Filed by certain Local Environmental Organizations.

Question 5. Why isn't there an approved post-hurricane Integrated
---------------------------------------------------------------------------
Resources Plan yet?

Answer. The first ever electric utility Integrated Resource Plan
(IRP) was submitted by PREPA on July 7, 2015.\3\ Before the creation of
the energy regulator in 2014 there was no mandate for an IRP to be the
submitted and approved by the energy regulator. The PREB \4\ gave its
final approval to PREPA's Modified IRP on February 10, 2017.\5\ The IRP
then became legally binding and enforceable on March 13, 2017 \6\ and
remains the currently approved IRP. Given the impact of hurricanes Irma
and Maria on the electric grid during September 2017, the PREB held
that it was prudent to accelerate the 3-year IRP cycle to accommodate
the new reality of the electric system.\7\ The March 14, 2018
Resolution and Order commenced an IRP proceeding and directed PREPA to
file a revised IRP in October 2018. On October 15, 2018, PREPA
requested an extension to file a final IRP report by January 21, 2019,
which was granted without administrative penalties. On January 23,
2019, PREPA filed some portions of the IRP Report and requested an
extension until February 12, 2019 to complete the IRP filing, which was
again granted \8\ without imposing penalties. On February 11, 2019,
PREPA requested a 3-day extension to file the complete IRP. The PREB
refused this extension, imposed an administrative fine and ordered
PREPA to file the complete IRP by February 15, 2019.\9\ On February 13,
2019, PREPA filed its IRP. On March 14, 2019, the PREB found that the
IRP filing did not comply with Regulation 9021 \10\ and identified a
set of actions to address the deficiencies identified.
---------------------------------------------------------------------------
\3\ See Final Resolution and Order on the First Integrated
Resources Plan of the Puerto Rico Electric Power Authority, Case No.
CEPR-AP-2015-002, dated September 26, 2016 (https://energia.pr.gov/wp-
content/uploads/2016/09/23-sept-2016-Final-Resolution-and-Order-IRP-
CEPR-AP-2015-0002.pdf) and Resolution on the Verified Motion for
Reconsideration of Puerto Rico Electric Power Authority, Case No. CEPR-
AP-2015-002, dated February 10, 2017 (https://energia.pr.gov/wp-
content/uploads/2017/02/10-feb-2017-Resolution-Ruling-on-PREPAs-
Verified-Motion-for-Reconsideration.pdf) (the aforementioned
resolutions and orders collectively referred to as ``PREPA's IRP''.
PREPA's IRP was not subject to judicial review and became enforceable
on March 13, 2017.
\4\ The PREB was known as the PREC in 2015.
\5\ See the Resolution on the Verified Motion for Reconsideration
of the Puerto Rico Electric Power Authority, issued on February 10,
2017, Case No. CEPR-AP-2015-0002, https://energia.pr.gov/wp-content/
uploads/2017/02/10-feb-2017-Resolution-Ruling-on-PREPAs-Verified-
Motion-for-Reconsideration.pdf.
\6\ See the Resolution and Order on the Review of The Puerto Rico
Electric Power Authority Integrated Resource Plan issued on March 14,
2018, Case No. CEPR-AP-2018-0001, https://energia.pr.gov/wp-content/
uploads/2018/03/Resolution-and-Order-IRP-CEPR-AP-2018-0001.pdf.
\7\ Id.
\8\ https://energia.pr.gov/wp-content/uploads/2019/01/Resolution-
CEPR-AP-2018-0001-4.pdf.
\9\ https://energia.pr.gov/wp-content/uploads/2019/02/Resolution-
and-Order-CEPR-AP-2018-0001-3.pdf.
\10\ Regulation on Integrated Resource for the Puerto Rico Electric
Power Authority.
---------------------------------------------------------------------------
We note that it is not uncommon for a Public Utility Commission to
reject and/or seek modifications to submitted utility plans.\11\ The
IRP regulatory process has become even more burdensome across
jurisdictions due to the numerous scenarios that need to be analyzed to
account for increased integration of renewable energy resources in
order to comply with renewable portfolio standards.
---------------------------------------------------------------------------
\11\ The Hawaii PUC (``HIPUC'') initiated the HECO companies IRP
process on March 1, 2012 and rejected HECO's IRP on April 28, 2014, see
HIPUC Order 32052, (https://dms.puc.hawaii.gov/dms/
DocumentViewer?pid=A1001001A14D29A91612182852).
---------------------------------------------------------------------------
A Technical Conference took place on April 1, 2019 to address the
IRP's deficiency issues. On April 5, 2019 PREPA was ordered to refile
its IRP by May 10, 2019.\12\ On May 3, 2019, PREPA requested a 3-week
filing extension.\13\ In response, the PREB ordered PREPA to finalize
its IRP submission by June 7, 2019 to avoid further administrative
penalties. On June 7, 2019, PREPA filed its IRP.
---------------------------------------------------------------------------
\12\ https://energia.pr.gov/wp-content/uploads/2019/04/Resolution-
and-Order-CEPR-AP-2018-0001-3.pdf.
\13\ https://energia.pr.gov/wp-content/uploads/2019/05/1-Memo-New-
Results-ESM-and-Scenario-4-Strategy-2-Base-Plans-Request-CEPR-AP-2018-
0001-copy.pdf.
---------------------------------------------------------------------------
The IRP is the cornerstone and roadmap of the Island's energy
transformation. The PREB is currently evaluating the utility's proposed
IRP (June 2019) against the renewable resource goals set out in the
Puerto Rico Energy Public Policy Act (Act 17-2019). The IRP proceeding
has had numerous intervenors and has held numerous technical
conferences, five (5) days of technical hearings, and five (5) days of
local public hearings (Ponce, Mayaguez, Arecibo, Humacao, San Juan)
during February 2020. Final briefings were completed in April 2020. We
expect to issue the Final Resolution later this month.

Question 6. Why is PREPA binding public funds in long-term natural
gas projects, when the Integrated Resources Plan has not been approved
by the Puerto Rico Energy Bureau, and Act 17-2019 requires the
integration of 100 percent renewables by 2050?

Answer. Between 2018 and 2019, two natural gas purchase agreements
have come under the consideration of the PREB:

5-year agreement \14\ between NFENERGIA, LLC and PREPA
that allowed the conversion of San Juan generation Units 5
and 6 to natural gas \15\;
---------------------------------------------------------------------------
\14\ Three (3) 5-year extensions can be considered at PREPA's
discretion, https://contratos.ocpr.gov.pr/contract/
downloaddocument?documentid=981840.
\15\ See the Resolution and Order on the Request for Proposals for
Conversion of San Juan Units 5 and 6 to Natural Gas issued on January
25, 2019, Case No. CEPR-AI-2018-0001, https://energia.pr.gov/wp-
content/uploads/2019/01/Resolution-and-Order-CEPR-AI-2018-0001.pdf.

12-year agreement \16\ between EcoElectrica, LP-Naturgy
Aprovisionamientos, S.A. and PREPA that required no new
sitting in Penuelas and is set to expire in September 2032.
---------------------------------------------------------------------------
\16\ See Exhibit B--PREPA's Urgent Motion for Entry of an Order
Authorizing PREPA to Assume Certain Contracts with EcoElectrica, L.P.
and Gas Natural Aprovisionamientos SDG, S.A., Case No. 17-BK-4780-LTS,
United States District Court District of Puerto Rico, https://
document.epiq11.com/document/getdocumentsbydocket/
?docketId=765553&projectCode-PR1& docketNumber=1951&source=DM; the
original EcoElectrica Power Purchase and Operating Agreement dated
March 10, 1995, and amended in 1997 and 2006, committed PREPA to a 27-
year contract term set to expire in March 2022.

The above contracts, as required by Act 57-2014, have been
evaluated in accordance with the current IRP. Where circumstances have
allowed, the contracts have also been evaluated taking into
consideration information and analysis submitted as part of the IRP
under evaluation.
PREB conducted extensive analysis of the above natural gas
projects, which analysis ensured consistency with the approved IRP.\17\
PREB applied strict standards in the evaluation of the criteria to
determine the project's viability within the needs of Puerto Rico.\18\
A series of recent natural disasters (hurricanes, earthquakes) have had
immediate effects in the available energy generation capacity supplying
the Island's bulk electric system. Evidence presented by PREPA and
evaluated by the PREB demonstrates significant energy generation cost
savings and power capacity capabilities that outweighed all other
available near-term options.\19\
---------------------------------------------------------------------------
\17\ See the Resolution and Order on the Review of The Puerto Rico
Electric Power Authority Integrated Resource Plan issued on March 14,
2018, Case No. CEPR-AP-2018-0001, https://energia.pr.gov/wp-content/
uploads/2018/03/Resolution-and-Order-IRP-CEPR-AP-2018-0001.pdf.
\18\ See NFENERGIA Docket CEPR-AI-2018-0001 (https://
energia.pr.gov/wp-content/uploads/2019/01/Resolution-and-Order-CEPR-AI-
2018-0001.pdf and EcoElectrica-Naturgy Docket NEPR-AP-2019-0001,
https://energia.pr.gov/wp-content/uploads/2020/03/Resolution-and-Order-
NEPR-AP-2019-0001-1.pdf.
\19\ Id.
---------------------------------------------------------------------------
PREB remains committed to providing the necessary oversight to
assure achievement of Puerto Rico's goal of 100 percent renewable
generation by 2050.

Question 7. The LUMA agreement establishes that the private
operator will prepare a proposed Integrated Resource Plan for the long-
term development of the electric system, which also includes power
generation operations, subject to the Puerto Rico Energy Bureau's
review and approval.

Answer. The PREB thinks that this statement is the basis of your
next two questions. We hope that the answers to these two questions
provide the information that you seek, please advise otherwise.

Question 8. Would Luma prepare the Integrated Resource Plan for the
future long-term development of the Puerto Rico electric system?

Answer. Yes. The preparation of the IRP is part of the services
rendered under the T&D Agreement.\20\ From time to time, a proposed IRP
will be submitted by LUMA to the PREB for evaluation and approval (or
disapproval), in accordance with the applicable laws and
regulations.\21\
---------------------------------------------------------------------------
\20\ Section 5.6(f) of the Puerto Rico Transmission and
Distribution System Operation and Maintenance Agreement, http://
www.p3.pr.gov/assets/executed-consolidated-om-agreement-td.pdf.
\21\ Section 6.23, Act 57-2014.

Question 9. Can you provide more information about the rationale to
delegate this responsibility to the private operator of the
---------------------------------------------------------------------------
transmission and distribution system?

Answer. Responsibility for IRPs was expressly delegated to the
Operator of the Electrical System by law under Act 17-2019 (the Puerto
Rico Energy Public Policy Act) amending Article 6.23 of Act 57-2014
that had previously imposed such responsibility on PREPA. The current
language of Article 6.32 Act 57-2014 is the following:

The electric power company responsible for operating the
Electrical System shall submit to PREB an Integrated Resource
Plan (IRP) consistent with Section 1.9 of the Puerto Rico
Energy Public Policy Act. The electric power company shall
devise the IRP with the input of the companies that operate the
power plants.

Question 10. The Federal coordinator for the reconstruction of
Puerto Rico, Peter Brown, recently expressed that nuclear energy is an
option to diversify Puerto Rico's energy sources. PREPA's Integrated
Resources Plan does not integrate nuclear energy as an option. Will
PREPA maintain this position in compliance Act 17-2019, which requires
reaching a minimum of 40 percent renewable energy integration by 2025;
60 percent by 2040; and 100 percent by 2050?

Answer. PREPA proposed the specific mix of generation resources in
the currently effective IRP, and thus, is the appropriate entity to
answer this question. The PREB does not propose which resources should
make up the IRP mix but approves or disapproves what is proposed.
The PREB's core responsibility is to assure a regulatory path
realizes the energy public policy goals established under the laws of
Puerto Rico. Accordingly, PREB must continue to evaluate all plans and
proposals that help accelerate the adoption of renewable energy to meet
and exceed the goals of the adopted Renewable Portfolio Standard
(``RPS''), which could limit consideration of nuclear resources that
are not deemed renewable nor alternate renewable generation under the
law.\22\
---------------------------------------------------------------------------
\22\ Act 82-2010.

Question 11. In April, I joined my colleagues in a letter to the
Federal Energy Regulatory Commission (FERC) urging them to examine New
Fortress Energy's natural gas project in San Juan, since the company
failed to ask FERC for approval. What was the role of the Puerto Rico
Energy Bureau reviewing, awarding, and/or authorizing the contract
between PREPA and New Fortress Energy? Did PREB raise any concerns with
New Fortress Energy executing the contract without FERC authorization?
---------------------------------------------------------------------------
If not, why?

Answer.

A. Administrative Proceeding at PREB

1. PREB's Regulatory Scope for Review of the New Fortress
Contract

a. As a first step, in accordance with Act 57-2014
and PREB's Regulation 8815,\23\ PREB shall evaluate and
approve (or disapprove) Request for Proposals (RFP)
that are to be issued by PREPA regarding certain
projects. PREB must determine if the proposed project
is consistent with the Integrated Resources Plan
(``IRP''). It also shall evaluate other factors
depending on the nature of the proposed project, e.g.,
capital costs, operating costs, fuel costs and so
forth.
---------------------------------------------------------------------------
\23\ Joint Regulation for the Procurement, Evaluation, Selection,
Negotiation and Award of Contracts for the Purchase of Energy and for
the Procurement, Evaluation, Selection, Negotiation and Award Process
for the Modernization of the Generation Fleet, https://energia.pr.gov/
wp-content/uploads/2016/10/AJ-07795-REGLAMENTO-1.pdf.

b. As a second step, PREB shall evaluate and
approve (or disapprove) the Proposed Contract. For such
purposes PREB receive a report from PREPA after the
completion of a competitive process. PREB shall
determine if the Proposed Contract is consistent with
the IRP, compliance with PREB's previously approved
RFP, as well as other parameters specifically
---------------------------------------------------------------------------
prescribed in Regulation 8815.

2. PREB Approval of RFP and New Fortress' Proposed Contract

a. In October 2018 PREB approved the RFP.
[Resolution and Order dated October 4, 2018, Case No.
CEPR-AI-2018-0001] \24\
---------------------------------------------------------------------------
\24\ https://energia.pr.gov/wp-content/uploads/2018/10/Resolution-
and-Order-CEPR-AI-2018-0001.pdf.

b. Then, on January 2019, PREB approved the
proposed contract. [Resolution and Order dated January
25, 2019, Case No. CEPR-AI-2018-0001] \25\
---------------------------------------------------------------------------
\25\ https://energia.pr.gov/wp-content/uploads/2019/01/Resolution-
and-Order-CEPR-AI-2018-0001.pdf.

B. Permits and Authorizations necessary for the Execution of the
---------------------------------------------------------------------------
Proposed Contract

The PREB did not raise concerns during its evaluation of the
proposed contract because many of the regulatory processes
related to the development of a facility are typically pursued
and conducted simultaneously. Consequently, it is not uncommon
for permits and authorizations required from other agencies and
governmental authorities to be pending or not yet filed during
a contract review proceeding under the Regulation 8815. This is
why, in the present case, that the New Fortress' Contract
includes provisions that require New Fortress to secure all the
permits and authorizations necessary for the execution of its
obligations under the Contract and that a failure to do so
would constitute a breach of contract.

PREB is aware that the Federal Energy Regulatory Commission
(FERC), within the scope of its enforcement authority,
commenced a proceeding to determine whether it has jurisdiction
over New Fortress' Facility in San Juan. That matter is
currently under FERC's evaluation and has not yet been
adjudicated. Still, PREB is closely monitoring the proceedings
at FERC and will exercise its authority, when necessary, with
regards to the New Fortress' Contract.
Questions Submitted by Rep. Bishop
Question 1. We've heard from some witnesses on the panel today that
there is the potential for rate hikes on Puerto Rico consumers under
the new LUMA contract and potentially future contracts cut by PREPA.
Could you talk about the role the Independent Office of Consumer
Protection plays under the PREB? How likely of a scenario is it that
consumers in Puerto Rico will experience dramatic rate hikes given the
current regulatory landscape where PREB has a strong role to play as a
third-party independent regulator?

Answer.

A. The role of the Independent Office of Consumer Protection (``IOCP'')

The Independent Office of Consumer Protection (``IOCP'') was
created by virtue of Act 57-2014, as amended. Its role is to defend the
interests of consumers of energy before the utility and PREB, thereby
providing another layer of consumer protectionism for the Island's
energy customers. The IOCP is in part responsible for coordinating
public participation in the matters affecting their energy rates and
services. Through the IOCP, customers are empowered through capable and
independent representation resources offered at no cost to the public.
The IOCP may also initiate a rate revision in representation of the
interests of energy consumers.
B. Likelihood of electricity rates hike under the T&D Agreement

In Puerto Rico rate revisions are regulated by Act 57-2014, Act 83-
1941, and the Puerto Rico Energy Bureau's (PREB) regulations. A rate
revision could result in a decrease or increase on the electricity
bill. Any rate revision must follow an extensive proceeding before the
PREB with ample public and stakeholder's participation.

Act 57-2014 mandates PREB to formulate and implement the strategies
to achieve the goal of reducing and stabilizing energy prices. These
goals and responsibilities remain unchanged and must be adhered to by
any entity assuming the operation of the Puerto Rico's Electric and
Power Authority (PREPA) Transmissions and Distribution System (``T&D
System''), including LUMA Energy. We are unable to predict the
probability and timeline of a rate increase or decrease because no
evidence supporting one or the other has been presented to the PREB.

The recently signed Puerto Rico's Electric and Power Authority
Transmissions and Distribution Operating and Maintenance Agreement
(``T&D Agreement'') provides a timeline for the beginning of a
process--to be conducted before PREB--to ensure that adequate amounts
are available for inclusion in the T&D System budgets. However, we
should clarify that a rate revision does not merely imply adding LUMA's
Service Fee to other T&D System expenses. We must consider several
factors toward our determination that the resulting rate is fair and
reasonable. PREB is the body vested with the responsibility to
safeguard the public interest and has the authority to provide strong
oversight over the implementation of the LUMA/(PREPA-P3 Authority) T&D
Agreement and any action that has an impact on the enacted energy
public policy.

We reiterate that in any rate revision process the PREB will work
diligently to achieve the goal of reducing and stabilizing energy
prices in Puerto Rico and ensure that all achievable savings identified
and materialized are immediately transfer to the customers.

______

The Chairman. Thank you very much, sir.
Let me now invite Ms. Ruth Santiago, Member of Queremos Sol
Coalition, for her comments.
Ms. Santiago, the time is yours.

STATEMENT OF RUTH SANTIAGO, MEMBER, QUEREMOS SOL COALITION

Ms. Santiago. Good afternoon Chairman Grijalva and members
of the House Committee on Natural Resources, and to the public
in general. On behalf of the Queremos Sol Coalition, we
appreciate the opportunity to testify on the transformation of
PREPA.
The Coalition is composed of civil society groups,
including community, environmental, labor, professional
organizations, and academia that have come together to promote
the transformation of the Puerto Rico electric system. The
Coalition promotes the transformation of the Puerto Rico
electric system as a public service, both relating to PREPA
governance and the technology that empowers citizen
participation.
Recently, PREPA entered into a contract with LUMA Energy
via a lengthy operation and management agreement not only for
the transmission and distribution system and customer service,
but also for power generation dispatch and control, planning,
acquisitions, and many other functions.
The contract's initial transition period requires numerous
conditions prior to full takeover by LUMA that signifies
anything but a foregone conclusion that the transaction will be
consummated.
We urge this Committee and the Federal and Puerto Rican
governments, to encourage PREPA to annul the LUMA contract and
develop a plan focused on on-site solar and battery systems and
energy efficiency programs based on the recommendations of
numerous experts.
The LUMA contract in the midst of multiple crises,
including the pandemic, seismic activity, socio-economic
dysfunction, and the threat of an active hurricane season will
not provide the 21st century electric system and service that
the residents of Puerto Rico require.
PREPA needs to transform its governance structure to
integrate residents, employees, and businesses. The high
poverty rates in Puerto Rico and the economic crisis require
energy conservation, efficiency, demand response programs, and
renewable energy technologies, primarily rooftop or on-site
solar and battery energy systems to substitute the fossil
generation and the centralized transmission and distribution
system.
Queremos Sol opposes the use of billions of dollars in
Federal funds to rebuild and to ``harden'' the T&D system and
add more fossil generation, especially methane gas, or natural
gas, infrastructure that the LUMA contract would facilitate.
Queremos Sol proposes the Federal Government work with
PREPA to take measures to initiate a transparent process for
procurement of solar equipment and battery systems to be
installed and maintained by the dozens of PREPA employees who
have been trained in renewable energy technology already.
The LUMA contract is a 20th century approach that will not
prepare Puerto Rico for the climate crisis. It dismantles PREPA
while simultaneously providing LUMA with multiple opportunities
to abandon its responsibilities under the agreement.
LUMA will prepare the PREPA IRP, may become part owner of
the electric system, and may request increases in electric
rates. The contract requires alignment of the proposed T&D work
with the grid modernization plan which requested $21 billion
from FEMA of which $12.2 billion is for reconstruction of
existing T&D systems rather than transformation of the system
and an additional $4 billion of that is for new fossil plants.
The London Economics International report estimates that
even with Federal funding, the electricity rates would increase
to 27.8-30 cents per kilowatt hour if the proposed T&D work and
the RSA for the PREPA debt restructuring are implemented.
LUMA is granted undue control to manage Federal funds. It
can participate in selection of the grant administrator and can
request changes to Federal funding. LUMA can abandon the tasks
required under the contract after PREPA has been dismantled and
when reinforcements of the electric system are most needed.
The LUMA contract infringes upon the rights of PREPA
employees as they will not be required to hire even the
majority of PREPA employees. The contract provides for priority
payments to LUMA to the detriment of other PREPA obligations.
LUMA may suspend or terminate electric service to
government entities that in turn provide public services. The
LUMA contract would perpetuate central station fossil fuel
generation and the T&D system.
An example of this kind of old generation is the New
Fortress Energy LNG terminal in San Juan. FERC recently issued
an order to show cause against New Fortress because it built
and operates the terminal without FERC's authorization.
If New Fortress had requested FERC authorization, it would
have been required to study the health and safety risks of the
LNG terminal to nearby communities, workers, and properties
prior to building and operating it. The potential illegalities
of the New Fortress project are exposed in an in-depth report
published by Cambio and IEEFA.
The cost of electricity for San Juan private citizens, as
we have already seen, burning gas is 10.79 cents per million
BTU, the most expensive baseload units in PREPA's system.
The Federal Oversight and Management Board approved the New
Fortress project and the new EcoElectrica agreements, which
cost approximately $500 million more than competitively bid
contracts.
The disastrous experience with the privatization of energy
and other sectors in Puerto Rico include the AES coal burning
power plant, which has contaminated the South Coast Aquifer.
The Chairman. Ms. Santiago, you need to wrap up.
Ms. Santiago. Thank you.
The Chairman. You are welcome.

