- California reauthorizes its cap-and-trade regulations, limiting natural gas use and almost certainly propelling utility bills higher. Legislation also allows more drilling as Gov. Newsom appears to prepare for a presidential bid.
- New York legislators want counties to be able to opt out of all-electric building rules that would raise housing costs.
- A Senate committee approves two nominees to fill out the FERC board. They pledge the commission will be independent and will focus on building out infrastructure quickly and keeping costs down for consumers.
- Concerned over blackouts, the Energy Department extends operations for fossil-fuel plants that were slated for retirement.
- Two Cabinet officials meet with Europeans over concerns that EU methane rules will disrupt plans for massive U.S. energy exports to the continent.
- Eight years after two big hurricanes, Puerto Rico’s energy system is still a mess. What can be done?
California, Already Plagued by High Utility Bills, Decides to Double Down on Cap-and-Trade Limits
The California legislature approved what the Sacramento Bee called “a sweeping slate of climate and environmental bills” on Sept. 13 in a “last-minute sprint that forced lawmakers to come back over the weekend, past what was supposed to be a Friday deadline.”
Six days later, Gov. Gavin Newsom, a possible Democratic nominee for president in 2028, signed the legislation, saying it will make it “easier to build the abundant clean energy we need to keep bills lower.” Critics disagree. They say the bills will endanger the state’s electric grid and raise utility bills.
The bills, reported the Bee, “double-down on climate commitments like cap-and-trade and high-speed rail.” But they also open parts of California’s Central Valley to more drilling to stabilize gas prices, a policy that many Democrats have long opposed, and, reports Utility Dive, pave “the way for an independent body to oversee a regional Western energy market.”
According to Utility Dive, the legislation could lead to a new organization overseeing “the existing Western Energy Imbalance Market and the pending Extended Day-Ahead Market (EDAM), marking an important step toward the regionalization of energy markets among Western states” and potentially saving “Californians more than $1 billion a year.”
But the most important – and controversial part of the legislation – was a 15-year reauthorization of the state’s cap-and-trade rules. The policy, now extended through 2045, places a limit on emissions and allows businesses to buy and sell permits to allow them to emit carbon dioxide. “Among other things,” the Bee explained, “the sale of those permits funds EV rebates, affordable housing and transit projects like the beleaguered high-speed rail.”
The effect of the policy is to restrict the use of natural gas and raise costs for businesses and consumers. According to the non-partisan California Legislative Analyst’s Office:
Cap-and-trade increases the price of purchasing gasoline in California. Higher gas prices disproportionately impact lower-income households, which tend to pay a larger share of their income towards transportation costs. This is due in part to lower-income residents having moved further from places of employment in recent years in response to rising housing costs in California’s metropolitan centers, forcing them to spend more on gas due to longer commutes.
In a January report, the Legislative Analyst’s Office noted, “California’s electricity rates are among the highest in the country. On average, residential electricity rates in California are close to double those in the rest of the nation…and have been increasing rapidly in recent years—not only growing faster than inflation but also outpacing growth in other states. These trends currently are on track to continue.”
Extending cap-and-trade, say critics, will only accelerate the problem. The legislature’s decision snubs President Trump’s April executive order, “Protecting American Energy From State Overreach,” which directed U.S. Attorney General Pam Bondi to identify state and local laws that may be unconstitutional or preempted by federal law. The order specifically referred to California’s policies.
The state, said the order, “punishes carbon use by adopting impossible caps on the amount of carbon businesses may use, all but forcing businesses to pay large sums to ‘trade’ carbon credits to meet California’s radical requirements.”
Earlier this year, Newsom appeared to be backing off an extension of cap-and-trade, perhaps positioning himself more in the center for a presidential run. He said that re-authorization was not a top priority for him, but that he was “open to a conversation,” telling reporters in March, “Do I feel it’s absolutely necessary this year? My current position is, it’s not absolutely necessary.”
But, said the Sacramento Bee, “In light of Trump’s threat, Newsom, Assembly Speaker Robert Rivas and Senate President Pro Tem Mike McGuire said the legislature would work to extend cap-and-trade in 2025.” The Bee added:
Newsom defeated a previous attempt by Trump in 2020 to water down the cap-and-trade program. The governor then went on to target oil companies, blaming them for high gas prices, and banned fracking, with the intent of phasing out all in-state extraction by 2045.
