Puerto Rico’s energy regulators confronted Genera PR, LUMA Energy, and the Public-Private Partnerships Authority (P3A) on Monday over a mounting fuel crisis that has forced the island to burn millions of dollars in diesel while simultaneously accruing millions in contractual penalties for unused natural gas.
The technical hearing before the Puerto Rico Energy Bureau to ascertain the impact of the natural gas crisis exposed structural conflicts, gaps in oversight, and the possibility that consumers could be left paying twice: once for emergency fuel and again for gas that never arrived.
Genera PR confirmed that the ongoing interruption in natural gas supply, prompted by the San Juan Bay Pilots’ action and a federal court order preventing the entry of the Amur River to deliver natural gas, has already required emergency purchases to satisfy the need for 95,000 barrels of diesel and Bunker C to keep generation units online.
José Carrasco, from Genera’s fuel team, testified that the shift could represent an incremental cost of about $14 million, but the company cannot yet estimate the total impact because the duration of the gas shortage remains unknown.
The Take-or-Pay Penalty Trap
The Energy Bureau pressed the operators on what it called a “structural contradiction.” Puerto Rico is paying more for diesel because natural gas is unavailable, yet the contract with New Fortress Energy continues to accumulate take-or-pay penalties for gas that is not being consumed.
That is, the discussion highlighted that NFE faces no immediate financial consequence when gas is not delivered and diesel must be burned instead, leaving consumers and the system to absorb the cost until litigation is resolved. The regulator signaled it may open a separate docket to address that issue.
Under the agreement, New Fortress is guaranteed payment for a minimum annual volume of natural gas, regardless of whether the fuel is delivered or used. If Puerto Rico’s power generation system fails to take or consume the baseline 40 TBtu minimum volume in a given year, the local utility is still contractually required to pay for that specified threshold. (TBtu stands for trillion British thermal units, a standard measurement for large volumes of natural gas.)
LUMA officials acknowledged that, based on current generation patterns and unit availability, the shortfall could reach 5.7 TBtu by year’s end. Raphael Gignac, speaking for LUMA as vice-president of operations, estimated that the resulting penalty could total about $67 million at current market prices.
“That is based on what we have so far,” he said, noting that the figure reflects LUMA’s internal calculations using data provided by Genera.
Energy Bureau President Edison Avilés Deliz underscored the contradiction: “On the one hand, we don’t have gas for the plants, and on the other hand they are accumulating today 63 million,” he said, referring to the penalty estimate. He warned that regulators must determine whether the public should bear those costs, especially if the failure to meet minimum consumption levels stems from operational shortcomings.
Oversight Gaps, Conflict-of-Interest Concerns
The hearing also clarified the role of 3PPO, the Third Party Procurement Office, which is the formal administrator of the New Fortress fuel contract. 3PPO is responsible for verifying gas volumes, coordinating deliveries, and ensuring compliance with all contractual clauses.
“The administrator of the contract is 3PPO,” said Public-Private Partnership Director Josué Colón, emphasizing that neither Genera nor New Fortress should be responsible for validating each other’s fuel delivery data.
Avilés Deliz raised concerns that Genera, whose parent company is affiliated with New Fortress, has been involved in verifying the supplier’s fuel transactions. He warned that this arrangement creates an inherent conflict of interest and said the Bureau would move to seek audits of all fuel transfer records. He also called for regular third-party verification of meter calibration and fuel measurements to prevent errors or manipulation.
“You have to have a third party who makes sure that what you are paying is what you should pay,” he said.
Colón noted that gas transfers are measured through certified meters, not manual readings, but agreed that independent verification should be incorporated into compliance audits. He added that Genera is contractually obligated to keep gas-fired units available to meet minimum consumption levels.
If the units were offline due to failures attributable to Genera, he said, consumers should not bear the cost of any take-or-pay penalties.
Renewable Energy and Dispatch Constraints
LUMA explained that renewable generation contracts require solar and wind resources to be dispatched first, limiting the hours available for gas-fired units. Even so, LUMA said dispatch decisions remain based on unit availability and cost, and that gas-fired units are incorporated whenever possible.
The company acknowledged that it has conducted analyses of whether minimum consumption levels can be met but stressed that dispatch cannot override contractual obligations tied to renewables.
Officials also provided a detailed explanation of the tolling agreement and take-or-pay provisions. Colón described the tolling fee as the charge for using New Fortress’s LNG infrastructure, from ship unloading and regasification to cryogenic trucking and delivery into generation units. The contract allows third-party suppliers to use New Fortress’s infrastructure when the company cannot deliver gas, but the company refuses to activate the tolling fee clause to allow another supplier to deliver natural gas.
The take-or-pay clause, Colón said, is standard in LNG contracts because unused gas is lost due to boil-off (the natural evaporation that occurs when liquefied gas warms).
Expanding the Federal Lawsuit
Because of the stalemate that has prevented New Fortress from delivering gas, officials from 3PPO confirmed during the regulatory hearing that they are evaluating additional claims that could be folded into the existing federal lawsuit against NFE filed in June.
The suit, currently seeking $54 million, stems from alleged failures by NFE to deliver natural gas as required under the LNG contract between October 2024 and October 2025, forcing the system to burn more expensive diesel.
During the session, the 3PPO acknowledged that it has identified “certain incongruences” in the contract’s execution and has already discussed those findings with Genera PR, the operator of PREPA’s generation fleet.
According to 3PPO, these issues may justify expanding the scope and monetary value of the federal complaint.