[The prepared statement of Ms. Santiago follows:]
Prepared Statement of Ruth Santiago, Member, Queremos Sol Coalition
Chairman Grijalva and members of the House Committee on Natural
Resources, on behalf of the Queremos Sol Coalition, (``We Want Sun'',
queremossolpr.com), we appreciate the opportunity provided by the House
Committee on Natural Resources to testify and submit comments on the
Transformation of the Puerto Rico Electric Power Authority (``PREPA'').
The Queremos Sol Coalition is composed of numerous civil society
groups, including community, environmental, labor, professional
organizations and academia that have come together to promote a
sustainable, more affordable platform for the transformation of the
Puerto Rico electric system, consistent with the Puerto Rican
government's commitment to 50 percent renewable energy by 2030 and 100
percent renewable energy for Puerto Rico by 2050.
As further explained below, our Coalition members have substantial
concerns with both the process and the outcome of PREPA's recent ``T&D
System Operation and Maintenance Agreement'' with Luma Energy, LLC (the
Luma contract''). These concerns are shared by Puerto Ricans in the
diaspora, as evidenced by the recent protests on the mainland.
As such, we urge this Committee, the Federal Government and the
Puerto Rican government to encourage PREPA to annul the Luma contract
and develop a plan focused on on-site solar and battery systems and
energy efficiency programs, based on the recommendations of numerous
experts, as further detailed below.
i. introduction
Puerto Rico is at a crossroads with respect to its electric system.
One of the main issues confronting the territory is whether to double
down on rebuilding Puerto Rico's inadequate 20th century infrastructure
or to embark on the creation and construction of a 21st century
electric system, based on the Puerto Rican government's commitment to
renewable energy that enables Puerto Rico residents to participate in
this essential public service. The Queremos Sol Coalition vigorously
promotes the transformation of the Puerto Rico electric system as a
public service including PREPA governance and the technology that
empowers citizen participation as ``prosumers''--producers and
consumers of energy in order to achieve energy democracy.
The Luma contract structures an almost complete privatization of
Puerto Rico's electric system via a lengthy operation and management
(O&M) contract, not only for the transmission and distribution (T&D)
system and customer service department, but also for power generation
dispatch, acquisition and planning, among other issues discussed below.
However, the contract calls for an initial transition period requiring
numerous conditions prior to a full takeover by Luma that signifies
anything but a forgone conclusion that the transaction will be
consummated.
The privatization of the Puerto Rico electric system as embodied in
the Luma Energy contract in the midst of multiple crises, including the
COVID-19 pandemic, recent and ongoing seismic activity, unaddressed
socio-economic dysfunction unveiled by Hurricanes Irma and Maria, and
the threat of another active hurricane season will not provide the 21st
century electric system and the empowerment and service that the
residents of Puerto Rico require. More than ever, PREPA must undertake
a swift transformation of its electric system to integrate residents,
communities and businesses. The high poverty rates in Puerto Rico and
the economic chaos engendered by the COVID crisis require the
transformation of PREPA to incorporate energy conservation, efficiency,
demand response programs, and renewable energy technologies, primarily
roof-top or on-site solar and battery energy storage systems
(``BESS''), as well as other alternatives to central station imported
fossil fuel generation and centralized transmission and distribution.
These alternatives stand in stark contrast to the use of billions of
dollars in Federal taxpayer funds to rebuild and ``harden'' the T&D
system and add more central station fossil generation, especially so-
called ``natural'' methane gas infrastructure that the Luma contract
would facilitate. The Federal Government should work with PREPA to take
measures to initiate a transparent process for acquisition or
procurement of solar equipment and BESS to be installed, operated, and
maintained by the dozens of PREPA employees who have been trained in
renewable energy technology in conjunction with local communities and
other alternatives discussed below.
ii. first steps for transforming the puerto rico electric system
During the technical hearings in the PREPA Integrated Resource Plan
(``IRP'') process before the Puerto Rico Energy Bureau (``PREB'')
multiple experts provided numerous recommendations for the Action Plan
that would immediately implement on-site renewables, storage, and
energy efficiency programs, and begin the transformation of Puerto
Rico's electric grid to better serve the people of Puerto Rico. Federal
funding afforded to PREPA should be earmarked for these types of
programs. PREPA's Preferred Plans, on the other hand, would ensure
decades of continued reliance on large, centralized power plants and
long, vulnerable South-to-North transmission lines that would not
promote the resilience of the electricity grid to climate-related and
other disasters. Hurricane Maria and the seismic events of this year
showed the importance of decentralizing the power network. A
distributed generation system centered on on-site/rooftop solar will be
more resilient and, after an emergency, will allow for prompt
restoration of energy services, fulfilling the responsibility of saving
lives.
A. Energy Conservation, Efficiency, Customer Engagement and Demand
Response Programs

The Queremos Sol proposal highlights the importance of starting the
necessary technical transformation with energy conservation,
efficiency, customer engagement, and demand response programs. During
the IRP technical hearings, expert witnesses identified several cost-
effective Quick-Start Energy Efficiency programs:

Solar water heaters. At the hearing, PREPA's consultant,
Siemens Industry agreed that the Siemens experts were wrong
to reject solar water heaters as part of an energy
efficiency program.\1\ PREPA could facilitate
communications between providers and customers, provide
technical assistance with installation, incentivize
adoption through PREPA budget allocations, and educate
customers through engagement.
---------------------------------------------------------------------------
\1\ Negociado de Energia en vivo, Evidentiary Hearing/CEPR-AP-2018-
0001, YouTube (Feb 5, 2020), https://youtube/vIXWJt52Hfk?t=8350.

Refrigerator incentive programs. Local Environmental
Organizations' expert witness pointed out that these
programs have already had success in the past in Puerto
Rico.\2\ In addition to the steps detailed above, PREPA
could provide historical data from these programs.
---------------------------------------------------------------------------
\2\ Negociado de Energia en vivo, Evidentiary Hearing/CEPR-AP-2018-
0001, YouTube (Feb 4, 2020), https://youtube/RXb0bf5ScY?t=8970. Mr
Sandoval has more than a decade of management experience with energy
utilities. Mr Sandoval's experience includes work in transmission and
distribution system planning, demand side management, grid efficiency,
grid transparency, and clean energy.

PREPA could provide energy audits, including energy
efficiency measures, as well as solar and storage
options.\3\
---------------------------------------------------------------------------
\3\ Negociado de Energia en vivo, Evidentiary Hearing/CEPR-AP-2018-
0001, YouTube (Feb 4, 2020), https://youtube/RXb0bf5ScY?t=13532.

Various expert witnesses listed other programs that would
be cost-effective and popular: \4\
---------------------------------------------------------------------------
\4\ Id.

---------------------------------------------------------------------------
-- appliance replacement programs

-- tuning up air conditioners

-- replacing very old air conditioners

-- expanding the Office of Public Policy's low-income
weatherization program, which has served 15,000 homes already

The IRP assumes that PREPA will comply with the 2 percent annual
reduction in load due to energy efficiency as required by the Puerto
Rico Energy Public Policy Act (``Law 17-2019''), culminating in a 30
percent reduction in PREPA's total load by 2040. Yet, the Action Plan
does not explain how PREPA would accomplish this change.\5\ Siemens/
PREPA acknowledge that in order to increase energy efficiency uptake,
PREPA must offer a greater variety of energy efficiency programs,\6\
and indeed Law 17-2019, Section 1.9(3)(B) requires the IRP to include
an evaluation of the conservation resources, including electricity
demand management and the necessary programs to improve energy
conservation. The Energy Bureau's consultant, Dr. Asa Hopkins,
highlighted the most important conclusion of these scenarios: the
initial $300M investment in energy efficiency would save PREPA $1B in
avoided generation costs over the planning period, and the next $700M
in energy efficiency spending would save an additional $1.8B in avoided
generation costs over the planning period.\7\
---------------------------------------------------------------------------
\5\ Act 17-2019, Section 1 6 (11).
\6\ Negociado de Energia en vivo, Evidentiary Hearing/CEPR-AP-2018-
0001, YouTube (Feb 4, 2020), https://youtube/RXb0bf5ScY?t=12664.
\7\ Negociado de Energia en vivo, Evidentiary Hearing/CEPR-AP-2018-
0001, YouTube (Feb 6, 2020), https://youtube/HO40ImpqKe8?t=3669. The
above $300M investment in energy efficiency is the cost of moving from
the ``no energy efficiency'' scenario to the ``low energy efficiency''
scenario, while the $700M cost represents moving from the ``low energy
efficiency scenario'' to the base case scenario. Each increase in the
level of energy efficiency investments generates savings at well over a
factor of two Id.
---------------------------------------------------------------------------
PREPA must coordinate with the Bureau, the Energy Efficiency
program administrator, and stakeholders in designing a customer
engagement plan ``to educate citizens and electric power service
customers on energy efficiency, consumption reduction, distributed
generation strategies, and other available tools to empower consumers
to have more control over their energy consumption,'' as required by
Law 17-2019 Section 1.5(4)(b). We note that PREPA titled Part 3 of its
Action Plan ``Engaging the Customer'' but did not actually include a
customer engagement plan.\8\ A customer engagement plan would also help
PREPA develop a ``reasonable set of assumptions for econometric and/or
end use variables,'' as required by the Regulation on Integrated
Resource Plan for the Puerto Rico Electric Power Authority (Regulation
9021) Section 2.03(C)(2)(c).
---------------------------------------------------------------------------
\8\ IRP, Section 10 3.
---------------------------------------------------------------------------
B. Renewable Energy, Bess, Power Electronics, and Other Alternatives
Law 17-2019 directs PREPA to ``maximize the use of renewable
energy'' and, at the same time, ``aggressively reduce the use of fossil
fuels'' and ``minimiz[e] greenhouse gas emissions . . .'' \9\ Dr.
Agustin Irizarry conducted the analysis that PREPA/Siemens should have
done: he obtained real quotes for photovoltaic (PV) and storage
equipment costs at retail price in Puerto Rico, along with financing
expenses, widely available to Puerto Ricans for these projects. Dr.
Irizarry's real-world, Puerto Rico-specific analysis of solar PV costs
resulted in a forecast of Levelized Cost of Energy for rooftop PV of
7.8 cents per kWh in 2019, declining to 1.8 cents per kWh in 2038.\10\
After Dr. Irizarry obtained his results, he found they were quite
similar to the National Renewable Energy Laboratory's (``NREL'')
forecast for the costs of rooftop solar.
---------------------------------------------------------------------------
\9\ Law 17-2019 Section 1 5(6)(b), Section 1 11(d).
\10\ Irizarry-Rivera Direct Test at 27-29.
---------------------------------------------------------------------------
The draft IRP prepared by Siemens Industry, Inc. for PREPA
indicates that the costs of customer alternatives are lower than the
final all-in Energy System Modernization (ESM) and S4S2 plans
generation portfolio rates. (Pages 8-40 and 8-59 of the IRP, third
draft dated 06/07/2019.) The cost of customer generation is
significantly lower than the total rate even before the non-bypassable
component is added. Despite on-site, rooftop solar being cheaper in the
IRP, customer-sited solar is severely limited to only about 20 percent
of the generation mix at the end of the IRP planning period in 2038
(Exhibit 8-46 ESM Future Installed Capacity Mix, third draft dated 06/
07/2019).
In the IRP, energy consumption by group indicates that commercial
and residential clients constitute the lion's share of energy demand in
Puerto Rico while industrial clients barely consume about 13 percent of
energy generation. The commercial sector consists of sprawling malls
and other installations with expansive parking lots and rooftops that
can be used to site solar arrays to power operations. Much residential
construction in Puerto Rico consists of single-family housing
developments known as urbanizations. They are especially expansive and
prevalent in the San Juan metropolitan area and can provide the on-site
``rooftop resource'' referenced in the Department of Energy (``DOE'')
commissioned studies by faculty at the University of Puerto Rico at
Mayaguez (``UPRM''), recommending widespread use of existing structures
to site PV installations, which also coincides with the major energy
demand center in Puerto Rico.\11\
---------------------------------------------------------------------------
\11\ http://www.uprm.edu/aret/docs/Ch_1_Summary.pdf. Multiple
studies have proven the resiliency of on-site photovoltaic (PV) and
battery energy storage (BESS) systems. https://www.nrel.gov/docs/
fy15osti/62631.pdf, https://www.nrel.gov/state-local-tribal/blog/posts/
how-solar-pv-can-support-disaster-resiliency.html.
---------------------------------------------------------------------------
The proposal for the initiation of transparent procurement or
acquisition of PV and BESS, installed on rooftops or on-site by PREPA
employees, aligns with the Queremos Sol proposal which sets forth a
vision, objectives, and mechanisms to achieve incremental advances in
energy efficiency, demand response programs, and escalating amounts of
renewable generation based on community rooftop solar that would
achieve 100 percent renewable generation by 2050.
The advantages of on-site, rooftop solar or solar installations
close to the point of use are many. They include the use of existing
sprawling housing development and commercial rooftops to avoid further
impacts to open spaces, agricultural land, and ecologically sensitive
areas. Rooftop solar eliminates the need for large investments in
transmission infrastructure. It avoids transmission losses. Grid
maintenance costs are reduced and impacts to tropical forests and
vegetation as a result of tree cutting and pruning are minimized. The
on-site solar alternative doesn't require establishing extensive
easements or servitudes on private property, while helping to lower
temperatures within the structures and providing protection to the
buildings. Rooftop solar installations add value to the structures and
promote local wealth. Distributed renewable generation on rooftops
creates greater reinvestment in the local economy than utility-scale
projects. It enables ratepayers to become producers or `prosumers' of
energy, not mere consumers and allows for control by residents and
local communities and businesses, which is particularly important
during outages of the main grid as was experienced after Hurricane
Maria and the earthquakes. On-site solar enjoys broad support from
civil society contrary to land-based installations that have been the
subject of considerable opposition.
1. Renewables and BESS can Serve Critical Loads and Provide Resilience
Siemens acknowledged that renewable resources could be available
immediately after a major event (e.g., hurricane, power outage).
Therefore, the company's original assumption in the IRP that base
fossil generation was indispensable was wrong.\12\ Siemens's rebuttal
testimony acknowledged that the June 2019 IRP did not recognize the
full value of renewables, stating that solar panels could be certified
to withstand major events, and therefore should have been considered to
supply critical loads.\13\ In December 2019, the Energy Bureau's Energy
Storage Study confirmed that ``thermal resources are not required to
prevent loss of critical loads.'' \14\ At the hearing, Siemens' project
head further explained that if the IRP had correctly recognized the
full resiliency value of renewables, then the fixed decision to build
414 MW of gas-fired peaking units in 2021 may not have been
necessary.\15\
---------------------------------------------------------------------------
\12\ In addition, Siemens did not take distributed storage into
consideration. See PREPA response to Local Environmental Organizations'
ROI 3 56.
\13\ PREPA's Mot to Submit Corrected Rebuttal Test, Direct Test of
Nelson Bacalao, PHD at 7, (Jan 20, 2020), http://energia.pr.gov/wp-
content/uploads/2020/01/Corrected-Rebuttal-Testimony-of-Nelson-Bacalao-
PH_D_in-Support-of-PREPAs-Draft-Integrated-Resource-Plan-CEPR-AP-2018-
0001.pdf. [hereinafter Bacalao Rebuttal Test].
\14\ Puerto Rico Energy Bureau, Energy Storage Study For a
renewable and resilient island grid for Puerto Rico at Section 6 1 (Dec
19, 2019), filed in Dkt NEPR-MI-2020-0002, http://energia.pr.gov/wp-
content/uploads/2020/01/NEPR-MI-2020-0002-Estudio-Sistemas-de-
Almacenamiento-de-Energi%CC%81a.pdf. [hereinafter PREB Energy Storage
Study].
\15\ Negociado de Energia en vivo, Evidentiary Hearing/CEPR-AP-
2018-0001, YouTube (Feb 5, 2020), https://youtube/vIXWJt52Hfk?t=2190.

The Energy Storage Study commissioned by PREB also confirmed that
Siemens' incorrect decision to force gas-fired resources into the
modeling had improperly lowered the amount of renewables and storage
---------------------------------------------------------------------------
selected:

The analysis finds that the gas-fired plants (thermal
resources) required by PREPA's minigrids approach to meet
critical and priority load impact the buildout of solar and
storage. Because the model is forced to include thermal
resources, it cannot add as much solar and storage as it would
if it were allowed to seek out the most cost-effective options
for meeting demand.\16\
---------------------------------------------------------------------------
\16\ PREB Energy Storage Study, Section 6 1.

PREPA should coordinate with the Puerto Rico Energy Office to
provide education about storage, as recommended in the Energy Bureau's
Energy Storage Study.\17\
---------------------------------------------------------------------------
\17\ PREB Energy Storage Study, Section 6 2.

PREPA acknowledges that transformation of the system using
distributed generation is both viable and must take a predominant role
in the Puerto Rico grid.\18\ Law 17-2019 and the PREPA Governing Board
mandate require that the electric system be customer centric.
---------------------------------------------------------------------------
\18\ ``Customer-Centric: which includes customer participation via
energy efficiency, customer side energy resources and demand response
with a predominant role in the supply and consumption matrix of Puerto
Rico, and empowering customers to participate and take ownership on
their energy security and affordability'' IRP, at 1-1.
---------------------------------------------------------------------------
2. Financing the Necessary Transformation
Financing strategies and instruments can be sourced from various
sectors: the Federal Government, credit unions, cooperatives, and other
organizations to achieve renewable generation goals with a distributed
generation strategy. PREPA could also use its budget to incentivize
customers to build distributed solar and storage systems and share
implementation costs with customers. Puerto Rico Senate Bill 1879
detailed such a program. PREPA could implement a system to incentivize
customers to build distributed solar and storage systems and share
implementation costs with customers. Bill 1879 would require PREPA to
fund 80 percent of the total cost and installation of renewable energy
systems in the residences of the participating owners that have the
average consumption of a family of four members, or 800 kilowatts of
energy per month, whichever is greater. In turn, the excess energy
produced by the systems installed and acquired through the incentive
must be used to reduce the energy cost in Puerto Rico. The funds for
on-site/rooftop initiatives can come from short-term and long-term
sources including Federal funds that would not result in rate
increases. Through these programs, Puerto Rico could achieve the goals
of the Queremos Sol proposal: 75 percent of homes must have a rooftop
solar system of around 1.5 kW of generation capacity accompanied by a
10-kWh storage system by 2035 to increase the efficiency of residential
electric service.
iii. the luma contract is a 20th century approach that will not prepare
puerto rico for the climate crisis or serve the public interest
The Luma contract goes against the necessary transformation of
PREPA that would allow Puerto Rico residents and communities to
participate in the electric system through energy conservation and
efficiency, PV systems sited on rooftops or close to the point of use,
BESS and other alternatives to centralized generation at fossil fuel
fired power plants and T&D. As discussed above, the alternatives to a
centralized electric system set out in the Queremos Sol proposal are
recommended by multiple experts and studies. By perpetuating South-
North transmission, the contract with Luma facilitates the operation of
the AES coal burning power plant in Guayama potentially beyond the end
of the AES contract term if the regulatory provisions against coal
combustion are amended, as well as the rest of the central station
fossil fuel plants located in Southern Puerto Rico.
The Luma contract is a long, expensive and exclusive scheme that
creates a private monopoly. The Luma contract spans 15 years and may be
terminated before or extended by mutual agreement with the approval of
the PREB. Under the contract, PREPA must pay Luma a service fee that
ranges from $83 million to $125 million per year and, in addition to
virtually all Luma's costs through the so-called Operator T&D Pass-
Through Expenditures,\19\ some capital expenses and expenses during
outage events. Luma has no obligation to invest its own funds.
---------------------------------------------------------------------------
\19\ Details of T&D Pass-Through Expenditures to Be Paid by PREPA
to Luma
T&D transfer expenses will include, among others, the following
four types of expenses as an example of the list of 22 expenditure
types that PREPA must reimburse to the Operator:
1. wages, salaries, bonuses, employer contributions to medical
pension and employee plans;
2. costs incurred by ServCo in the provision of O&M services,
including the costs of all subcontracted employees, all goods and
services, subcontractor costs, employee allowances, administrative
costs such as fees, subscriptions, meals, and entertainment.
3. costs related to system capital improvements, including project
management costs incurred by ServCo employees and the cost of debt for
assets and all other costs associated with financing these
improvements, except for Operator-owned capital improvements as
provided in Section 5.5 (d) (Capital Improvements--Option to Propose
Operator-Owned Capital Improvements) of the Agreement;
4. costs incurred with respect to professional services, including
legal, engineering, accounting, finance, auditing, information
technology, etc.
---------------------------------------------------------------------------
From the service start date and for the rest of the term of the
contract, the Operator, the contractors and their subcontractors will
have the exclusive right, subject to Section 3.5 (right of access), to
enter, occupy, and use the T&D system and its related areas.
Although the Agreement recognizes that electric service is an
essential public service, no duty is established to provide that
service to the public, though the entire T&D system would be under the
Operator's control and Luma would also exercise control over the
dispatch of the generation plants. (Luma contract page 35, pdf 42).

The Luma contract divides and dismantles PREPA into two different
companies, while simultaneously providing Luma with multiple
opportunities to abandon its responsibilities:

``GenCo'' will be the entity that owns the generation assets--the
existing generating plants--after the PREPA dismantling. (Luma contract
page 17, pdf 24). ``GridCo'' is defined as the entity that acquires or
obtains ownership of the T&D system. This arrangement essentially
dismantles PREPA and creates heightened risk for Puerto Ricans should
Luma terminate the agreement or fail to provide the requisite services
under the extremely broad force majeure contract clause.