But he’s since had to walk back that approach as discontent about high energy prices has mounted and moderate Democrats have moved toward the position of Republicans who oppose more aggressive policies that favor renewables.
For example, Newsom and Democratic legislative leaders are now negotiating a plan with the industry to boost stagnating production in California’s oil-drilling hub of Kern County.
“I want to thank the governor for being willing to listen and to understand the situation that we have before us, and his courage to act immediately to stabilize fuel prices for all Californians,” said Republican Sen. Shannon Grove, who represents Kern County, on the Senate floor.
Politico characterized the legislation that Newsom signed on Sept. 19 as a “compromise between increasing fossil fuel extraction — which has been on the decline in the nation’s eighth-largest oil-producing state — and continuing to ratchet down greenhouse gas emissions.”
Politico also pointed out that the renewal of cap-and-trade gives Newsom “a climate win at a time when the state is losing other core pieces of its climate strategy, like its mandated phase-out of new gas-powered cars by 2035.”
But some observers believe that Newsom is playing with fire. If the legislation leads to higher utility bills and blackouts – as critics predict – it will harm not just the Governor’s standing in the state but his chances to be the next President.
Legislators Urge a Rollback of New York’s All-Electric Building Mandate
Meanwhile, the high cost of energy has become a major political issue in New York as well.
In an Aug. 28 letter, State Sen. Mario R. Mattera, the top Republican on the Energy and Telecommunications Committee, joined colleagues in urging Gov. Kathy Hochul, a Democrat, to protect New Yorkers from the All-Electric Building Act of 2023.
The law prohibits the use of natural gas, propane and oil in buildings that are newly constructed. The Senators write that the “cost difference between fossil fuel systems and all-electric alternatives is significant.”
They use the example of a high-efficiency furnace powered by natural costing between $5,500 and $12,000 and a geothermal heating and cooling system costing an average of $24,500, and in some cases more than $32,000. Overall, the law could add $15,000 to $20,000 to the price of a new home.
The Senators argue that the law negatively affects not just affordability but also “energy reliability and consumer choice.”
In a press release about the letter, Sen. Mattera stated that he and his colleagues were “calling on Governor Hochul to direct the State Fire Prevention and Building Code Council to adopt an emergency rule granting counties the flexibility to opt out of the mandate, which is set to take effect at the beginning of next year.”
The law – like cap-and-trade in California – appears to be another regulation that will force the public to bear the costs of attempting to mitigate climate change. “The people I represent are already struggling with the high cost of living in New York,” said Sen. Mattera in the press release. “Forcing families, businesses, and builders into an all-electric system that’s not affordable, not reliable, and not ready is a disaster waiting to happen.” He added:
The current timeline raises far too many unanswered and troubling questions…. It’s emerging as yet another hard hit, possibly the hardest hit ever to affordability, from yet another unfunded state mandate out of Albany…. We are moving too far, too fast, with no plan or cost-benefit analysis on this transition and our local decision makers should be allowed to opt-out.
The remedy the Senators are seeking is to allow individual counties to opt out of the law’s requirements. “This is about protecting our communities, ensuring safety, and keeping New York affordable for working families,” he said.
In a February 2024 report, titled, “New Yorkers in Need: The Housing Insecurity Crisis,” State Comptroller Thomas DiNapoli, a Democrat, stated that “New York had 2.9 million cost-burdened households – 38.9 percent of the state’s households” – the third-highest proportion among states, after California and Hawaii. “Approximately 20 percent of New York households were severely cost-burdened.”
For these cost-burdened households, housing costs, including utility bills, “constitute more than 30 percent of household income.” The report added, “While low-income renters are the most cost-burdened, these financial pressures are increasingly felt by middle class households.”
As for reliability, the New York Independent System Operator (NYISO) has issued multiple reports warning of potential challenges as the state moves toward electrification, and the Comptroller has called for enhanced planning to address these issues. During extreme weather events, an overburdened electric grid could create serious public safety hazards.
