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In Puerto Rico, for over 15 years, there has been a net metering program that has been crucial to the development of renewable energy. The program began in 2007 with the enactment of the Net Metering Program Law, Act 114, on August 16, 2007. This law promotes a distributed generation system in which participants receive compensation for the excess electricity they produce and contribute to the grid.
Although the program was established in 2007, it wasn’t until after Hurricane Maria in 2017 that distributed generation systems gained more traction due to the constant interruptions in the electrical grid. Driven by an unstable service and governmental and philanthropic incentives, Puerto Rico's net metering program reported a distributed generation capacity of 1,000 megawatts by 2022. This increase in interconnectedness raises the challenge of how the net metering program will continue and how the costs of the electrical infrastructure will be distributed among all system participants. While the economic load distribution issue in net metering systems occurs in other jurisdictions, the legal and financial challenge in Puerto Rico is compounded by the ongoing transformation of its electrical system during one of the largest municipal bond bankruptcies, which includes both the power company and the government of Puerto Rico.
Puerto Rico’s electrical system reached its peak development with the creation of the Puerto Rico Electric Power Authority (PREPA), the national company that electrified Puerto Rico, primarily funded by bond issuance. PREPA controlled the production, distribution, and regulation of the energy market. By the early 2000s, its solvency had reached a critical point, accumulating a debt of nearly $9 billion. After several attempts at restructuring and fiscal adjustments, which included the appointment of a restructuring officer in 2014, PREPA defaulted on nearly $400 million in obligations in 2016. That same year, the U.S. Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), 130 Stat. 549 (2016), which established a debt restructuring mechanism overseen by a Fiscal Oversight Board (FOB) appointed by Congress and nominated by the U.S. president. Under this restructuring mechanism, PREPA filed for bankruptcy under Title III of PROMESA in 2017.
As PREPA faced these financial challenges, the governance and scope of the electrical system also transformed. In 2014, Act 57-2014 created the Puerto Rico Energy Bureau (PREB), which has since acted as the energy regulator. This agency has the authority to establish and implement guidelines, standards, and processes to ensure the safety and efficiency of the electrical system. Later, in 2018, the Act to Transform the Electrical System of Puerto Rico, Act 120 of June 20, 2018, was passed, allowing for the privatization of transmission and distribution operations, in addition to the private management of energy production plants under PREPA. Through this legislation, the transmission and distribution of electricity were eventually transferred to LUMA Energy, a joint venture of Quanta Services and Artco, with the contract announced in June 2020, and full control beginning in June 2021. Additionally, electricity generation was transferred to Genera PR, a subsidiary of New Fortress Energy, which manages PREPA’s fossil fuel energy production plants.
In 2019, another major change in energy policy occurred when the Legislative Assembly passed the Public Energy Policy Act, Act 17 of April 11, 2019. This law sets objectives for achieving 100 percent renewable energy. Currently, Puerto Rico produces 12 percent of its energy from renewable sources, with a goal of 40 percent by 2025 under Act 17-2019.
Against the backdrop of these structural changes to the electrical system and renewable energy production goals, the recent controversy over net metering has arisen. This year, Act 10-2024 was passed, amending the 2007 Net Metering Program Law (Act 114-2007), which instructed PREB to evaluate the benefits and costs associated with Puerto Rico's net metering program. Act 10-2024 delays PREB’s authority to conduct the net metering study until 2030. Under this amendment, only after the study is conducted can PREB make recommendations and set a new tariff applicable to net metering customers for the years following 2030. Before Act 10-2024, PREB had until April 14, 2024, five years after the enactment of the Public Energy Policy Act (Act 17-2019), to complete the study with recommendations for the net metering program. This study must consider factors such as energy generation costs, capacity value, transmission and distribution costs, avoided system losses, and environmental compliance savings, among other factors deemed relevant by PREB.
On July 26, 2024, FOB sued the government of Puerto Rico to nullify Act 10-2024, arguing that it hinders PREB's regulatory authority by postponing the ability to conduct the net metering study and make changes to the net metering tariff until 2031. Adv. Proc. No. 24-00062- LTS. The government of Puerto Rico responded by asserting that the lawsuit does not justify granting a remedy.
Puerto Rico finds itself at the intersection of three competing interests: 1. debt restructuring, 2. the transition to renewable energy, and 3. a stable and equitable electrical system for all participants. On the one hand, FOB ensures the reliability of PREPA's debt restructuring, which largely depends on generating sufficient revenue to support energy operations and pay bondholders. If the net metering program remains unchanged until 2030, PREPA may not generate enough revenue to operate or pay its bondholders as currently structured. Therefore, it is no surprise that FOB wants to intervene in PREB’s ability to devalue net metering, with the aim of increasing revenue to pay the debt and forcing PREB to conduct the net metering study to amend and restructure the tariff.
On the other hand, net metering incentivizes customers to individually purchase solar equipment for energy stability and reduced electricity bills. More customers find it accessible to install units to generate electricity in their homes, thus increasing the goal of renewable energy production. However, solar energy production has little impact on peak demand, which generally occurs after sunset when solar generation is not viable. This increases the load factor, as there is less revenue from the net metering credit without affecting the fixed cost of electricity production.
One solution developed in other jurisdictions is the devaluation of net metering. Under this program, instead of offering a 1:1 credit for energy produced, the credit would be less than the energy tariff. Devaluing net metering could affect the incorporation of renewable energy in Puerto Rico, the economy that supports it (jobs, installations, credits, etc.), and the reduction in solar equipment sales, hindering the efforts set out in Act 17-2019. For example, in April 2023, the state of California passed a law devaluing net metering by 75 percent, which led to a decrease in solar sales and installations in 2023. Efforts are now underway to reinstate the previous net metering program.
Ultimately, the controversy over the net metering law has become a point of intersection in Puerto Rico between the independence of PREB, the powers of the Legislative Assembly, and the authority of FOB in restructuring the debt.