Luma is granted monopoly control over Puerto Rico's electric system
that goes beyond the T&D system and customer service. In relation to
generation services, Luma will control the dispatch of the power plants
and management of energy supply. Luma is granted the authority to
manage the acquisition of generation projects and generation supply
contracts. Luma would acquire easements, fee interests and concession
rights and, identify and constitute new easement areas. Similarly, the
Operator can acquire concession rights that allow for the use of real
estate assets in the public domain, including submerged lands, wetlands
and areas designated as part of the terrestrial maritime zone by the
Puerto Rico Department of Natural and Environmental Resources for the
operation, maintenance, repair, restoration, replacements,
improvements, additions, and alterations to the T&D system.
Luma would provide ``other'' services, including ``implicit''
services. In addition, if requested by the Administrator, the Operator
may perform additional services reasonably related to the T&D system
not included in O&M services. (Luma contract pages 73-6, pdf 80-6).
The Luma contract mandates that the Operator must have complete
flexibility as to the budget, and although it must consult the
Administrator and PREB, their approval is not required, to (i)
reassign, accelerate, or postpone expenses within the approved
Operating Budget, (ii) reallocate, accelerate, or postpone expenses
within the approved Capital Budget financed by the Federal Government,
subject to Federal financing requirements, and (iii) reallocate,
accelerate, or postpone expenses within the approved Capital Budget not
financed by the Federal Government, in each case, in such a way that
the reallocations do not exceed 5 percent of the Budget. (Luma contract
page 89, pdf 96). The grant of discretion to Luma over public funds,
including Federal funds is problematic as previous energy contracts in
Puerto Rico have shown.
Luma will prepare the PREPA IRP. The Operator, as an agent of
PREPA, will prepare a proposed IRP for the future long-term development
of the Puerto Rico electric system, subject to PREB's review and
approval. (Luma contract page 67, pdf 74). As the experience with the
Siemens IRPs has shown, the ability to draft the IRP bakes in biases,
such as a preference for fossil fuel generation into modeling inputs.
Luma may become part owner of the Puerto Rico electric system. Luma
could carry out capital improvement projects that could become its
property if it invests its own funds to build them. (Luma contract page
66, pdf 73).
Luma may request increases in the electricity rate. Although it is
alleged that the Agreement is intended to lower the cost of electric
energy, the Operator may submit a request to PREB to increase or change
the customer rates or charges. (Luma contract page 67, pdf 74). In
fact, according to PREPA's Fiscal Plan, PREPA now has a deficit roughly
equivalent to the amount of the payment to Luma for the current fiscal
year.
The Luma contract cites the Grid Modernization Plan (``Grid Mod
Plan'') \20\ and other documents and requires alignment of the proposed
T&D work. (Luma contract II-36, pdf page 2014). The Grid Mod Plan was
drawn up to request $20.3 billion or $21 billion in Federal funds from
the Federal Emergency Management Agency (``FEMA''), of which $12.2
billion is slated for reconstruction of existing transmission and
distribution systems and some substations rather than the
transformation of the system. The major expense requirements of the
Grid Mod Plan focus on the direct rebuilding of transmission and
distribution systems and substations. Total expenses in those
categories are $12.2 billion, or 60 percent of the total. Table 4-5 of
the Grid Mod Plan details a list of South-North transmission
infrastructure. Table 4-12 proposes spending $1.7 billion to strengthen
that transmission. Fossil infrastructure spending would be $3.8
billion, according to the Grid Mod Plan.
---------------------------------------------------------------------------
\20\ https://recovery.pr/documents/
Grid%20Modernization%20Plan_20191213%20(2).pdf.
---------------------------------------------------------------------------
The London Economics International (``LEI'') report \21\ estimates
that the Puerto Rico's electricity rates would increase to between 27.8
to 30 cents per kWh (nominal) over the next 5 years if the proposed T&D
system projects and the Restructuring Support Agreement (RSA) for the
restructuring of the PREPA debt are implemented even with the
investment of Federal funds. Rates will increase further, to 103 cents
per kWh in 2047 (65 cents per kWh in 2019 real dollars) in the base
case, and 60 cents per kWh (38 cents per kWh in 2019 real dollars) in
the alternative case. These astronomical increases are mainly due to
the proposed investments in T&D.
---------------------------------------------------------------------------
\21\ https://creditorspr.com/wp-content/uploads/2020/02/Redacted-
LEI-Report-filed-version.pdf.
---------------------------------------------------------------------------
Under the Agreement, Luma is granted undue control over Federal
funds. The Operator will work with IEM (as its subcontractor) to manage
Federal funds. The Operator's first step after the initial transition
begins is to establish a governance framework to manage long-term
recovery using Federal funds on behalf of PREPA. (VII. Federal Funds
Procurement Manual). Under the Luma contract, the ``Grant
Administrator'' is defined as ``the relevant government agency and any
third party, authorized by PREPA, and reasonably acceptable to
ManagementCo, ie, Luma to act as manager to administer Federal funds.
ManagementCo may request, to the extent permitted by applicable law,
changes or modifications to Federal funding (including modifications or
reassignments between project worksheets related to the T&D system
prepared by FEMA pursuant to Section 428 of Stafford Act) or the
Integrated Resource Plan.'' (Luma contract page II-39, pdf 207).
Luma can abandon the tasks required under the contract after PREPA
has been dismantled and when reinforcements for the electric system are
most needed and almost at any time. In an extended force majeure event,
Luma, as Operator has the right to terminate the contract, in the event
that the force majeure event continues for a period longer than
eighteen (18) consecutive months and materially interferes, delays or
increases the cost of initial transition services (front-end) or
operation and maintenance services (O&M). (Luma contract page 125, pdf
132). In addition, according to the contract, ``force majeure event''
is defined so broadly that it excuses Luma from performing the services
required for almost any reason, including an interruption or blackout
event (page 22, 29), computer sabotage or virus, quarantine, epidemic,
or civil disobedience; any event that causes any Puerto Rico or Federal
Government agency to declare any part of the geographical area of the
T&D system as part of a ``disaster zone'', ``state of emergency'' or
any other similar declaration; and a change in the law. (Luma contract
pages 14-5, pdf 22. The definition of force majeure is very broad and
allows the Operator to evade responsibility after receiving the
benefits of the contract.
The Luma Agreement infringes upon the rights of PREPA employees.
Neither ManagementCo nor ServCo will be required to hire or compensate
PREPA employees. ServCo will not be required to hire even the majority
of PREPA employees and the determination of which employees it will
hire will be made by ServCo in its sole discretion. Job offers will
remain open for a period of 10 business days. Any offer accepted within
the 10-day period will be irrevocable only until the service start
date. Job offers will provide employment with ServCo on the terms and
conditions established in ServCo's sole discretion. (Luma contract page
69, pdf 76). The Operator will not be required to assume PREPA pension
payments. Employees hired by the Operator will not receive any credit
for their previous service unless required by Law 120-2018. ServCo's
benefit plan will not be obliged to cover pre-existing health
conditions or other benefits for employees and their dependents. (Luma
contract page 47-8, 54-55).
The contract provides for priority of payments to the Operator as
administrative expenses in the PREPA bankruptcy Title III process to
the detriment of other PREPA obligations. (Luma contract page IV-1, pdf
218).
Luma may suspend or terminate electricity service to government
entities, such as municipalities. Luma will assume the implementation
of Regulation 8818 of September 27, 2016 (Regulation on Contribution in
Lieu of Taxes (CILT/CELI).Contrary to a public utility, Luma is not
guided by the services that government agencies provide and how they
may be impacted by suspension of electric service.
The contract requires PREPA to grant a liability waiver for damages
to customers in favor of Luma. With the presentation of the initial
budgets to the PREB, the parties agree to request the inclusion in the
rate order of an exemption from liability from PREPA in favor of
ManagementCo and ServCo as to customers or anyone who receives energy
and electricity for any loss that arises in any way or in connection
with the operation of the T&D system and the supply of energy and
electricity, including any outage event, irregular or defective
electrical service due to force majeure events, other causes beyond the
control of PREPA, ManagementCo or ServCo or common negligence, gross
negligence or willful misconduct of PREPA, ManagementCo or ServCo, or
their respective employees, agents or contractors; and exemption in all
cases of liability for any loss of earnings or income, among others.
(Luma contract, page 44, pdf 51).
Luma may evade the requirement to maintain insurance policies. If
any required insurance policy is not available at commercially
reasonable prices, the Operator will have the right to request the
Administrator's consent to obviate the requirement, the consent will
not be denied, delayed or unreasonably conditioned. PREPA is required
to pay the claims that would be covered under an insurance policy if
Luma does not purchase the policy. (Luma contract page 103, pdf 110).
The Luma contract would perpetuate central station fossil fuel
generation and the associated T&D system. The Grid Mod Plan to which
the Luma contract must be aligned lists multiple methane gas
facilities, including San Juan, Mayaguez, Palo Seco, Yabucoa, and other
peaking units but admits that having four gas import points increases
costs and is not ``optimal''. However, the government's consultants go
on to discuss multiple mechanisms to deploy new methane gas
infrastructure, which have been the subject of stiff civil society
opposition. On page 55 of the Grid Mod Plan, Figure 4-10 shows that
natural gas constitutes 43.72 percent (adding EcoElectrica and Costa
Sur) of ``Total Production per Fuel Type Accumulated,'' while diesel
amounts to 13.53 percent and bunker C is 19.36 percent, totaling 32.89
percent for oil combustion generation. Therefore, methane gas
generation already exceeds oil-fired generation. This undermines the
argument of increasing gas generation as a ``transition'' to renewable
energy or for ``fuel diversification'' purposes. Instead, any increase
in gas generation would necessarily further exacerbate reliance on a
single, imported fuel source.
The Luma contract, by virtue of the requisite ``alignment'' with
the Grid Mod Plan perpetuates centralized generation with imported
fossil fuels, especially new ``natural,'' highly explosive, methane gas
infrastructure that involves investments of billions of dollars and
continued dependence on the transmission of electricity from southern
Puerto Rico to the San Juan metropolitan area. It should be noted that
methane gas plants and pipelines usually are taken out of operation
during earthquakes to minimize explosions of this highly volatile fuel.
This practice implies that the gas infrastructure would be inoperative
during earthquake aftershocks that can go on for months as is currently
the case in Puerto Rico.
The Action Plan in the draft IRP calls for the construction of
three ship-based LNG terminals to be sited in San Juan, Mayaguez, and
Yabucoa and one land-based LNG terminal in San Juan, four new Combined
Cycle Generation Turbines (CCGT) of 302 MW each in Palo Seco, Costa
Sur, Yabucoa, and Mayaguez, and the possibility of the conversion of
the AES coal burning power plant in Guayama to burn gas; three (3)
CCGTs of 38 MW each in the San Juan metropolitan area; 18 mobile 23 MW
units, between 900 to 1800 MW of land-based solar projects and between
600 to 900 MW of BESS. The Plan also proposes the conversion of several
existing plants to burn imported methane gas. The construction of these
projects would create long-term dependence on methane gas imports and
impede the adoption of on-site and rooftop solar and related options.
PREPA senior executives have indicated that the funds for methane
gas infrastructure and the reconstruction of the current T&D system
will come from Federal sources. Implicit in this approach is the
presumption that the people of Puerto Rico will be getting a ``free
lunch'' and that they can request large sums for infrastructure of
doubtful utility and security because it is paid by the Federal
Government and ultimately, U.S. taxpayers. This reflects a mentality of
dependence driven by the methane gas/LNG industry and corporations that
sell fossil generation units. The ``free'' methane gas infrastructure
would tie Puerto Rico to methane gas-burning plants and endanger public
health and safety.
A recent example of how the methane gas infrastructure can go
against the public interest is the New Fortress Energy/NFEnergia (NF)
Liquefied Natural Gas (``LNG'') terminal in San Juan Harbor. Recently,
the Federal Energy Regulatory Commission (``FERC'') issued an Order to
Show Cause against NF because NF built and operates the LNG terminal in
San Juan without previously having obtained the requisite authorization
under Section 3 of the Natural Gas Act. If NF had submitted an
application for FERC authorization it would have been required to study
the health and safety risks of the LNG terminal to nearby communities,
workers, and properties.\22\
---------------------------------------------------------------------------
\22\ Faith groups that represent thousands of concerned citizens
living in or around the area of the proposed NFEnergia LNG facilities,
including Christian churches from various denominations in the
Municipalities of San Juan, Guaynabo and Catano sent a letter to FERC
requesting the agency's intervention in the project. (See the attached
letter). The churches include the following: (1) Iglesia Cristiana
(Discipulos de Cristo) in Amelia, Guaynabo (serving Barrio Pueblo Viejo
de Guaynabo, Sabana, Amelia, Vietnam, La Puntilla and others sectors
between Guaynabo & Catano); (2) Iglesia Cristiana (Discipulos de
Cristo) in San Patricio (serving Northeast/Northwest Puerto Nuevo and
Barriada Borinquen); (3) Iglesia Luterana El Redentor (serving Puerto
Nuevo); and (4) Iglesia Cristiana (Discipulos de Cristo) of Puerto
Nuevo (serving Puerto Nuevo and the Hermanas Dominicas de la Santa Cruz
community in Catano). The group is also backed by the Puerto Rican
Council of Churches with more than 500 congregations among its ranks.
Combined, the group represents more than a dozen pastors seeking
answers as to why FERC has not assumed jurisdiction on such a dangerous
project involving large amounts of flammable methane gas in proximity
to communities and places of worship.
---------------------------------------------------------------------------
The NF project is plagued with irregularities and potential legal
violations, recently revealed in an in-depth report published by Cambio
Puerto Rico and the Institute for Energy Economics and Financial
Analysis (``IEEFA'').\23\
---------------------------------------------------------------------------
\23\ https://ieefa.org/wp-content/uploads/2020/06/Is-Puerto-Ricos-
Energy-Future-Rigged_June-2020.pdf.
---------------------------------------------------------------------------
The NF terminal is supplying methane gas to the PREPA San Juan 5 &
6 units, which are burning light distillate or gas.\24\ The cost of
electricity from San Juan 5 & 6, burning gas is $10.79/MBTU, which
makes those units the most expensive baseload units on PREPA's system.
---------------------------------------------------------------------------
\24\ In May 2020, it appears that PREPA burned about 240,000
barrels of light distillate at San Juan 5 & 6, and 85,000 barrels of
methane gas, according to the Reconciliation File May 2020, May-2020
Fuel Cost & Consumption tab, rows 45-52, PREPA's June 17th filing in
PREB's rate case docket, NEPR-MI-2020-0001.
---------------------------------------------------------------------------
All the gas infrastructure build-out proposed is based on dubious
legal exceptions and a proposed waiver of the Jones Act (Merchant
Marine Act) exclusively to allow for shipping of methane gas extracted
via hydraulic fracturing (fracking) from the continental United States
in foreign vessels, which is not likely to be approved according to
news sources. The executive branch's gas infrastructure buildout will
leave no space or resources for customer-sited renewables.
iv. the luma contract will exacerbate prepa's current system
vulnerabilities and harm public health and safety
Hurricanes Irma and Maria demonstrated that the 230 kV and 115 kV
lines that carry power from the large, centralized power plants in the
South to the North were a key vulnerability of the system. The Luma
contract requires continued reliance on centralized fossil fuel
combustion plants and these transmission lines, and even contemplates
more large, centralized plants, also connected to the grid through the
same vulnerable transmission lines. The South-to-North transmission
lines are vulnerable to extreme weather events, vegetation growth,
wildlife impacts, lack of investment in maintenance, and difficult
access to servitudes and easements, among others.
The seismic events further demonstrated the vulnerability of large,
centralized plants and the affiliated transmission system: Costa Sur
and EcoElectrica are both damaged. The U.S. Geological Survey has
determined that the areas where the San Juan and Palo Seco plants are
located present high risk of liquefaction in the event of
earthquakes.\25\ The Great Southern Puerto Rico Fault Zone runs through
the Jobos Bay area where the Aguirre Power Complex and the AES coal
burning power plants are located.\26\
---------------------------------------------------------------------------
\25\ Bachhuber, Hengesh, & Sunderman, Liquefaction Susceptibility
of the Bayamon and San Juan Quadrangles, Puerto Rico, at Figure 6, PDF
p 30 (2008), https://earthquake_usgs_gov/cfusion/external_grants/
reports/03HQGR0107.pdf (noting very high susceptibility zones in areas
along the Bayamon coastal plain, Bahia de San Juan, and Laguna San
Jose); Hengesh, & Bachhuber, Liquefaction susceptibility zonation map
of San Juan, Puerto Rico, in Mann, P (ed), Active tectonics and seismic
hazards of Puerto Rico, the Virgin Islands, and offshore areas:
Geological Society of America Special Paper 385, at 249-262 (2005).
\26\ Id. at 250.
---------------------------------------------------------------------------
The Palo Seco plant, depot and accompanying infrastructure are in a
tsunami flood area.\27\ The IRP fails to consider how much of the
existing or proposed energy infrastructure is in flood prone areas or
to provide documents related to sea level rise, storm surge, or other
flooding risks for the plants and T&D infrastructure.\28\
---------------------------------------------------------------------------
\27\ GridMod Plan, at 107, Figure 6-6 (``Map of Palo Seco Plant and
Depot in Flood Area,'' listing PREPA as the source of this
information).
\28\ The terms ``Storm surge'' and ``Flooding'' each appear only
once in PREPA's IRP, while ``Sea Level Rise'' is left out completely Cf
Puerto Rico Climate Change Council (PRCCC), Puerto Rico's State of the
Climate 2010-2013: Assessing Puerto Rico's Social-Ecological
Vulnerabilities in a Changing Climate at 7 (2013), http://pr-ccc_org/
download/PR%20State%20of%20the%20Climate-FINAL_ENE2015.pdf (noting the
demands of the scientific and academic community in Puerto Rico for
``an immediate halt to the endorsement and approval of projects in
coastal areas vulnerable to the effects of sea level rise'').
---------------------------------------------------------------------------
The operation of all fossil fuel plants in Puerto Rico emit
multiple contaminants that adversely impact public health and the
environment. The Applied Energy System (AES) Corporation coal-fired
power plant and the Aguirre Power Complex, located in southeastern
Puerto Rico are the two primary sources of toxic emissions in Puerto
Rico and disproportionately impact some of the poorest communities.\29\
These two plants also extract large amounts of freshwater from the
South Coast Aquifer and have contributed to the water scarcity that led
to water rationing in summer 2019 and in previous years.\30\
---------------------------------------------------------------------------
\29\ https://enviro.epa.gov/triexplorer//
tri_factsheet.factsheet_forstate?pZip=&pParent=NAT&p
City=&pCounty=&pState=PR&pYear=2018&pDataSet=TRIQ1&pPrint=0.
\30\ (https://waterdata.usgs.gov/pr/nwis/wu; https://
www.periodicolaperla.com/acuifero-del-sur-retrocede-la-unica-fuente-de-
agua-potable-de-30-mil-surenos1/).
---------------------------------------------------------------------------
The AES coal burning power plant in Guayama transmits electricity
to northern Puerto Rico, including the San Juan metro area and
accumulates hundreds of thousands of tons of coal ash waste at its
plant site. The facility and its polluting practices already
contaminated part of the South Coast Aquifer, the sole source of
potable water for tens of thousands of people in Puerto Rico.\31\
---------------------------------------------------------------------------
\31\ Report On Corrective Measures Assessment Aes Puerto Rico--
Agremax^TM Staging Area, Guayama, Puerto Rico https://
aespuertorico.com/wp-content/uploads/2019/11/Corrective-Measures-
Assessment-English.pdf, AES Puerto Rico Coal Combustion Residuals
website; https://aespuertorico.com/ccr/.
---------------------------------------------------------------------------
The Costa Sur and EcoElectrica plants in southwestern Puerto Rico
both burn imported methane gas and also transmit energy long distance.
Gas combustion is the substitution of one group of contaminants for
others. The myth that methane gas is a cleaner energy source is a
fallacy. The methane LNG used in Puerto Rico must be stored under
cryogenic conditions and revaporized/regasified before it can used at
the plants. These additional processes add to the total emissions of
LNG use in a way that exceeds the CO2 emissions of other
fossil fuels. Methane gas combustion also emits increased Volatile
Organic Compounds (VOCs) such as formaldehyde, benzene, toluene,
hexane, and styrene.\32\
---------------------------------------------------------------------------
\32\ Pediatric Environmental Health Specialty Unit (PEHSU), Mount
Sinai Medical School. pgs. 1-2. https://elibrary_ferc.gov/IDMWS/search/
advResults.asp, Case No. CP13-193-000.
---------------------------------------------------------------------------
Multiple scientific studies, including a recent Harvard University
report found that, ``A small increase in long-term exposure to PM2.5
leads to a large increase in COVID-19 death rate, with the magnitude of
increase 20 times that observed for PM2.5 and all-cause mortality.
Exposure to air pollution and COVID-19 mortality in the United
States.\33\ The study results underscore the importance of continuing
to enforce existing air pollution regulations to protect human health
both during and after the COVID-19 crisis.'' The specific findings
demonstrate that, an increase of only 1 ug/m3 in PM2.5 is associated
with a 15 percent increase in the COVID-19 death rate, at a 95 percent
confidence interval. https://projects.iq.harvard.edu/covid-pm.
Particulate matter is emitted by electric power plants, motor vehicles
and other sources of air contamination. Continued reliance on these
plants for energy transmission to San Juan and northern Puerto Rico is
another disaster in the making.
---------------------------------------------------------------------------
\33\ Xiao Wu, et al. medRxiv 2020.04.05.20054502; doi: https://
doi.org/10.1101/2020.04.05. 20054502.
---------------------------------------------------------------------------
v. the disastrous experience with privatizing energy and other sectors
in puerto rico
Within the electric power sector, Puerto Rico already has several
examples of generation by private corporations. The AES coal-fired
plant generates approximately 17 percent of Puerto Rico's electric
power and has incurred in multiple violations and instances of
noncompliance with the plant siting permit, orders, and resolutions of
the Puerto Rico Environmental Quality Board (EQB), violations of the
Federal Clean Water Act and other violations that constitute sufficient
basis for the rescission of the power purchase agreement between PREPA
and AES prior to the expiration of the contract term. Evidence of
environmental contamination by AES is documented in various Groundwater
Monitoring reports commissioned by AES to its contractor, DNA
Environmental, LLC as a requirement of the Federal Coal Combustion
Residuals Rule. AES is now in the process of determining the corrective
measures to implement to clean the groundwater contamination and
prevent further water pollution at its plant site.\34\ However, there
are at least 40 sites where AES' Agremax was used as fill material over
the South Coast Aquifer and various other sites in municipalities
throughout Puerto Rico that have not been tested and are likely
leaching heavy metals into water supplies.
---------------------------------------------------------------------------
\34\ DNA-Environment, LLC, 2017 Annual Groundwater Monitoring
Report AES Puerto Rico LP, Guayama, Puerto Rico (Jan. 31, 2018).
Available at: http://aespuertorico.com/wp-content/uploads/2018/02/
2017_01_31_AES_Groundwater-Monitoring-and-Corrective-Action_Annual-
Report.pdf.
---------------------------------------------------------------------------
Other examples of private energy generation in Puerto Rico are the
renewable energy power purchase agreements. Table 5-6 of the 2015
Supplementary IRP prepared by Siemens Industry lists 43 power purchase
agreements totaling 1056 MW. The prices of some of these contracts are
as high as $197.00 per MWh, in addition to annual escalation costs and
requiring payment for renewable energy certificates (``RECs''). In
addition, almost all of these projects are built or proposed to be
built on agricultural land or ecologically sensitive areas.
The Federal Oversight Management Board (``FOMB'') approved the NF
LNG project in San Juan Harbor as well as the new EcoElectrica/Naturgy
agreements. Based on the LNG market analysis of Poten & Partners, the
EcoElectrica/Naturgy agreements could cost approximately $500M in
excess of competitively bid contracts over the 12-year term of the
agreements. The NF contract also includes above-market rates for LNG.
Ultimately, PREPA ratepayers would be required to shoulder this burden.
It's imperative that the FOMB explain the basis for its approval of the
various dubious transactions mentioned above.