In a Power Trends report, Rich Dewey, NYISO’s CEO, stated:
We continue to observe declining reliability margins while forecasting a dramatic increase in load. It’s imperative during this period of transition that we maintain adequate supply to meet growing consumer demand for electricity. He expressed concern that “the rapid growth of intermittent, renewable energy resources, and the increasing deployment of storage technology is changing the supply side as the building and transportation sectors continue moving toward electrification.”
Meanwhile, data centers focused on generative AI, machine learning, and cryptocurrency mining are becoming major power consumers. NYISO’s forecasts indicate that by 2030 power demand could increase by a 1,600 megawatts to almost 4,000 MW because of this demand from the technology sector as well as building electrification.
New York, according to the official state website, has “one of the most aggressive climate agendas in the nation.” It calls for “100% zero-emission electricity” by 2040 and an “85% reduction in greenhouse gas emissions from 1990 levels” by 2050. Critics say these goals are impossible to reach. At any rate, it is clear that fossil-fuel-fired units are needed for reliability until the “capabilities [they offer] can be supplied by other resources,” says NYISO.
The Senators’ letter concludes that until the grid can reliably handle the demand of a full electrification policy, counties need the flexibility to make decisions that deeply affect their own local housing markets, infrastructure capacity, and community needs.
Senate Panel Clear Two Trump FERC Nominees
In a 12-8 vote on Sept. 11, the U.S. Senate’s Energy and Natural Resources Committee approved President Trump’s two nominees for the Federal Energy Regulatory Commission (FERC). The tally split along party lines, with Sen. Angus King, an Independent from Maine who caucuses with Democrats, casting a vote in favor of the nominees, Laura Swett and David David LaCerte.
Swett is an energy attorney at the Vison & Elkins firm in Washington. She previously worked in FERC’s enforcement office and as an advisor to former Chairman Kevin McIntyre. LaCerte is a Louisiana lawyer who served as the Trump White House liaison to the Office of Personnel Management. Prior to that, he was acting managing director at the U.S. Chemical Safety and Hazard Investigation Board and worked at the Baker Botts law firm on Clean Air Act-related litigation.
“The most important qualification I have is that I can bring a common-sense approach to get problems solved and get things done,” LaCerte told the Senate committee.
He continued, “Artificial intelligence, data centers and reindustrialization present a compounding of these issues, which will require diligent planning, forecasting and regulatory oversight from both the states as well as FERC.”
According to a Utility Dive report, Swett listed three priorities: “keeping energy costs down while maintaining reliability; facilitating the connection of new large loads like artificial intelligence data centers, which she cast as a matter of national and economic security; and facilitating power infrastructure development.”
Swett told the committee:
This development has faced crippling regulatory uncertainty over the recent past, and it’s well-functioning and increase is critical to reliability, safety and our economy. “I actually have lost sleep a few nights worrying about how our country will meet the demand that it faces.
If they are approved by the full Senate, as expected, they will fill out the five-member commission.
As we reported in newsletter No. 51, President Trump in August picked a Democrat, David Rosner, as the new chairman of FERC. The selection was a surprise. Rosner, who joined the commission in June 2024, was formerly an aide to Sen. Joe Manchin, who chaired the Energy and Natural Resources Committee until his retirement from the Senate at the end of the last term. Manchin was a West Virginia Democrat who switched to Independent at the end of his term and then chose not to run for re-election.
If confirmed, Swett and LaCerte will join a commission faced with a mounting crisis of capacity, at a time when its staff has been reduced.
Some committee members also raised concerns about politicization. “Destroying the independence of the Federal Energy Regulatory Commission would do irreparable damage to public confidence in the commission’s decision-making, to regulatory stability and to our energy security,” said Sen. Martin Heinrich, Democrat of New Mexico, the committee’s ranking member.
Both nominees offered assurances. Said Swett:
Maintaining FERC independence is critical because that is exactly how Congress created the agency in the [Department of Energy] Organization Act of 1978. Congress carved FERC out of DOE’s jurisdiction and explicitly provides that no FERC action is under review by anyone at DOE.
LaCerte also discussed former Sen. Manchin’s main worry: the slow pace of getting new power online. “Delays in federal reviews and decision-making make energy less reliable and more expensive,” LaCerte told the committee on Sept. 4. “Reducing processing time and the associated administrative burden will speed projects along, allowing those cost savings to be passed to ratepayers.”
