The San Juan Daily Star
Some see rate hike as inevitable under power generation PPP contract
Public-Private Partnerships Authority Executive Director Fermín Fontanés Gómez
By THE STAR STAFF
The contract with Genera PR to operate the Puerto Rico Electric Power Authority (PREPA) legacy power plants, combined with the utility’s “serious” liquidity problems, could lead to higher rates for consumers.
Gov. Pedro Pierluisi Urrurtia and Public-Private Partnerships Authority (P3A) Executive Director Fermín Fontanés Gómez said energy
rates would not go up as a result of the generation contract, but individuals consulted by the STAR believe that a rate hike is inevitable.
Tomás Torres, the consumer representative on the PREPA governing board, said there is an erroneous public perception that PREPA has three buckets of funds, one for transmission and distribution, another for generation and another for the payment of obligations, including debt.
“But there is only one piggy bank or bucket,” he told the STAR. “All of the income received by PREPA is used to pay obligations and the operators. If that amount is not enough, it will have to increase rates.”
Pierluisi and Fontanés recently announced the selection of Genera PR, a subsidiary of New Fortress Energy, to operate and maintain PREPA’s power plants. Genera PR will subcontract Pic Group Inc. in charge of evaluating potential employees and certain items related to service. New Fortress also supplies fuel to PREPA.
As part of the 10-year contract, Genera PR will receive $15 million during a transition period that will last 100 days. After the transition period ends, Genera PR will receive a fixed payment of $20 million in fixed fees and about $100 million under a structure of penalties and incentives for performance.
The contract with Genera PR establishes certain conditions that must be met before its commencement and that include pre-funding of the service accounts, procurement and delivery of fuel to each legacy generation asset, and the finalization of the initial budgets “and issuance by the PREB [Puerto Rico Energy Bureau] of a Rate Order sufficient to fund the Initial Budgets.”
Rolando Emmanuelli, a bankruptcy lawyer, noted in a video posted on social media that if PREPA’s revenues are not enough, the new budget that must be devised has to be sufficient to cover the utility’s obligations.
At the most recent PREPA board meeting last week, Finance Director Nelson Morales said that as of Jan. 23 the utility’s cashflow was $706.4 million, of which $576 million is for a service account for the transmission and distribution operator, LUMA Energy, and the remaining $130.3 million is in operational accounts.
Morales’s remarks got the attention of PREPA Executive Director Josué Colón Ortiz, who reminded customers of the importance of paying their utility bills.
“Over the past few weeks after Thanksgiving, the Authority has had cash flow problems that reached their lowest levels,” he said. “The historic lowest level could happen, unless this changes.”
Cash flow could be as little as $55 million, the PREPA chief noted.
“This is worrisome. I urge clients to continue to improve the efficiency of their power service but also to pay for energy service,” Colón Ortiz said. “Right now, we have obligations to pay, including fuel, and that comes from the income of the energy we provide to customers.”
The utility’s December report notes that PREPA has about $12 billion in liabilities.
To make matters worse, Genera PR has subcontracted PIC Group to provide operation and management (O&M) services, and for much of the employee screening, assessment, hiring, training and qualifying of people for the new organization. PIC Group, a corporation organized in Georgia, is a service provider for the global power generation industry and a wholly owned subsidiary of Marubeni Group.
According to a report from the P3A, Genera’s core strength is in fuel management services and the firm intended to hire PIC Group for a significant amount of its provision of the mobilization services and O&M services.
On Sept. 1, 2022, Genera entered into the contract with PIC Group, a copy of which was provided to the P3A. Under the three-year agreement, PIC will reportedly be paid from PREPA’s budget.