A study on the privatization of the Puerto Rico Aqueduct and Sewer
Authority (``PRASA'') concluded as follows:

[P]rivatization did not improve the quality of water services
either, and certainly led to many more fines and expenses for
Puerto Rico, as evidenced by the work done by the Office of the
Comptroller of Puerto Rico. Contrary to what was believed and
argued by those that supported privatization of the water
supply services, two different privatization projects, with
different companies and varying contractual terms, failed.
Cortina de Cardenas, Susana Maria. ``Does private management
lead to improvement of water services? Lessons learned from the
experiences of Bolivia and Puerto Rico.'' PhD (Doctor of
Philosophy) \35\
---------------------------------------------------------------------------
\35\ Thesis, University of Iowa, 2011, pg.109, http://ir.uiowa.edu/
etd/941.

The study concludes that, ``There is no evidence that supports the
notion that privatizing any service per se, including water, through
any kind of contract, a concession or otherwise, will lead to the
delivery of better services.'' Id pg. 192.
vi. the public model is necessary to transform the puerto rico electric
system
The Queremos Sol platform envisions the vindication of the public
utility in Puerto Rico through citizen participation and ``prosumer''
generation. According to the American Public Power Association, known
as APPA, public energy companies in the United States generally provide
electric service at lower prices than private companies:
Public power utilities provide reliable electric service at
comparably low cost, and they do so because they are staffed by
dedicated and highly qualified individuals who have years of
experience. Employees of public power utilities understand their local
communities and take pride in keeping the lights on for their
neighbors--(http: / / c.ymcdn.com/sites/members.iamu.org /resource/
resmgr/informer_2016 / APPA_ Pay_Report.pdf, pg.1). The study cited
indicates that the residential rates of public energy companies were 14
percent lower than the rates of private energy companies known as
Investor Owned Utilities (``IOUs''). (Id. pg. 2). Meanwhile, in the
commercial sector, the rates of public companies are a little lower and
in the industrial sector they are comparable with the rates of private
companies. The total rates of public companies are on average 7 cents
lower than the tariffs of the IOUs. Id. pg. 2. In terms of service
reliability, public electric power companies in the United States, on
average outperform private companies in the industry parameters.
Subscribers of public companies on average experience fewer blackouts
than customers of other kinds of electric companies (Id. pg. 3).
In Puerto Rico, private companies that generate electricity have
received very generous tax exemption benefits. While PREPA has
historically made contributions in lieu of taxes (``CILT'') to
municipalities and other branches of government and provides
substantial subsidies by virtue of multiple provisions of law.
According to a survey conducted in 2014, private electric power
companies in the United States only pay 4.2 percent of their total
operating income to state and local governments while public utilities
contribute an average of 5.6 percent of total operating income, this is
33 percent more than the payments of private companies (Id. pg. 4).
Public utilities provide other tangible and intangible benefits to
their local communities. Public ownership of the assets provides local
control over investments, energy supply options and programs.
Representatives of subscribers of public companies have the right to
participate in meetings where decisions are made. Planning is often
done with a view to incorporating community input. The contributions,
together with the local participation also promote local economic
development. Public utilities are also innovative in terms of
technology and many public energy companies have taken a leadership
role in preparing their communities for the future by searching for new
technologies as an integral part of community growth. They serve as
sources of information in a variety of technological fields, such as
environmental stewardship, high-speed internet capacity, security and
the development of community technology. Some public electricity
companies have begun to offer telecommunications services, which foster
economic development because private companies cannot offer these
services to smaller communities at competitive prices. Other advantages
of public companies include greater efficiency of local government
through the exchange of personnel, equipment, and supplies. The
management and operations of public companies provide additional
community leadership for innovation and development. This local
leadership tends to have a greater commitment to conservation, security
and the environment. Local control affects special programs such as
energy conservation, rate relief for certain classes of customers, the
aesthetics of the electrical distribution system and design. Local
control allows local resources to be linked to local needs without an
economic and political bias toward high-cost and capital-intensive
techniques or technologies. Place-based management facilitates the
implementation of innovative techniques and technology to meet the
energy needs of communities. The main mission of public companies is to
provide a reliable and more affordable service. (Id.)
vi. the necessary transformation of prepa governance
The following specific proposals included in Queremos Sol are
necessary for the transformation of PREPA governance to best serve the
public interest:

1--PREPA's board of directors should be appointed or elected to
fixed terms and possess relevant professional qualifications and energy
industry expertise. Terms should be staggered. Three board members
should be appointed by the governor from lists submitted by: (1)
environmental organizations; (2) labor unions; and (3) small business
organizations. Two board members should be appointed directly by (1)
the Puerto Rico Cooperative League and (2) the Association of
Economists. A sixth member should be selected from the engineering
faculty of Puerto Rico universities. Two members should be elected by
PREPA's residential and commercial customers as consumer
representatives, and one should be elected by industrial consumers as
an industry representative. Board members should be dismissed only for
cause and only if the resolution authorizing dismissal receives more
than six votes. The board must have finance and audit committees, and
the members of these committees should not overlap.

2--The PREPA executive director should be appointed by the board
through an open recruitment process. The board should have just cause
before dismissing an executive director.

3--Reform of contract and enforcement policies to systematically
address all contract irregularities discovered in audits by the Office
of the Comptroller and by the 2016 Senate investigation into the
purchase of fuel.

4--Internal restructuring should be informed by various audits and
investigations of PREPA fuel purchase practices that have highlighted
the centralization of power and responsibility within its Fuel Office.
The board should undertake a structural analysis of PREPA's operations
to ensure that potentially conflicting operations are not centralized
in a single office, particularly the Fuel Office.

5--The Legislature should authorize the creation of a non-profit,
membership-based PREPA Consumer Advisory Board with access to all
information available to PREPA board members, including all internal
audit reports, and with the right to responses from the executive
director to all written questions and statements submitted by advisory
board members and with the ability to compel enforcement by the PREB in
the event that PREPA does not cooperate.

6--Attraction and retention of an appropriate labor force through
policies aimed at reducing administrative costs associated with the
large number of political appointments within the agency. Opportunities
for workforce training, especially in renewable energy, should be
prioritized. An effective investigation into the costs of salary and
benefits that PREPA has incurred due to political appointments should
be conducted.
7--Acknowledgement of climate change as central to decision-making.
Climate change must be understood as one of the central forces in the
transformation of the energy sector, which is why it is imperative that
PREPA integrate adaptation measures in infrastructure planning and that
climate considerations be inserted as a pillar in the design of all
public policy, legislation and decision-making processes.

8--Effective opportunities for citizen participation and education.
Providing and supporting spaces for citizen participation in PREPA in
the spirit of publicly owned power companies, vital to achieving
baseline levels of agreement informed by inclusiveness and
transparency. An energy literacy program including energy audits should
be developed and aimed especially at small- and medium-sized businesses
and industry to implement conservation and reduction in electric bills.

9--Promotion of labor sector participation. Electrical industry
workers are key to the sort of system change that will lead to a clean
energy future. The term ``just transition'' is defined as societal
evolution toward cleaner energy resources and lower-emission economies
while guaranteeing sustainable lifestyles and suitable workforce
transition. In a just and equitable transition, affected workers,
unions and communities are equal partners in a well-planned and
carefully managed shift from fossil fuels to clean energy. A just
transition provides employment opportunities and guarantees job
security and livelihoods for energy-industry workers and impacted
community members. Pensions and health plan benefits are preserved, and
workers and members of affected communities have the right to first
employment for the jobs created through the dismantling of fossil fuel
energy structures. Workers also receive education and training and
ideally are unionized with similar salaries and benefits. A just and
equitable transition will commit each level of government and business
in a unified effort; provides workforce training; replaces lost tax
revenues; and creates lasting and good jobs that strengthen the economy
and support working families, especially jobs related to clean energy,
energy efficiency and climate resilient infrastructure. A just
transition requires that those responsible for pollution are held
accountable for clean-up to achieve usable land and clean water.

10--Appointment of an Independent Private Sector Inspector General
(IPSIG). An IPSIG is an independent firm with expertise in auditing and
management that would have the power to investigate and audit the day-
to-day PREPA operations and report relevant findings and progress.

11--A comprehensive audit of the debt (and holding accountable
those who participated in illegal debt issuances) and a debt
restructuring that protects local bondholders (individuals, small
businesses, cooperatives) while ensuring a substantial reduction or
elimination of debt repayment by PREPA ratepayers to achieve an
affordable and financially sustainable electrical system.

Sustainable, technically viable and cost-effective alternatives
that include the combination of energy conservation, efficiency and
demand response programs, community-sited renewables, especially on-
site roof-top solar, and BESS are currently viable as documented above.
Puerto Rican electric customers pay the second highest electric rates
of any U.S. jurisdiction and ratepayers will ultimately pay for the
transformed electric system. The Luma contract would perpetuate a
centralized, imported fossil-fuel based electric system and compromise
energy resiliency in Puerto Rico. The proposed acquisition and
procurement for on-site, rooftop solar systems and BESS, installed by
qualified PREPA personnel and the other measures discussed above will
help to achieve the necessary transformation of the Puerto Rico
electric system toward a locally controlled, decentralized, renewable
energy system.

______

The Chairman. Mr. Angel Figueroa-Jaramillo, President,
Electrical Industry and Irrigation Workers Union. Your
statement will be read by the translator. And the translator
will be available for the Q&A and Mr. Jaramillo will be
participating in those with the translator.
With that, Mr. Jaramillo, the floor is yours.

STATEMENT OF ANGEL FIGUEROA-JARAMILLO, PRESIDENT, ELECTRICAL
INDUSTRY AND IRRIGATION WORKERS UNION (UTIER)

Mr. Figueroa-Jaramillo. [Speaking through interpreter].
Good afternoon. My name is Angel Figueroa-Jaramillo. I appear
as president of the union and UTIER. I am with Attorney Jessica
Coldberg. I thank the Committee for the invitation. My
statement will be read by the translator.
UTIER represents 3,000 of the 6,000 workers that PREPA will
lay off due to the LUMA Energy contract. However, UTIER speaks
not only for the benefit of its members, but also for the
12,000 PREPA retirees and the people of Puerto Rico as a whole.
It is essential that this Committee know that we agree PREPA
needs to be transformed.
However, handing over all current PREPA functions to a
private operator is not a transformation. LUMA Energy will do
everything PREPA is already doing and is charging an additional
$125 million in public funds for it. A true transformation
requires an investment and expert input.
UTIER and other organizations have made proposals for a
true transformation and they have fallen on deaf ears. UTIER
sponsors Queremos Sol, which has a comprehensive proposal to
transform PREPA. We have also proposed changes, such as: (1)
altering the composition of the Governing Board and the Energy
Bureau to increase transparency and consumer representation and
limit the discretion that leads to contracting; (2) the
implementation of an independent private sector inspector
general, IPSIG, as a control to ensure compliance with existing
laws and regulations without the need to appoint a trustee; and
(3) most importantly, the reinvestment of funds in PREPA's
workforce which has been severely depleted in recent years and
led to so many difficulties after Hurricane Maria.
But apparently what the government wants is to wash its
hands of the deficiencies of those who have been appointed to
manage PREPA and not transform it. An example, the current CEO,
Jose Ortiz, has done nothing for the real transformation.
The contract with LUMA does not provide any benefit for the
people of Puerto Rico. The payment of the contract has already
placed PREPA at a $125-million budgetary deficit as certified
by the Financial Oversight and Management Board in the latest
budget.
There is no doubt that PREPA does not have the resources to
pay that money, which is why the Oversight Board is requesting
an administrative expense priority in the Title III for LUMA
Energy, which in turn will affect the retirement system and
other creditors.
The only way to pay this deficit will be by increasing the
rates, which will affect the people of Puerto Rico and
disproportionately harm the population living below the poverty
level, especially those with annual incomes between $0 and
$14,399. This population will have to dedicate between 36 and
42 percent of their income to pay their electrical bill.
Under the contract, LUMA Energy has even been given the
deference that the plan of adjustment under Title III of PREPA
must be ``reasonably acceptable to LUMA Energy.'' Otherwise,
LUMA can terminate the contract.
The concession on LUMA to have veto power over the approval
of the plan of adjustment will pressure the Oversight Board and
the Title III Court to approve a plan that is not necessarily
in the best interest of the people of Puerto Rico.
The question to ask is why should LUMA Energy have that
kind of power. LUMA will not be accountable to the people of
Puerto Rico. It can terminate the contract practically at any
time with only 120 days' notice and leave Puerto Rico without
an electric service operator.
In addition, despite being a private entity, it will make
public policy decisions and manage at its own discretion the
$18 billion in Federal funds assigned to Puerto Rico. In fact,
LUMA has already started bragging about those Federal funds to
its investors and affiliates. The Federal Government should
stop this.
Speaking about accountability, the locally registered
corporation was created in January of this year for the sole
purpose of signing this contract and was created as a limited
liability company to avoid responsibility. Furthermore, the
contract has an exemption from express liability for any damage
that LUMA may cause to its ratepayers.
In summary, LUMA Energy will take over PREPA's operations
without investing a dime in PREPA or in Puerto Rico. It will
charge a fee of $125 million and manage $18 billion in Federal
funds and will be able to award contracts to Quanta Services
and ATCO while PREPA pays for its transition and operation. It
is not accountable to the people of Puerto Rico, and it is not
required to transform the electrical system. In fact----
The Chairman. You need to wrap it up, sir.
Mr. Figueroa-Jaramillo. Thank you.
The Chairman. Yes. You are welcome.

[The prepared statement of Mr. Figueroa-Jaramillo follows:]
Prepared Statement of Angel Figueroa-Jaramillo, President, Union de
Trabajadores de la Industria Electrica y Riego (UTIER)
i. introduction
When the Puerto Rico legislature passed the Puerto Rico Electric
Power System Transformation Act (Act No. 120-2018) it said, and I
quote:

PREPA's employees have made a Herculean effort to serve Puerto
Rico. They have played a key role in the reestablishment of the
electric power system after hurricane Maria. Their knowledge is
critical in ensuring the electric power systems' success. They
are not the problem. (Statement of Motives) (emphasis added).

