Puerto Rico officially privatizes power generation to Genera PR
SAN JUAN, Puerto Rico — A new private company will take over power generation units owned by the Puerto Rico Electric Power Authority, the public corporation currently in charge of generating energy on the US territory.
Genera PR, an independently managed subsidiary of the New York-based energy company New Fortress Inc., has been awarded a multimillion-dollar 10-year contract to operate, maintain and decommission the power generation units on the island.
The power generation equipment in Puerto Rico, plagued by ongoing blackouts and decaying infrastructure, is on average about 45 years old — twice the age of those on the US mainland. Some of them have been found to be six decades old. They’re mainly reliable on fossil fuels.
The company and the Puerto Rico Electric Power Authority (PREPA) are currently undergoing a transition process set to last 100 days. Genera PR is expected to officially start operating in July.
Officials in Puerto Rico have been taking steps toward privatizing power generation for some time. Genera PR’s contract underwent various approval stages and the final one was announced Wednesday in a lengthy news conference.
Under the terms of the new partnership, the Puerto Rican government has agreed to cover up to $15 million in transition costs to Genera PR, officials said. Additionally, the company will be paid an annual fee of $22.5 million during the first five years. The fee will decrease after the fifth year, up to a minimum of $5 million per year. The exact amount will be determined by the number of power plants removed during the forfeiture process.
“We continue advancing the transformation that we all want,” Gov. Pedro Pierluisi said in a statement. “I’m confident that we are on the right track to give our people the reliable and affordable energy system they deserve.”
Genera PR can also receive up to $100 million in incentives if it achieves savings in operating costs and complies with occupational safety, environment and fuel purchase guidelines, Fermín Fontanes Gómez, executive director of the Puerto Rico Public-Private Partnerships Authority, said during the news. conference.
Fontanés Gómez confirmed PREPA will continue to be the owner of the power generation units, since Genera PR was only contracted to operate, maintain and eventually forfeit units.
Genera PR was one of two companies that submitted proposals to the PREPA, the agency in charge of administering the contract, during a two-year bidding process.
Officials said that of the two companies interested, Genera PR was willing to provide services at a lower cost, compared to its competitor. Genera PR’s priorities also line up with local policies, they said, including Act 17-2019, which sets various benchmarks for Puerto Rico to achieve 100% renewable electricity by 2050.
Less than 4% of Puerto Rico’s power generation currently comes from renewable energy.
As Puerto Rico looks to transition to renewable energy, “this partnership will provide meaningful cost savings for consumers and businesses, improve reliability and reduce the environmental impact of an aging thermal generation system,” said New Fortress’s Chairman and CEO, Wes Edens, in a statement. statement.
Skepticism amid frustration
A crowd gathered Wednesday outside Gov. Pierluisi’s mansion to protest the privatization and the new contract.
CAMBIO PR, a nonprofit group advocating more energy sustainability, said on Twitter that the hiring of Genera PR “confirms another expensive transaction full of conflicts of interest and a contractor that has broken contracts and laws.”
New Fortress Inc., Genera PR’s parent company, has previously sold fuel to the PREPA.
NF Energia LLC, a natural gas supply company and a subsidiary of New Fortress Energy Inc., received a procurement contract in 2019 to sell natural gas to PREPA to power two generation units in San Juan. The $1.5 billion contract is valid until March 2024, according to data from the Comptroller’s Office in Puerto Rico.
PREPA has alleged that the natural gas company has failed to comply with its obligations to deliver natural gas as agreed upon. A lack of natural gas has forced the power authority to burn more expensive fuels, resulting in an additional cost of $34.5 million, Puerto Rico’s largest newspaper, El Nuevo Día, reported.
Details of the new contract were explained during the news conference Wednesday morning, and the official document was made public in the evening.
Genera PR’s contract is the result of a privatization process that started in 2017, after the PREPA declared bankruptcy following years of low liquidity, limited access to capital markets and the burden of long-term debt.
In that same year, Puerto Rico was hit by Hurricane Maria, one of the biggest and deadliest natural disasters on US territory in 100 years, further deteriorating the already fragile and disinvested power grid.
As part of an ongoing privatization process, in 2021 the PREPA relinquished the island’s power transmission and distribution system to Luma Energy. The consortium made up of Atco in Canada and Quanta Services Inc. in Texas started operating on the island in June 2021.
At the time, government officials promised the partial privatization of the power grid under Luma would improve electric services, but the territory’s residents are still grappling with frequent outages.
After Hurricane Fiona hit Puerto Rico in September, the grid was unable to withstand the Category 1 storm, triggering an islandwide blackout that took more than two weeks to undo.
Power customers in Puerto Rico have seen seven electric rate increases last year, even though people in Puerto Rico already pay about twice as much as mainland US customers for unreliable service.
Luma Energy says it has reduced outage frequency by 30% over the past year and has initiated 251 federally funded projects to permanently rebuild the patched-up grid following hurricanes Maria and Fiona.
PREPA’s bankruptcy remains ongoing as the public corporation attempts to restructure its nearly $9 billion public debt, the largest of any government agency.