The period 2017–2019 was significant for Puerto Rico in terms of environmental and climate change policy changes and advances. In mid-2017 the island's government (including the Puerto Rico Electric Power Authority (PREPA), a public corporation and the sole supplier of retail electricity on the island) was declared bankrupt by the Federal Oversight & Management Board for Puerto Rico (FOMB), under the Puerto Rico Oversight, Management & Economic Stability Act of 2016, which was enacted by the US Congress that year.
During 2018 and 2019, the government enacted laws, issued executive orders and adopted policies designed to have a material impact on the island's energy sector, the environment and climate change factors. In addition, the FOMB has certified fiscal plans and budgets that reflect these policy priorities and objectives under the existing bankruptcy process. Some of these initiatives call for the near-term elimination of coal-based energy generation, fuel mix changes for production of electricity (transitioning away from oil and into LNG), accelerated renewable energy and technology penetration focusing on solar and wind resources, hydro, and battery storage technology, among others.
The political and policy mood in Puerto Rico is generally very sensitive to and supportive of these objectives to help reduce and manage impacts to the environment and climate.
At the executive agency level, most recently, the government merged the Environmental Quality Board (EQB) and the Solid Waste Authority (SWA) into the Department of Natural and Environmental Resources (DNER), with the objective of achieving administrative cost reductions, consolidating certain permitting and enforcement structures and leveraging resulting efficiencies.
According to the Puerto Rico Constitution, the government's environmental public policy shall be the most effective conservation of its natural resources, as well as their utmost development and utilisation for the general benefit of the community. This constitutional mandate is implemented through executive orders, statutes, regulations and municipal ordinances, including the Environmental Policy Act of 2004 (Environmental Policy Act), as amended, which is intended to protect the environment and human health. Puerto Rico historically has replicated the federal (US) environmental legal framework, given its political relationship with the US as a territory and subject to the US Constitution.
Puerto Rico has more recently issued and enacted executive orders and laws to directly address, or otherwise facilitate addressing, climate change issues. Some of these key initiatives include the enactment of the Electric System Transformation Act of 2018 and the Energy Public Policy Act, Act 17 of 2019. Before the Energy Policy Act of 2019, Puerto Rico had enacted the Renewable Energy Policy Act (Act 82) in 2010 and introduced the use of renewable energy certificates (RECs) as a mechanism to stimulate the production of renewable energy and reduce the effects of greenhouse gas emissions. The governor also has issued numerous executive orders over the past five years to further evaluate infrastructure challenges resulting from climate change and incorporate related evaluations into government planning and permitting.
ii THE REGULATORS
Puerto Rico does not have an agency identified for climate change enforcement matters. The government has specialised agencies focused on pollution control and natural resource management. These include the DNER (which now includes the programs and functions of the former EQB and SWA), the Aqueduct and Sewer Authority (PRASA) and the Department of Health (DOH). Their roles are summarised below:
- The DNER is focused primarily on protecting natural resources from the conservation and management perspective, and regulates activities including minerals, earth's crust materials, surface and groundwater and wildlife.
- EQB2 (now merged into DNER) administers a comprehensive permitting system that regulates a vast array of activities that may impact the environment (water, air, soil) or human health, or both.
- SWA3 (also merged into DNER) focuses on the management and disposal of solid waste (municipal, non-hazardous), including the integral plans intended to ensure Puerto Rico has adequate solid waste management infrastructure.
- The PRASA governs wastewater discharges and administers a pre-treatment programme that issues permits compliant with the federal Clean Water Act and local water quality parameters.
- The DOH's focal point is ensuring activities concerning surface or groundwater comply with the Safe Drinking Water Act (SDWA).
Given that Puerto Rico is legally a territory of the United States, a dual jurisdiction system permeates our legal framework. Regulated activities generally, therefore, are also subject to compliance with US statutes (e.g., the Resource Conservation and Recovery Act (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the SDWA, the Clean Air Act (CAA) and the Clean Water Act (CWA)) and regulations and related jurisprudence. As part of the ordinary course of dealings, regulated entities also deal with the US Environmental Protection Agency (EPA), the US Army Corps of Engineers (COE) and the US Fish & Wildlife Service, among others. In some instances, federal agencies delegate the administration of discrete federal agency programmes to Puerto Rico agencies or run joint permit programmes (e.g., between the DNER and EPA for Underground Storage Tanks, and DNER and COE for certain CWA Section 404 permits).