To make good on those expressions, the Legislature dedicated the
entire Section 15 of the law to protect the rights of PREPA's workers,
ensuring that none of them would lose any rights in the process of
transforming PREPA. Yet, when PREPA and the Public-Private Authority
entered into this Contract with Luma Energy, they completely ignored
that mandate, in more than one way.
While it is true that the Contract with Luma Energy completely
ignores the rights of PREPA's workers, which we have been sure to
denounce loudly and with conviction, it is also true that the Contract
misses the mark in other ways. The Legislature was clear, PREPA's
workers ``are not the problem.'' So, what is the problem?
In a recent study, the Economist Jose I. Alameda-Lozada, Ph.D.
noted that PREPA's financial woes are not the same as those of the
Commonwealth nor do they share identical causes.\1\ This conclusion
stems from two premises that are undisputed: First, PREPA is a public
corporation, independent from the Commonwealth Government. As an
independent public corporation, PREPA has its own budget, revenue and
debt issuance. Second, PREPA was created to provide an essential
service that has been valued as a derived human right. Thus, Alameda-
Lozada studied the independent causes of PREPA's financial situation.
---------------------------------------------------------------------------
\1\ Jose I. Alameda-Lozada, Ph.D., The Impairment of UTIER's
Collective Bargaining Agreement and the Calculation of Damages (June
15, 2020).
---------------------------------------------------------------------------
He concluded that there were particular circumstances that
contributed: (1) that the Governing Board of PREPA was highly
politicized along party lines, leading to poor decisions, and (2) that
the issuance of debt did not lead to investment in infrastructure and
maintenance. Of course, there is also the issue of the Commonwealth
Government's outstanding debt with PREPA, which amounted to $208
million by 2016, and the $412 million owed by the municipalities.
However, there is another trend that contributed to PREPA's
deterioration: the reduction of its workforce.\2\
---------------------------------------------------------------------------
\2\ Id. at 19-27.
---------------------------------------------------------------------------
In the period between 2000 and 2013, PREPA had an average
diminution of 81 workers. While in 2000 PREPA had 9,540 workers, by
2013 it was down to 7,822. Then, with the enactment of laws that
directly infringed upon the rights of workers in 2014, PREPA lost 516
workers per year. Then after an additional law of this kind was passed
in 2017, the reduction was of 292 workers per year. By 2018, the
workforce was reduced to 5,687. This heavy decline impacted PREPA's
retirement system, due to an increase in retired workers, and reduced
the active stock of human resources.\3\ This, as we know, took its toll
when Hurricane Maria made its way through the island, as PREPA did not
have the manpower to reenergize the island quickly; hence, the
``Herculean effort'' of those employees recognized by the Legislature
of Puerto Rico. There seems to be an affinity for removing PREPA's
workers from the table, where they are invaluable for the search for
solutions. This could not have been more evident than when PREPA
attempted to outsource to Whitefish, the work that its workforce, had
it not been reduced so drastically, could have completed efficiently
and expediently. This was another failed attempt to find solutions
outside of PREPA's workforce and evidence of the issues UTIER insists
are what needs to be attended.
---------------------------------------------------------------------------
\3\ Id. at 78-80.
---------------------------------------------------------------------------
In view of that background, UTIER posits that the problem with
PREPA is (1) the party-politics dynamic that dominates the Governing
Board; (2) the lack of investment in infrastructure in maintenance; and
(3) the systematic reduction in its workforce by acts of PREPA and the
Legislature, in mislead attempts to achieve savings by impairing
workers' rights rather than assuming any of the available alternatives.
These alternative methods of achieving income and savings were
discussed by Alameda-Lozada in the study referenced above and it is
part of the submissions made for the record of this hearing. None of
these problems are addressed by the Luma Contract. That
``transformation'' initiative creates more problems than it solves.
UTIER recognizes that PREPA is in great need of reform, but its
proposed alternatives are much less burdensome for the people of Puerto
Rico and PREPA itself than the adoption of this, frankly, bad contract.
Privatizing for the sake of privatizing is not a solution. If we have
learned anything in Puerto Rico it's that private actors are not exempt
from the party-political dynamics that PREPA suffers from. Scandals
surrounding high profile public contracts with private contractors are
usually traced back to political party connections. A recent example is
the contracts for the COVID-19 tests, which have been revealed to be
part of a scheme with government party members.\4\ Party politics
corruption in Puerto Rico extends to private contractors, who are
favored because of their affiliations. Furthermore, the Luma Contract
does not require it any investment to PREPA's infrastructure or
maintenance. PREPA will be paying for those ``services'' just as it
always has. Lastly, the Luma Contract will continue to impair the
rights of PREPA's workers, which, as we have seen, leads to reduction
of the workforce, increase in retirees who will burden the pension
system and the inacceptable risk that we face another hurricane or
natural phenomenon without the necessary number of experienced workers
to address the aftermath.
---------------------------------------------------------------------------
\4\ The Center for Investigative Journalism has covered the scandal
and the connections to the statehood party in these contracts: Luis J.
Valentin Ortiz & Joel Cintron Arbasetti, El esquema de la venta de
pruebas en Puerto Rico, CPI (May 28, 2020) https://
periodismoinvestigativo.com/2020/05/el-esquema-de-la-venta-de-pruebas-
en-puerto-rico/; Luis J. Valentin Ortiz & Cristina del Mar Quiles,
Tierra de nadie la compra de pruebas y suplidos para la emergencia del
COVID-19, CPI (April 8, 2020) https://periodismoinvestigativo.com/2020/
04/tierra-de-nadie-la-compra-de-pruebas-y-suplidos-para-la-emergencia-
del-covid-19/.
---------------------------------------------------------------------------
In this opportunity to present our position before this Committee,
we will first, establish the basis of our opposition to the Contract
with Luma Energy. We will then submit our proposals as better
alternatives than the Luma Energy Contract for the actual problems that
PREPA is facing. Finally, we will respectfully highlight the areas in
which Congress can intervene to address the actual situation of PREPA.
ii. opposition to the contract with luma energy
We will start pointing out the reasons this Contract should be
voided. As we have argued in our legal opinions and memorandums, as
well as in the ongoing litigation regarding the Contract, this Contract
with Luma Energy is, in itself, unconstitutional, illegal and in every
way, a great detriment for PREPA. The gist of our opposition is that
this Contract is bad business, thus, contrary to basic public policies
enacted by Puerto Rico's legislature. Moreover, legally specific
arguments aside, PREPA does not derive a single benefit from it, unless
you consider dismantling PREPA to be in its own benefit, like the
Oversight Board does.\5\
---------------------------------------------------------------------------
\5\ PREPA's Motion for Entry of an Order Allowing Administrative
Expense Claim for Compensation for Front-End Transition Services under
Puerto Rico Transmission and Distribution System Operation and
Maintenance Agreement with Luma Energy, Case No. 17 BK 4780-LTS, Docket
No. 2053-1 at 16.
---------------------------------------------------------------------------
A. The Contract is Unilateral, PREPA Reaps No Benefits
In summary, the Contract with Luma Energy shifts PREPA's operations
into Luma Energy's hands, intact. That means that our once public
monopoly on energy distribution becomes a private monopoly. PREPA
retains only the property rights, while Luma Energy takes on:
operations, customer service, billing, legal, capital improvements,
Federal fund procurement and management, some generation services, the
Integrated Resource Plan procedures, PREPA's representation in
Government bodies, renewable energy public policy goals, electricity
rates, and so on. Meanwhile, PREPA will be paying for Luma Energy's
transition in, out and all the expenditures it incurs during the
Contract, the contract will increase its financial burden, contrary to
the requirements of restructuring, debt adjustment and financial
soundness. The Contract will cause an increase in the service's cost to
ratepayers. This in turn, will affect demand, because the staggering
amount of population that lives under the poverty line will have to
drastically reduce its energy consumption in order to balance the
percentage of its income they dedicate to that payment, thus, securing
other bills such as rent and food. This is confirmed in a recent study
by Sociologist Hector Cordero-Guzman, Ph.D.\6\
---------------------------------------------------------------------------
\6\ Hector R. Cordero-Guzman, Ph.D., The Socio-Economic Impacts of
the Puerto Rico Electric Power Authority (PREPA) Restructuring Support
Agreement (RSA) on the Population of Puerto Rico (rev. September 10,
2019).
---------------------------------------------------------------------------
In Puerto Rico, 44.5 percent of the population lives below the
Federal poverty guidelines.\7\ As such, increases in electricity rates
will disproportionately impact people below the poverty line.
Specifically, for the bottom 40 percent, with incomes between $0 and
$14,399, electricity will take up between 36 percent and 42 percent of
their income.\8\ These circumstances only serve to pressure migration
and exacerbate the financial crisis. This in turn, results in a
decrease in demand that further suppresses progress.\9\ Therefore, the
increase in rates that the Contract requires affects the availability
of sustainable cash-flow to cover all of PREPA's obligations, including
the retirement system and bond payments.
---------------------------------------------------------------------------
\7\ Id. at 11.
\8\ Id. at 20.
\9\ Id. at 34.
---------------------------------------------------------------------------
B. The Contract is Illegal and Unconstitutional under Puerto Rico Law
Under the Contract, Luma Energy will not respect the rights of
PREPA's workers, as they have acquired them in their collective
bargaining agreement with PREPA and deprives them of the union
representation that they have. This is expressly stated in Section 5.2
of the Contract, where Luma Energy says it will assume ``system
contracts'' which are defined in Section 1.1 as not including
collective bargaining agreements. In Puerto Rico, this is not legal,
and it is diametrically opposed to the Constitution, the law and public
policy. Thus, it taints the already questionable Contract with
additional constitutional concerns.
The Puerto Rico Constitution contains explicit protections for
worker's rights in the Bill of Rights, which is Article II of the
Constitution. Section 17 of Article II of the Constitution states that
workers have the constitutional right to unionize and negotiate
collective bargaining agreements. This protection is also present in
Act No. 130-1945, P.R. Laws ann. tit. 29 Sec. Sec. 62 et seq., a labor
law that explicitly declared the Puerto Rico public policy regarding
collective bargaining agreements. That public policy states that
maintaining industrial peace, adequate and stable wages and production
through collective bargaining agreements is essential for Puerto Rico's
economic development. P.R. Laws ann. tit. 29 Sec. 62(2). That depends,
the law says, on maintaining fair, friendly and mutually satisfactory
labor relations. Id. For that reason, the law says that collective
bargaining agreements are instruments of public policy and are, thus,
vested with public interest. Id. Sec. 62(5). The Puerto Rico Supreme
Court has repeatedly interpreted this law liberally in favor of the
constitutional protections of Article II Section 17. See COPR v. SPU,
181 P.R. Dec. 299, 314-21 (2011). Any act that intervenes or restrict
worker's rights under that law, meaning that it frustrates the
collective bargaining effort, is deemed illegal. P.R. Laws ann. tit. 29
Sec. 69(1)(a).
In addition, Act No. 120-2018, P.R. Laws ann. tit. 22
Sec. Sec. 1111 et seq., which is the law that allows PREPA to enter
into the Contract with Luma Energy in the first place, specifically
states that it cannot be used as grounds to deprive a worker of rights
acquired through a collective bargaining agreement. Furthermore,
Article II, Section 7 of the Puerto Rico Constitution prohibits laws
that substantially impair contractual obligations, just like the U.S.
Constitution. However, in Puerto Rico, if the impaired contractual
obligation has a government party, the scrutiny that the law must
survive is more rigorous than the traditional rational scrutiny. See
Dominguez Castro v. ELA, 178 P.R. Dec. 1, 80-84 (2010). If Act No. 120-
2018 were interpreted in any way that it allows the impairment of the
collective bargaining agreements then it would be susceptible to
additional constitutional challenges and so would the Contract with
Luma Energy.
C. The Contract Dismantles PREPA and Risks Severe Service Interruption
in Case of Termination
In addition, the Contract is, as the Oversight Board puts it, the
crucial first step to dismantling PREPA.\10\ The Contract contemplates
breaking PREPA down into four private corporations.\11\ These are not
four private corporations that will give consumers and ratepayers more
options. These are four private corporations that will divide amongst
themselves PREPA's most vital functions. Luma Energy will take over
operations, including customer service and public policy formulation
through ServCo; GenCo will take over the power plants and generation
operations; GridCo will take over PREPA's property rights over the T&D
System, and an additional corporation will administrate debt issuance.
While we appreciate that the Government has some reservations about
PREPA's monopoly, we should all be able to agree that a private
monopoly is the worst solution.
---------------------------------------------------------------------------
\10\ Id.
\11\ Section 4.5(g) of the Contact references the PREPA
Reorganization, which is defined in Section 1.1.
---------------------------------------------------------------------------
Private monopolies are illegal for a reason. They hold consumers
hostage in the name of profit, rather than welfare. Both Puerto Rico
and Federal law rightfully prohibit any scheme that monopolizes a
product or service. For all their postulating about PREPA's monopoly
holding Puerto Ricans hostage, the Government missed the mark with this
Contract. At least if PREPA made decisions that affected ratepayers,
Puerto Ricans had the power of the political process and public
influence to address them. On the contrary, in a private monopoly,
there is nothing that consumers can do. Thus, it is unconscionable to
subject the people of Puerto Rico, who are still suffering
interruptions in their electricity because of hurricanes and
earthquakes to the whims of a private corporation. By definition,
private corporations seek profit. No amount of empty promises or honor
code contractual provisions will change that. Dismantling PREPA in this
way does not foster competition. It creates a private monopoly of
intertwined but independent corporations. This creates a huge problem
for consumers. If and when Luma Energy leaves Puerto Rico, for the
numerous reasons the Contract allows it to, rebuilding the utility we
lost will be onerous and burdensome for Puerto Rico, leaving it without
the essential public service that it needs.
As we showed in our summary of the termination clauses of the
Contract, to terminate the Contract, Luma Energy only needs to give the
Public-Private Partnership Authority (``P3'') a 120 day notice.
Although the Contract states that before it leaves Luma Energy must
make efforts to find a successor, as part of the Back-End Transition,
this Transition only lasts until the earlier of these two: when 120
days are up or when the service accounts run dry. With that time and
funding restriction, there is little chance that Luma Energy will find
a successor to their position, as Section 16.1 of the Contract requires
only that they coordinate efforts. The reality is that once Luma Energy
places their 120 day notice, PREPA will be left scrambling to rebuild
the public utility so that consumers do not suffer the consequences.
This will undoubtedly be close to impossible once PREPA has been gutted
and divided into four companies. Furthermore, PREPA will have to find a
way to rebuild its workforce, most of which will have been forced into
early retirement, pushed to migrate for job opportunities or even
coerced to accept employment with Luma Energy.
With all of these obstacles, it will be near impossible to
reassemble the public utility, which puts all of Puerto Rico at risk:
businesses, hospitals, retirement homes, residents, etc. Without the
transmission of electricity everything comes to a halt and people
suffer a myriad of consequences from loss of income to damaged property
to death for lack of life saving machinery. These are not
inconveniences, these are severe risks that could come up at any moment
if Luma Energy is unsatisfied with business in Puerto Rico.
D. The Contract Directly Contradicts PROMESA's Goals
Furthermore, the Contract conflicts with the supposed goals of
PROMESA. Luma Energy's transition has already put PREPA in a deficit.
The Oversight Board certified a 2020 Fiscal Plan that puts PREPA at a
budgetary deficit of $132 million for Fiscal Year 2021.\12\ Also, the
FY 2020-21 budget is $125 million underwater.\13\ This is attributed by
the Oversight Board to the burden of the Luma Contract. Meanwhile, the
Oversight Board is requesting an administrative expense priority for
the payment of $136 million for Luma Energy's transition. This puts
PREPA's rehabilitation in peril and prioritizes paying Luma Energy's
expenses above paying PREPA's creditors, including its bondholders and
pension obligations.
---------------------------------------------------------------------------
\12\ 2020 Fiscal Plan for the Puerto Rico Electric Power Authority,
as certified by the Financial Oversight and Management Board for Puerto
Rico on June 29, 2020, at 10 https://drive.google.com/file/d/
1paRgy0dJBkUH4-5eev7z2SuR0diil8g9/view?fbclid=IwAR1ztJuq1z1gs9qP
7JhZi1AxKync2ZO3kzXYLmIPOsGrzR-kH0L0tvbqIKw.
\13\ Puerto Rico Electric Power Authority, Fiscal Year 2021
Certified Budget, at 3, https://drive.google.com/file/d/
1yIV664F009bi3UeE9WBHi3J6U6r42tFQ/view.
---------------------------------------------------------------------------
When Congress imposed the Oversight Board on Puerto Rico, it told
us that its goal was to help Puerto Rico and its instrumentalities
rehabilitate, pay their debts, and have access to the bond markets
again. However, we should marvel at the fact that the Luma Contract is
being approved under the reign of PROMESA and the Board. It is
unjustifiable to put a Title III Debtor in a situation where it will
not receive anything in return for handing over its operations and, on
top of that grant priority to million-dollar payments for that Contract
over PREPA's other creditors, putting their claims at risk. Luma Energy
won't invest a dime in Puerto Rico or PREPA, it will charge for its
services and it will be prioritized in Title III. Furthermore, if Luma
Energy doesn't get prioritized in Title III, it will terminate the
Contract and leave, because it can under Section 4.1 of the Contract.
Then, when it leaves, PREPA will be left with the bill for its failed
efforts.
On July 7, 2020, the Oversight Board filed the motion to seek
administrative expense priority for what it projects will be $136
million, while the Board itself has admitted that the Contract with
Luma Energy has resulted in a $125 million deficit in PREPA's 2021
certified budget. Thus, in addition to putting PREPA in a deficit, the
Contract will have a $136 million priority which means that PREPA will
be forced to pay that amount to Luma Energy before it can pay its
bondholders and other creditors, such as pension obligations. The
pension obligations at this point consist, in part, of a claim for over
$350 million that PREPA owes to the pension system for its employees.
If PREPA cannot pay these dues and Luma Energy will be prioritized in
Title III, then the system will undoubtedly become insolvent and leave
thousands of PREPA's retirees without a proper retirement.
The Contract does not provide any revenue for PREPA, because Luma
Energy will make no investments throughout the contractual relationship
and will, instead, use up PREPA's revenues to pay for its operations.
There is no indication in the contract that Luma Energy will increase
PREPA's revenues by increasing demand or by fostering economic
development. On the contrary, the Oversight Board projections of demand
for the next 30 years only show a steady decrease in demand and a steep
increase in rates to compensate for loss of revenue.\14\ The demand is
projected to drop 2,817 GWh in the next 5 years alone and continues to
drop. Meanwhile, rates seem to take a dip in 2021, which seems to
depend entirely on successful pension reform but consistently increase
for the remainder of time. These numbers reflect that even the
Oversight Board's projections based on the complete success of their
own proposed measures will not result in any benefit for PREPA or its
ratepayers. Furthermore, it should be noted that the Oversight Board is
not contemplating any of PREPA's debts in its calculations, which
undoubtedly will result in further increase of rates and affect demand.
Therefore, we are seeing a lot of money going out to Luma Energy and no
money coming in for PREPA to pay its debts. This will make it
impossible for PREPA to adequately complete its Title III bankruptcy,
which is contrary to the goals of PROMESA and the intent of Congress
when it imposed the Oversight Board on Puerto Rico. The fact that the
debtor here is a public utility and, in fact, the only public utility
of its kind, and, on top of that, the sole distributor of electricity
in all of Puerto Rico, puts in extreme peril the potential for
successful financial restructuring that would contribute to the much
needed economic development. Even the Oversight Board's most generous
projections do not promise well for this Contract.
---------------------------------------------------------------------------
\14\ 2020 Fiscal Plan for PREPA, supra note 11, at 42-43.
---------------------------------------------------------------------------
E. The Contract Gives Luma Energy Control Over Public Policy
On the other hand, the Contract allows Luma Energy to control and
implement important aspects of public policy, while it does not respond
to the public in any way. Luma Energy will be in charge of implementing
public policy on renewable energy, according to Section 5.18 of the
Contract. It will also replace PREPA in the Integrated Resource Plan
procedures before the Puerto Rico Energy Bureau, according to Section
5.6(f). This means that Luma Energy will decide what resources will be
used for generation and control the long-term development of Puerto
Rico's entire electric system. Additionally, Luma Energy will have
complete control over the Federal funds, emergency or otherwise, that
come in for the people of Puerto Rico, according to Section 5.9 of the
Contract. Lastly, Section 6.1 of the Supplemental Agreement of the
Contract seems to grant Luma Energy influence over or control the plan
of adjustment in Title III court, because it conditions the Contract on
``the Title III Plan and an order of the Title III Court confirming
same shall be reasonably acceptable to Operator [Luma Energy].''
F. The Contract Gives Luma Energy Control Over Federal Funding
Another issue with the Contract with Luma Energy is that it
requires channeling Federal aid through his private contractor. We are
all aware of the many problems we have faced in the aftermath of
Hurricane Maria regarding Federal funding. Thus, we should all be
cautious of Contracts that funnel those funds through private
companies, whose ends are profit and not welfare. Luma Energy has
already begun flaunting the Federal funded capital improvements to
PREPA's infrastructure for its own investors and affiliates:

Significant Opportunity for Electric T&D System Modernization
and Transformation--Quanta believes there is opportunity for it
to compete for work associated with Puerto Rico's electric T&D
system modernization efforts that are separate from its
ownership interest in LUMA. Puerto Rico's electric T&D system
is at a critical juncture after the destruction caused by
Hurricanes Maria and Irma. As a result, the government of
Puerto Rico, through the P3 and in collaboration with PREPA,
have embarked on a plan to rebuild, modernize, harden and
``green'' its power grid, a majority of which is expected to be
funded by U.S. Federal disaster relief agencies and managed by
LUMA. The P3 estimates that more than $18 billion of electric
T&D capital investment could be required through 2028 for this
initiative.\15\
---------------------------------------------------------------------------
\15\ Quanta Services and ATCO-Led Consortium Selected by the Puerto
Rico Public-Private Partnership Authority for the Operation and
Maintenance of Puerto Rico's Electric Power Transmission and
Distribution System, https://investors.quantaservices.com/news-events/
press-releases/detail/277/quanta-services-and-atco-led-consortium-
selected-by-the.

Thus, we see a tendency toward Luma Energy's ``people'' which has
two principal problems. First, evidently, these contractors will not be
investing in Puerto Rico and all the funds that are transferred to
those companies will leave Puerto Rico. Federal funds that are assigned
to Puerto Rico should be put to work for Puerto Rico and the citizens
that reside there, not for companies that will not contribute to the
economic development of the archipelago. This allows a handful of
corporations and their officers to profit from Federal aid, while the
people of Puerto Rico do not see a dime. This is why UTIER proposes
that Federal funding be channeled directly to PREPA's workforce,
ensuring that the money stays in Puerto Rico.
Secondly, it is evident that, as a private actor, Luma Energy will
be operating in a way that benefits it first and foremost, regardless
of the effect on PREPA and its ratepayers. Public corporations in
Puerto Rico are subject to competitive bidding requirements that are
protected and implemented by law. They are also open to public scrutiny
and can be challenged through political or judicial processes. On the
other hand, Luma Energy will have complete freedom and discretion to
spend the Federal funds assigned to Puerto Rico for its own benefit.
With such discretion come great risks for corruption, especially in a
private corporation over which the people of Puerto Rico have no
accountability mechanisms or transparency requirements. UTIER's
proposal to reinvest in PREPA and its workforce limits that discretion
and provides inherent accountability and transparency.
iii. alternatives to the contract with luma energy and utier's
proposals
Because UTIER has the firsthand experience with PREPA's operations
and flaws, it is in a unique position to make proposals, however, they
have been repeatedly ignored by the authorities.\16\ As outlined
previously, the main issues to address are in the areas of top
management, not at the workers and operations level. As such, UTIER
presents the following alternatives:
---------------------------------------------------------------------------
\16\ See, for example, Tom Sanzillo, Examination of the
alternatives available to PREPA in order to not impair the Labor
Contracts of UTIER and its members (June 15, 2020).
---------------------------------------------------------------------------
A. Independent and Professional Governing Board
As we have said, there is a troubling issue of party-politic
dynamics regarding the PREPA Governing Board. Those party lines have a
tendency to stunt growth and deviate efforts from making lasting
improvements to other more politically attractive patchwork solutions.
Thus, the first and most important solution is to alter the method for
selecting the incumbents of these managerial positions and amending the
composition of the Governing Board to retrieve the participation for
consumers that was lost in the recent years.
The Governing Board is made up of 7 members: 6 are Governor
Appointed members, only 3 of which require the consent of the Senate,
and, of the remaining 3, only one of which must be independent; 1
Consumer Elected Member. There used to be two consumer representatives,
but the notorious Ex-Governor Ricardo Rossello's administration pushed
for an amendment to the law and achieved it. These members have 5-year
terms, except for the two non-independent members appointed at the sole
discretion of the Governor, who are subject to the Governor's caprice.
Those two non-independent members appointed at the sole discretion of
the Governor do not need to have any qualifications to occupy their
position. Only four votes out of those seven members are required for
any decisions regarding PREPA. (PREPA's Organic Act, Act No. 83-1941,
as amended). The problem should be self-evident. We are talking about a
board where three members must have blind loyalty to the Governor;
three other members are appointed by the regular political process and
only one is directly scrutinized by the public before assuming the
position.
UTIER proposes that the Governing Board members be selected on
merits rather than affiliation. That is, rather than politically
appointing members to the Governing Board, where there is absolutely no
check or balance against the political inclinations of the
Administration in Term. The proposal is for the experts on the island
to be tasked with the selection. The professional colleges of
engineers, certified public accountants and legal professionals can
provide a well-rounded evaluation of potential candidates and select
those members that would truly represent the best interests of PREPA
and address those areas that require attention from their own
expertise, rather than postulate on their political platforms. This
would lead to an independent and professionally capable Governing
Board, more capable of making those decisions that will truly
rehabilitate PREPA.
Additionally, UTIER proposes a return to more participation for
consumers. Reducing the consumer representation on the Governing Board
makes its contribution negligible. The consumer representative is
constantly passed over and unable to tip the scales of voting. This
would mean that the Governing Board would be composed of at least two
representatives of PREPA's consumers, the most vulnerable party
affected by PREPA's actions, and the remaining members would be
selected from the professionals of Puerto Rico, increasing the chances
of making decisions based on consensus rather than number superiority.
B. Appointment of an Independent Private Sector Inspector General
While an independent and professional Governing Board is essential,
an additional alternative to the issues of PREPA's poor management is
the appointment of an Independent Private Sector Inspector General
(``IPSIG'') to oversee, audit and report deviations in the laws and
procedures that control PREPA's operations. It is UTIER's position that
there is absolutely no need to over-legislate. PREPA has many laws and
regulations in place to control the processes that it undergoes and to
curb the possibilities of corruption and mismanagement. What is sorely
missing is an independent agent to inspect, report and enforce
compliance with those laws and regulations. We have noticed that there
is a penchant in the Puerto Rico Government to legislate rather than to
implement accountability measures.
An IPSIG is ``an independent, private sector firm (as opposed to a
governmental agency) that possesses legal, auditing, investigative, and
loss prevention skills, that is employed by an organization (i) to
ensure that organization's compliance with relevant laws and
regulations, and (ii) to deter, prevent, uncover, and report unethical
and illegal conduct committed by the organization itself, occurring
within the organization, or committed against the organization.'' \17\
In other words, an IPSIG can be individuals or entities and they are
charged with legal, auditing, investigative, and other powers, so they
help monitor the activity of public contractors.¹⁸
---------------------------------------------------------------------------
\17\ Expert Declaration of Mr. Tom Sanzillo, Director of Finance
for the Institute for Energy Economics and Financial Analysis (IEEFA)
in Support of Utier's Objection to Insurers' Motion for Relief from
Automatic Stay (Dkt#975) and to Pray for the Appointment of an
Independent Private Sector Inspector General (''IPSIG'') (Dkt#1158),
Case No. 17 BK 4780-LTS, Docket No. 1211.
---------------------------------------------------------------------------
The primary roles of an IPSIG are to monitor, audit and investigate
the activities of the organization in order to detect unethical
conduct, violations to the laws, regulations or collective bargaining
agreements and to report them to law enforcement authorities or other
entities with jurisdiction. It may also design and implement programs
for the prevention of illegal, unethical and wasteful behavior.
The purpose of installing an IPSIG at PREPA would be to move the
agency away from its current state of organizational dysfunction and to
an organizational culture that embraces the practice of professional
and ethical standards as first principles, at all levels. The simple
idea is that ``good ethics is good business.'' The overriding objective
of this proposal is to put PREPA on an internal track toward sound
management that can support efforts to modernize the electrical system
and secure the confidence of the market and public.
The basis of an IPSIG would compile findings and recommendations
from existing oversight reports and stakeholder input, including
business partners, labor organizations, individual employees and
interested outside organizations. At the end of its tenure the IPSIG
would produce a report including a long list of specific
recommendations for administrative, financial and operational changes
at PREPA. The scope of the IPSIG's mandate would cover the review of
personnel decisions, fuel and non-fuel procurements, budgets and
regulatory compliance, financial practices, etc. But it must be clear
that the IPSIG would not have authority to usurp the management
responsibilities of the Governing Board. It would need to identify the
illegal or unethical activity that it is tasked with identifying and
taking its case to the corresponding authorities. It is not a receiver,
it will not displace PREPA's Governing Board, just audit it.
We are confident that the Puerto Rico Government has legislated
enough and there is more than enough regulation in place to keep PREPA
on the straight and narrow. The problem is accountability and auditing,
two things the Government seems to have an aversion to. The IPSIG is a
viable solution to that problem.
C. Investment of Funds in the Workforce
Throughout PREPA's crisis, a simple solution which can avoid the
squander of public funds, reduce corruption, put money back into the
Puerto Rican economy and contribute to strengthen PREPA in one fell
swoop, has been overlooked: investing in PREPA's workforce. By
allocating funds directly to rebuilding PREPA's workforce, on the
ground not management level, PREPA will be securing the necessary
professionals for its day-to-day operations and for the essential
response in case of emergencies. This allocation does not give
management the discretion to move money imperceptibly. Workers have
wages and benefits with fixed and easily verifiable quantities. Thus,
corruption is reduced by the limits of discretion. Rather than waste
money on outsourcing to contractors who inevitably have to subcontract
and charge outrageous fees, PREPA could make use of its own workforce
and provide the incentives to keep workers. These workers in turn will
use their money in the Puerto Rican economies, unlike contractors and
subcontractors who are usually shell companies that have no interest in
Puerto Rico.
We have witnessed the detrimental effects of the reduction of
PREPA's workforce and the fascination of contracting private actors to
attend situations that PREPA's workers would have been more than
capable of dealing with if they had not been forced out. By reinvesting
in PREPA's workforce, we reinvest in a better future for PREPA.
D. Independent, Transparent and Participatory Energy Bureau
Recent legislation implemented the Integrated Resource Plan
(``IRP'') Process. This was meant to be a robust procedure with public
participation and transparency as its pillars, where PREPA would
ultimately achieve an IRP, that is a roadmap for generational
acquisitions and sound environmental goals. This was meant to limit the
discretion that PREPA may have in fuel procurement and assist a more
aggressive transition toward renewables. This has not been the case.
UTIER has repeatedly argued that an energy bureau is an unnecessary
body where there is only a public utility and no private utilities.
However, the Government decided to create one and now uses the Puerto
Rico Energy Bureau as a rubberstamp for its political decisions. The
recent approval of the Contract with Luma Energy is evidence of this.
This is unacceptable.
If the Energy Bureau is going to continue, it must serve the
purpose it was meant to, that of an independent regulator. This means
that, as UTIER's proposal for a governing body with the integration of
professional non-partisan members, the Energy Bureau should be composed
of independent professionals which should include members representing
and directly responsible to consumers and the public welfare. Also, any
legal provision that hinders public participation must be abolished to
make its proceedings open for the population to scrutinize.
Just this year, the Energy Bureau deprived the population of access
to the process to approve the Contract with Luma Energy. Once the
Contract became public, we were able to point out the numerous flaws
and illegalities with the process. But we were also able to appreciate
that the Energy Bureau committed a grave error by allowing the Energy
Bureau Chairman Edison Aviles to participate in the decision when he
was also a member of the Committee that selected Luma Energy and
proposed the approval in the first place. Public participation is a
check on the discretion of our officials, one that tends to reveal the
nefarious conflicts that Government contracts can cause.
E. Adoption of Proposed Energy Reform ``Queremos Sol'' (``We Want
Sun'')
``We Want Sun'' is a collaborative effort of multiple professionals
from different organizations dedicated to environmental and energy
issues. UTIER is proud to be one of the organizations that endorse this
project. This is a proposal for transformation of the electric system
in Puerto Rico based on clean, renewable energy and a concentration on
energy efficiency and conservation. ``We Want Sun'' posits that sale
and privatization of PREPA perpetuates fossil fuel-based generation and
impedes the transition to renewables.\19\ The full proposal has been
submitted to the record of this hearing.
---------------------------------------------------------------------------
\19\ We Want Sun: Sustainable. Local. Clean. (Version 4.0 February
2020) https://www.queremossolpr.com/.
---------------------------------------------------------------------------
The proposal includes a model for technical transformation. The
goal is to achieve the Renewable Portfolio Standard, which the Puerto
Rico Legislature adopted in the Puerto Rico Energy Public Policy Act,
Act No. 17-2019. This effort includes decentralizing energy and
allowing communities and individuals to have an active role in the
ownership of electrical system assets. However, the proposal does not
seek to eliminate the PREPA governance structure, just to dramatically
transform its business model so that it promotes efficiency and
conservation and facilitates and manages distributed generators and
microgrids. This requires greater public participation, as we have
pointed out before, and attracting and maintaining human resources. The
proposal also covers issues surrounding PREPA's debt, financing
options, the focus on boosting the local economy and the presence of a
strong independent regulator. The proposal is ``a living document'' and
is continuously developed based on new information and input.
Just as ``We Want Sun'' expressed ``the privatization process
established by Act 120-2018 will produce more of the same: bad
political deals disguised as energy policy.'' \20\ It is not fixing the
problem; it is moving the problem to the right, so it does not block
our view. That is what we see in the Contract with Luma Energy. A
proposal like ``We Want Sun'' is a response that truly reforms the
energy system in the way that Puerto Rico's legislation and public
policy has said it should. This would fix the problem.
---------------------------------------------------------------------------
\20\ Id. at 5.
---------------------------------------------------------------------------
iv. conclusion
Considering the problems and proposals that we have set forth, it
is evident that the Contract with Luma Energy is not a solution at all.
This Contract does not address the fundamental problems that have
plagued PREPA, it just hands the system over to a private enterprise
that does not have any accountability toward the People of Puerto Rico
while leaving the shell of the public utility to take the remaining
punches from its creditors.
At the end of the day, there are many alternatives that need to be
taken seriously and explored fully by the Puerto Rican Government and
PREPA. However, there are issues that Congress can influence. With that
in mind, UTIER requests the following:

