NFE gas supply contract to raise customer rates, critics say

A closer examination of the signed terms of a new liquefied natural gas supply agreement between the Puerto Rico government and New Fortress Energy reveals rigid purchase volumes, inflated prices, and rates tied to the Henry Hub index with substantial premiums, critics of the deal say. (newfortressenergy.com)

By THE STAR STAFF

A seven-year natural gas supply contract with New Fortress Energy (NFE) that the island government signed last week is expected to significantly increase electricity bills, leading to estimated consumer overpayments of between $1.2 billion and $2 billion, according to unnamed sources.

As previously reported by the STAR, the government claims that the approved contract will yield savings of over $54 million annually, amounting to more than $375 million over the contract’s lifespan, which should directly influence generation costs. The new agreement includes a base term of seven years with an option to extend for three additional years, in contrast to the previously proposed 15-year term. The estimated cost of the contract is $4 billion, which represents a reduction of some $16 billion compared to the initial proposal. The agreement also features decreases in supply charges, including a 22% reduction for temporary units (from $10.29 to $7.95) and a fixed price of $6.50 for the San Juan 5 and 6 units.

However, a closer examination of the signed terms reveals rigid purchase volumes, inflated prices, and rates tied to the Henry Hub index with substantial premiums. Under the new contract, Puerto Rico is obligated to purchase 40 to 50 TBtu of gas annually, regardless of actual demand. Prices are set at $3 to $4.50 per MMBtu higher than what similar U.S. utilities pay.

That premium -- approximately $3.90 per MMBtu -- translates to an extra cost of about 1.3 cents per kilowatt-hour (kWh). For a household consuming 500 kWh per month, this results in an additional $6.50 on their bill; for those using 1,000 kWh, the increase is about $13. This calculation only accounts for the structural fuel overcharge and does not include conversion costs, future fees, or the risk of paying for unused gas, as analyzed by the STAR.

Overall, Puerto Rico will incur an additional cost of 1.5 to 2 cents per kWh for seven years, effectively creating an energy tax without a vote or public discussion, the sources said. Annual overcharges are projected to range between $155 million and $195 million, totaling between $1.1 billion and $1.4 billion over the duration of the contract.