Governor: New NFE contract is a good deal that will save PR $16 billion

Energy Czar and Public-Private Partnerships Authority Executive Director Josué Colón Ortiz

By THE STAR STAFF

Gov. Jenniffer González Colón says a new natural gas supply contract with New Fortress Energy (NFE) is expected to save Puerto Rico $16 billion.

She made the announcement Tuesday alongside Energy Czar and Public-Private Partnerships Authority (P3A) Executive Director Josué Colón Ortiz, and La Fortaleza Chief of Staff Francisco Domenech, who is also the executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF by its initials in Spanish).

The information comes amid reports that NFE is undergoing financial restructuring.

Submitted for approval to the Financial Oversight and Management Board, the agreement includes historic protections for the people of Puerto Rico that feature significant savings and the elimination of the exclusivity clause regarding the use of the NFE terminal in San Juan Bay, the governor said.

“With the protection of the people’s interests as our guiding principle, we are pleased to announce today that, after exhaustive negotiations, we have substantially modified the agreement with NFE,” the governor stated. “This provides significant savings for the treasury and enhanced protections for the people. Our goal has always been to secure the best deal for Puerto Rico.”

The original proposed NFE contract, dated June 28 of this year, featured a 15-year extension with exclusivity provisions and an estimated total cost of $20.1 billion.

Following negotiations led by La Fortaleza and the P3A, a new draft agreement was reached last Friday that reduces the total estimated cost to some $4 billion and shortens the term to seven years with an option for three additional years. It also eliminates exclusivity clauses, achieves competitive pricing, adjusts minimum purchase quantities to levels certified by power plant operator Genera PR and validated by the P3A technical team, and includes a tolling agreement that allows the government to use the natural gas terminal in San Juan if NFE is unable to supply fuel.

The negotiated agreement is expected to result in $16 billion in savings compared to the original contract. The pricing formula for temporary units has been reduced, with the “Adder” decreasing from $10.29 to $7.95, while the pricing formula for San Juan units 5 and 6 remains unchanged at $6.50, preserving the lower prices established in the previous contract signed in 2019. The price for temporary units has been further lowered to $7.75.

The agreed-upon prices are projected to yield annual savings exceeding $50 million, which translates into estimated savings of over $350 million throughout the contract’s duration.

The contract also contains what officials said are more conservative and realistic consumption volumes: annual contracted quantities have been reduced from 100 million to 75 million MMBtu. Additionally, the “Take or Pay” option has decreased from 70 million MMBtu to 40 million MMBtu, in accordance with current service demand certified by system operators.

Puerto Rico will retain the flexibility to diversify its natural gas suppliers. If NFE fails to deliver for any reason, the terminal is permitted to use another supplier under the new contract.

In the event of a default, NFE will bear 100% of the costs associated with alternative fuel if it cannot supply natural gas. A tolling agreement will allow access to infrastructure for 50 cents per MMBtu if NFE is unable to deliver the natural gas.

“This agreement contributes to Puerto Rico’s energy transition process by reducing dependence on more polluting fossil fuels like Bunker C and diesel,” the energy czar said. “Natural gas, as a transition fuel, not only represents substantial savings compared to Bunker C and diesel but also improves the efficiency of electricity generation, reduces emissions, and lowers maintenance and operating costs. This aligns with our goals of creating a more sustainable energy future and enhancing the resilience of the electrical system.”