Energy Department Issues New Orders Extending the Life of Fossil-Fuel Plants Facing Retirement
Continuing its unprecedented use of emergency grid authority, the Department of Energy (DOE) in August extended the operations of several fossil-fuel-fired plants under Section 202(c) of the Federal Power Act.
“Thanks to President Trump’s leadership, we are able to take action, moving from years of instability toward measurable, lasting progress,” said Secretary of Energy Chris Wright in a press release. “By extending these orders, DOE is ensuring critical work continues, urgent energy reliability needs are addressed, and the grid is more prepared.”
The orders seek to relieve the strain on the electric grid caused by rising demand, retiring fossil fuel facilities, and clean energy and electrification mandates like the ones cited above. According to a report by PowerMag, the extension orders “are likely to continue beyond the traditional summer peak and into the winter planning season.” The three orders:
- On Aug. 14, the DOE granted the Puerto Rico Electric Power Authority (PREPA) an extension through Nov. 12 of two May 16 emergency orders that authorize dispatching up to 800 MW of aging thermal generation. A second order “directs PREPA to continue performing vegetation management activities,” according to a DOE press release.
- On Aug. 21, DOE ordered the Midcontinent Independent System Operator (MISO) to delay the retirement of the 1,420 MW J.H. Campbell coal plant in Michigan until Nov. 19. DOE had issued a previous order delaying the closure of the plant until May 31. That initial order “and its contention that MISO faces an emergency is being challenged in court by Michigan’s attorney general and a coalition of groups, led by the Sierra Club and Earthjustice,” Utility Dive reported.
- And, on Aug. 28, DOE directed PJM Interconnection, the largest U.S. grid operator, to keep Constellation Energy’s Eddystone Units 3 and 4 in Pennsylvania — two dual‐fuel (natural gas and oil) steam boiler-turbine units of 380 MW each — available to operate through Nov. 26, extending a previous May 30 emergency order. “The site will remain operational to provide a backup power supply when the region experiences high levels of electricity usage,” said a report by Energies Media.
The extensions indicate that DOE views the stress on the grid as persistent rather than a transient condition for the summer. In a statement on Aug. 21 announcing the Campbell extension, Wright said:
The United States continues to face an energy emergency, with some regions experiencing more capacity constraints than others. With electricity demand increasing, we must put an end to the dangerous energy subtraction policies embraced by politicians for too long. This order will help ensure millions of Americans can continue to access affordable, reliable, and secure baseload power regardless of whether the wind is blowing or the sun is shining.
In its Grid Reliability Evaluation in July, DOE warned that “blackouts could increase by 100 times in 2030” if retirement trends persist without adequate firm replacement capacity. The report forecast that 104 gigawatts (GW) of dispatchable generation could retire by 2030, but only 22 GW of new firm baseload capacity are expected as replacements. “Even assuming no retirement,” said the report, “the model found increased risk of outages in 2030 by a factor of 34.”
On Sept. 18, the U.S. House of Representatives passed H.R. 1047, the Guaranteeing Reliability through the Interconnection of Dispatchable (GRID) Power Act, which aims “to fast-track new power plants, ensuring the long-term reliability of the American electric grid,” according to a press release from its sponsor, Rep. Troy Balderson (R-OH).
The bill, according to the release:
Makes a key improvement to the interconnection queue, where power generation projects wait in line before being reviewed by regulators. In recent years, wait times for power projects have skyrocketed up to five years on average while electricity demand surges. This legislation empowers grid operators to identify and fast-track generation projects that will provide dispatchable power and boost grid reliability.
Balderson’s legislation and two other bills that passed the House on Sept. 18, H.R. 3062 and H.R. 3015, “streamline the permitting process for critical cross-border energy projects, restore expert advisory input from the coal industry that the Biden-Harris Administration eliminated, and ensure that electricity grid operators have the tools they need to secure the reliability of the bulk power system,” said the chairman of the Energy and Commerce Committee, Rep. Brett Guthrie (R-KY), in a press release.
“The interconnection queue is overwhelmed and bogged down, leaving shovel-ready power projects waiting for years while demand continues to climb,” said Balderson. “The GRID Power Act clears the path for the most critical projects, giving grid operators the tools they need to add more dispatchable baseload power—lowering costs for households and businesses while keeping America’s grid reliable.”
