[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
       
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        Available via the World Wide Web: http://www.govinfo.gov
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
41-341 PDF                  WASHINGTON : 2020                     
          
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                     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.

     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 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 its facility 
            to trucks that can deliver LNG to other energy users 
            throughout Puerto Rico.

      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 PowerAdvocateC, 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.
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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.
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    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\
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    \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.
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    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'').
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    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--
AgremaxTM 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.
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    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]