With respect to regulatory powers, the DNER (pursuant to former EQB programmes) is authorised to conduct research, studies, inspections, site visits and analyses, as well as requiring documents to verify compliance with the provisions of the Environmental Policy Act and applicable regulations. The DNER, PRASA and DOH are also authorised to conduct investigations, inspections of documents, and site visits to verify compliance with their respective statutes and regulations. Federal agencies are also empowered to undertake such investigative actions. These administrative powers can be enforced through local or federal courts.
Both Puerto Rico and US federal agencies have enforcement mechanisms that include significant administrative fines, orders to do or cease and desist, shutdown of noncompliant facilities, and suspension or cancellation of permits, all of which may be implemented through administrative proceedings, civil or criminal judicial proceedings. Ordinarily, enforcement actions by one does not preclude further action by the other.
Enforcement actions ordinarily follow inspections, complaints or notices of violation, or both. As a first option, agencies typically try to compel compliance through notices of violation, depending on the severity of the matter. The next option is the issuance of an administrative order or complaint whereby the agency can use various enforcement options – including ordering the undertaking of specific action, cease and desist, assessment of fines, or response and remedial action. The use of informal mechanisms such as the settlement of complaints is encouraged by most agencies (state and federal) to resolve matters in an expedited and cost-efficient manner while protecting the public interest. Although agencies have civil and criminal enforcement mechanisms available, enforcement actions are predominantly used at the administrative level.
Environmental agencies follow the administrative appeal procedure established in their enabling acts and regulations, as well as the provisions of the Puerto Rico Uniform Administrative Procedures Act, as amended. Any person or entity affected by an agency decision (e.g., a decision not to grant an environmental permit, or objecting to the conditions imposed in a permit, or related to a fine or penalty), has the right to challenge that decision through the agency's adjudicative proceedings, and subsequently through the applicable judicial review mechanisms provided for in the Puerto Rican court system, as well as in US federal court, specifically the US District Court for the District of Puerto Rico, in cases involving federal environmental or US constitutional matters.
Pursuant to the corresponding statutory authority, regulators can impose administrative, civil and criminal fines or penalties. Significant contumacy fines may also be applicable. Agencies also have the power to revoke or suspend permits and issue orders to do or to cease or desist, and shutdown facilities in connection with the violation of a permit. Intentional permit violations may be subject to criminal sanctions and penalties, including jail time. Additionally, generators of hazardous substances and waste materials can be subject to future liability under the regulatory schemes of RCRA and CERCLA and the local regulation counterparts.
Separately, under Article 1802 of the Puerto Rico Civil Code, a person who, by an act or omission causes damage to another through fault or negligence, can be obliged to repair the damage. This has been applied by local courts to personal injury or property damage caused by environmental violations. Furthermore, the Puerto Rico Penal Code establishes punishable conduct regarding the environment, including environmental contamination, poisoning of public waters, and havoc caused by an environmental catastrophe that may endanger the public.
iv REPORTING AND DISCLOSURE
On reporting matters, pursuant to the Environmental Policy Act and its implementing regulation, any person who gains direct or indirect knowledge of an environmental emergency that poses a threat or an imminent risk of endangering human health and safety or the environment must immediately notify the DNER. The DNER may also require the owner or operator of a source subject to an environmental permit, to notify the presence of a pollutant discovered on site. Ordinarily, a regulated entity does not have to disclose the presence of pollution to third parties. However, depending on the risk to human health or the environment, a disclosure could be required.
Under Puerto Rican contract law, a seller must disclose any such findings and may even make the relevant representations and warranties. A seller that knowingly does not disclose defects in the land and falsely assures the purchaser of the land's pristine condition may incur contractual violations, including fraud. The same principles apply in the context of merger or takeover transactions.
Further to statutory provisions or jurisprudence, interested persons have a right to access public records as part of their constitutional right to free speech. The government may refuse or restrict the access to certain public records, provided there is a compelling government interest. Generally, agencies provide access to non-confidential documents and information submitted by regulated persons or entities. The effective timeline to provide such documentation and information, however, is generally inconsistent and not necessarily tied to specific statutory or regulatory language compelling such disclosures.