Todd Snitchler, CEO of the Electric Power Supply Association (EPSA), which represents competitive power producers, hailed the legislation. “Significant increases in electricity demand are expected in every region of the country, driven by data centers powering advancements in AI, domestic manufacturing, and the electrification of various sectors of the economy,” he said.
“Grid operators should be given significant flexibility to address current or future reliability concerns, including the creation of an accelerated interconnection for resources identified as critical to maintaining reliability.”
Snitcher also noted that “the bill appropriately requires stakeholder feedback and FERC approval before any changes are made, ensuring that all viewpoints are heard.”
Complimenting Balderson as well was Anne Bradbury, CEO of the American Exploration & Production Council (AXPC). “As our nation’s power demand continues to rise, it is critical that we don’t delay consideration of power-generation projects, such as those that use natural gas, that can provide needed dispatchable power and enhance reliability,” she said.
Ryan Augsburger, president of the Ohio Manufacturers’ Association (OMA), pointed out that “discussions around generation sufficiency persist across the 13-state territory managed by PJM Interconnection.” He said that “Ohio’s manufacturing sector maintains that open competition is the most effective way to meet rising energy needs” and supports “improvements to the interconnection queue process to accelerate and streamline the integration of new power sources into the grid.”
The passage of Balderson’s bill comes as governors across the PJM region (mainly the Mid-Atlantic and industrial Midwest) announced the “PJM Governors’ Collective,” with the aim of making “historic reforms to PJM governance” to give elected leaders a larger role in decision-making. Critics say that the move could endanger the non-partisan nature of PJM and threaten its independence.
On Sept. 22, Pennsylvania Governor Josh Shapiro, a Democrat, convened 13 governors across the region to discuss market reforms “to bolster states’ ability to engage to ensure the safe, affordable, and reliable delivery of electricity to consumers.”
Virginia Gov. Glenn Youngkin, a Republican who leaves office at the end of this year, said at the meeting, according to Reuters, “This is a crisis of not having enough power. This is a crisis in confidence.”
PJM, Reuters noted, “is a member-run organization in which states do not have a vote. PJM is governed by a board of managers, and its voting members include transmission line owners and independent power plant operators.”
But adding an advisory body, say critics, could impose additional costs for regulators and electricity providers, increase red tape, and delay needed market improvements. PJM runs a competitive power market, and research has also shown that such markets are key to keeping costs affordable.
A study conducted by FTI Consulting for the Alliance for Competitive Power analyzed how electric reliability, affordability, and emissions from the power sector have differed between states with competitive power markets and states with monopoly utilities.
Since 1996, when competitive markets were established, electricity rates in states with monopoly utilities rose by 86 cents more per kilowatt hour than in states with competitive markets, the study found. In addition, customers in states with competitive markets experienced 5% fewer power outages.
“While we continue to stand in favor of common-sense reforms that will improve power market functionality, grid reliability, and consumer affordability, the actions taken by some elected officials do nothing more than disrupt PJM’s ability to do its job,” said Snitchler.
“EPSA and its member companies – the companies that supply 200,000 MW of power throughout the country and 90,000 MW in the PJM region – remain deeply concerned about the ramifications of increasing political intervention to maintaining the functioning of a reliable grid that serves 67 million customers.”
Operators like PJM will receive key tools from the GRID Act, if it passes the Senate, to meet challenges to the grid. Observers say an overhaul of the national permitting system is still necessary to unleash American energy and stabilize grid security, but many believe that adding politics to the mix is a move in the wrong direction.
An Energy Deal with Europe Is Threatened by Methane Rules
Energy Secretary Chris Wright, and Interior Secretary Doug Burgum, chairs of President Trump’s Energy Dominance Council, spent the week of Sept. 10 in Milan and Brussels discussing non-tariff barriers to trade in energy. They pressed European Union officials to soften environmental regulations, including new methane rules, that could choke U.S. sales of liquefied natural gas (LNG).
The U.S. and European Union agreed in August to a trade framework that included the sale of massive amounts of energy to Europe. Said the Joint Statement issued by the parties: “The European Union intends to procure U.S. liquified natural gas, oil, and nuclear energy products with an expected offtake valued at $750 billion through 2028.”