(1) That this Congress prevent PREPA from funneling Federal funds
through Luma Energy and assign them directly to PREPA for investment in
its workforce and infrastructure.

As a private entity, Luma Energy will not be employing Federal
funds for the general welfare of Puerto Rico's residents, but to
facilitate its own business interests. We have already seen the signs
of Luma Energy's public proclivity to favor its own subsidiaries and
affiliates as contractors in federally funded projects, rather than
enter fair competitive bidding and provide opportunities for local
enterprises.
Rather than put Federal funds to work for Puerto Rico, Luma Energy
will favor its investors, subsidiaries and affiliates. This is
unacceptable, especially when the Luma Contract is already displacing
most of PREPA's workforce and is not investing a dime in Puerto Rico.
These Federal funds are the jack-pot, the prize that Luma Energy wants
to claim for the already lucrative Contract with PREPA. We respectfully
ask that Congress see through that and intervene. Luma Energy cannot be
allowed to hoard these funds. These funds must be invested in more
efficient ways that foster economic growth in Puerto Rico.
As we have argued, the Federal funding for PREPA's transformation
should be invested directly into the workforce. It is PREPA's workforce
that is uniquely qualified to transform PREPA from an aging,
centralized, fuel-based system with poor infrastructure into what it
would be, a clean, modern and sustainable electric system. This is not
to say that private contracting should be prohibited, but it should be
limited to those exceptional cases where PREPA's workers do not have
the necessary skills or experience and for the acquisition of materials
that are not locally available. Evidently, because PREPA has
competitive bidding requirements by law, with adequate oversight and
scrutiny by an IPSIG, these contracts are more likely to be granted on
the basis of merit than due to the corporate relations with Luma
Energy, with its evident predisposition to outsource to its own.

(2) That Congress reactivate the Task Force for the purpose of
articulating specific recommendations that stimulate economic
development and renewable energy.

The Congressional Task Force found that high cost and low
reliability of electric power was one of the most serious obstacles to
economic growth in Puerto Rico, this in part because of the reliance of
Puerto Rico on petroleum. The Task Force recommended that the
government of Puerto Rico continued efforts for reform and seek
technical assistance from the U.S. Department of Energy.\21\ We would
ask that the Task Force to examine the problems that we are putting
forth and accept the input from PREPA's stakeholders, not just from the
Puerto Rico Government. We are confident that our proposed solutions
are superior to selling off and gutting PREPA and more beneficial for
PREPA and the people of Puerto Rico. We hope that a recommendation from
the Task Force would tip the scale and make the Puerto Rican Government
listen.
---------------------------------------------------------------------------
\21\ Congressional Task Force on Economic Growth in Puerto Rico,
Report to House and Senate (December 20, 2016), at 37-40, https://
www.finance.senate.gov/imo/media/doc/Bipartisan%20
Congressional%20Task%20Force%20on%20Economic%20Growth%20in%20Puerto%20Ri
co%20 Releases%20Final%20Report.pdf.

*****

The following documents were submitted as supplements to Mr. Figueroa-
Jaramillo's testimony. These documents are part of the hearing record
and are being retained in the Committee's official files:

table of appendixes

1. Puerto Rico Transmission and Distribution System Operation and
Maintenance Agreement dated as of June 22, 2020 by and
among The Puerto Rico Electric Power Authority as Owner,
the Puerto Rico Public-Private Partnerships Authority as
Administrator, Luma Energy, LLC as ManagementCo, and Luma
Energy ServCo, LLC as ServCo.

2. Certified Translation of Bufete Emmanuelli CSP Legal Opinion on
the Luma Energy Contract.

3. Bufete Emmanuelli CSP Memorandum on Termination Clauses and
Penalties of the Luma Energy Contract with English Summary.

4. Written Statement to the Puerto Rico Senate and English Summary
of Additional Legal Arguments Presented.

5. Jose I. Alameda-Lozada, Ph.D., The Impairment of UTIER's
Collective Bargaining Agreement and the Calculation of
Damages (June 15, 2020).

6. Hector R. Cordero-Guzman, Ph.D., The Socio-Economic Impacts of
the Puerto Rico Electric Power Authority (PREPA)
Restructuring Support Agreement (RSA) on the Population of
Puerto Rico (rev. September 10, 2019).

7. Tom Sanzillo, Examination of the alternatives available to
PREPA In order to not impair the Labor Contracts of UTIER
and its members (June 15, 2020).

8. Expert Declaration of Mr. Tom Sanzillo, Director of Finance for
the Institute for Energy Economics and Financial Analysis
(IEEFA) in Support of UTIER's Objection to Insurers' Motion
for Relief from Automatic Stay (Dkt#975) and to pray for
the Appointment of an Independent Private Sector Inspector
General (``IPSIG'') (Dkt#1158), Case No. 17 BK 4780-LTS,
Docket No. 1211.

9. PREPA's Motion for Entry of an Order Allowing Administrative
Expense Claim for Compensation for Front-End Transition
Services under Puerto Rico Transmission and Distribution
System Operation and Maintenance Agreement with Luma
Energy, Case No. 17 BK 4780-LTS, Docket No. 2053.

10. 2020 Fiscal Plan for the Puerto Rico Electric Power Authority,
as certified by the Financial Oversight and Management
Board for Puerto Rico on June 29, 2020.

11. Puerto Rico Electric Power Authority, Fiscal Year 2021
Certified Budget.

12. We Want Sun: Sustainable. Local. Clean.

13. Congressional Task Force on Economic Growth in Puerto Rico,
Report to House and Senate (December 20, 2016).

______

The Chairman. The next person is Mr. Josen Rossi,
President, Puerto Rico Institute for Competitive and
Sustainable Economy.
Mr. Rossi, the floor is yours.

STATEMENT OF JOSEN ROSSI, PRESIDENT, PUERTO RICO INSTITUTE FOR
COMPETITIVE AND SUSTAINABLE ECONOMY (ICSE)

Mr. Rossi. Chairman Grijalva, House Ranking Member designee
Gonzalez, and members of the Committee, thank you for this
opportunity to examine the much-needed transformation of the
Puerto Rico Electric Power Authority.
We continue in the crisis after hurricanes of historic
proportion, recent damaging earthquakes, and now the pandemic.
Amongst these challenges and still impeding Puerto Rico's
rebound stands the broken electrical system.
I am before you today as Chairman of the Institute for
Competitive and Sustainable Economy, the ICSE. I am president
of the Puerto Rico Manufacturers Association and partner in a
building services group of companies in the eastern United
States.
Puerto Rico has an ongoing need for electrical system
reorganization, investment planning, and contracting oversight
that protects consumers and U.S. taxpayers' monies.
It is a great concern that in the latest PREPA Fiscal Plan
by the Fiscal Oversight and Management Board, the Fiscal Board
ignores the fact that the restructuring support agreement,
PREPA's RSA or debt reorganization structuring, is
unsustainable.
There have been no attempts to update it in 2 years. And it
has never been presented to the legislature nor the Puerto Rico
Energy Bureau (PREB). The Fiscal Plan does not include PREPA's
most recent interim financial statement with capital deficit,
nor has it met budget review and approval by the PREPA Board,
nor the regulator, the PREB.
Furthermore, PREPA's consumer representative, the only
publicly elected member of the Board and ICSE executive
director, has challenged the government's ongoing suggestions
of adequate PREPA Board independence and professionalism.
The PREPA Board hastily approved the stalled and inaccurate
RSA in 2019, despite a shallow fiduciary process that the
consumer representative opposed with supporting evidence.
More recently, PREPA's handling of Costa Sur's generation
repairs following the January earthquakes has been suspect at
best, and raises questions about project execution and capacity
to govern through operational crisis.
There has been no accountability to the fact that Costa
Sur's Unit 5 remains off-line during peak season demand today.
We know damages to this unit were minor and temporary fixes
were available while longer term solutions could be
implemented, yet PREPA put forward a questionable emergency
summer generation plan to save the day, and even this has not
been executed today.
PREPA needs an independent professional board governance
with world-class supervision from the utility regulatory
framework of the Puerto Rico Energy Policy Act, known as Act
17. Yet, major decisions are still dominated by the same
political appointees of ex-Governor Ricardo Rossello.
The Fiscal Board is ill-equipped to address this lack of
government commitment to the best performance metrics that
should drive transformation in our government agencies. The
Fiscal Board can and must work closely with our utility
regulator with adherence to Act 17 and PROMESA with the
consumer participation rights and obligations that Act 17
mandates.
The Fiscal Board and the PREB have recently approved two
utility scale investments with no tariffing proceedings, no Act
17 compliant adjudicatory processes, nor an approved
infrastructure plan. One is a 10-year natural gas generation
contract; the other a 15-year transmission and distribution
management and operations agreement.
Eighteen months after enactment of Act 17, the unapproved
PREPA infrastructure plan still pushes fossil fuel
infrastructure at the expense of large and small private
renewable energy markets.
Fragmented and non-transparent contract approval processes
with no lawfully approved energy transformation roadmap will
give way to lengthy regulatory or legal proceedings like the 2-
year-old RSA. No amount of supposed government transparency
portals and public relations spin can overcome this operational
and legal dysfunction.
I hope with your continued oversight and robust engagement
of all to improve local utility regulatory capacity issues
hindering real progress at PREPA and the sustainable electrical
system reorganization.
ICSE can be of service to the Committee and the PREB so
that PREPA, PROMESA, and the Fiscal Board effectively support
the Act 17 transformational framework to finally achieve energy
justice for the more than 3.2 million American citizens living
in Puerto Rico. Thank you.

[The prepared statement of Mr. Rossi follows:]
Prepared Statement of Josen Rossi, President, Puerto Rico Institute for
a Competitive and Sustainable Economy (ICSE)
Chairman Grijalva, Ranking Member Bishop and members of the
Committee--thank you for this opportunity to examine the much-needed
transformation of the Puerto Rico Electric Power Authority. Puerto Rico
continues in economic crisis, after hurricanes of historic proportion,
recent damaging earthquakes, and now the pandemic. Amongst these
challenges and still impeding Puerto Rico's rebound stands the broken
electrical system.
I am before you today as the Institute for a Competitive and
Sustainable Economy of Puerto Rico's Chairman. I am past President of
the Puerto Rico Manufacturers Association (PRMA), and Partner in a
building services group of companies in southeast United States.
Members on both sides of the aisle want for PROMESA to succeed and
to ensure recovery funding is put to good use. Puerto Rico has an
ongoing need for electrical system reorganization, planning and
contracting oversight. We must protect Puerto Rico's future and
taxpayer investments.
It's of great concern that the latest PREPA fiscal plan by the
Fiscal and Oversight Management Board (FOMB) ignores the fact that the
Restructuring Support Agreement (RSA) debt is unsustainable. There have
been no attempts to update this 2-year old RSA, which has never been
presented to the legislature nor the Puerto Rico Energy Bureau (PREB).
The Fiscal Plan does not include PREPA's most recent interim financial
statement capital deficit, nor has it met budget approval by the PREPA
Board, nor the regulator.
Furthermore, PREPA's Consumer Representative, the only elected
Member of the Board, and ICSE Executive Director, has challenged the
government's ongoing suggestions of adequate PREPA Board independence
and professionalism. The PREPA Board hastily approved the stalled and
inaccurate RSA in 2019, despite a shallow fiduciary process the
consumer representative opposed with supporting evidence.
More recently, PREPA's handling of Costa Sur's generation repairs
following the January earthquakes has been suspect at best and raises
questions about project delivery, and capacity to govern through
operational crisis. There has been no accountability to the fact that
Costa Sur's Units 5 remain offline during peak seasonal demands. We
know damages to these units were minor and temporary fixes were
available while long-term solutions could be implemented through
competitive procurement. Yet PREPA put forward a questionable emergency
summer generation plan to save the day, and even this has not been
executed.
PRPEA needs independent professional board governance and world-
class supervision from the utility regulatory framework of the Puerto
Rico Energy Policy Act, known as Act 17. Yet major decisions in Puerto
Rico are still dominated by the same political appointees of ex-
Governor Ricardo Rosello. The FOMB is ill equipped to address the lack
of commitment to best-in class supervision and performance metrics that
should drive transformation in our government agencies. The FOMB must
work closely with our utility regulator, overseeing its adherence to
Puerto Rico law as mandated by PROMESA, and to supervise PREPA, LUMA
and all utility planning and contracting decisions with the consumer
participation rights and obligations that Act 17 mandates.
The FOMB and the PREB have recently approved two utility scale
investments, with no tariff impact proceedings, no Act 17 compliant
adjudicatory processes, nor an approved infrastructure plan. They are a
10-year natural gas generation contract and a 15-year Transmission and
Distribution management and operations agreement. The infrastructure
transformation roadmap was promised by the regulator after the
hurricanes. Eighteen months after enactment of Act 17 the unapproved
PREPA plan still pushes fossil fuel infrastructure at the expense of
private distributed or utility scale renewable energy markets.
Fragmented and non-transparent contract approval processes and no
lawfully approved energy transformation roadmap have given way again to
traditional backroom evaluations and unsustainable approvals of new
contracts that are destined for lengthy regulatory or legal proceedings
like the RSA. No amount of supposed government transparency portals and
public relations spin can overcome this operational and legal
dysfunction.
I hope with your oversight and the engagement of our regulator to
attend to the most troublesome governance and utility regulatory
capacity issues hindering real progress at PREPA and sustainable
electrical system reorganization. ICSE can also be of service to the
Committee in improving upon PROMESA and FOMB support of Act 17
transformation framework. Puerto Rico consumers and investors can and
must continue advocating for robust public participation per Act 17 and
PROMESA as they stand, to finally achieve energy justice for the more
than 3.2 million American citizens living in Puerto Rico.