There are no specific environmental whistle-blower protection measures in Puerto Rico. Under statutes like the CERCLA, the Occupational Safety & Health Act and the CAA, among others, there are whistle-blower protection provisions for a person or entity that reports environmental violations.
v ENVIRONMENTAL PROTECTION
Historically, the key enforcement agency for environmental matters had been the EQB. As of the enactment of Act 171-2018, however, all the EQB's programmes were transferred and consolidated into the DNER for the latter to administer.
i Air quality
The air quality area (AQA) of the DNER is one of the divisions that make up the Environmental Compliance Department. Among its objectives is to ensure the protection of atmospheric quality to ensure the protection and well-being of residents now and for future generations.4
The environmental protection mandates result from the Environmental Policy Act, as amended (Act 416-2004) and the US Clean Air Act. Following are the AQA operating divisions and a brief description of the corresponding functions:
- The Management Office is responsible for the development and integration of activities related to environmental protection consistent with public policy. It is additionally responsible for administering the resources for the operation of the AQA programme, as well as the development and integration of the rules, regulations and implementation plans for the protection of air quality.
- The Permits and Engineering Division is responsible for the evaluation of permits for major stationary sources, synthetic sources, as well as minor and area sources regulated by specific federal standards. Further, this Division issues permits for training schools that provide courses on asbestos training. They are responsible for the implementation of the Title V permit programme under the CAA.
- The Compliance and Inspection Division is responsible for the evaluation and oversight of compliance with applicable requirements to major stationary sources, synthetic sources, as well as minor and area sources subject to federal requirements. Also responsible for ensuring compliance with permits issued under Title V of the CAA. This division also oversees compliance with regulations involving asbestos.
- The Toxic Substances Division provides support to other divisions for compliance and implementation with federal standards under Part 63 of Title 40 of the US federal Code of Federal Regulations.
- The Minor Source Division grants and issues permits and evaluates compliance by minor stationary sources and area sources.
- The Air Sampling, Validation, Data Management and Modelling Division maintain and operate the island's air sampling grid. The division receives, validates and reports on data related to atmospheric contamination concentrations it gathers. It also prepares emission inventory, develops dispersion models for atmospheric projections and is responsible for reporting on the index of air quality on the island.
ii Water quality
The Water Quality Area (WQA) of DNER is a key division within the environmental permitting structure. Responsibilities include to monitor, protect, improve and maintain the quality of water bodies with the objective of preserving and propagating desirable species. This includes protecting water bodies for domestic, recreational, agricultural and industrial use.
As part of this initiative, the WQA maintains coordination with federal and other state agencies to ensure effective implementation. The WQA also develops regulations and takes enforcement action to ensure compliance with applicable standards. These oversight and enforcement actions include reviewing final disposal methods for used waters and wastes generated by industrial and agricultural activities.
In early 2018, the former EQB (now DNER) adopted a new regulation for the control of underground storage tanks (UST), repealing the former UST regulation (Regulation No. 8546 of 24 December 2014). The 2018 UST regulation addresses new federal requirements applicable to USTs set by the US EPA during 2015. The 2018 UST regulation also addresses lender liability provisions for creditors who hold security interest on a facility or property where a regulated UST is located or on USTs that are used for petroleum products.
The DNER regulates and enforces the generation, management, treatment, storage and disposal of non-hazardous and hazardous solid waste. Under the applicable regulation, solid waste is defined as food, waste, silt or discarded material, including hazardous waste. There are specific exceptions such as: (1) domestic liquid waste or mixtures, and waste that goes through a sewer system to a government-owned treatment facility; (2) industrial liquid waste subject to compliance with the CWA; and (3) liquid waste used for irrigation. Hazardous solid waste is defined as any discarded material that has not been excluded by the hazardous waste definition.
Medical waste, used oil, discarded tires, debris from asbestos and lead-based paint abatement actions, among others, may be subject to additional regulatory provisions. Activities related to hazardous solid waste are also subject to compliance with applicable RCRA requirements under federal (US) law.
