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  • Writer's pictureThe San Juan Daily Star

Fiscal board gives PREPA 2 weeks to provide data from fuel procurement contracts

Puerto Rico Electric Power Authority Executive Director Josué Colón Ortiz

By The Star Staff

The Financial Oversight and Management Board gave Puerto Rico Electric Power Authority (PREPA) Executive Director Josué Colón Ortiz until Dec. 16 to provide information about the public utility’s fuel procurement contracts.

“Investigations by multiple Commonwealth entities and the Legislative Assembly have highlighted serious shortcomings that have put PREPA and Puerto Rico’s ratepayers at a disadvantage,” the oversight board said. “Since 2017, PREPA’s Certified Fiscal Plans have called on PREPA’s management to focus on improving and reforming its fuel procurement and contract management policies to promote market-based contracts with terms and conditions that are favorable to PREPA’s needs and that ultimately result in lower costs to PREPA’s customers.”

“Over the years, PREPA has made some progress in improving its fuel procurement processes, most significantly by moving away from direct negotiations and using market information and competition to increase supplier interest and process transparency,” the board added. “Despite this improvement, there are still areas of opportunity for incremental improvement that PREPA, and eventually the operator of PREPA’s legacy generation assets, are expected to pursue.”

Additionally, close attention should be provided to the management of fuel supply and logistic operation and contracts, such that the generation system can ensure a continued and uninterrupted supply of fuel, the oversight board said in a letter on Monday.

“The recent natural gas shortage, as well as other management and logistic issues identified over time, highlight the need to review and assess internal management processes,” the letter said.

Fuel purchases are projected to total $2.9 billion in fiscal year 2023.

The oversight board noted that on Oct. 26, it approved with observations PREPA’s proposed bunker fuel supply contract with PUMA Energy Caribe LLC. PREPA represented to the oversight board that it had negotiated a one-year extension option, at PREPA’s discretion, and the contract submitted for the board’s review included such language.

“However, without prior notice, as required by our contract review policy, PREPA filed with the Office of the Comptroller a contract that reflected an extension clause requiring mutual agreement, contrary to the approval provided by the Oversight Board,” the board pointed out.

“Please explain the reasons for which PREPA changed this clause after approval from the Oversight Board, and the reasons for not notifying such change prior to the filing of the contract with the Office of the Comptroller, as required by our contract review policy,” the oversight board said.

The board also asked PREPA for clarifications as PREPA’s fuel reports for the months of July to August 2022, it noted, seem to suggest that the adder paid by PREPA for diesel is $10.70, $3 more than the amount agreed to under PREPA’s existing diesel supply contract with Novum Energy Trading Inc.

“Please provide copies of all the invoices submitted by Novum in connection with the supply of diesel to PREPA from July 2022 to the present,” the board said. “Please confirm whether, since the date of execution of the 2021 Novum contract, PREPA has made any changes to the fuel specifications to be supplied by Novum and, if so, the generation units to which such changes apply.”

The oversight board also asked for explanations as to why PREPA was forced to undertake a one-time, last-minute purchase of 30,000 cubic meters of natural gas in order to prevent EcoEléctrica from running out of fuel and risking a significant power deficiency on the island.

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