What does New Fortress Energy’s bankruptcy mean for Puerto Rico?

New Fortress Energy (NFE) is unable to pay its debts and has entered into a restructuring agreement with some of its creditors, the company said in a March 17 announcement.

NFE is the parent company of Genera PR, which has a 10-year contract to operate Puerto Rico Electric Power Authority (PREPA) thermal power plants. NFE also has a seven-year contract to supply natural gas to Puerto Rico through December 2032. 

Under the proposed restructuring, NFE will split into two companies. One will take over NFE’s assets in Brazil and the other (which NFE is calling “New NFE”) will manage its other assets, including the Puerto Rico contracts. NFE said both subsidiaries will seek court approval of the restructuring plan in U.S. bankruptcy court.

The plan raises the question of whether the bankruptcy process provides an opportunity to the government of Puerto Rico to cancel its contract with Genera. That contract can be terminated by a voluntary bankruptcy filing by Genera or its parent company, NFE, according to the January 2023 operation and maintenance agreement. It is unclear how the creation of “New NFE” affects these provisions, but NFE would clearly not want the Genera contract to be terminated.

If the contract remains in place, Puerto Rico will face even more pressure from New NFE to increase the volumes of gas sold to Puerto Rico. In a presentation to investors, NFE sought to highlight the growth opportunity in Puerto Rico. It presented the opportunity to increase LNG sales to Puerto Rico from “current volumes” of approximately 50 trillion British thermal units (TBtu) to reach about 125 TBtu at the end of 2026 by converting six existing oil-fired power plants to natural gas. IEEFA is skeptical of these numbers because:

• According to quarterly fuel filings with the Puerto Rico Energy Bureau (PREB), NFE’s sales to Puerto Rico over the last 12 months only totaled approximately 24 TBTU.
• NFE assumes that four of the six planned conversions that have been approved or conditionally approved by the PREB will operate at least 50% of the time. the Mayaguez and Megagen units are limited by their environmental permits to operate at approximately 33%. The Cambalache units have recently operated at about 26%, the Palo Seco units at about 33%, and the San Juan units at 36%.
• There is no natural gas infrastructure to the Aguirre site, so the proposed conversion of the combined cycle units (at a volume of 27 TBtu/year) would require an average of 87 ISO container trucks per day (almost one truck every 15 minutes) traveling the 50-mile route from New Fortress’s terminal in San Juan to Aguirre. In developing Puerto Rico’s integrated resource plan, grid operator LUMA rejected any plan to convert to gas a major plant that is not located near a natural gas supply (like Aguirre, which hasn’t been approved by the energy bureau) precisely because of the complicated trucking logistics and likely strong opposition from local stakeholders.

In short, IEEFA estimates that New Fortress will likely be closer to 50 TBtu, the minimum take-or-pay volume in its contract if additional gas conversions occur—far from the 125 TBtu in sales it touted to investors.

It is clear from this presentation that Genera will continue to act in the interest of its parent company in pushing greater quantities of gas on Puerto Rico, regardless of the best interests of Puerto Rico ratepayers.

The government of Puerto Rico may have an opportunity with NFE’s current financial restructuring to escape an onerous contract with a company that has not proved to be a good business partner for the island.