Depending on the type or amount of waste, or both, a generator (producer) of non-hazardous solid waste or hazardous solid waste may be required to obtain a permit for treatment, storage or disposal. The extent of time a waste generator would be allowed to store or dispose of waste in situ (or both) may vary depending on the volume, type of waste, disposal destination and the regulated activity. Additionally, generators of hazardous substances and waste materials could be subject to future liability under the regulatory and responsibility schemes of federal (US) statutes such as RCRA and CERCLA and local regulations.
Separately, under Article 1802 of the Puerto Rico Civil Code, a person who by an act or omission causes damage to another through fault or negligence shall be obliged to repair the damage. This Article has been applied by local courts to personal injury or property damage caused by environmental violations. Furthermore, the Puerto Rico Penal Code establishes punishable conduct regarding the environment, including environmental contamination, poisoning of public waters, and havoc caused by an environmental catastrophe that may endanger the public.
iv Contaminated land
The Land Contamination Control Area (LCCA) is the DNER's office in charge of planning, developing and overseeing compliance with public policy concerning the management of hazardous wastes in Puerto Rico. Further, the LCCA develops projects and programmes, undertakes studies and assessments directed at understanding new methods for hazardous waste management and offers technical advice and recommendations to the general public about regulations and administrative processes related to the subject matter.
The DNER also regulates soil and groundwater use, quality, conservation and management. The agency may impose administrative, civil and criminal liability for contamination of soil and groundwater when a person or entity uses or extracts these natural resources without obtaining a permit or in violation of the applicable statutes and regulations. Ordinarily, the agency tries to prosecute the person who caused the contamination. Similar to the US EPA, the DNER can undertake remedial actions and subsequently recover costs from responsible parties. Additionally, regulated activities are subject to the liability provisions of the federal (US) statutes CERCLA, RCRA, CWA and the SDWA regarding contamination of soil and groundwater. These statutes allow the US EPA and Puerto Rico to impose civil and criminal liability to polluters that violate hazardous waste regulations, water quality standards, compliance requirements and other violations to applicable statutes and regulations.
Additionally, under the Puerto Rico Civil Code, local courts can impose joint and several liability in property damage or personal injury claims. As a result, any liable person or entity may seek contribution from other liable parties that contributed to the damage caused by the contamination. The CERCLA imposes strict liability for clean-up costs on potentially responsible parties (PRPs), which include current and past owners and operators, arrangers and transporters. US courts have held that the liability under the CERCLA is joint and several. A PRP who is found jointly and severally liable is left with the remedy of seeking contribution from other PRPs.
Under Puerto Rican contract law, a seller generally responds for any hidden or latent defect discovered after the purchase of land. This applies even if the seller did not know the land was contaminated. If contamination is discovered after the purchase, the purchaser may seek contribution from the seller through a private civil action. Any current or past owner that caused, in whole or in part, contamination of land is considered a PRP under the CERCLA and RCRA and is potentially liable for any contamination, even after selling or transferring ownership.
A polluter can transfer risk of contaminated land to a purchaser depending on whether the sale is an asset sale or a share sale. Also, the CERCLA specifically provides some protection for bona fide prospective purchasers of contaminated land by exempting them from liability provided they do not impede a response action. However, the US EPA may impose a statutory lien on a property for the increase in the fair market value of that property attributable to the EPA's clean-up efforts.
Class actions are available for pursuing environmental civil claims by persons that have suffered a personal injury, property damage or violations to the Environmental Policy Act, provided certain requirements are met by the group of plaintiffs. Citizen action suits are also available under local and federal environmental laws to address federal law violations. Punitive damages are generally not available unless expressly allowed by the relevant statute. Specifically, the Environmental Policy Act and the Puerto Rico Penal Code environmental catastrophe provisions impose punitive damages for certain environmental violations.
Preventively, however, parties may consider environmental audits that are undertaken more commonly as a result of company policies, lender practices or transaction-driven necessities. With respect to environmental impact assessments, the Environmental Policy Act generally requires government agencies, municipalities and public government corporations to undertake a written and detailed environmental assessment (EA) or environmental impact statement (EIS) before any action that significantly affects the environment. Certain activities may be covered by the categorical exclusions established pursuant to the applicable regulation. Certain statutes or regulations require the preparation of an EIS for specific projects, such as construction of landfills; major stationary sources of air pollution; and excavation, removal or dredging within the coastal zone and the hydrographic basins of rivers.
