The battle brewing over how to deal with Puerto Rico’s festering debt crisis could quickly turn into an energy policy fight.
A Republican-backed bill in the House Natural Resources Committee seeks to turn the U.S. island territory away from Venezuelan oil and toward U.S.-fracked shale gas from the mainland, with a sprinkling of renewable energy to boot.
Rep. Rob Bishop, R-Utah, chairman of the committee, who is charged with mapping a plan for the island, recently issued draft legislation to do just that. Bishop has said he wants to “uncover the origins of Puerto Rico’s fiscal failures and identify solutions to solve them,” in which “energy will be central.”
The committee will return from its Easter recess this week ready for its first hearing on the bill Wednesday. The upcoming action is attracting conservative interests who want the bill to go further than it does on energy and trade issues, while others think the bill is going in the wrong direction entirely.
At the heart of the emerging fight are big differences of opinion over how to transition the island from using oil to make electricity to burning natural gas.
Some believe the U.S. territory’s aging power plants should be upgraded, not scrapped, as Bishop’s bill implies.
Converting from oil to natural gas resonated more when the cost of crude oil was $100 per barrel, said Hector Negroni, CEO of Fundamental Credit Opportunities and an expert on Puerto Rico’s debt crisis. Now that oil is costing about $30 per barrel, switching to natural gas isn’t seen as a pressing concern.
He likens the island’s grid to a 1974 Chevy. “Whether you put high or low octane” fuel in the car, “it still runs like a ’74 Chevy,” he said. What Puerto Rico’s power plants need are upgrades to make them more efficient, not overhauling the system to support natural gas.
Negroni said Bishop’s plan for restructuring the island’s debt, aside from the energy piece, would make it next to impossible for the country’s state-run utility PREPA to get the financing necessary to make the transition because it would ensure that the bond markets wouldn’t function for the island. PREPA owes about 14 percent of the territory’s debt.
House staff say anything is better than what the country is currently using. Bishop’s bill outlines options for Puerto Rico to produce power itself via solar panels and other off-the-grid alternatives to free the island from PREPA’s past mismanagement. At the same time, the committee is encouraging the big utility to replace its aging fleet of oil-fired power plants and convert to cleaner natural gas electricity, which Puerto Rico has contemplated for years.
“As long as Puerto Rico and its state-owned entities continue to lose money and run deficits, debt restructuring alone will not help the territory and its people find stability and build for growth,” Bishop said earlier this year. “This includes solutions not only in the financial space, but also bringing tools to bear to help serve the people of Puerto Rico with more efficient, reliable and affordable energy.”
Staff say the bill supports distributed forms of energy, such as solar, which has renewable energy interests beginning to sniff around the edges. “We’re taking a look at the bill, but not currently in talks with House Natural Resources,” said Alexandra Hobson, spokeswoman for the Solar Energy Industries Association.
Other groups support the move to natural gas, but want the bill to include a controversial policy exemption for Puerto Rico to spur the transition to liquified natural gas (LNG) imports from the mainland.
Conservative and free-market supporter Heritage Foundation is prodding the committee to free Puerto Rico from a 100-year-old law called the Jones Act, which allows only ships built in the U.S., and manned by mostly U.S. citizens, to ship goods to the island from the mainland.
The 1920 law bans the use of ships not made in the U.S., manned by and owned by American citizens or permanent residents, to move cargo among U.S. ports. For example, a ship moving crude oil from California to Massachusetts must be a U.S.-flagged vessel. The law was passed to maintain the U.S. merchant marine.
Rachel Greszler, senior policy analyst in economics and entitlements in the Heritage Foundation’s Center for Data Analysis, says exempting Puerto Rico from the Jones Act is a small change that can make a big difference for the country’s economy.
“They pay twice what we pay for energy,” Greszler said, because they are not able to trade freely with the mainland. The conservative group opposes the Jones Act and would like it repealed altogether. But in the case of Puerto Rico, the think tank would settle for a straight, permanent exemption.
She argues that Congress exempted the U.S. Virgin Islands, and the same should be considered for Puerto Rico.
But maritime unions and shipbuilders have a strong hold over Congress in keeping the Jones Act intact. Greszler says the politics of it come down to the vote count. Currently, 190 out of 270 Republicans favor the Jones Act. She says even conservative members of Congress that understand it’s not necessary will vote against any bill that waives or overturns the Jones Act’s requirements.
The maritime lobby is pushing hard against any exemption. Greszler says the industry thinks if Puerto Rico is granted an exemption, then Hawaii would be next, and it’s a slippery slope to the law being abolished. What is being missed in the debate is how much business opportunity is being missed, she says. There are few of these “outdated” vessels, which limits the island’s ability to trade because of limited access.
The Jones Act drives up prices of everything and is inefficient, not only for energy, but all businesses, Greszler said.
House staff say the exemption stands outside the Natural Resources Committee’s perview and it will not include it.
Tom Allegretti, chairman of the American Maritime Partnership, the largest defender of the Jones Act, called the latest push by the law’s opponents just another in a series of factually deficient “red herrings.”
“Any sober analysis of the issue of LNG availability in Puerto Rico would quickly conclude that Puerto Rico lacks the physical infrastructure and long-term supply contracts necessary to transport bulk LNG into the commonwealth,” he said in a statement to the Washington Examiner.
Committee staff point out, however, that the Federal Energy Regulatory Commission has approved a Delaware company’s application to operate an LNG import facility on the southern shore of the island.
Once the infrastructure and contracts are in place, Allegretti said, plenty of Jones Act vessels will be available to ship natural gas to Puerto Rico.
“Jones Act operators have a long history of making significant capital investments to service the economy and the citizens of Puerto Rico,” Allegretti said. “Weakening the Jones Act would harm, not help, the Puerto Rico economy.”
