PREPA Reaches Oil and Gas Deals to Save $55 Million a Year

The Puerto Rico Electric Power Authority reached oil and natural gas purchase deals that will save it $55 million annually.

The $55 million savings would be 2.9% of the authority's fuel expenses in fiscal 2014-2015 and 1.2% of its total expenses, using unaudited figures from its June financial report.

The authority entered into a No. 6 fuel oil supply contract with Freepoint Commodities LLC, which it expects will save the authority $25 million annually, according to a statement released Tuesday. It also committed to a natural gas contract with Natural Gas Aprovisionamientos SDG that it expects will save it $30 million per year.

The new natural gas contract improves its flexibility in handling a potential decline in Puerto Rico energy demand by reducing the minimum volume it commits to purchasing annually by 10%.

"Both the Freepoint contract and the Natural Gas Aprovisionamientos contracts are important steps in PREPA's ongoing transformation," said PREPA executive director Javier Quintana Mendez. "These are direct results of PREPA's commitment to improve its operations by implementing processes and sound management practices that will benefit our clients. PREPA's fuel and procurement teams along with our advisors have worked diligently to secure contracts that provide better terms and conditions."

PREPA has been in a financial crisis since at least the summer of 2014 when it was forced to draw on its debt service reserve to make a bond payment.

PREPA has said it plans for both its creditors and the authority to agree by Sept. 1 to a debt restructuring plan, known as the Restructuring Support Agreement. If the parties do not agree by then, the forbearance will terminate, according to a firm representing the bondholders.

As of June 30 PREPA had $9.4 billion in outstanding debt, of which $8.6 billion was bond debt. A monetary default on the bond debt would put all the bond debt into default, creating the greatest municipal bond default in United States history.

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