Generators of hazardous substances and waste materials could be subject to future liability under the regulatory and responsibility schemes of the RCRA and CERCLA and local regulations. Separately, under Article 1802 of the Puerto Rico Civil Code, a person who by an act or omission causes damage to another through fault or negligence shall be obliged to repair the damage. This Article has been applied by local courts to personal injury or property damage caused by environmental violations. Furthermore, the Puerto Rico Penal Code establishes punishable conduct regarding the environment, including environmental contamination, poisoning of public waters, and havoc caused by an environmental catastrophe that may endanger the public.
On insurance, environmental risk insurance is offered in Puerto Rico by various insurance companies located on island and in the United States. The market generally supports coverage for all types of environmental hazards. The most common coverage is 'fixed site', contractors and transit pollution liability. Policies can provide coverage for pollution liability and the costs associated with remediation. The hardest coverage to place in this market is pollution liability and remediation for pre-existing conditions. Most carriers require a Phase I & II Site Assessment prior to granting coverage.
Some of the available coverage includes:
- premises pollution legal liability: a site pollution policy designed to include coverage for third party bodily injury, third-party property damage and first/third -arty clean-up costs;
- contractors' pollution liability – designed to respond to claims against contractors for third-party bodily injury, third-party property damage, and third-party clean-up costs;
- storage tank pollution liability – for third-party bodily injury and property damage claims resulting from storage tank incidents involving scheduled storage tanks; and
- Corrective action costs resulting from storage tank incidents.
vi CLIMATE CHANGE
Puerto Rico finds itself in an interesting and historic juncture regarding climate change policy and practice. In its current bankrupt status, the island government, and its instrumentalities (including public corporations like PREPA, one of the largest emission sources on the island), are subject to financial and fiscal oversight by the FOMB. As well, PREPA is subject to a certified fiscal plan under federal law, which establishes the pathway to radically transform the energy sector in Puerto Rico.5
In the aftermath of Hurricane Maria, on 22 January 2018, the governor outlined a vision for the transformation of the energy sector, to become customer-centric, reliable, resilient and cost efficient, while meeting environmental, regulatory and statutory constraints and requirements. To achieve this transformation, the governor legislated to leverage private sector management and organisational expertise.
As part of this policy transformation, on 20 June 2018, the Governor of Puerto Rico signed the Puerto Rico Electric System Transformation Act (Act 120-2018)6 with the objective of attracting and introducing private investment, knowledge and experience to manage and operate PREPA's T&D system and develop new, modern and clean generation resources. The objectives of Act 120-2018 are also incorporated into PREPA's certified fiscal plan, which calls for the implementation of strategic initiatives to modernise the utility's generation fuel mix, reduce fuel cost and price volatility, and achieve operational efficiencies, including the commencement of the conversion of certain generation units from diesel to natural gas and improving economic dispatch.
More recently, the Puerto Rico legislature approved, and the Governor signed, the Energy Public Policy Act, Act 17 of 2019 (Act 17-2019)7, which provides, among other things, energy goals that include:
- eliminating the use of coal-based energy by no later than 1 January 2028;
- providing for the integration of prosumers through mechanisms such as net metering or tariff designs that promote behind the meter generation;
- reaching 40 per cent compliance with the renewable portfolio standard by the year 2025; 60 per cent compliance by the year 2040; and 100 per cent compliance by the year 2050, considering the amount of distributed energy generated by prosumers;
- promoting energy storage technologies across consumer classes to facilitate integration of renewables and capitalise distributed energy resources; and
- reaching 30 per cent energy efficiency by 2040, for which regulation will be adopted by the Puerto Rico Energy Bureau.
Act 17-2019 also establishes the following generation goals:
- All non-renewable-based generation plants (new or existing) must be able to operate on two or more fuels.
- Starting in 2028, no permits or licences will be issued, and no contracts will be executed, for the establishment or operation of coal-based energy companies, which will be prohibited from that time onward.
- No less than 60 per cent of fossil fuel-based energy (gas or petroleum-derived) must be generated in a highly efficient manner.
- Parties to sale or partnership agreements who acquire or come to operate PREPA generation assets must modernise the plants or substitute them for highly efficient plants within five years.
