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Is Puerto Rico About to Give Another Terrible Energy Contract to an American Company?

Prepa, the island’s electric power company, and FEMA have found themselves embroiled in scandal before.

Ricardo Arduengo/AFP/Getty Images

On January 6 and 7, a 6.4-magnitude earthquake and aftershocks struck Puerto Rico, killing at least one person, injuring more, and causing mass blackouts across the island’s already hobbled electrical grid. Citing damage to the Costa Sur power plant, the Puerto Rico Electric Power Authority, or Prepa, said in late January it would need to purchase some 500 megawatts of temporary generating capacity.

Now it looks like an American natural gas company could win this contract, flooding the island with fossil fuels rather than investing in the renewable energy that experts say could better withstand both earthquakes and hurricanes. The company’s prior business in Puerto Rico has been conducted with minimal public oversight and a seemingly lax relationship to legal standards governing maritime fuel transport.

On its quarterly earnings call in early May, New Fortress Energy announced that it had been shortlisted by Prepa, the island’s sole electric utility, to fill the gap left by damage to Costa Sur. For at least one year, NFE would supply 500 MW worth of generating capacity, reportedly at the cost of some $70 million a month. There’s also a possibility that Prepa could end up permanently purchasing this generating capacity.

This would all be a pretty good deal for NFE, which is looking for a place to stash and burn extra fossil fuels that appear to be sourced largely from third-party providers, in addition to its liquefaction facility in Miami. As the company’s founder and CEO, Wes Edens, said on the call, “We’ve got a couple of cargoes extra that we have contracted for that we don’t need right now. And I think that what we will do is, either sell those on an outright basis or swap them into cargoes that we can then use in Puerto Rico.” 

Should NFE win its bid, the Federal Emergency Management Agency might furnish the funds to do just that and could reimburse the cost of the temporary generation per the terms of the Stafford ActFEMA Press Secretary Lizzie Litzow confirmed over email that “FEMA has determined that the cost of Temporary Generation proposed by PREPA to supplement generation capacity following the loss of Costa Sur is eligible for reimbursement.” The exact sum remains to be seen. 

It wouldn’t be a great deal for building a more resilient Puerto Rican energy grid. “They just want to flood Puerto Rico and the Caribbean with fracked gas,” said Ruth Santiago, an attorney with the Environmental Dialogue Committee supporting Queremos Sol (“We Want Sun”), a platform for clean energy development and climate justice backed by a number of environmental and community groups and unions across the island. The coalition has opposed the most recent contractor bidding process, as well as ongoing fossil fuel development on the island. 

“These FEMA funds will likely go for that in one way or another, because one of the main aspects of the projects that they’re doing is creating new natural gas–burning power plants. The usual list of bad actors,” Santiago says of NFE and the other power companies bidding on the contract, “stand to make a huge profit from something that is not really necessary.”

Queremos Sol argues that these new investments in fossil fuel generation run counter to energy experts’ recommendation that Puerto Rico invest in rooftop and community solar and distributed microgrids, technologies that have fared better in both earthquakes and hurricanes than centralized fossil-generated power. Most electrical power on the island currently flows from central-station fossil fuel plants in the south to consumers in the north, where 70 percent of the island’s power is used. Installing localized renewable energy sources could reduce both the risk of power line disruption and the island’s reliance on costly fossil fuel imports. 

Hurricane Maria’s devastation of Puerto Rico’s already dilapidated grid, in 2017, spurred popular interest in rooftop solar that could be used even when transmission and distribution lines fail. In April 2019, Puerto Rico’s legislature passed the Public Energy Policy Act. Though its scope is far less expansive than that laid out by Queremos Sol, the law sets a target for the island to generate 100 percent of its power from renewables by 2050. New natural gas generation doesn’t fit well with such a vision.

Civil society groups supporting the Queremos Sol platform, including the island’s largest utility workers’ union, UTIER, argue that the up to $1.26 billion’s worth of extra power Prepa is proposing to buy with FEMA funds in response to the Costa Sur damage may not even be necessary. Ángel Pérez Carrasquillo, an engineer in charge of Prepa’s operations at Costa Sur, told Radio Isla in February that he “wouldn’t dare” say a new plant was needed: Repairs could be completed in just six months if they were started promptly. Though estimates have varied, repairing the Costa Sur plant has been projected to cost between $25 million and $35 million in all—far less than the $70 million a month cited for the temporary generation. 

“Any emergency procurement for new generation,” the Queremos Sol coalition’s letter states, “should be directed by adding permanent on-site renewables and [battery energy storage systems].” The letter also noted that “dozens of Prepa workers have already been trained to install on-site storage systems,” and outlined several other steps to strengthen Puerto Rico’s grid.

It remains to be seen how any potential agreement between NFE and Prepa for temporary power generation, with FEMA potentially footing the bill, might relate to another somewhat mysterious deal between Prepa and FEMA that José Ortiz, Prepa’s CEO, hinted at last week to Puerto Rican newspaper El Vocero. Ortiz suggested it would be the largest in FEMA history—so large, in fact, that President Trump wanted to announce it himself, according to Ortiz. While there are few details beyond initial news reports, Santiago told me that it’s possible Ortiz is referring to a long-discussed grid modernization plan between FEMA and Prepa, the idea for which was developed in the aftermath of  Hurricane Maria. Ortiz has not responded to multiple requests for comment.

