PREPA’s business dealings reveal fuel interests, unreal timelines for natural gas adoption

28 September 2018
 
 
A request for proposals (RFPs) shows that the Puerto Rico Electric Power Authority (PREPA) is considering any and all fuel options—not just natural gas—as long as they are cheaper, according to documents reviewed by Debtwire Municipals.

“To the extent that potential suppliers have alternative ways to supply acceptable fuel in a cost-effective manner, PREPA will consider all proposals,” read Q&A documents attached to an RFP seeking primarily to develop natural gas facilities at PREPA’s San Juan power station.

PREPA CEO Jose Ortiz and Governor Ricardo Rossello have touted natural gas as the best, cleanest option to cure PREPA’s over-reliance on oil. Prominent government officials such as Resident Commissioner Jenniffer Gonzalez have done so as well.

Natural gas was also at the core of a US congressional draft bill floated this summer that aimed to federalize PREPA. That bill specifically called on the Federal Energy Regulatory Commission (FERC) to authorize the siting and construction of onshore or near-shore liquefied natural gas (LNG) facilities in Puerto Rico.

Yet documentation provided as part of the San Juan RFP—an endeavor that Ortiz has portrayed as a push for LNG—suggests that PREPA is open to all fuel options, provided they are less expensive.

“The purpose of this RFP is to solicit all available options to reduce the fuel cost at the San Juan Units 5 and 6 combined cycle units,” the documents say.

The RFP addendums further specify that if the chosen bidder is unable to provide the contracted fuel, it is obligated to provide diesel fuel at the same price identified in the fuel supply agreement for the primary fuel supply.

In the event that then current price of diesel is less than the contracted fuel price, PREPA will reimburse the supplier for the market price of the diesel fuel supplied, the documents read.

The RFP was officially launched on 30 July, just 12 days after Rossello appointed Ortiz as PREPA CEO. The bidding process was set to end on 11 September but closed yesterday (25 September) following a brief extension.

Unrealistic timelines

More than two dozen companies have submitted bids and/or participated in site visits, according to the documents reviewed by Debtwire Municipals.

Those companies are: Puma Energy, Gas Natural Fenosa/Naturgy, General Electric, Siemens, Crowley, Arctas, San Juan Gas, El Dorado Tech Services, APR Energy, NF Energy, Black & Veatch, Engineered Parts & Services, Tropigas de P.R., Decentricity PR, ERM, RG Engineering, Go Green USA, and Caribbean Tec.

Many of those bidders, though not directly identified, questioned the timelines provided by PREPA to pursue natural gas facilities, especially considering the complex permits required to green light such an operation.

“…due to the complexity of this project, the technical and feasibilities studies to be conducted, the information required to be included in the proposal, scope of work and permitting assessment and permitting plan, letter of support from Puerto Rico Port Authority, plan for financing, pricing, among others, we consider that this period of time is too short even for a RFP,” said one of the bidders in the Q&A documents reviewed by Debtwire Municipals.

Through the RFP, PREPA has estimated that natural gas could be utilized at the San Juan station as soon as March 2019.

Ortiz himself has stated that his short-term goal is to replace diesel with natural gas, and ramp up the use of renewable energy to as much as 40% in the next five years.

But several bidders believe those terms seem “to be very optimistic considering usual timelines for this kind of projects,” reads another comment in the documents.

PREPA didn’t directly acknowledge the feasibility of the timelines, saying its desire is to “convert the units as quickly as possible.”

The utility company further stated that all permits and even pricing is up to the bidders.

Perhaps propane, perhaps Puma

Given the hard-to-meet timelines, and the opening for other types of fuels, PREPA might end adopting propane gas, as opposed to LNG, two sources close to the matter told Debtwire Municipals.

“Puma would be the primary candidate for propane because they all the necessary infrastructure at the San Juan bay,” said the first source close.

“It would take years to develop the necessary infrastructure and obtain the permits for natural gas, whereas propane is ready and right there in San Juan,” said the second source close.

Puma is also one of Puerto Rico’s top providers of diesel, which is the emergency fuel called for in the RFP, the two sources said.

In the last ten years, Puma has invested hundreds of millions of dollars in Puerto Rico to develop fuel infrastructure, and since 2016 has been advocating for PREPA to adopt propane gas, according to documents submitted to the economic development task force mandated by the Puerto Rico Oversight, Management, and Economic Stability Act.

PREPA is “searching all alternatives to slash prices and one of the proposals we offer is to change part of their industry into propane gas,” the documents state. “Prices have dropped in the market and will allow cheap energy alternative for PREPA.”

Puma has been represented by the consulting firm World Professionals Group, of which Elias Sanchez—one of Rossello’s campaign executives and the governor’s former representative at the Financial Oversight and Management Board—is a part.

Sanchez or Puma were not immediately available for comment.

Expensive and dangerous gases

More volatile than LNG, propane gas would be far more dangerous, especially at a densely populated area and port like San Juan, the two sources said.

Propane is also being considered at a site in Bayamon, another northern municipality and one of Puerto Rico’s largest, according to a preview of an integrated resource plan (IRP) being developed by Siemens. The full IRP is due 28 September.

In addition to San Juan, PREPA is looking to implement LNG at other municipalities such as Mayaguez and Yabucoa , the IRP preview shows.

Though Ortiz and the governor have described LNG as a much cheaper option, another 2017 study by Siemens labels the costs associated to an LNG operation to San Juan “prohibitively high,” according to other documents reviewed by Debtwire Municipals.

Siemens estimated that the cost of delivering LNG containers to San Juan in 2016 alone could have cost USD 521m. “Estimated costs to set up and LNG ISO containers delivery option is prohibitively expensive…” the study notes.

PREPA did not respond multiple requests for comment.

by Javier Balmaceda