Privatization of PREPA materializes
CE Noticias Financieras
The privatization of the Puerto Rico Electric Power Authority (PREPA) finally materialized today after Puerto Rico Governor Pedro Pierluisi announced the contractual agreement between the public corporation, the Puerto Rico Public-Private Partnerships Authority (PPPA) and the energy company Genera PR for the administration and maintenance of power generation in the country. During a somewhat hit-and-run press conference, Pierluisi, accompanied by AAPP Executive Director Fermín Fontanés; Prepa Executive Director Josué Colón and Secretary of State Omar Marrero; among other officials, was emphatic that the selection of Genera PR - a subsidiary of the international company New Fortress Energy - was achieved through a bidding process that began in 2020 in compliance with Law 120 of 2018 for the transformation of the power grid. "The term of the contract will be 10 years and the transition period will be 100 days," the governor explained. "Once the company begins its management, it will be in charge of the operation and maintenance of PREPA's generation plants, the administration of the facilities' contracts and the purchase of fuel, as well as representing PREPA before the Puerto Rico Energy Bureau (NEPR)." "He will also be in charge of managing federal funds for improvements to generation plants," he added while thanking Manuel Laboy, COR3 executive director and also present, for his efforts to channel federal funds that "are used in this area." However, when asked by Metro about the destination of the funds allocated by the Federal Emergency Management Agency (FEMA) for the process of decommissioning obsolete power plants that PREPA had already begun, the governor was not clear about who would actually handle the multi-million dollar funding package. "It all stands. As FEMA rightly said, that is a temporary, emergency measure, because it is in response to the impact of Hurricane Fiona. Clearly, Genera PR is the one that is going to be interacting with FEMA and the U.S. Army Corps of Engineers (USACE)," Pierluisi said. "FEMA is committed to making a series of critical repairs to the generator units at their cost. Likewise, FEMA is committed to increasing power generation through generator barges and portable generators up to 700 megawatts to be able to shut down plants and take them offline when they are being repaired without affecting service. All of this is maintained," he added, while categorically assuring that Genera PR's role will only be as coordinator of the work at these plants, despite the fact that he had previously assured that, among its responsibilities, Genera PR would manage the federal funds. The governor also assured that PREPA will remain a public corporation, owner of its assets, which will now be operated by Genera PR. "In the same way, PREPA is the one that receives federal funds in coordination with COR3. Also, PREPA will be operating reservoirs, irrigation canals and hydroelectric facilities," Pierluisi said. It is striking that, although the governor assures that Prepa will remain operational in the operation of reservoirs, irrigation canals and hydroelectric facilities, on the other hand, he points out that the employees of the public corporation who do not work in the power plants that Genera PR will manage, will have priority when being considered for hiring by the company. "The contract guarantees that Genera PR has to make a job offer to all PREPA employees, so no one will be left without a job. And PREPA employees who do not work at the plants as such, will have priority and preference over other qualified people, if they also have the desire to join Genera PR," he said. Pierluisi also did not indicate that eventually these areas would also be privatized. Incentives for Genera PR The governor explained that the contract, which amounts to $22.5 million annually, contains incentives for the company upon completion of certain fuel savings margins. "The contract gives Genera PR the opportunity to have some incentives if it achieves some savings and the savings it achieves in the operating costs of these plants will be shared half and half with the people of Puerto Rico," the chief executive explained without offering further details. Pierluisi explained how the contract was structured to incentivize the company to improve PREPA's performance and lower costs with a view, presumably, to a dramatic drop in the cost of energy in Puerto Rico. "There are several areas in which Genera PR can have incentives or pay penalties. One area is costs, and who approves the budget for these costs is the NEPR, including fuel-related costs. It is to the NEPR that Genera PR will present an action plan for the fuel purchase processes, the NEPR approves it, and if savings are achieved, that profit is shared with the people," he added. The governor also pointed out that the competitor, Nice Energy, a company affiliated with China Energy Investment Corporation, LTD. almost doubled the cost in its request for proposal (RFP), which is why the proposal of New Fortress Energy, INC. was favored. Similarly, Pierluisi explained that the amount of incentives that Genera PR could receive annually for savings in the purchase of fuel is capped. "This $100 million amount is established to put a cap on the incentives that Genera PR could have from year to year. It's really like the net between incentives and penalties. If they have more incentives than penalties, they can't go over $100 million. If they go over, then the following year they can use that excess, but always subject to never going over $100 million," he said. "The $22.5 million fixed charge is for five years, but then it starts to be reduced depending on the plants we decommission as we have more renewable energy in Puerto Rico," he added.