We wrote in our Issue No. 51 that such an amount was a “potentially unachievable increase over the status quo.” Our report added:
The American Action Forum (AAF), a centrist research and analysis group, noted that the U.S. “exported roughly $70 billion worth of energy products to the EU in 2024, and projected U.S. petroleum and natural gas exports to the bloc are about $207 billion in total for 2026–2028, meaning the EU would have to more than triple its current energy imports from the United States annually to fulfill the target.”
A major roadblock is the methane regulation, which Wright called “problematic for growing energy into Europe… Wouldn’t be good for America … wouldn’t be good for Europe.”
On its website, the European Commission states, “Methane is the second most important greenhouse gas contributor to climate change following carbon dioxide. In fact, methane’s ability to trap heat in the atmosphere is even stronger than that of carbon dioxide. On a 100-year timescale, methane has 28 times greater global warming potential than carbon dioxide and is 84 times more potent on a 20-year timescale…. Abating methane emissions is therefore highly relevant to achieving the 2050 climate objectives.”
According to E&E News: “Importers have to demonstrate that contracts concluded or renewed on after Aug. 4, 2024, cover oil, natural gas or coal that is subject to monitoring, reporting and verification (MRV) measures that are equivalent to EU requirements.” Those regulations, in part, aim to “stop the avoidable release of methane into the atmosphere, both in the EU and in our global supply chains.”
Brenda Shaffer, a senior fellow at the Atlantic Council’s Global Energy Center, explained, “The main producing American companies have made it very clear that they really can’t comply with this, and that it’s a huge obstacle to supplying the European market.
Nacho García-Lajara, a senior analyst for European gas and LNG markets, at the consultancy Wood Mackenzie, told the Financial Times, “I think those regulations significantly threaten the ability to implement the trade deal that was agreed to.”
The New York Times reported that in Europe Wright and Burgum “defended the Trump administration’s pivot away from renewable energy,… saying their plans to sharply expand U.S. fossil fuel exports were crucial to ‘peace and prosperity.’”
The EU, by contrast, has mandated a 55% reduction in its greenhouse gas emissions by 2030 with a zeroing-out by 2050. But, said Burgum, “What’s going to save the planet is winning the A.I. arms race. We need power to do that, and we need it now. We need to worry about the humans that are on the planet today.”
Reuters reported, “Wright said the benefits of stable energy from fossil fuels offset any risks, adding that the rise of natural gas production was the ‘biggest driver of decarbonization’ in the United States.”
In August, however, Reuters quoted an EU official as saying that the European Union “stands firmly behind its legislation” on methane but added that “we can be flexible in its implementation for instance in reporting.” The official also said that Brussels has held technical workshops with its gas suppliers to ensure the rules are “not problematic.”
In addition, the U.S.-EU trade pact and fossil fuel agreements are not legally binding. As Shaffer put it, “At the end of the day, deals are made between companies.” It is clear from the visit of the two secretaries that hurdles remain.
Despite a Deluge of Funds Since Two Big Hurricanes, Puerto Rico’s Power System Is Still Sick
Eight years since the double blast of Hurricanes Irma and Maria and the federal funding that cascaded afterwards, Puerto Rico’s energy grid – and its energy future – remain precarious.
The Energy Information Administration (EIA) reported on Aug. 13 that even without “major events” like hurricanes, customers in Puerto Rico have lost between 26 and 30 hours of power in each of the past four years.
“By comparison,” said the EIA report, “electricity customers in the mainland United States generally experience about two hours of electricity interruptions per year without major events.”
Hurricanes and other events add even more outage time in Puerto Rico:
In August 2024, Hurricane Ernesto affected at least 1 million customers in Puerto Rico. On average in 2024, customers in Puerto Rico went without electricity for more than 73 hours, of which 43 hours were attributed to major events such as hurricanes. In September 2022, Hurricane Fiona left all 1.5 million electricity customers in Puerto Rico without power. The average customer in Puerto Rico experienced almost 200 hours of electricity interruptions that year.
The frequency of Puerto Rico’s electricity service interruptions has been on the increase since 2021. Last year, the average customer lost power 19 times. Those interruptions, said the EIA, “are linked to issues with the transmission and distribution system and generating capacity.”