______

The Chairman. Thank you very much. To begin the
questioning, let me turn to the Chairs of Subcommittees to
begin with.
Mr. Lowenthal, if you have any comments or questions? Let
me recognize you.
Dr. Lowenthal. I will come back and ask.
The Chairman. OK. Mr. Gallego.
Mr. Gallego. Yes. Thank you, Mr. Chairman. I would like to
ask just a couple questions. The first question is for Edison.
I want to make sure I see him up there.
For many years, we have been talking about trying to make
the grid both energy independent and being able to use more
renewable energies, but also at the same time being able to be
resilient.
What are the steps that we even have to take before we
start moving in that direction in your opinion in order for us
to have both a resilient grid as well as one that is largely
solely run on renewables?
Mr. Aviles-Deliz. Thanks for the question. And we are right
now in the evaluation of the PREPA IRP. The PREPA IRP submitted
to the Bureau presents a new grid, a resilient one, that takes
into consideration the impact of Hurricanes Maria and Irma.
But what they proposed--and I can refer to Mr. Ortiz to
better explain what they submitted--is that the island will be
divided in many different mini-grids. And the grids will be
interconnected and will be provided by generation within the
grid and also with the centralized generation.
We are right now awaiting what PREPA submitted. And we will
have a final say in August. Again, I think that in order to
better explain what they already submitted to the Bureau, I
defer to Jose Ortiz to answer your question.
Mr. Gallego. Thank you. And, unfortunately, I was not here,
I think, when Ruth Santiago spoke, Queremos Sol Coalition, but
I was hoping to get your opinion, Ruth, on the plan to
basically solarize the Puerto Rican energy grid as well as
obviously to make it durable and resilient.
Ms. Santiago. Thank you for the question. The government of
Puerto Rico last year passed the Energy Public Policy Act which
has a renewable portfolio standard as you know that requires 40
percent renewables by 2025, 60 percent by 2040, and 100 percent
by 2050.
Unfortunately, what we have seen from the government has
been totally in the other direction. Look at the New Fortress
project in San Juan or conversion of those two big units to
burn so-called natural methane gas.
Look at the renegotiation of the EcoElectrica contracts
under the unfavorable terms. And although there is talk of
supposedly renegotiating some of the existing contracts, we
have not seen any of that. And the conditions do not seem
favorable to the people of Puerto Rico.
On the contrary, what we saw both in the draft IRP and
during the hearing is that customer sided generation is the
least cost alternative of all energy supply arrangements in
Puerto Rico.
So, even the economics of the technological viability is
there. And that should be coupled with energy efficiency and
conservation and demand response programs in order to take
Puerto Rico really to the 21st century using resources that are
locally available. And as I mentioned, proven to be financially
both admittedly in the IRP and technically viable.
Mr. Gallego. OK. Thank you.
Ms. Santiago. Thank you.
Mr. Gallego. I just want to get one more question in. Thank
you. A question for Mr. Ortiz. I hear a lot about solarizing
real energies and durability.
There is a plan for large battery storage or this type of
energy you are going to try to contain because it doesn't work
unless you actually have large battery storage, working with
microgrids in order for you to basically be able to smooth out
the peaks and the valleys of electricity.
Mr. Ortiz. You are absolutely right, Congressman Gallego.
Certainly, we are ready with P3 Authority for a request for
proposal.
Mr. Gallego. OK. And I ran out of time, but when you are
telling somebody that you have already issued your test
proposal for battery storage to compliment the microgrid--OK, I
yield back.
The Chairman. Thank you. Miss Gonzalez-Colon, for comments
or questions.
Miss Gonzalez-Colon. Thank you, Mr. Chairman. My first
question will be to Mr. Ortiz. Mr. Ortiz, you were talking in
your statement about different amounts of funds. And we were
discussing that prior to this hearing. How much Federal funds
has PREPA received, not just from FEMA but all the Federal
entities to this date?
And if you can provide a letter to the Committee, a
detailed breakdown on how much PREPA receives or expects to
receive in the next 2 years from different Federal agencies,
FEMA, HUD, the Army Corps of Engineers, and the Department of
Energy to rebuild and modernize Puerto Rico's energy
infrastructure.
Mr. Ortiz. For the fixing of the system, we have over $2.5
billion already received and reimbursed in many cases for
PREPA. We have completed basically the agreement of the
estimates for the long run, the full modernization of the grid.
That would be disclosed in the next few days probably.
And for about the next 1\1/2\ to 2 years, we have a program
for $1.7 billion to be invested mostly on the critical loads,
like the hospitals, water systems, shelters, and for some
medical centers, the airport, and such critical facilities. So,
that is----
Miss Gonzalez-Colon. Yes sir, you have not included in
there the $1.9 billion approved from CDBG-DR.
Mr. Ortiz. Not yet. Well----
Miss Gonzalez-Colon. And what has happened that these funds
have not yet been disbursed to the island?
Mr. Ortiz. The CDBG-DR are basically at the end of the
line. It would be basically after we exhaust the 428 funding.
We hope to start doing something with the 428, the redo of the
grid in the third quarter of this year. We are very close to
that moment.
Miss Gonzalez-Colon. How explicitly are the Federal funds
going to help the modernization process of PREPA? And how will
the new contract be working with Federal funds?
Mr. Ortiz. Well, the new contract basically approves an
entity who has been 35 years with Federal funds that will be
taking care of the compliance and the procurement. The way to
spend the Federal funds are in alignment with the IRP, the PREB
and it is going to be considering at this point, but certainly
as Edison Aviles just mentioned that will show a decentralized
energy system consisting of about 40 percent renewables by year
2025, being supported by a cleaner fuel fossil driven
equipment, for example, like natural gas in San Juan and
natural gas in the south, in EcoElectrica, and Costa Sur.
We will divide the island in eight small islands or eight
mini-grids. And those would basically be able to operate
independently. And assuming we have hurricane strikes, you may
lose one or two of those areas, but the rest of Puerto Rico
will be able to continue working.
A lot of undergrounding of power lines will be happening as
well. Two of the biggest are the east coast, what we call the
grid, the Humacao system that includes the municipalities
Humacao, Naguabo, Las Piedras, and Yabucoa. Normally, that is
the door to all the events we have had in the past 100 years
basically. And also a very strong support, an undergrounding of
the important power lines to the industrial sector along the
northeast. There you have Medtronic, the engines, and all these
big companies.
And if we are overlooking it, bringing those types of
companies to Puerto Rico, we certainly have to provide a very
reliable power.
Miss Gonzalez-Colon. One last question at this time. We are
now in the hurricane season, so it is an obligated question to
make--is Puerto Rico's electric infrastructure ready to face
and withstand another hurricane or a storm in the next months?
Are you ready?
Mr. Ortiz. Yes. The answer is yes. We are in a very
different condition. We have five times the inventory we had
before Maria. We have $22 million in inventory. Today, we have
$140 million in inventory. The strengthening of the
transmission lines from south to north certainly is redone for
145 miles per hour.
And certainly the project we have with San Juan 5 and 6 in
San Juan provides a lot of reliability to the metropolitan
area. One of the biggest issues was that 70 percent of the
Puerto Rican demand is in the north. And we lost all the
transmission from south to north. So, having all that
generation with natural gas we will provide additional
generation----
The Chairman. Time is up. Let me now turn to Mr. Tonko. You
were here earlier, sir.
Mr. Tonko. Thank you, Mr. Chair, and thank you Ranking
Member Bishop, and all of our witnesses for their expertise
today. Like many, I am hopeful that a compendium of tragedies
that had to fall in Puerto Rico, a recession, to hurricanes, to
earthquakes, and a pandemic, have a silver lining in that the
island can emerge with a clean and resilient electric grid.
We know now that we need clean power for urgent climate
reasons, however, particularly in the case of Puerto Rico,
clean power is also overwhelmingly the cheapest solution. The
average cost of power on the island is currently at an
extremely burdensome 17 cents per kilowatt hour. That is twice
the average cost of power generated from rooftop solar energy
in Puerto Rico and nearly nine times the average cost of wind
power.
I commend the goals of Law 17 that drive the island to
renewable power. I am now particularly interested in seeing how
they will be practically implemented. Of course, the trick in
implementing these renewable sources is always front-end cost.
They tend to be somewhat expensive to build and then payback
over the long term.
That is where the silver lining comes in. There is already
a need to spend substantial sums of money on new electricity
construction. I think it is clear that in order for PREPA to
live up to its mission of delivering reliable, low cost
electricity to Puerto Ricans that money must go toward
constructing renewables.
So, Mr. Ortiz, Puerto Rico is expecting around $1.9 billion
of community development block grants disaster relief funds for
the electric grid reconstruction. Those funds represent a great
opportunity to help low- and moderate-income families finance
community-based energy projects such as rooftop solar.
These funds are also an opportunity to promote community
energy resiliency projects. Does PREPA currently have a plan
for how those funds will be used? And is PREPA committed to use
these funds for those much-needed purposes?
Mr. Ortiz. Absolutely. And I certainly agree with you. The
$1.9 billion will certainly supply what is needed for the poor
and mid-income families that need to have their own detached
solar system. I certainly vouch for that. The solar system
cannot be only for wealthy families in Puerto Rico.
We have to be very careful. When we talk about sun for
everybody, it is not really that way. I think the $1.9
billion--I really would focus on the use of those for 1,800
megawatts of solar power that will be needed by 2025, certainly
the best use we can make for the CDBG-DR funding.
Mr. Tonko. Thank you. Thank you very much. And I would like
to turn to a different issue now regarding some of the
challenges of ensuring that a public-private partnership serves
people in the way it is intended.
I am particularly worried about the implications of future
natural disasters which are projected to become both more
common and more severe, particularly in the Caribbean as the
climate warms.
Mr. Fontanes, can LUMA terminate the agreement in an
extended force majeure event? And if so, wouldn't an extended
force majeure event such as after a hurricane be a time when
grid work would be most needed?
Mr. Fontanes. Thank you for your question. I think what you
may be referring to is the standard force majeure clause in the
contract. I think as in a typical contract there are force
majeure provisions to account for delays in services or
operations, but that is definitely not intended to address for
the response to a hurricane.
This is what the LUMA team excels at. These are the
companies that are called in to work in disasters not only in
the United States but all over the globe. They have attended
disasters in California for the fires. They have attended
hurricanes in Texas and in Florida. They have attended the
wildfires in Australia. This is really one of their major
strengths.
I think one of the things that they are doing now during
the transition period is working together with PREPA, so that
even though they have not commenced operations officially and
are still in transition, they can assist PREPA in the event
that we get struck by a hurricane during this season.
I think that is definitely a misconstruction of a typical
contract clause that is included in the P3 contract, but it is
definitely not meant to be used as an excuse not to respond to
the hurricane. That is actually what they are here to do as
part of being the T&D operators. They are emergency responders.
And they are going to be out there. They are already
working on plans to help PREPA, and that is what they do. That
is one of the criteria that we selected them upon.
And I think if you look at the operation committee report
that is available on our website, you can see what they
proposed, their plans, and what they intend to do once they are
here.
Mr. Tonko. Thank you. I had a question, Mr. Chair, on
decarbonization for Ms. Santiago, but I have run out of time.
But I will get that to the Committee.
The Chairman. We have been called to do a vote.
Mr. Tonko. I yield back.
The Chairman. Thank you, sir. My turn is up in the
sequence. And Ms. Haaland, I think we are in the same group.
Somebody available for the Chair? If not, then we are going to
call a recess. And we will return after completion of at least
the first vote or the second vote.
So, with that, we will recess until the votes are done. And
I apologize to the witnesses. Thank you.
[Recess.]
Mr. Tonko [presiding]. The Chair recognizes Ms. Velazquez
for questions for 5 minutes, please.
Ms. Velazquez. Thank you, Mr. Chairman and Ranking Member
for holding this important hearing. My first question will be
addressed to Mr. Ortiz.
Mr. Ortiz, I have introduced legislation entitled, the
Puerto Rico Recovery Accuracy and Disclosures Act, which
requires all consultants and advisors to PROMESA to publicly
disclose their relationships and conflicts in order to increase
transparency.
In fact, I have documents in my power that demonstrate that
consultants to the Board are also consultants to SoftBank which
also has an interest in New Fortress Energy. Moreover, SoftBank
also happens to be a client of the consulting group, McKinsey.
Mr. Chairman, I would like to submit these documents to the
record.
Mr. Tonko. Without objection.
Ms. Velazquez. Mr. Ortiz, do you believe that this
arrangement is appropriate between McKinsey, Fortress Energy,
and SoftBank?
Mr. Ortiz. I cannot judge something I haven't really seen.
We can check that very closely. Knowing that we have been----
Ms. Velazquez. I ask you, sir, if you think that this
arrangement is appropriate.
Mr. Ortiz. Knowing that we have been----
Ms. Velazquez. Mr. Ortiz, would you please answer my
question? Do you think this arrangement is appropriate?
Mr. Tonko. Mr. Ortiz, you may be muted. Can you unmute,
please, and answer the question?
Mr. Ortiz. I'm unmuted. Do you hear me?
Mr. Tonko. Yes.
Ms. Velazquez. Now we can hear you.
Mr. Ortiz. OK.
Mr. Tonko. Did you hear the question?
Mr. Ortiz. Yes, I did.
Ms. Velazquez. So, my question is, do you think that
arrangement is appropriate?
Mr. Ortiz. My answer, again, responsibly is I don't know
what arrangement you are talking about. I haven't seen that
before. I cannot give you an opinion on something that I
haven't seen.
Ms. Velazquez. Sir, you haven't seen the documents that----
Mr. Ortiz. I cannot give you an opinion on something I
haven't seen. It would be irresponsible for my side.
Ms. Velazquez. Mr. Chairman, I would ask that the documents
be sent to Mr. Ortiz, and Mr. Ortiz answer the question in
writing to the Committee.
Mr. Ortiz. Perfect.
Mr. Tonko. OK. The gentleman will provide an answer in
writing.
So granted.
Ms. Velazquez. Mr. Ortiz, did PREPA do any due diligence to
ensure that consultants with access to the procurement
documents did not have conflict of interest?
Mr. Ortiz. Yes. That is a normal procedure.
Ms. Velazquez. However, we have a relationship between
McKinsey, Fortress, and SoftBank. And you are telling me that
that doesn't impact the procurement process.
I can tell you that I have been fighting to get my
legislation passed. It passed the House. We are waiting for the
Senate which passed the Committee. Because the people of Puerto
Rico are cynical. They are tired of the lack of transparency
when it comes to issues that are important and that are going
to impact their lives.
So, we have to make sure that the public trust, the New
Fortress Energy contract is beneficial for the people of Puerto
Rico when there is a lack of transparency and a prior conflict
of interest during the procurement process.
Mr. Aviles, can you explain why the Puerto Rico Energy
Bureau failed to submit the New Fortress Energy contract for
review by the Federal Energy Regulatory Commission?
Mr. Aviles-Deliz. The Energy Bureau is the local regulator.
And we don't have to submit the contract to the FERC.
Ms. Velazquez. So, the Federal Energy Regulatory Commission
didn't send a show cause document asking New Fortress why the
contract was not submitted for FERC approval? You are not aware
of that?
Mr. Aviles-Deliz. Yes. We are aware that FERC is right now
evaluating why New Fortress didn't submit to them some document
for the permitting, but FERC is not the regulator. And all we
did was to comply with the applicable laws and regulations in
the evaluation of the documents submitted by PREPA when they
submitted the contract.
Ms. Velazquez. Mr. Fontanes, will LUMA Energy--oh, my time
is up, but there were some technology issues and so some time
was----
Mr. Tonko. Ask your final question, Representative.
Ms. Velazquez. Yes. Mr. Fontanes, will LUMA Energy be
required to assume the pension payments covering pre-existing
health conditions and any other benefits that those PREPA
employees it hires had?
Mr. Fontanes. Thank you, Congresswoman, for the question.
LUMA Energy is coming as an operator of the system so they will
assume the obligations that PREPA has as an operator of the
system. Under Act 120, all acquired rights that the employees
have under PREPA are transferred to LUMA once they have moved
through.
So, any acquired rights that they have under the law on the
regulation or under the collective bargaining agreement moves
with them to LUMA. If they choose to stay with a PREPA pension
plan, then LUMA has an obligation to fund the PREPA pension
plan. If they choose to join the LUMA pension plan, then they
will be offered what the LUMA pension plan offers to them once
they join.
Ms. Velazquez. Thank you, Mr. Chairman. I yield back.
Mr. Tonko. The gentlelady yields back. The Chair now
recognizes Representative Gosar for 5 minutes, please.
Dr. Gosar. I thank the Chairman. I yield my time to Ms.
Colon.
Mr. Tonko. OK. The gentlelady is recognized for 5 minutes.
Miss Gonzalez-Colon. Thank you, Mr. Chairman. Thank you,
Representative Gosar for yielding. One of the questions I have
is going to be to Mr. Jose Ortiz again. And it is regarding the
process for contracts and RSP in PREPA.
In terms of the contracts that are being discussed here
today, did the Financial Oversight and Management Board and the
Puerto Rico Energy Bureau review the RSP process?
Mr. Ortiz. Yes, Congresswoman. Not only did the PREB and
the Fiscal Oversight Board, but also in many cases the Title
III for the EcoElectrica contract and also the court of appeals
and the administrative judge as well. So, it has been reviewed
for all possible entities or bodies to rule over them.
Miss Gonzalez-Colon. So, the contract that we are talking
about was challenged in the courts. It was challenged by who?
Mr. Ortiz. It was challenged by Puma, which was basically
the second bidder. He went to the administrative judge. It
didn't proceed. They then went to a court of appeals. The court
of appeals granted to PREPA again their position.
So, it was done in a proper way. This has been reviewed not
only there, but also public. And actually at the end of the
day, Puma came to our offices to say we tried to do the best,
but anyway we failed this one. We messed up.
But to be honest, at the end of the day, we have the best
of both worlds in that facility. Right now, you are able to
burn natural gas which is a lot cleaner. You make it comply
with the EPA standards right now.
And also you have Puma as a supplier for diesel if needed.
So, you have the best of both worlds in terms of reliability
and resiliency, in terms of a shortage of any of those fuels.
Miss Gonzalez-Colon. The question will now be in terms of
the FERC. There are many talks and letters from members of this
Committee regarding FERC and a requirement to show cause of why
it was not approved or requested at that approval.
What is the due diligence for PREPA of making the new
contract? Do you need to have a FERC authorization? And what
were the processes you made with FERC regarding the new
contract?
Mr. Ortiz. Yes. In 2018 and in 2019, we met with the FERC
officials. And, basically, they made the representation to us,
to PREPA, to our board members as well which visited the FERC
officials that this is a small project that will not basically
be under jurisdiction of FERC.
The same representation was made to New Fortress Energy.
And the same representation was made to the Coast Guard. So,
all those meetings were very consistent in that no jurisdiction
was needed here. And these discussions have been back to 2012
when I was the chairman of the board.
At that time, I met with John Wellinghoff, the FERC
executive director in 2012. He came to Puerto Rico and we met.
And we talked about the project. He did not at any point
discuss anything about jurisdiction. I remember at that time he
said you just have to check the buffer zone to preserve for any
potential problem or whatever. But that is it. That is all you
have to take care of.
So, this is a project that has been discussed around for
more than 8 years with different administrations in FERC. And
up to this point, it was good. The representation that no FERC
permit was needed was presented to me and to my board.
And it is good today as well if you foresee all the
different awards that FERC has been granted without any
jurisdiction basically. One example I can tell you from the
island is Costa Sur.
In Costa Sur, we have over a mile pipeline connected to
EcoElectrica. FERC didn't require taking any jurisdiction
there. We are talking a mile pipeline. Here we are talking
about a 75-foot pipeline, very close to the dock.
So, it doesn't make sense. If one was not needed, the other
even less. It makes perfect sense, the representation from FERC
officials with what is being discussed today.
Miss Gonzalez-Colon. Thank you, Mr. Chairman.
Mr. Tonko. The gentlelady yields back. The Chair now
recognizes Representative Sablan for 5 minutes of questions.
Mr. Sablan. Mr. Chairman, did you just call me out?
Mr. Tonko. Yes, I did, sir, for 5 minutes of questioning.
Mr. Sablan. OK. Does anyone need time? I really have no
questions.
Mr. Tonko. We have Mr. Soto here who might take 5 minutes
for questioning if you prefer.
Mr. Soto. Sure. Thank you.
Mr. Tonko. OK. The Chair recognizes the gentleman for 5
minutes.
Mr. Soto. I thank the gentleman from the Northern Mariana
Islands for that courtesy. Even during these difficult times,
we have a tremendous opportunity to bring Puerto Rico's energy
industry into the 21st century. And I want to reiterate some
guiding principles that are important for the Committee: (1) we
need power to be resilient and reliable; (2) we need it to be
affordable; and (3) we need to make every effort to boost
renewable energy where feasible.
First, I want to talk a little bit about resiliency and
reliability. Hurricane Maria exposed the vulnerable state of
Puerto Rico's energy system. We took the rare step of amending
the Stafford Act for Puerto Rico to be able to rebuild the grid
better.
Hurricane Dorian reminded us how precarious a position
Puerto Rico still is in. It is not a question of if another
hurricane will hit, but when. That is why it is critical that
we use Federal disaster relief funds to focus in part on
rebuilding a more resilient and reliable system that can
withstand another Category 4 or Category 5 hurricane.
We also need it to be affordable. Puerto Rico is in an over
decade long recession, was hit by Hurricane Maria and Hurricane
Irma, is facing terrible budget cuts by the PROMESA Fiscal
Board, endured a wave of earthquakes, and now faces a
coronavirus pandemic.
The people of Puerto Rico must have affordable energy in
order to survive and to bring the island back to prosperity.
And, finally, we need to adopt more renewable and cleaner
fuels. Right now, we see 40 percent petroleum, 39 percent
natural gas, 18 percent coal, and 2.3 percent renewables.
First and foremost, it is clear that petroleum and coal are
dirty and expensive and have to go as soon as possible. Puerto
Rico law now requires the visionary standard of 100 percent
renewable energy by 2050. These Federal funds can and should
also be used to meet this renewable goal.
We must start by boosting individual rooftop solar and
battery systems, particularly in La Cordillera Central, like
what the Committee saw in Toro Negro during our trip as well as
other rural and low population areas. We also must convert
other power generation to a combination of both renewable and
natural gas.
My question to several of you is--and I will call on you
individually--can Puerto Rico get rid of oil and coal by 2030?
And if so, what is an achievable mix of renewables and natural
gas that we could achieve by 2030 and why?
I am going to start with you, Mr. Ortiz.
Mr. Ortiz. Yes. Well, the renewable technology is getting
better and better year by year. I doubt we can go, for example,
100 percent renewable by 2030, but certainly----
Mr. Soto. But that is not what I am asking. I am asking if
we could get rid of oil and coal and convert to both renewables
and natural gas by 2030?
Mr. Ortiz. Yes, absolutely. That is an absolute yes.
Mr. Soto. OK. Thank you.
Mr. Ortiz. We are moving to natural gas to replace all the
liquid oils--absolutely.
Mr. Soto. And Ms. Santiago, do you think we could get rid
of oil and coal by 2030? And if so, what achievable mix can we
get between renewables and natural gas by 2030?
Ms. Santiago. Yes. I think that we heard expert after
expert at the Puerto Rico Energy Bureau hearings this past
February talking about the steps that we need to really
transform the Puerto Rico electric grid.
Those steps start with energy efficiency programs, energy
demand response programs, and certainly, yes, rooftop solar,
renewables, coupled with battery energy storage systems and
other alternatives to centralization of fossil fuels.
Mr. Soto. My time has expired.
Mr. Tonko. The gentleman has 30 seconds more because of the
delay of the clock.
Mr. Soto. Please continue, Ms. Santiago.
Ms. Santiago. All right. So, we can absolutely make huge
gains starting with those programs. And I expect that we can
eliminate the burning of fossil fuels very rapidly.
I would not say definitely in 2030, but certainly what we
saw and what the experts said, and even the Siemens Industry
which is the PREPA contractor agreed, that renewable with the
complimentary battery energy storage systems and other programs
that I mentioned can do the job even as to the critical
facilities like hospitals.
Mr. Soto. Thank you. I yield.
Mr. Tonko. The gentleman yields back. The Chair now
recognizes Representative Graves for 5 minutes for questioning.
Mr. Graves. Thank you, Mr. Chairman. Mr. Chairman, I have a
quick question for Mr. Ortiz. First of all, I do want to follow
up on the questions that the gentlewoman from Puerto Rico
brought about the extraordinary investment.
I, too, am interested in learning more about the billions
of dollars that have been invested and have been borrowed by
PREPA for investment into the energy system there, yet the
system still lacks performance.
But I had another question. I know that a number of
utilities went to Puerto Rico to provide assistance in
restoring the system. And I know that a number of those
utilities have provided invoices or billing to PREPA. And I
know that FEMA has actually provided the reimbursement to PREPA
for that work that was done by the utilities.
However, the utilities in many cases have not been
reimbursed, but only been reimbursed a fraction of what was
owed. Mr. Ortiz, could you explain sort of the disposition of
those reimbursements and when PREPA plans on fulfilling their
financial commitments that FEMA has already provided to them?
Mr. Ortiz. Actually, yes, you are absolutely right. We had
some struggles at the beginning paying those companies. It was
resolved already finally. PREPA took like a year and a half in
designing cost codes to be able to pay them, to reimburse them.
That was resolved already. I hope in the next couple of months
that everybody will be paid.
Mr. Graves. I just want to make sure I heard you. Your
estimate is that in the next couple of months you think that
everyone is actually paid.
Mr. Ortiz. Yes. Everything should be solved. Yes.
Mr. Graves. All right. Mr. Chairman, I yield my remaining
time to Ms. Gonzalez.
Mr. Tonko. The remaining time is spent to the gentlelady
from Puerto Rico.
Miss Gonzalez-Colon. Thank you, Mr. Chairman and thank you,
Representative Graves for yielding and actually for visiting
the island after Hurricane Maria and Irma and helping us out.
My question will be the same as before the time expired. I
was asking Mr. Ortiz about deferred diligence prior to
selecting the contract.
And after your answer, my next question should be, if you
have moved forward with the connection of the new company. Did
FERC tell you at that time that you needed any other provision
or submit an application or have an authorization--you have
been moving forward even having that or you stopped that kind
of a contract?
Mr. Ortiz. Well, certainly, the contract, the permitting
belongs to the contract. So, that is their responsibility. I
would have to keep burning diesel which is much more expensive.
It is much more damaging to the environment until they get the
permit. So, we are not going to be penalized. The people of
Puerto Rico would be penalized basically. But that is what is
going to happen. It is their responsibility to get the
contract--sorry, to get the permit.
Miss Gonzalez-Colon. Question, was there any other Federal
regulator that was concerned or expressed any reservation about
that San Juan Harbor project before or during the process it
was developed or built----
Mr. Ortiz. No. No.
Miss Gonzalez-Colon. No.
Mr. Ortiz. The answer is no. The other one that is
basically in a co-responsibility there is the Coast Guard. And
they met with FERC. And they argued that they were represented
that no FERC jurisdictional permit is necessary. So, that is
why I don't understand their last moment request.
Miss Gonzalez-Colon. Quick question, does that mean
contracting could provision for user pay provisions that you
must use in PREPA?
Mr. Ortiz. No, we don't have any take or pay clause. We
will just be paying for whatever we use. If at some point
diesel becomes cheaper, we can turn to diesel. But at the end
of the day, we need to comply with the EPA emissions.
But it is very important not only for the price purposes
but to comply with the non-attainment sum in EPA for many years
in the area of San Juan to get natural gas there.
Miss Gonzalez-Colon. Question, what will be the net saving
for the government and for the people of Puerto Rico just for
giving this can of transitional conversion?
Mr. Ortiz. Well, we can talk about one cent per kilowatt
hour, but that translates--basically in a family that consumes
$150 a month, they will be saving like $12 at best.
Miss Gonzalez-Colon. Can you repeat that number again?
Mr. Ortiz. If a family consumes $150--I am talking about
dollars--now that family will be paying $138 rather than $150
using natural gas.
Miss Gonzalez-Colon. Thank you, my time expired, Mr.
Chairman. Thank you, Ms. Haaland.
Ms. Haaland [presiding]. Thank you. The Chair recognizes
Mr. Lowenthal for 5 minutes.
Dr. Lowenthal. Thank you, Chair. And first I want to
apologize for running back because I know other Members have
done this also running back and forth and voting and especially
one who is voting remotely, it is getting to be quite difficult
trying to stay on top of both the hearing and what is going on
in the Floor.
My question may have already been asked to some extent, but
I am going to go back--and if it is worth saying it once, it is
worth saying it more than once.
This is for Mr. Ortiz at the Electric Power Authority. The
workers are really critical to the utility's success. But their
ability to excel has been limited somewhat by these outdated
procedures that are not really consistent with industry best
practices at this moment.
So, the questions that I have, a few of them--how will LUMA
actually improve working conditions? Have they had experience
working with unions--they are a consortium--in some of their
other operations?
And how will that LUMA contract affect the existing union,
the electrical industry and irrigation workers union, and does
LUMA support unionization? Do they allow for unionization?
Mr. Ortiz. Yes. A part of LUMA is Quanta. Quanta is
basically the biggest utility company with the biggest number
of unionized workers, so they know how to work with unions. And
the benefit I will say--and this is what I have noticed so
far--is that they devote a lot of time to training other
people, mostly on the safety issues. And secondary, since they
have workers worldwide basically, they can provide a lot of
best practices, not only from the mainland, but also from the
world to our employees. PREPA is a very difficult terrain. It
is a tropical environment as well. So, it has all the
challenges.
But let me tell you, the people of Puerto Rico are
excellent. I think some additional training with all these new
potential ways of seeing the things that are happening
somewhere else, good practices, will be a plus for all these
employees.
Dr. Lowenthal. I have another question though.
Mr. Ortiz. OK.
Dr. Lowenthal. And thank you for that--about the pension
system. My understanding is it is woefully underfunded. And I
would like to know just how underfunded it is and what are you
going to do to ensure pensions--will PREPA now make or LUMA
make greater contributions and will that add to the cost of
electricity? How do you propose dealing with this shortfall in
the pension system?
Mr. Ortiz. Yes. Good question. The shortfall--let me tell
you that needs $5.5 billion. They have assets for $1.2 billion.
So, they are in the hole $4.3 billion. Bringing LUMA will stop
the bleeding basically. And we can cut from there--and the LUMA
worker can decide to keep putting their monies in the pension
plans. So, we are trying to stop the bleeding here.
Now, PREPA has to deal with the $4.3 billion. And,
certainly, it will have to be PREPA's responsibility to find
that money. Obviously, the retirees do not have the way to do
it. We are looking for ways to reduce the tariff so that we can
plug in some money to support the pension fund.
There is no other way unless there is a tax, something--the
tax system of Puerto Rico to provide money to that pension
fund, but certainly the pension fund is in a very difficult
situation.
Basically, what LUMA makes is not fixing it. They are just
stopping the bleeding so that we can deal with it in arrears,
the $4.3 billion. That is the way I foresee this.
Dr. Lowenthal. I have just a little bit of time left. I
chair the Natural Resources Subcommittee on Energy and Mineral
Resources. And we have held a number of hearings on the North
Atlantic on offshore wind. Have there been any attempts to
begin to deal with offshore winds as an alternative for
renewable energy?
Mr. Ortiz. No. There hasn't, but certainly I visited the
wind farm close to the north of Montauk. You have a very nice
wind farm there. And I know New York is trying to do something
bigger offshore----
Dr. Lowenthal. And Massachusetts.
Mr. Ortiz. And they are talking about 9 cents per kilowatt
hour, which is very competitive for Puerto Rico. Puerto Rico in
the south is very shallow and it is very windy.
So, I foresee something being explored in the near future.
But those are the conditions I discussed already with the New
York Power Authority and with the Long Island Power Authority.
Dr. Lowenthal. Well, thank you for that. And I yield back,
Madam Chair.
Ms. Haaland. Thank you, Mr. Lowenthal. The Chair recognizes
Mrs. Radewagen for 5 minutes.
Mrs. Radewagen. Thank you very much. Can you hear me?
Ms. Haaland. We can hear you.
Mrs. Radewagen. I want to thank the Chairman and Ranking
Member for holding this hearing. I welcome the panel. At this
time I yield all my time to Congresswoman Gonzalez-Colon. Thank
you, madam Chair, I yield back.
Miss Gonzalez-Colon. Thank you, my friend, Madam Radewagen.
I know you are in America Samoa at this time, so I thank you
for yielding. And I will just take my turn at this time to
enforce what Representative Lowenthal just mentioned about the
opportunities in offshore energy.
And in that sense, I just want to highlight bipartisan
legislation I introduced that could help Puerto Rico's energy
transformation. It was passed during the last Congress.
Again, it was recommended by this Committee unanimously.
All territories are original sponsors of this bill, in a
bipartisan way. And I am referring to H.R. 1014, the Offshore
Wind for Territories Act. The bill will amend Federal law to
study the potential for an authorized offshore wind energy
development in the exclusive economic zone adjacent to the five
U.S. territories.
I mean, you may have that in the eastern part of the United
States, but territories are not authorized by Congress. So, it
could establish a dedicative fund for coral reef conservation
and a direct portion of the offshore wind revenues back into
the local communities.
Again, this Committee reported this unanimously last year.
And the bill was passed under suspension. If enacted, this bill
will create not just jobs, but hours of energy needs and the
prices in the territories. And for me, very important in our
reliance on imported foreign petroleum products while boosting
revenue sources and helping protect our coral reefs.
So, that is something that will promote the study of it. It
is not that we are going to be doing it, although we visited
the windmills in the south part of the island recently with the
delegation of the Department of Energy.
Now, I am going back to Mr. Ortiz. There are several issues
that have been part of the questionings today regarding not
just the private contracts but whether PREPA is in a good
position to face new developments in the south, like the
earthquakes or the hurricanes.
And I was asking prior to this turn about the situation
with the FERC. My question will be--let's assume and this is a
bad omen, but anyway--what should be the impact for PREPA and
for people of Puerto Rico if FERC orders the facility to shut
down? What is going to be the immediate impact for PREPA?
Mr. Ortiz. Well, immediately, Congresswoman, we will have
to rely more on the south generation, the same area that has
been shaken in the last 6 months. We will be passing all the
responsibility to provide energy to the 70 percent of the
Puerto Ricans from the south basically because the main plant
is in San Juan.
And we are not allowed to use these 100 percent because
that provides limitations from the EPA due to the emissions
with diesel. So, we will have to go back to provide energy to
the north from the south. And that was the biggest problem
after Maria.
When we lost the transmission from the south to north, we
basically lost power for like 70 percent of the population for
close to 5 months until we restored the central area of the
island. So, we will be in a weaker position. We will be using
in a limited way the San Juan 5 and 6. And we will be limiting
the reliability of the system very seriously.
Miss Gonzalez-Colon. And that means that if we need to go
back to Costa Sur in the south part of the island that we will
not have neither 500 or 800 megawatts that are needed in
reserve just to manage the capacity of the demand of
electricity on the island. Am I right?
Mr. Ortiz. You are correct.
Miss Gonzalez-Colon. At this time, how much megawatts will
you still have in reserve to meet the demands of the energy on
the island?
Mr. Ortiz. Right now, we are at 3,200 megawatts. The demand
is close to 2,800. Basically, on average, we are around those
numbers.
Miss Gonzalez-Colon. Thank you. I yield back.
Ms. Haaland. Thank you, Ms. Gonzalez-Colon. The Chair now
recognizes Mr. Cox for 5 minutes.
Mr. Cox. Thank you so much, Madam Chair. Thank you to our
witnesses for being here today. My question has more to do with
some of the previous disasters that have unfortunately befallen
Puerto Rico.
And as Ms. Gonzalez-Colon noted earlier, and Mr. Tonko as
well, we are right upon a new hurricane season. And there are
certainly going to be future natural disasters.
My question is really for Mr. Ortiz, if he will indulge me.
There is quite a bit of concern about the FEMA payments or no
payments that have been made to contractors who stepped in
during the aftermath of Hurricanes Irma and Maria. And I would
really like to know what has PREPA and the agency done with
submitting and getting these contractors paid? And if they
haven't, has FEMA shared with you any of the reasons that these
contractors haven't been paid, why they are awaiting payments.
And what has PREPA done to submit and to advocate for these
reimbursements?
Mr. Ortiz. Yes. Most of the contractors that are still not
paid or not fully paid are from the Edison Electrical
Institute, the ones brought by that institution. That will be
resolved in the next few days because what was missing was a
cost code from FEMA in order to pay them. It is something in
their system that was resolved recently. We were basically
fighting with that issue for a year and a half. That is
resolved. And as I said to a previous Congressman, I hope
everybody will be paid in full within the next 2 months.
Mr. Cox. OK. Well, great. Thank you so much. And if we
could impress upon you about how necessary that is. And if need
be, could you provide the Committee with detailed information
on these project worksheets so that in fact we could follow up
with you if necessary?
Mr. Ortiz. Gladly.
Mr. Cox. Thank you so much. And, certainly, the question to
go out to both of you is--Mr. Ortiz and Mr. Rossi--have you
seen or can you imagine any lack of willingness for other
contractors to conduct emergency response work when future
natural disasters impact the island because of the situation
that we found ourselves in with subsequent Hurricanes Irma and
Maria?
If contractors aren't going to get paid, they are certainly
going to be less likely to be able to step up when they are
needed.
Mr. Ortiz. That is a very important point. And let me tell
you we have communication with them. They know what we are
waiting for, and they know we have moved forward with their
payments and all that. I foresee a good relationship with them
keeping the good bond down.
And let me tell you, we actually participated in the mutual
aid training for all utilities back in October in New York. And
our team was there with the other teams. So, we keep a good
communication. And I foresee all of them willing to come on and
help Puerto Rico if needed and the same way in the other
direction.
Mr. Cox. Well, thanks so much, Mr. Ortiz. And I don't know
if Mr. Rossi would like to chime in as well.
Mr. Rossi. I would. I think that PREPA would find a way to
convince contractors to come in. I think the general problem we
have is not just with contractors in emergencies. It is in
general just a lack of trust and confidence in PREPA's ability
to execute, makes everything more costly for PREPA and thus for
consumers.
I think that is what my statement had to do with. And we
need a world class regulation along with world class LUMA and a
world class investment in renewable energy markets that means
something to homes.
And I think that is the biggest challenge we face. It is
just a Puerto Rico risk, the PREPA risk would be very costly if
we don't do something where congressional oversight, PREB,
CDBG-DR come together to fix that Puerto Rico risk that won't
be fixed for many years, and that is my greatest concern.
Mr. Cox. Great. Thank you so much. And the Committee
certainly stands ready, willing, and able to help you in any
way possible. And I yield. Thank you.
Ms. Haaland. Thank you, Mr. Cox. And the Chair will
recognize--I will recognize myself for 5 minutes. And I will
start with Mr. Ortiz and Mr. Aviles.
Why is PREPA binding public funds and long-term natural gas
projects which is not a renewable energy source when the
Integrated Resource Plan has not been approved by the Puerto
Rico Energy Bureau and Act 17-2019 requires the integration of
100 percent renewables by 2050?
Mr. Ortiz. If I may start--do you hear me?
Ms. Haaland. Yes, we can hear you.
Mr. Ortiz. OK. Thank you. Yes. Well, let me tell you why we
grow in the renewables and we are growing very fast really.
Nothing much has been done in the past many years, and
today we have 18,000 homeowners with detached rooftop solar
good for 200 megawatts--but the perfect partner in this dance
of growing into renewables is a stable cheap system with
batteries. As I said before, we have three projects of
batteries--battery farms in the east of Puerto Rico and two in
the north in the metropolitan area with 480 megawatts.
But the thing here is that you cannot grow responsibly on
renewables unless you have a very stable system that would
catch up all the voids inherent to the renewable generation
today. If you look at the graph of the consumption in Puerto
Rico, it has peaks.
And once you reach 8:30, 9 p.m. every night, you have a big
drop of renewable because you exhausted your batteries at that
point. So, you need something to catch up. And if you are
talking about bringing industrials or manufacturing to the
island, certainly you need a standardization of the voltage.
The short-term projects we have with natural gas, because
let me remind you that the natural gas, for example, in San
Juan is a 5-year project that you can extend in periods of 5
years all depending on the need of injection of additional
power due to the condition of the system.
It all depends on how fast and how good the renewables
behave. Certainly, you need to fill the voids of the
variability of the renewables in the system. And that is why
the natural gas is so important.
Ms. Haaland. Thank you. OK. Let me ask--is Mr. Aviles still
available? Mr. Aviles, did you want to respond in some way?
Mr. Aviles-Deliz. Yes. I would like to add that in order to
achieve the renewable goals established in Act 17, we need some
kind of transition fuel. And I can say that gas at this moment
is much better than the system oil and efficiency petroleum
gas. That is why at some point we have to invest in gas in
order to achieve the renewable goals clearly established in Act
17. That is the answer.
Ms. Haaland. Thank you so much. I don't have a whole lot of
time left--both gentlemen if you can answer jointly again. The
Federal coordinator for the reconstruction of Puerto Rico,
Peter Brown, recently expressed that nuclear energy is an
option to diversify Puerto Rico's energy sources.
PREPA's Integrated Resource Plan does not integrate nuclear
energy as an option. Will PREPA maintain this position in
compliance with Act 17-2019, which requires reaching a minimum
of 40 percent renewable energy integration by 2025, 60 percent
by 2040, and 100 percent by 2050?
Mr. Ortiz. If I may, about the nuclear generation, it is
not a technical problem. It is really a public policy problem.
I don't foresee any community in the world saying that they are
for the nuclear power. We could have the most advanced
technology, very safe, and all that. But with the myriad of
events happening in the past 4 years in the world, I don't
foresee that being pushed by any public official. You can
certainly say that this is technically adequate, but it is very
tough to sell to any community.
Ms. Haaland. Thank you. Mr. Aviles, I am over time now. Do
you have anything to add just for a few seconds?
Mr. Aviles-Deliz. Just like Mr. Ortiz already said, it is
not a technical issue. This is a policy issue. Right now, Act
17 clearly states what the goals are. And nuclear energy is not
there. But if our legislature decides otherwise, we, PREB, have
to follow it. That is what I have to say about that.
Ms. Haaland. Thank you all so much. Thank you for your
time. I thank the witnesses for their valuable testimony, and
the Members for their questions. The members of the Committee
may have some additional questions for the witnesses. And we
will ask you to respond to these in writing.
Under Committee Rule 3(o), members of the Committee must
submit witness questions within 3 business days following this
hearing. And the hearing record will be open for 10 business
days for these responses.
If there is no further business----
Miss Gonzalez-Colon. Madam Chair.
Ms. Haaland. Yes.
Miss Gonzalez-Colon. Just to add something, Ms. Velazquez
made a question to Mr. Ortiz referring to documents that were
submitted for the record. I am just asking the Committee to
submit those documents to Mr. Ortiz as well as the Ranking
Member so we can examine the documents, because there was no
direct reference of what it was.
Ms. Haaland. Without objection, so ordered.

