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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
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

A 7% decrease in September’s electricity bill seen by Puerto Rico Electric Power Authority (Prepa) customers this month could be the result of the agency’s hedging (insurance) program, which covers millions of barrels of fuel through agreements with oil suppliers, said William Rodney Clark, administrator of Prepa’s Fuels Office.

Clark’s office provides a monthly report indicating what the price per barrel of fuel will be for the coming month. "I don’t 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 Prepa’s Planning & Analysis Division wasn’t 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 CB’s attention that Prepa’s 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 agency’s 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 Prepa’s regulations.

Adding to September’s 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 Prepa’s 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.

Prepa’s 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

Total: $732,090,000

Source: P.R. Electric Power Authority

This Caribbean Business article appears courtesy of Casiano Communications.
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