IEEFA U.S.: Selection of Puerto Rico privatization contract winner based on identical scores, identical mistakes

An objective analysis of the award of a 15-year privatization contract for Puerto Rico’s electrical system to LUMA Energy raises numerous red flags about the integrity of the process.

LUMA is scheduled to take over the non-generation functions of the Puerto Rico Electric Power Authority (PREPA) on June 1, including transmission, distribution, billing, customer service, and managing over $14 billion in federal funds.

The Puerto Rico Public-Private Partnerships (P3) Authority was responsible for selecting LUMA—a partnership of Houston-based Quanta Services and the ATCO Group of Calgary—based on proposals submitted by LUMA and the Public Service Enterprise Group (PSEG). 

A five-member committee evaluated the bids, selected LUMA and negotiated the contract. The contract was then approved by the board of directors of the P3 Authority, the PREPA board, the Puerto Rico Energy Bureau, the Financial Oversight and Management Board for Puerto Rico, and the governor.

The evaluation committee reviewed both technical and financial metrics.  What’s surprising is that four of the five members of that committee arrived at identical numerical scores in 37 of the 38 categories used to evaluate the bids. Three of the members even made the same numerical error in tallying their scores; the individual scoring sheets are attached as an exhibit to my testimony to the Puerto Rico Legislature.

Several members of the committee noted that their scores were based on a report by FTI Consulting, a Washington, D.C.-based consulting firm hired by the P3 Authority. The report provided specific scores related to financial metrics.  The ratings of four members were identical to those found in the FTI report for the financial factors.  Based on the information IEEFA received, there is no clear explanation why the technical metrics were also identical. 

On the basis of those scores, the P3 executive director recommended to the committee that they select LUMA as the winning bidder. Although the committee’s final report claimed its decision took place at a meeting, it was in fact a unanimous, up-or-down vote over email.

As I testified to the Puerto Rico Legislature, the consultant-driven process is an improper way to select a contractor. Committee members should have exercised independent judgment. Their scores and qualitative assessments should have represented their own views developed after they reviewed the contract submissions. Their analysis could reasonably be assisted by outside parties, like FTI. However, the conclusions and recommendations of each committee member should have been based on their own judgment, unimpaired by any outside third party.

Instead, it appears that the entity largely responsible for awarding this contract to LUMA Energy was FTI Consulting, not the members of the committee. It also remains to be seen why the committee’s scoring on the technical components of the evaluation were exactly the same for four of the five members.

This is not the first time that off-island consultants, who are not accountable to the people of Puerto Rico, have played an outsized role in major electrical system decisions. The award of a major natural gas contract to New Fortress Energy in 2019 raised similar questions, as described in an IEEFA report last year. This also is not the first time that Puerto Rico has been faced with electrical system contracting scandals, including the Whitefish contract for grid reconstruction after Hurricane Maria and a decades-long oil contracting scandal.

If Puerto Rico is going to move forward with transforming its electrical system to one that is affordable, resilient and based on renewable energy—the government’s stated goals—it will need to fix the basics and restore integrity to its contracting processes.

Tom Sanzillo ([email protected]) is IEEFA’s director of financial analysis.

Comentario en español: Selección del ganador del contrato de privatización de Puerto Rico basado en puntuaciones idénticas, errores idénticos

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