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

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

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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

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

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

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 .

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 .

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

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

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

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.

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.

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

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

¢23 to ¢ 25KWH 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

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.