IEEFA update: Governor Vázquez needs to scrutinize new natural gas contracts in Puerto Rico

Puerto Rico’s new governor, Wanda Vázquez, has been trying to distance herself from the previous Rosselló administration. For example, she recently suspended a $450,000 grid reconstruction contract that was subsequently cancelled by the Puerto Rico Electric Power Authority (PREPA).

But hundreds of millions of dollars in natural gas infrastructure contracts continue to move forward unchallenged.

IEEFA has previously called into question the conversion of two units of the San Juan power plant to natural gas, a contract that was awarded last fall to New Fortress Energy with the expectation that the project would be in service by this summer. At the time, it was noted that an untransparent process had resulted in the awarding of the contract to a small, politically‑connected firm with no track record of doing business in Puerto Rico. Proponents of the conversion offered various savings estimates that varied widely, from $150 million to $285 million per year, but with little detail provided. The project is now late and likely over-budget.

More recently, the Puerto Rico Public‑Private Partnerships Authority issued a request for qualifications (RFQ) for a 300MW natural gas plant at Palo Seco, near San Juan. The RFQ is silent on how gas would be supplied to the plant, but it would require more capacity than what New Fortress is currently building at San Juan.

And in late July, PREPA Executive Director José Ortiz publicly stated that the utility is about to convert its 200MW power plant at Mayaguez (on Puerto Rico’s west coast) to natural gas. Again, no details were provided on how gas would be supplied to the plant, i.e. whether a new gas import terminal would be constructed at Mayaguez or whether gas would be trucked from an existing terminal.

All of these projects are moving forward outside of PREPA’s long-term integrated resource planning process. The Puerto Rico Energy Bureau is currently evaluating PREPA’s integrated resource plan (IRP) which provides several scenarios for the build-out of Puerto Rico’s electricity generation system over the next twenty years. Various stakeholders are participating in the process, and expert testimony is due in October.

The IRP submitted to the Energy Bureau suggests, however, that PREPA’s new investments in natural gas are likely either to be underutilized, or – more likely – to crowd out future investment in renewable energy.

The 5-year “action plan” of next steps articulated in the IRP does not include the conversion of the Mayaguez units to natural gas at all. But in a scenario where the Mayaguez units are converted to natural gas, they and the other natural gas plants would be underutilized. The plants at San Juan are projected to run less than 50% of the time in all but one year through 2038. The new plant at Palo Seco would also run less than 60% of the time in all but two years through 2038. These estimates assume that Puerto Rico achieves nearly 70% penetration of renewable energy over the next twenty years. A far more plausible scenario is that the overbuilding of natural gas capacity will simply divert funds away from renewable energy development.

For PREPA to be moving forward with hundreds of millions of dollars in natural gas and fuel infrastructure projects before the IRP has been evaluated and approved makes a mockery of the entire planning process. Even if the contract for the Palo Seco plant is not signed until next year, the process itself is putting political pressure on the Energy Bureau to rubber‑stamp decisions that have apparently already been taken.

If Governor Vázquez is serious about distancing herself from Rosselló, she needs to scrutinize the electrical system contracts that created numerous scandals under his watch and which are still moving ahead today. As long as politically-driven deals continue to substitute for professional energy planning, Puerto Rico will not reach its goals of an affordable and renewable energy-based electrical system.

Tom Sanzillo is IEEFA’s director of finance.

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