Puerto Rico Electric System Challenges Ahead

1. Puerto Rico Electric System Challenges Ahead Presented by: Tomás J. Torres, MPL, PE, LPP March 21, 2019

2. Our Current Electrical System • Reliability and Financial Indicators • New Paradigm • Current IRP Proposal Challenges • The Future

3. The ICSE-PR is a 501(c)(3) non-profit, action-oriented organization incorporated in 2015. We plan and execute educational activities, create alliances and coordinate changes that foster the socio-economic wellbeing of Puerto Rico.

4. PREPA’s Distribution System • Approximately: • 31,550 circuit miles of distribution lines • 333 Substations Legend: Substations 4.16 KV Circuits 8.32 KV Circuits 13.2 KV Circuits Source: Consulting Engineer Report, June, 2013; PR Energy Bureau, Sistema Distrubución de la AEE, September 2015

5. Transmission System approx. 2,478 circuit miles of lines: 375 circuit miles of 230 kV 727 circuit miles of 115 kV and 1,376 circuit miles of 38 kV (not shown). Source: Consulting Engineer Report, June, 2013

6. PREPA’s Generation Fleet Generating capacity (MW): 2,892 MW Steam-plants 1,032 MW of Combined-cycle 846 MW of Comb.-Turbines 454 MW AES 507 MW EcoEléctrica 8 MW of diesel capacity, 105 MW of Hydroelectric and 200 MW Solar & Wind (not shown) . s c G s c G Source: Consulting Engineer Report, June, 2013; FY 2017 Rate Review, PREC.; and 2019 IRP filing

7. Reliability Metrics Prior to Hurricane Maria: • System Average Interruption Frequency Index (SAIFI) - 11.61 per year. One Interruption per month. • System Average Interruption Duration Index (SAIDI)- Approx.16 hours per year, 16 hours without power a year. • Customer Average Interruption Duration Index (CAIDI) – Approx. 180 minutes per in July 2016 – Power outage average duration of 3 hours. American Public Power Association, (APPA) National Values: • SAIFI – 0.91 per year • SAIDI - 62.53 minutes • CAIDI - 78.80 minutes After Hurricane Maria PR reliability metrics do not fit in national standards SAIFI – 365 per year ? Source: FY 2017 Rate Review; American Public Power Association 2015 Distribution System Reliability & Operations Survey .

8. American Public Power Association, (APPA) National Values: • Weighted Mean - 0.512 • Median - 0.321 Edison Electric Institute Values: • Long-term debt industry’s aggregate total capitalization - 55.8% Financial Metrics Prior to Hurricane María - PREPA Debt to Total Assets ratio reflected insolvency: 2014 PREPA’s Financial Statement : • Total Assets – $10.3 Billion • Capital Assets - $6.8 Billion ratio • Debt: $9.4 Billion • Debt to Total Assets: 0.91. • Using Capital Assets, Debt to Assets: 1.38. • Debt to Asset Ratio of 1 reflects insolvency. • 2017 Values, prior to hurricanes: • Capital Assets estimated on $5 Billion • Debt to Capital Asset was Approx. 2. • After 2017 Assets approached 0. Source: FY 2017 Rate Review; APPA 2018 Financial and Operating Ratios of Public Power Utilities; EEI 2017 Financial Review .

9. Electric System Reconstruction Costs Overhead and Underground Distribution: $5,303 Millions Overhead and Underground Transmission: • $4,900 Millions Substations 38KV, 115KV, and 230 KV: • $1,668 Millions Total T&D ONLY: • $11,871 Millions Source: Build Back Better, 2017, New York Power Authority at al. Pictures by C. Torres

10. Current Model Needs to Change • Transmission Costs: • Mostly Fixed Costs • Distribution Costs: • Mostly Fixed Costs • Generation Costs: • Fixed Costs • Variable costs

11. A New Model is Needed Multiple Flows of Energy Low Marginal Cost Form Renewables Prosumers and Microgrids Prosumers and Microgrids Multiple Supply Sources

12. A New Model is Needed • New Puerto Rico Energy Policy, Senate Bill 1121, set the basis for a new model. • Conference Committee Report issued on March 14, 2019 and approve that day by the Puerto Rico Senate. House of Representatives vote scheduled for Tuesday March 19, 2019. • Provides additional resources and budget to the regulator. • Includes statutory requirements to implement energy efficiency and demand-response programs. • Requires the development of energy storage systems, expedited interconnection process for microgrids and net-metering clients. • Redefines the electrical system considering the generation of energy at the distribution grid by electricity consumers (prosumers). • Establishes a gradual increase in the Renewable Energy from 20% in 2025, to 50% in 2040, to a 100% in 2050.

13. Challenges – IRP Proposal Planning Period; The IRP shall consider a planning period of twenty (20) years. • Filing: Proposed IRP was submitted by PREPA on February 13, 2019 Filing Compliance: On March 16 the Energy Bureau determined that the proposed IRP is not in compliance with Regulation 9021 and ordered PREPA to correct the deficiencies and to refile within 30 days. . Intervention: Any person may file a petition to intervene in the IRP proceeding within thirty (30) days after the Commission's determination that the proposed IRP is complete.

14. Challenges – IRP Proposal Total Investments in Gas Infrastructure $1,047 Millions Pus Related Generation in Palo Seco, Mayaguez and Yabucoa

15. 2018 Integrated Resource Plan Appendix 1: Transmission and Distribution Designated as Confidential Contains Critical Energy Infrastructure Information • Sources: PREPA Integrated Resources Plan, Filed to the PR Enegy Bureau 15

16. Challenges – IRP Proposal Cost of electricity 23 to 25 Cents per KWH: Projected cost of electricity within the plan twenty year period. Generation Portfolios S4S2 and EMS ¢23 to ¢ 25KWH • Electricity Rates as: proposed on • IRP period: • Low Level ¢23/KWH • High Level ¢25/KWH • PV Solar for Residential Customers • Levelized Cost ¢15.3 /KWH • Debt Surcharge ¢5.7 /KWH 16 • Sources: PREPA Integrated Resources Plan, Filed to the PR Enegy Bureau

17. The Future is Now • Puerto Rico needs to transform its electric system. This involves building a modern grid, a grid that can support multiple power flow, and the improvement of related regulatory institutions. • Main challenges rest on the implementation of legal and regulatory energy framework.