Puerto Rico to slash energy reserves amid cash shortfall

Puerto Rico's power company said Sunday that it will reduce its operating reserve to save money amid a cash shortfall as officials warned the move could destabilize the U.S. territory's fragile electrical grid.

William Rios, director of generation at Puerto Rico's Electric Power Authority, said a plan to reduce its reserve by 450 megawatts will not affect customers and will help save $9 million a month.

Public Affairs Secretary Ramon Rosario said that while the measure is needed, it could affect a grid still experiencing frequent blackouts as nearly 250,000 customers remain without power more than five months after Hurricane Maria. The Category 4 storm destroyed two-thirds of the power distribution system and caused the longest blackout in U.S. history.

The power company did not provide further details on the reduction, and officials did not return messages for further comment.

However, Puerto Rico had a very high reserve margin for its generation prior to the hurricane, according to Susan Tierney, a senior adviser for Denver-based consulting company Analysis Group who testified before a U.S. Senate committee on power restoration efforts in Puerto Rico. She told the Associated Press that the island's reserve margin was 90 percent, compared with 15 to 20 percent in the U.S. mainland. She said 90 percent was still high even when taking into account the island's geography and need to import fuel, among other things.

"There's room to retire some generation," she said.

A December 2017 report prepared in part by the Electric Power Research Institute found that Puerto Rico's power company could reduce its reserve margin as it rebuilds after the storm. It also recommended that a study be conducted to establish a new reserve margin closer to 50 percent.

The government's measure to reduce the operating reserve comes just days after a federal judge rejected a $1 billion loan request for Puerto Rico's power company, saying there was not sufficient evidence to prove the power company needed the money. Government officials and a federal control board overseeing Puerto Rico's finances on Friday lowered their request to $300 million per the judge's instruction but warned that would only allow the company to operate until late March.

"The power company's fiscal situation is real and we have to deal with it now," Rosario said.

Both he and Gov. Ricardo Rossello have called on the U.S. Treasury Department to release a billion-dollar loan that Congress approved in October for disaster recovery, saying it would help ease the power company's financial situation. The board has said the company could see a $1.2 million revenue loss in the six months after the hurricane.

Last month, Rossello announced plans to privatize the company, which is $9 billion in debt and operating with infrastructure nearly three times older than the industry average. The U.S. territory experienced frequent blackouts even before the hurricane, including an island-wide outage in September 2016.