There’s an ugly history of grid recovery work in Puerto Rico involving little-known outside contractors. While FEMA wasn’t involved in the controversial $300 million contract Prepa entered into with Whitefish Energy in 2017—a congressional investigation later showed Whitefish had charged unusually high ratestwo former FEMA officials were arrested in September 2019 on charges of taking bribes to hire the novice utility contractor Cobra Acquisitions to repair downed energy infrastructure after Hurricane Maria. The former president of Cobra Acquisitions was arrested, as well. While Cobra’s parent company said FEMA was “in the room” and present “every step of the way” in striking its 2017 deal with Prepa, Litzow, asked about the most recent bidding process, said that “FEMA does not play a role in the selection of contractors. That is the sole responsibility of the Applicant,” in this case Prepa.

NFE, should it win this contract, wouldn’t be new to Puerto Rico’s energy system. In March 2019, just a few months after going public, the company won a bid and signed a five-year contract to convert Units 5 and 6 of the San Juan power plant from diesel to run on natural gas, and then supply that gas. 

The company’s CEO, Edens, perhaps best known as the co-owner of the Milwaukee Bucks, is a veteran of Wall Street rather than Houston’s energy mecca; The Wall Street Journal even dubbed him “The New King of Subprime Lending” in 2015. Edens got his start at Lehman Brothers, then moved on to asset manager Blackrock before founding the private equity firm Fortress Investment Group—NFE’s parent company, which also manages hedge funds and makes distressed debt investments. While the company was acquired by SoftBank in 2017, Edens remains the principal and co-CEO at Fortress and has been a member of its board since 2006. An investigation by the San Juan–based Center for Investigative Journalism found that Fortress Investment has also invested in Puerto Rico’s debt, in addition to Greek and Argentinian government debt.

NFE’s “Core Business Plan,” per a Third Quarter 2019 earnings presentation, is to “establish a ‘beachhead’ in a market that anchors infrastructure development,” then secure industrial buyers and stoke demand for NFE products with new power plants, data centers, and more, by supplying “additional industrial and transportation consumers.” The strategy, in other words, is to create demand for gas that might not otherwise exist, effectively positioning the Caribbean as a lucrative dumping ground for fossil fuels, which in recent months have faced notorious oversupply problems.

NFE has already deployed this strategy in Jamaica, where it has invested $1 billion in a new liquefied natural gas terminal since 2017, and it aims to grow its gas contracts from 600,000 to 1.2 million gallons per day this year. NFE’s promise to build “irreplaceable” fossil fuel infrastructure, according to another earnings report, seems  at odds with NFE’s clean-energy branding, which claims the company wants to be zero-carbon in the next decade and invest heartily in hydrogen. NFE has not responded to multiple requests for comment.

NFE’s operations in the Caribbean raise other questions, too. Infrastructure of the sort NFE has built to service Units 5 and 6 of San Juan, to receive and regasify LNG, would ordinarily fall under the jurisdiction of the Federal Energy Regulatory Commission, via Section 3 of the Natural Gas Act; similar facilities have had to seek FERC approval. “Prior regasification projects in Puerto Rico all required and sought FERC permitting. Based on the FERC database, this expedited San Juan project hasn’t filed anything,” said Roy Torbert, Principal of the Islands Energy Program at the Rocky Mountain Institute, of NFE’s build-out in San Juan. A FERC spokesperson had “no comment,” over email, when asked if NFE had sought approval for its LNG terminals, or if its operations would fall under the commission’s jurisdiction. 

The Merchant Marine Act of 1920—commonly known as the Jones Act—further mandates that goods traveling between U.S. ports be carried on U.S.-flagged ships that are built in the U.S. and staffed by crews made up of U.S. citizens or permanent residents. NFE has contracted with the Rotterdam-based shipping company Anthony Veder and the Bermudan firm Golar LNG to carry gas on its non-U.S.-flagged ships. The company signed a long-term supply agreement in February for eight cargoes a year of LNG for its liquefaction infrastructure in Miami, most of which will reportedly head to Puerto Rico. 

NFE has not responded to multiple requests for comment about where its gas for Puerto Rico is sourced from or how it gets there. Asked about potential Jones Act violations, a representative from Customs and Border Patrol emailed the following statement:

An importer is expected to exercise reasonable care its importing operations. Nonetheless, should there be any information of fraud or illegal trade activity, we ask from the trade community to contact us, confidentially, via e-Allegations Online Trade Violation Reporting System or by calling 1-800-BE-ALERT. Any violation of the Jones Act or any other federal regulation could result in severe criminal or civil penalties.

Were NFE found to be running afoul of either FERC or CBP statutes, it wouldn’t be the first bad press Edens has had this year. A shell company owned by the Fortress Investment Group recently sued a company called BioFire to stop it manufacturing Covid-19 test kids, alleging the tests violated patents its subsidiary obtained from the now-defunct blood-testing company Theranos. Fortress eventually relented and agreed to grant BioFire royalty-free licenses.