- Power purchase agreements between PREPA, private operators and any independent power producer would be subject to the requirements of Act 57-2014 and the regulations adopted by the PR Energy Bureau.
- The PR Energy Bureau will establish parameters for pricing, adjustments, escalation and profit margins for power purchase agreements.
A key objective of Act 17-2019 is to promote the reconstruction and modernisation of the PREPA T&D system (impacted by Hurricanes Irma and Maria in 2017) to maximise available state and federal (US) resources. Under the mentioned certified fiscal plan, Puerto Rico (and PREPA) are working to achieve, by 2024, 35 per cent energy generation from renewable sources, 35 per cent from natural gas, 9 per cent from fuel oil and 21 per cent from coal (which will be eliminated by 2028). As established under the PREPA fiscal plan, over the long term Puerto Rico will make a significant shift towards renewable and efficient dual-fuel combined cycle power generation. The resulting mix is designed to support system reliability, affordable rates and environmental stewardship by avoiding substantial amounts of fuel oil-based emissions.
PREPA and any future private operator for the energy grid must accommodate renewable energy, distributed generation and microgrids. Act 17-2019 requires the establishment of expedited and uniform procedures for the interconnection of microgrids of up to 5 MW of capacity. Microgrids with capacities greater than 5 MW will be subject to an approval process before the PR Energy Bureau, which will involve public participation.
Act 17-2019 also seeks to expedite permitting of renewable energy projects by the Puerto Rico Permit Management Office pursuant to an expedited 'state of emergency' process pursuant to Act 76-2000.
Before Act 17-2019, Puerto Rico had enacted the Renewable Energy Policy Act (Act 82-2010)8 in 2010 and introduced the use of RECs as a mechanism to stimulate the production of renewable energy and reduce the effects of greenhouse gas emissions. This Act was also adopted in anticipation of the EPA's revisions of its Greenhouse Gas Reporting Programme, National Renewable Portfolio Standards and other CO2 and greenhouse gases reduction and control systems. However, Puerto Rico has yet to develop an operational emission trading scheme to engage in the emissions trading market. Act 82-2010 established a public policy designed to reduce environmental pollutants such as carbon dioxide and other gas emissions that cause the greenhouse effect, by diversifying energy sources and energy technology infrastructure away from fossil-based fuels (principally petroleum).
In 2013, Executive Order 2013-018 instructed the Puerto Rico Energy Affairs Administration (EAA), DNER and EQB to develop a scientific study quantifying the amount of greenhouse gases generated in Puerto Rico within one year of the enactment of the Executive Order. The same Executive Order instructed the PR Energy Affairs Administration (EAA), the DNER (and then EQB) to develop a scientific study quantifying the amount of greenhouse gases generated in Puerto Rico. Based on this study, local government agencies would be able to develop an integrated and sustainable strategy aimed at reducing and removing a significant amount of these pollutants.
vii OUTLOOK AND CONCLUSIONS
In early 2013, the Governor of Puerto Rico signed various executive orders designed to promote sustainable development strategies, initiatives and programmes. Additionally, a committee was created to advise the Governor on the effects of climate change and propose strategies and initiatives to reduce emissions of greenhouse gases. These orders promote collaborative efforts between environmental agencies like the DNER and EAA.
The committee, known as the Puerto Rico Climate Change Council was created to develop a comprehensive climate change vulnerability assessment report for the island.
The island is now poised to implement the policy changes and the operational and infrastructure improvements that are called for under the FOMB certified fiscal plan, local law and federal (US) policies. The task is large and must be implemented in an environment of debt restructuring, bankruptcy proceedings and the head-winds caused by two historic hurricanes during the 2017 hurricane season. If achieved, however, Puerto Rico will be able to reduce its carbon footprint, improve its general environment and public health substantially, vis a vis historic and current operational standards that materially impact the environment and public health.
1 Jorge L San Miguel is senior managing director at Ankura.
2 Pursuant to Act 171-2018, EQB's programmes were consolidated and folded into the DNER, for the latter to manage and administer.
3 ibid with respect to SWA's programmes and policies.
5 See the 2019 Fiscal Plan for the Puerto Rico Electric Power Authority, as certified by the FOMB on 27 June 2019 https://drive.google.com/file/d/1O1vUTB14O-srzKje6KDJZF5pPLTuMw4t/view.