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Puerto Rico Energy Commission finds utility lax in awarding contracts

By on November 20, 2017

SAN JUAN – The up to $300 million agreement with Whitefish Energy is not the only instance in which the Puerto Rico Electric Power Authority (Prepa) did not seem to have exercised prudence in its selection, awarding and oversight of contracted services.

So says a Puerto Rico Energy Commission analysis of the public utility’s contracts, which the regulator says has forced it to impose measures to ensure Prepa avoids wasting funds when contracting.

The commission found that in contracts with renewable energy companies, Prepa provides an energy prepayment, plus a premium per megawatt-hour, called a renewable energy certificate, or credit (REC). According to the panel, however, the contractual price of energy, that is, without the REC covers the costs of building and financing renewable energy projects, in addition to providing a reasonable profit for their owners.

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In addition, even if it were appropriate for Prepa to pay the RECs, the utility’s price would exceed that of other U.S. jurisdictions, the commission said, citing one of its experts.

The PREC also criticized the years-long contract Prepa has had with Spanish company EcoEléctrica, which has a natural gas plant in Peñuelas, because it requires a “payment for excess energy” over a capacity factor of 76%, or the ratio of electrical output to the maximum possible over the same period. EcoEléctrica sets the level of use associated with that factor monthly and also sets the rate for excess energy weekly, which makes it difficult for Prepa to predict its payments to EcoEléctrica.

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Regarding a contract Prepa awarded to Navigant Consulting to review electric rates in 2016, the commission noted that the report contained errors in calculating electricity demand and peak hours. The PREC characterized the work as below industry standards and said it resulted in consultants having to incur additional costs to identify errors, obtain clarifications and supporting documents, and understand the parameters of the proposal.

In Prepa’s contract with Siemens PTI to serve as consultant in designing the public corporation’s integrated resource plan, which was evaluated in 2016, the commission said it disregarded regulations.

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“Together with its principal consultant, Siemens Power Technologies International, the [Electric Power] Authority disregarded our rules, did not employ standard planning techniques, delayed the production of required information and showed little appreciation for the potential of energy efficiency and the response to demand.

“This behavior led the [Prepa] and Siemens to come to conclusions that over-emphasize costly constructions, while under-emphasizing the role of renewable energy technologies and consumer behavior as ways to achieve energy independence,” the commission’s report reads.

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The Prepa agreement with Excelerate for the construction of the Aguirre Offshore Gasport contained a contract to retain the contractor’s floating storage and regasification unit (FSRU) for 15 years, which required a daily payment of $111,500, or $40.7 million a year, and includes substantial damages for terminating the contract. It also had a “hell or high water” clause, which required the utility to pay for the floating facility “regardless of the amount of liquefied natural gas delivered to Excelerate for regasification.

In addition, PREC found contracts with Mitsubishi Hitachi and Alstom for the combined-cycle unit in San Juan and the plant’s maintenance that did not contain performance metrics.

In an order issued last week, the commission ordered Prepa to include a clause in contracts stating these cannot go into effect until the utility receives PREC authorization. Another clause required must stipulate that if the commission determines or has sufficient grounds to believe the service is not being provided properly, the work must be halted.

 

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