King & Spalding advised the Puerto Rico Electric Power Authority (“PREPA”) in the negotiation of a fuel supply and facility conversion agreement with New Fortress Energy LLC affiliate NFEnergía LLC (“NFE”), providing for the supply of natural gas and conversion of two of PREPA’s electric generating facilities.

PREPA took a major step toward the renewal, modernization and transformation of Puerto Rico’s electric system by executing a Fuel Sale and Purchase Agreement with NFE. The NFE contract is valued at approximately $1.5 billion. It commits NFE to fund and complete the conversion of two PREPA electric generating facilities (San Juan Units 5 and 6), to burn natural gas as their primary fuel, and to supply natural gas delivered to Puerto Rico by vessel in the form of liquefied natural gas, or LNG, for an initial term of five years. The conversion of the two San Juan units is expected to be completed by July 2019 and natural gas will displace costlier and environmentally undesirable diesel fuel in Units 5 and 6 by late summer 2019. PREPA has estimated that the NFE agreement will generate energy production cost savings of as much as $750 million.

PREPA issued a request for proposals for the conversion of Units 5 and 6 and for the supply of natural gas to them in mid-2018. In December 2018, PREPA announced that NFE was the winning proponent. King & Spalding was brought in to represent PREPA in the negotiation and documentation of the Fuel Sale and Purchase Agreement. The agreement (really, two agreements, one in effect an engineering, procurement and construction contract, and the other a long-term LNG supply agreement) was negotiated and finalized in just over three weeks. As finalized, the agreement is likely the most flexible LNG/gas supply agreement in existence in the world today, in that it places no annual or other long-term off-take commitments on PREPA, allows PREPA to nominate gas deliveries for a given month on a month-ahead basis, and includes no take-or-pay commitment. It was reviewed and approved by the Puerto Rico Energy Bureau and the Financial Oversight and Management Board for Puerto Rico, the latter on Monday, March 4.