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Puerto Rico officially privatizes electricity generation at 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 company currently in charge of power generation in the United States.

Genera PR, an independently managed subsidiary of New York-based energy company New Fortress Inc., has been awarded a 10-year, multi-million dollar contract to operate, maintain and decommission the generating units of electricity on the island.

Power generation equipment in Puerto Rico, plagued by permanent breakdowns and decaying infrastructure, is on average about 45 years old, twice that of the continental United States. Some of them turned out to be six decades old. They mainly depend on fossil fuels.

The company and the Puerto Rico Electric Power Authority (PREPA) are currently undergoing a transition process that is expected to last 100 days. Genera PR should officially start operating in July.

Puerto Rican officials have taken steps to privatize power generation for some time. Genera PR’s contract has gone through various stages of approvals and the latest was announced Wednesday during a lengthy press 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 receive an annual royalty of $22.5 million for the first five years. Fees will decline after the fifth year, to a minimum of $5 million per year. The exact amount will be determined by the number of power plants removed during the confiscation process.

“We continue to advance the transformation we all want,” Governor Pedro Pierluisi said in a statement. “I am confident that we are on the right track to provide our people with the reliable and affordable energy system they deserve.”

Genera PR can also receive up to $100 million in incentives if it achieves operating cost savings and complies with workplace safety, environmental and fuel purchasing guidelines, said Fermín Fontanés Gómez, Executive Director of the Public-Private Partnerships Authority of Puerto Rico. conference.

Fontanés Gómez stressed that PREPA will continue to be the owner of the power generation units, since Genera PR has only been contracted to operate, maintain and eventually relinquish the units.

Genera PR was one of two companies that submitted proposals to PREPA, the agency managing 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 than its competitor. Genera PR’s priorities also align with local policies, they said, including Law 17-2019, which sets various criteria for Puerto Rico to achieve 100% renewable electricity by 2050.

Less than 4% of Puerto Rico’s electricity production currently comes from renewable energy.

As Puerto Rico seeks to transition to renewable energy, “this partnership will deliver significant cost savings for consumers and businesses, improve reliability and reduce the environmental impact of an aging thermal generation system,” the president and CEO said. general of New Fortress, Wes Edens, in a statement.

Skepticism amid frustration

LUMA members work to restore energy in San Juan, Puerto Rico on September 20, 2022.Jose Jimenez/Getty Images

A crowd gathered outside Governor Pierluisi’s mansion on Wednesday to protest against privatization and the new contract.

CAMBIO PR, a non-profit association advocating more energy sustainability, said on Twitter that the hiring of Genera PR “confirms another costly transaction fraught with conflicts of interest and a contractor who broke contracts and laws.”

New Fortress Inc., the parent company of Genera PR, has previously sold fuel to PREPA.

NF Energia LLC, a natural gas supply company and subsidiary of New Fortress Energy Inc., received a supply contract in 2019 to sell natural gas to PREPA to power two generating units in San Juan. The $1.5 billion contract is valid until March 2024, according to data from the Puerto Rico Comptroller’s Office.

PREPA alleged that the natural gas company failed to meet its obligations to deliver natural gas as agreed. A lack of natural gas forced the electricity authority to burn more expensive fuels, costing an additional $34.5 million, Puerto Rico’s largest newspaper, El Nuevo Día, reported.

The details of the new contract were explained during the press conference on Wednesday morning, and the official document was made public in the evening.

Genera PR’s contract is the result of a privatization process that began in 2017, after PREPA declared bankruptcy after years of low liquidity, limited access to capital markets and long-term debt burden. term.

That same year, Puerto Rico was hit by Hurricane Maria, one of the largest and deadliest natural disasters to hit US territory in 100 years, further deteriorating the already fragile and disinvested power grid.

As part of an ongoing privatization process, in 2021 PREPA handed over the island’s electricity transmission and distribution system to Luma Energy. The consortium made up of Atco in Canada and Quanta Services Inc. in Texas began operating on the island in June 2021.

At the time, government officials promised that partial privatization of the power grid under Luma would improve electricity services, but residents of the territory still struggle with frequent blackouts.

After Hurricane Fiona hit Puerto Rico in September, the grid was unable to withstand the Category 1 storm, triggering an island-wide power outage that took more than two weeks to recover. come undone.

Electricity customers in Puerto Rico saw seven electricity rate increases last year, even though Puerto Ricans are already paying about twice as much as customers in the mainland United States for unreliable service.

Luma Energy says it has reduced the frequency of outages by 30% over the past year and has launched 251 federally funded projects to permanently rebuild the patched-up grid in the aftermath of Hurricanes Maria and Fiona.

PREPA’s bankruptcy continues as the public company attempts to restructure its nearly $9 billion public debt, the largest of any government agency.

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