Within a span of 10 days in September of 2017, two massive storms swept across Puerto Rico leaving behind a land stripped of vegetation, unprecedented flooding, thousands of destroyed buildings, buckled roads, and an electrical system in shambles. More importantly, over 3,000 island residents lost their lives as a result. The storms dramatically exposed the fragility of the island’s electrical grid—a weakened system resulting from decades of underinvestment in infrastructure and maintenance. Power was lost across the entire island, and many residents would go without it for months. This untenable situation sparked government action to more aggressively transform Puerto Rico’s aging electrical infrastructure to restructure, modernize, and make it more sustainable and resilient. Not surprisingly, this major undertaking will take years to complete and cost billions of dollars but, as we shall see, it is a process that in some ways was underway long before the storms.
For decades the island’s electrical power system had been vertically integrated under the Puerto Rico Electric Power Authority (PREPA), a public corporation created by law, which was controlled by the government and operated without the oversight of an independent regulator. PREPA owned and operated the electric distribution and transmission grid and most power plants supplying energy to the grid, the majority of which were fuel oil-fired and over 40 to 50 years old. There were a few independent power producers supplying energy to the grid, through power purchase agreements with PREPA, producing mostly coal- and gas-fueled energy. Notably, less than 3 percent of the energy supplied to the grid came from renewable resources. PREPA’s financial situation was dire, the electric system was old, service was deficient, and the grid was incredibly fragile.
Then in 2010, important initial steps were taken toward diversifying the energy production: Act 82-2010 established a renewable energy portfolio for Puerto Rico, and Act 83-2010 provided the tax incentives for the commercial production and sale of renewable energy. (The latter tax incentives have evolved but continue to this day under different legislation.) Despite these promising initial steps, a structure propitiating the establishment of renewable energy production on the island had yet to be defined.
In 2014, Act 57-2014 was enacted creating the Puerto Rico Energy Commission (now the Puerto Rico Energy Bureau) as an independent energy regulator and establishing that it is the government’s public policy to transform and restructure the electric power system to achieve economic competitiveness, affordable electricity costs, and guarantee the reliability and safety of the power system. In addition, it required PREPA to prepare an Integrated Resource Plan (IRP) considering the reasonable resources needed to satisfy energy demand during a 20-year planning horizon. For the first time ever, the island’s electric system would have to be managed in accordance with a forward-looking comprehensive planning document focused on the orderly and integrated development of Puerto Rico’s electric system.
Initially, progress in energy transformation was relatively slow and hindered by PREPA’s financial situation which culminated with the commencement of bankruptcy proceedings in 2017. It was the major storms of that same year, and the ensuing public outcry, that pushed the government to take more aggressive action. In 2018, less than a year after the hurricanes, a statute was enacted (Act 120-2018) ordering the privatization of the operation of PREPA’s transmission and distribution system as well as the ownership and/or operation of PREPA’s power plants. Another important measure followed in 2019 (Act 17-2019) establishing a new energy public policy for Puerto Rico, intended to make the energy sector more sustainable, innovative, resilient, and ready for the future. Act 17 provided for the creation of an open energy market, required the strengthening and modernization of the grid, reaffirmed and expanded prior renewable energy goals (requiring 100 percent renewables by 2050) in furtherance of energy diversification and sustainability, directed the establishment of energy efficiency and demand response programs, and encouraged the development of microgrids and distributed generation systems to improve the overall reliability and resilience of the grid.
The Energy Bureau has been busy overseeing the implementation of these public policies and energy framework, which included the adoption of regulations governing the IRP preparation, microgrids, energy efficiency, demand response, and wheeling, among others. Two IRPs have been adopted, the latest of which, approved in 2020, provides for hardening, upgrading, and modernizing the electric system, supporting integration of distributed energy resources and microgrids, development of energy efficiency and demand response programs, and phasing out PREPA’s fossil fuel power plants while requiring the aggressive procurement of large-scale renewable energy production and battery energy storage.
The long-term objectives of modernization, sustainability, and resilience remain a work in progress, but important organizational progress has been made. In 2020, a 15-year contract was signed with a private entity to operate the transmission and distribution system and oversee its reconstruction and modernization in accordance with the IRP and energy public policies. Then, in 2023, a similar 10-year agreement was signed with another private entity to manage PREPA’s power plants. Much work remains to transform the Puerto Rico energy sector into the modern, sustainable, and resilient system that will serve the needs of the island’s people and economy, but the necessary structural, regulatory, and organizational elements necessary to meet long-term objectives are finally in place, and there is optimism that Puerto Rico’s electric system may indeed someday become a model for other jurisdictions to follow.
Join us on February 8, 2024, in San Juan, Puerto Rico, when the ABA’s Section on Environment, Energy, and Resources (SEER) will hold its first-ever Disaster Recovery and Resilience Conference at the University of Puerto Rico Law School. The island’s energy transformation will be front and center at the conference, along with a series of informative panels on the role of government in disasters, pre- and post-disaster practical considerations for attorneys, and a discussion on biodiversity and community resilience, all led by experienced practitioners active in disaster recovery and resilience measures. SEER’s 2024 Winter Council Meeting will also be held in San Juan on February 9–10, 2024, in conjunction with the conference. Beyond the CLE, we have unparalleled networking opportunities, an environmental law careers roundtable for law school students, and an exciting coastal resilience service project. The Disaster Recovery and Resilience Conference will offer unique insights into a rapidly expanding national practice area and should not be missed.
