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On January 16, 2014, Governor Alejandro Garcia Padilla introduced four bills in the Puerto Rico House of Representatives as part of his administration’s proposed energy reform. The reform encompasses: (1) transferring faculties and duties regarding pipelines and natural gas to the Department of Transportation and Public Works (“DTOP”, by its acronym in Spanish); (2) creating a new commission dealing with energy and telecommunication affairs, and a new energy public policy office; (3) amendments to the Puerto Rico Internal Revenue Code to provide incentives for electric cars; and, (4) amending the Puerto Rico Electric Power Authority (PREPA) enabling act.
Bill Transferring Jurisdiction Over Pipelines and Natural Gas Matters to DTOP
House Bill No. 1617 amends certain provisions of the Puerto Rico Public Service Act, Act No. 109-1962, Article 407 of the Political Code of 1902, and the Puerto Rico Excavation and Demolition Center Act, Act No. 267-1998. If approved, Bill No. 1617 will amend Act No. 109-1962 and the Political Code to transfer from the Public Service Commission (PSC) to DTOP the authority to regulate all matters related to the transmission, distribution and delivery of products through pipelines, and all matters related to natural gas. The DTOP will have the authority to order compliance with related regulations, and with the regulations of the Pipeline and Hazardous Materials Safety Administration of the United States Department of Transportation. Also, Bill No. 1617 transfers the Excavation and Demolition Coordination Center (EDCC) faculties and responsibilities from the PSC to the DTOP, including the authority to regulate the coordination of excavations and demolitions. The faculties of the PSC, in regards to the EDCC, are transferred to the Secretary of the DTOP.
Creation of the Energy and Telecommunications Commission
House Bill No. 1618 creates the Puerto Rico Energy and Telecommunications Commission (PRETC) and the Energy State Energy Public Policy Office (SEPPO). The PRETC would merge the powers presently assigned under law to the Puerto Rico Telecommunications Board, into a new entity that will have an expanded jurisdiction covering telecommunications, paid television and electric services in Puerto Rico. The PRETC will have five (5) commissioners, two (2) of whom will need to have experience in telecommunications, and the other three (3) experience in energy affairs. Three (3) of the five (5) Commissioners will be appointed by the governor, while the other two (2) will be selected by the governor from a list with not less than twelve (12) candidates that the Senate and the House of Representatives ranking members of political parties other than the governor’s political party will submit. The Commissioners appointments are for seven (7) year terms, except for two (2) of the initial commissioners whom will be appointed for nine (9) year terms.
Bill No. 1618 allows the PRETC to impose fines of up to twenty-five thousand dollars ($25,000) per day, per violation, to those who do not comply with the energy public policy and the enabling regulations. The PRETC will also: (1) evaluate all PREPA debt emissions and the proposed financing purposes prior to their issuance; (2) regulate the wheeling mechanisms and its tariffs; (3) issue certificates to electric power service providers; (4) initiate mediation and arbitration processes by request to any person negotiating an agreement with PREPA or an independent power producer (IPP); and (5) evaluate and approve all agreements between PREPA and any IPP before its execution, among other duties. The bill also includes a specific section on measures to protect bondholders.
Bill No. 1618 also creates the SEPPO and ascribes it to the PRETC. The SEPPO duties include: (1) advising the governor, and being his spokesperson on energy related issues; (2) conducting studies and research; (3) establishing minimum efficiency requirements, including energy consumption reduction requirements for new buildings; (4) establishing and revising mandatory percentages of renewable energy generation to be required in Puerto Rico; and, (5) authorizing increases in generating capacity of non-renewable projects over 2MW, among other duties.
Amendments to the Puerto Rico Internal Revenue Code House Bill No. 1619 amends Section 302(3)0.08 of the Puerto Rico Internal Revenue Code, in order to establish an exemption from the excise tax payment and to promote the purchase of motor vehicles propelled by electricity. The exemption will be applicable only to motor vehicles propelled mainly by electricity, which includes plug-in hybrid vehicles, and electric vehicles imported to or manufactured in Puerto Rico. The availability of the exemption will be from July 1, 2014 to June 30, 2016, as a reimbursement of the excise taxes paid to the Puerto Rico Treasury Department, through a procedure that will be established by the Secretary of Treasury.
PREPA Enabling Act Amendments
House Bill No. 1620 would amend the “Puerto Rico Electric Power Authority Act” to modify PREPA’s mission and public policy established in the act, and to provide for the promotion of transparency and citizens participation. The public policy modifications now sets forth in clear terms that PREPA is responsible for the conservation, development and utilization of energy resources of Puerto Rico, and that it must increase the Island’s energy autonomy through the introduction of better practices and technologies, and reduce the use of energy resources unavailable in the Island. In addition, Bill No. 1620 requires public notice of the meetings of PREPA’s Governing Board, simultaneous broadcasting of the meetings on the internet and the publication of Board minutes. Additionally, the Board must hold a public meeting every year in which clients and citizens can communicate directly with the Board. The bill also: (1) requires PREPA to prepare a power cost analysis, and to review rates and subsidies every two years. (2) modifies the procedures to dispute electric bills; (3) designates the PRETC as the entity responsible for reviewing PREPA’s tariff’s; (4) clarifies the Governing Board duties; (5) mandates the adoption of a Code of Ethics for Board members and staff; and (6) establishes new requirements for the designation of the Executive Director.
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