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PREB to begin probe into Prepa’s costly fuel procurement process

By on October 1, 2020

Screen capture of the Puerto Rico Energy Bureau’s website, https://energia.pr.gov

Rejects utility’s request for a rate hike to cover unsubstantiated increases in oil costs 

SAN JUAN — The Puerto Rico Energy Bureau (PREB) turned down a request by the Puerto Rico Electric Power Authority (Prepa) for an electricity rate hike the public utility contended was necessary to cover spiking fuel costs, while announcing that it is opening an investigation into Prepa’s fuel procurement process after utility officials acknowledged last week that above-market prices are being paid for oil to operate certain power plants. 

PREB commissioners unanimously rejected a request for an increase in the fuel cost adjustment factor to recover more than $91 million in extra oil costs in June, July and August, according to a bureau resolution and order issued on Tuesday. The higher fuel adjustment charges would have been reflected in Prepa bills for the months of October, November and December. This charge is currently at about 5.5 cents per kilowatt-hour (kWh). 

The bureau regulates Prepa, including electricity rates charged to the utility’s 1.5 million customers. 

“Given that the [PREB] could not reproduce nor validate the information of costs related to fuel consumption submitted by [Prepa] for the months of June, July and August of 2020, and given the marked difference between the costs of fuel presented by [Prepa] at some of its [generation] units and the trend in prices in the markets, [PREB] is not in position to determine, at this moment, if the costs for the purchase of fuel for the period of June, July and August of 2020, as presented by [Prepa] are reasonable,” reads part of the 17-page bureau resolution and order signed by PREB Chairman Edison Avilés Deliz and associate commissioners Ángel R. Rivera de la Cruz, Lillian Mateo Santos, Ferdinand A. Ramos Soegaard and Sylvia B. Ugarte Araujo. 

Moreover, the bureau found that Prepa must return to customers some $6.7 million due to overpayment on billing for power purchased from the utility’s private co-generators during the June-August period. PREB also approved a credit worth 2.2 cents as a subsidy for certain Prepa customers for the first $30 per barrel of fuel, excluding natural gas, applied to the first 500 kWh of consumption. 

The PREB determined that “it is necessary to carry out an audit of the process of purchase, acquisition, transport, storage and consumption of fuel, carried out by [Prepa] during past years,” adding that it will “soon” begin a probe of these transactions. The bureau gave the utility 15 days to submit documentation regarding fuel procurement and use during the June-August period. 

“During the review and analysis carried out as part of the evaluation of the information provided by [Prepa] regarding the requests for revision of the factors of the different adjustment clauses, [PREB] found multiple incongruities between the costs that [Prepa] alleged had incurred and the price of fuel that has been reported in recent months,” the PREB resolution and order states. 

During a PREB hearing last week on the utility’s quarterly financial reconciliation report, which reportedly included a request for an increase in electricity rates of about 3 cents per kWh, Prepa officials said that the utility needed to pass on to customers nearly 38 percent higher than projected fuel costs in June, July and August. They said these costs were driven by a 12 percent above-projected rise in power generation to meet spiking electricity demand due to higher-than-normal temperatures, as well as to a greater reliance on peaking units, which use more expensive diesel fuel.  

In Tuesday’s resolution and order, the bureau determined that fuel expenses during the three-month period were greater than fuel-adjustment billing revenues received from customers. However, Prepa’s finance and disaster management officials acknowledged during a Sept. 23 hearing that the utility had enough cash on hand to cover such extra expenses, including expected funds from the Federal Emergency Management Agency (FEMA) and insurance companies to cover extra fuel expenses due to repairs to generation units after January’s earthquakes.   

Moreover, Prepa officials admitted during the same hearing that the utility is paying above-market rates to purchase fuel for some of its generation units despite a record plunge in oil prices earlier this year.  

PREB associate commissioner Rivera questioned why Prepa was paying above-market prices for fuel, citing utility-provided data indicating that the price of No. 2 distillate diesel fuel used in the San Juan combined-cycle power plant came out to $102.43 a barrel—71 percent higher than the average market price of $59.80 for August. Such fuel-purchase prices are passed on to utility customers on fuel adjustment charges on their monthly bills. 

In fact, Tuesday’s resolution and order notes “anomalous” figures in reconciliation data provided by Prepa, including “beginning price per barrel” and “ending price per barrel fuel” of $256.78 and $316.27, respectively, for oil used at the San Juan combined-cycle plant in July. The average spot price for oil that month was $55, Prepa Fuels Office Administrator Edwin Barbosa said during last week’s hearing. 

The PREB states that Prepa’s noncompliance with its resolution and order would incur in fines of up to $25,000 a day per violation, as well as “administrative sanctions.” 

Access the PREB’s resolution and order here (written in Spanish)Download
(Screen capture of www.energia.pr.gov)

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