The island’s natural gas provider signed a new $4 billion contract recently even though, according to Seeking Alpha, it is “on the brink of bankruptcy.” The platform reported on Sept. 17, “New Fortress Energy faces severe liquidity issues, with only $551mn in available cash and $9bn in total debt.” The company’s shares dropped from $16 at the start of the year to around $2 at the end of September. Bloomberg reported on Sept. 12 New Fortress was engaged in restructuring talks with creditors.
During the Biden Administration, Puerto Rico was urged to move to renewable energy, especially solar. Rep. Alexandria Ocasio-Cortez (D-NY), along with 16 other members of Congress, wrote to FEMA in 2021, stating, “The island can lessen their economic woes & climate change vulnerability by building a sustainable grid that’ll create thousands of jobs.”
FEMA has spent billions since the big hurricanes trying to revitalize Puerto Rico’s grid and make it more resilient – but apparently to little effect. Three days before the second Trump Administration took office, for instance, the Associated Press reported on a federal “$585 million loan guarantee to finance a 100-megawatt system of solar panels in four municipalities — Ponce, Caguas, Coamo and Peñuelas.
“The system is planned to include a 55-megawatt battery energy storage system…. In all, the projects will allow for the storage of 455 megawatts of energy. Other cities, including the capital of San Juan, already have multiple solar projects.”
Meanwhile, a deal to end the eight-year saga of the bankruptcy of the Puerto Rico Electric Power Authority (PREPA) is nowhere in sight, as the Bond Buyer recently reported. In August, President Trump took a decisive step to rebuild Puerto Rico’s energy future by firing six of the seven members of the island’s federal oversight board, citing “inefficient and ineffective” leadership.
The move came against the backdrop of the work of President Trump’s Energy Dominance Council, which may play a large role in Puerto Rico’s energy recovery. In addition to examining New Fortress Energy, the Administration will almost certainly look closely at Luma Energy, the private Canadian-American company responsible for operating, maintaining and modernizing the island’s electric transmission and distribution grid.
Luma was the focus of attention after an island-wide blackout on April 16 that “affected 1.4 million customers and left more than 400,000 others without water,” according to the Associated Press. The AP quoted Puerto Rico Gov. Jenniffer Gonzalez as saying, “There have been multiple incidents. The operator sold itself as an expert … That perception of expertise has proven to be false.”
Meanwhile, Puerto Rican municipalities are suing Cobra Acquisitions for alleged unpaid construction taxes. As Forbes reported:
Nearly a decade after Cobra Acquisitions restored much of the grid under an emergency FEMA-funded contract, local mayors are demanding more than $70 million in so-called unpaid construction taxes. The lawsuits ignore the fact that federal disaster work performed for PREPA is exempt from these taxes.
The Forbes piece last month argued that “if these municipalities succeed, the precedent would be disastrous.”
The article said, “Contractors could face years of retroactive litigation for work done in good faith under federal authority. Recovery costs would soar, discouraging qualified companies from stepping in after future disasters. And in Puerto Rico, every extra dollar diverted to litigation is a dollar not available to rebuild generation, strengthen transmission, or lower electricity costs.” The National Taxpayers Union shared similar concerns:
If Puerto Rico’s municipalities can tax FEMA dollars, this precedent could allow states to turn disaster recovery funding into a slush fund with taxpayers footing the bill.
In RealClear Markets on Sept. 18, Benjamin Zycher of the American Enterprise Institute, wrote regarding the lawsuits: “Extreme political myopia in pursuit of immediate advantages yields problems that never end.” Zycher added:
Because the Puerto Rico electric grid always is threatened by hurricane activity, it is inevitable that future damage repairs will be financed in substantial part by FEMA. As the taxes drive costs upward, the costs to FEMA will be driven up as well. The upshot of the island taxation impulse is a sizable wealth transfer from federal taxpayers to the Puerto Rico municipalities, that is, the island spending interests.
It’s clear that Puerto Rico’s energy future stands at a crossroads. Years of mismanagement will not be easy to rectify, but a full recovery requires resolving PREPA’s bankruptcy, evaluating the competency of New Fortress Energy and reviewing Luma’s operation of the grid.