This Committee stands adjourned.

[Whereupon, at 5:32 p.m., the Committee was adjourned.]

[ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]

Prepared Statement of the Hon. Rob Bishop, a Representative in Congress
from the State of Utah
Since Hurricanes Irma and Maria devastated the island 3 years ago,
the Puerto Rico Electric Power Authority (PREPA) has struggled greatly
with maintaining a power grid with any semblance of reliability.
Even before those two historically devastating hurricanes blew
through the island, PREPA was a utility that could barely manage to
keep its fragile grid maintained. Decades of mismanagement of PREPA's
assets left the grid in a state of disrepair, standing no match for the
storms that eventually left the island in darkness 3 years ago.
Fast forward to today, and PREPA still faces a momentous uphill
climb toward strengthening their infrastructure. Recent earthquakes in
the beginning of the year and now the effects of the COVID-19 pandemic
have further increased the stress on PREPA's infrastructure needs.
Under the PROMESA law that this Committee passed, PREPA has the
tools it needs to restructure its crushing $9 billion debt, but that
process still continues to advance at a snail's pace through the
courts. So, today we're here to discuss the next steps PREPA has taken
to address their endless tasks of rebuilding their grid more resilient
and more reliable for the citizens of the island that depend on it.
The recent news of PREPA striking a deal with LUMA to semi-
privatize the T&D side of operations, but not the power generation side
of the grid, gives some of us here in Congress hope that actual strides
are being taken by leaders on the island toward modernizing their power
grid.
I am hopeful that more substantial progress to strengthen the power
grid is forthcoming in the near future, as increased Federal funding
granted by Congress has provided a lifeline to PREPA. However, I must
caution folks not to squander this opportunity to correct decades of
mismanagement and poor decision making at the utility by foolishly
engaging in rash boondoggles that leave the grid under-prepared to face
future crippling disasters, whether they're of the natural or financial
kind.
It is my opinion, I assume the same goes for any rational being,
that PREPA needs to continue to pursue conversion of their power
generation assets off of burning inefficient Venezuelan bunker fuel and
onto clean and efficient liquified natural gas. This isn't to say there
may be a place for expanding renewables within the generation side of
the grid, but let's let markets work and what's best for Puerto Rico's
near- and long-term recovery guide the way.
I look forward to hearing from the witnesses today on these
important issues on how PREPA may continue to make the necessary
strides forward to providing the clean, efficient, and cost saving
energy the people of Puerto Rico have been starved of for years now.
I also want to thank the Resident Commissioner for her continued
leadership on these matters. She works tirelessly for her constituents
and it is a pleasure to have her guidance and wisdom here on this
Committee.

______

[LIST OF DOCUMENTS SUBMITTED FOR THE RECORD RETAINED IN THE COMMITTEE'S
OFFICIAL FILES]

-- Testimony of Tom Sanzillo, Director of Finance, Institute
for Energy Economics and Financial Analysis
(IEEFA), dated August 4, 2020.

-- El Nuevo Dia Article titled, ``LUMA seeks to train
thousands of line guards,'' dated July 21, 2020.

-- Utility Dive Article titled, ``PREPA CEO sees bright
future for embattled utility, but funding, grid mod
challenges remain,'' dated July 20, 2020.

-- Quanta Talking Points re Union Obligations under PRLRA
and NLRA.

Submissions for the Record by Rep. Velazquez

-- U.S. District Court of Puerto Rico, Case: 17-03283-LTS,
Doc# 8010, re: FOMB and PREPA, dated July 15, 2019.

-- U.S. Bankruptcy Court, Northern District of California,
San Francisco Division, Case 19-30088, Doc# 5924,
re: PG&E Corp. and Pacific Gas and Electric
Company, dated March 10, 2020.

-- Merger Release--SoftBank Group Completes Acquisition of
Fortress Investment Group, dated December 27, 2017.

-- U.S. Bankruptcy Court, Southern District of Texas,
Houston Division, Case 18-35672, Doc# 2120, re:
Westmoreland Coal Company, dated July 3, 2019.

Submissions for the Record by Rep. Bishop

-- Letter from Wayne Stensby, LUMA Energy President and CEO,
to Chair Grijalva and Rep. Bishop, dated July 22,
2020.

[all]