SAN JUAN, Puerto Rico (AP) — Puerto Rico privatized its electricity production on Wednesday, selecting Genera PR to take over the operation and maintenance of state power generation units in the U.S. territory as part of an initial $22.5 million annual contract.

The announcement comes as the island struggles to rebuild its crumbling power grid amid chronic power outages blamed in part on what Gov. Pedro Pierluisi called “archaic and unstable” generation units.

“I am sure that we are on the right track to give our people the reliable and affordable energy system that they deserve,” he said.

Genera PR is a subsidiary of New York-based New Fortress Energy, which works closely with Shell Oil and other oil and gas producers. Genera also will handle contracts related to fuel purchases for the island’s 12 power facilities as part of a 10-year contract with Puerto Rico’s government.

“Today is a historic day,” said Secretary of State Omar Marrero, who noted that recent hurricanes have revealed the deterioration and critical state of the island’s power grid.

Puerto Rico’s generation units, some of them more than 50 years old, have suffered blackouts at rates five times worse than the industry average in recent years, producing less than half of the power the government had forecast.

“Decades of mismanagement and neglect have left Puerto Rico with an expensive, inefficient and dated energy system,” said a federal control board that oversees Puerto Rico’s finances, in a statement supporting the contract awarded to Genera PR.

Many Puerto Ricans remain wary of this process, well aware that privatizing the transmission and distribution of power in June 2021 did not lead to an improvement in issues including the length of outages, which has worsened. The power situation on the island is so dire that the U.S. government recently announced it would supply temporary electric generation via barges and land-based generators.

Another concern is that high power bills could become even more expensive under the new public-private partnership, concerns that officials brushed aside as they noted that Genera PR will receive incentives to generate savings, of which 50% will be passed along to consumers.

The company will receive $22.5 million annually for the first five years of the contract, a payment that will drop as Puerto Rico permanently shutters generation units amid a push for more renewable energy sources. Genera PR also will receive up to $15 million during a transition period of 100 days, and up to $100 million a year in incentives, a payment that also will drop as units are shut down.

Wes Edens, founder and executive director of New Fortress Energy, said Genera PR would begin operating by mid-year.

He said power outages are unacceptable and noted that electric bills in Puerto Rico are “simply too high.”

“While we recognize the challenges that are before us…we believe the opportunities here…are tremendous,” Edens said.

Until Wednesday, the government had refused to release a copy of the contract or name the company chosen even as the governing board of Puerto Rico’s power company and the island’s Public-Private Partnerships Authority had approved of it after meeting behind closed doors.

The sole vote against the contract came from Tomás Torres, a member of the governing board that represents the public’s interest.

He said such contracts normally are done with broad citizen participation “given the impact it will have on all sectors that make up public interest.” He also noted that Genera PR will have monopoly power as the sole provider of electricity on the island.

Torres also warned that the contract represents additional costs for the state power company, which holds some $9 billion in debt — the largest of any Puerto Rican government agency — and remains mired in an acrimonious battle with creditors as it tries to emerge from bankruptcy. It remains to be seen how much of that debt consumers will have to pay.

Edens said a top priority will be saving on fuel purchases, noting that New Fortress Energy has a big portfolio of oil producers and is on the verge of producing its own fuel sources.

New Fortress Energy opened a natural gas facility in Puerto Rico in 2020. Puerto Rico’s Electric Power Authority later accused the company of violating its contract by supplying less natural gas than it promised, forcing the state power company to use more expensive diesel at generation units, a cost that has not been reimbursed.

Puerto Rico’s governor said that contract remains in good standing. Meanwhile, that issue remains under review by the island’s Energy Bureau.

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