Puerto Rico to receive nearly $10 billion from FEMA to rebuild its grid

by Peter Maloney
APPA News
October 7, 2020

The Federal Emergency Management Administration (FEMA) has approved $9.6 billion for the Puerto Rico Electrical Power Authority (PREPA) to repair damage to its electric grid caused by Hurricane Maria in 2017.

The federal funding is targeted to repair and replace thousands of miles of transmission and distribution lines, electrical substations, power generation systems, and other grid improvements.

The aid package also includes a $2 billion grant for the Puerto Rico Department of Education for restoring school buildings and educational facilities on the island.

“PREPA welcomes the FEMA fund obligations and is focused on the next steps to begin reconstruction of the electrical grid,” Fernando Padilla, director of restructuring and fiscal affairs at PREPA and head of the utility’s disaster funding management office, said via email.

PREPA is in the midst of restructuring its debt following its declaration of a form of bankruptcy in 2017. The utility’s current balance sheet “contains unsustainable debt” that precludes the issuance of bonds to raise capital for infrastructure improvements, Padilla said. In addition, the devastation of Hurricane Maria left unprecedented damages that requires significant mitigation to protect from future natural disasters.

Following the hurricanes in 2017, a massive cross-industry mutual aid response involved thousands of crew members from public power and investor-owned utilities to help restore power to the island. The American Public Power Association coordinated with PREPA, the responding public power crews, and other entities involved through the extended restoration time, which was a concentrated effort from September 2017 through March 2018, but which has continued in other ways as the utility has worked to rebuild and improve its response practices. Through support from the Department of Energy, APPA led a workshop in August for PREPA and other island territories to discuss preparedness practices and lessons learned from the events in 2017.

The FEMA funding will provide the necessary funding to help protect the electrical system and the people of Puerto Rico from future catastrophic events, Padilla said.

The FEMA funds will be used to bring PREPA’s electrical system up to standards capable of withstanding a Category 4 hurricane.

In the wake of Maria, a Category 5 hurricane, Congress approved $50 billion as part of the Bipartisan Budget Act of 2018 including funding for hurricane response and recovery and for rebuilding critical services and facilities. About $16 billion of those funds have been distributed to date.

Since then, the island was hit by a series of earthquakes in December 2019 and January 2020 and then by Tropical Storm Isaias in July.

The work of reconstructing the grid in the wake of Hurricanes Maria and Irma “has been significantly completed,” Padilla said, but the work was done to codes and standards that would not necessarily stand up to a hurricane of Category 4 or higher.

The list of projects that will be undertaken using the new FEMA funds is still under development and is expected to be completed by the first week of December, Padilla said. Top priorities include protecting critical infrastructure loads, transmission and distribution lines, and large industrial loads that are essential to Puerto Rico’s economy, he said.

PREPA expects to begin receiving the FEMA funding later this year or very early in 2021, Padilla said. The initial funding will be allocated for the design process and then to procurement for initial projects, he said.

“Our organization is fully committed to work with FEMA and all stakeholders to secure a 10-year infrastructure plan that will outline the overall vision and project pipeline to ensure project execution within federal parameters and FEMA guidelines.”

The $9.6 billion award is more than half the cost needed to modernize Puerto Rico’s electric grid over the next 10 years, Moody’s Investors Service said in a tweet in response to FEMA’s Sept. 18 announcement.

The rating agency said the grant was positive for both PREPA and for the Commonwealth of Puerto Rico.

The FEMA funds would bring PREPA’s transmission and distribution systems “up to code and improve reliability and service quality without burdening the Commonwealth and PREPA with incremental debt, and ultimately its customer base, with rate increases for these projects,” Moody’s said.