The Impact of Recent Privatization of Power Generation in Puerto Rico

Puerto Rico has struggled to maintain sustainable electric power generation for the residents of the island, and its power grid was unable to withstand Hurricane Fiona in September 2022, triggering an island-wide blackout. The natural disaster compounded issues faced by Puerto Rico’s Electric Power Authority which was in bankruptcy at the time. Reportedly, in an attempt to improve the island’s power generation capabilities, Puerto Rico announced on January 25th that it had privatized its electric power production, selecting Genera PR, an independently managed subsidiary of the New York-based energy company New Fortress Inc., to take over the operation and maintenance of the state power generation unit as part of an initial $22.5 million annual contract.

The impact of having a private entity operate and maintain the power grid in Puerto Rico, remains to be seen. One such impact is that it may attract off-shore investment, whether from the U.S. mainland, or from other countries abroad. Private investors may be more likely to invest in (or partner with) a private energy supplier in Puerto Rico, because a private energy provider or consortium may be more reliable with respect to potential future performance under contract. Whether that is the case, remains to be seen.

Puerto Rico’s privatization of the power generation grid may mobilize investment, stimulate private sector development, and bring about other benefits. Indeed, dealing with a private entity may alleviate some of the concerns regarding entry into the Puerto Rican power generation market, and perhaps encourage other companies to partner or joint venture with the new private power producer, to: (i) bring more power to the island to cope with increasing demand, and (ii) revamp the power grid so that it is more resilient and more dependable.

Our International Litigation and Arbitration team provides trusted counsel and vigorous representation protecting our clients’ interests in power generation disputes across multiple jurisdictions, and in various languages. We also recognize important cultural nuances when working across different jurisdictions.

Our practice covers many elements of legal work involved in power generation, from pre-contract strategic advice and negotiation and drafting of Power Purchase Agreements (PPAs), international arbitration agreements (including guidance on choice of forum and law), to risk management, preliminary measures, litigating and defending claims, enforcing arbitration awards and foreign judgments, sanctions analysis, and advising on potential litigation or arbitration strategies in the event the parties are unable to resolve a dispute. 

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