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Prepa Lowers Oil Prices To Reflect Decrease In Customers Electric Bills In September
Prepa / EPA agreement has cost $62.6 million in extra fuel costs receives
October 28, 2004
A 7% decrease in Septembers electricity bill seen by Puerto Rico Electric Power Authority (Prepa) customers this month could be the result of the agencys hedging (insurance) program, which covers millions of barrels of fuel through agreements with oil suppliers, said William Rodney Clark, administrator of Prepas Fuels Office.
Clarks office provides a monthly report indicating what the price per barrel of fuel will be for the coming month. "I dont think the decrease in customers bills is due to a lower fuel cost since the price per barrel of oil continues to go up," said Clark. A call to Prepas Planning & Analysis Division wasnt returned.
Prepa pulled off these savings despite rising oil prices which, at the time of CARIBBEAN BUSINESS closing, had climbed as high as $55 a barrel and is expected to reach $60 or perhaps $70 a barrel in the next months.
But it has come to CBs attention that Prepas Oil Price Projections Report for October, prepared by the Fuels Office, was altered to reflect an average 0.9% decrease in the price per barrel charged to clients. This would cause the quasistate government agency to purposely register a loss for October (violating the agencys financial regulations) and reduce customers electricity bills just before the November elections. According to a source at Prepa, September bills loss will be made up during October and November by increasing the price per barrel. But this will reflect a profit for the month, which will again violate Prepas regulations.
Adding to Septembers loss on the price per barrel of oil, Prepa has accumulated $62.6 million of extra oil cost due to the extra purchase of cleaner 0.5% sulfur-dioxide fuel. In 2002, Prepa renegotiated a 1999 U.S. Environmental Protection Agency settlement forcing the agency to change the already expensive 1.5% sulfur-dioxide fuel it had been using in some of its power plants for the more expensive 0.5% fuel. Since January 2003, Prepa has paid $62.6 million for some 24 million barrels of No. 6 oil (from 0.5% to 1% sulfur dioxide fuel) and 5 million barrels of No. 2 oil (0.15% sulfur dioxide fuel).
"When Prepa pleaded guilty to noncompliance with the Clean Air & Water Act in 1998, great efforts were made to remedy the violations, including agreeing to use the more expensive and cleaner 0.5% sulfur dioxide fuel until repairs could be made," a Prepa source told CB. "By 2000, compliance was almost 100%, greatly reducing fines. Within that time, Prepa sat down to renegotiate the agreement and signed up to use even more expensive fuel. The supplier also changed to Petrobras, further narrowing the number of suppliers that can provide Prepa with this type of fuel. This is costing Prepa, and its customers, millions of dollars annually. And the contract with Prepas fuel suppliers was already signed before the elections in November."
Prepa already has prepared a transition report outlining which contracts the agency has signed with suppliers. There are nine fuel suppliers with $732.1 million in contracts that end from 2004 through 2006. The companies are Caribbean Petroleum Corp., Vitol S.A. Inc., Caribbean Petroleum Refining, Fuel & Marine Marketing, Lukoil Pan Americas LLC, Petrobras America Inc., Liquilux Gas Corp., and Esso Standard Oil Corp. of P.R.
Prepas Fuel Suppliers
Contracts signed through November 2004
Contract Amount / Contract Date / Purpose
Caribbean Petroleum Corp.
$20,000,000 / 1999-2004 / Gasoline & diesel for service stations
Vitol S.A. Inc.
$48,000,000 / 2002-2005 / Cambalache
$61,200,000 / 2002-2004 / Aguirre-Costa Sur-Mayaguez-Combined Cycle
Caribbean Petroleum Refining
$1,500,000 / 2001-no end / Indefinite fuel purchase agreement
Fuel & Marine Marketing
$17,280,000 / 2002-2004 / Aguirre
Lukoil Pan Americas LLC
$250,000,000 / 2003-2005 / Palo Seco
Petrobras America Inc.
$300,000,000 / 2003-2005 / Costa Sur
Liquilux Gas Corp.
$510,000 / 2004-2006 / Propane gas purchase
Esso Standard Oil Corp. of P.R.
$33,600,000 / 2004-2005 / Refined oil for Daguao-Jobos-Mayaguez-Vega Baja-Yabucoa
Source: P.R. Electric Power Authority
This Caribbean Business article appears courtesy of Casiano Communications.