Five questions for a House committee about Puerto Rico energy security

On Wednesday, the U.S. House of Representatives Natural Resources Committee will hold an oversight hearing on Puerto Rico’s electrical system and the LUMA Energy grid privatization contract. Since LUMA Energy took over the island’s transmission and distribution system operations on June 1, electrical service in Puerto Rico has deteriorated even further—including unacceptably long outage repair times and voltage surges that damage equipment and appliances that were analyzed last month by the Institute for Energy Economics and Financial Analysis (IEEFA). The problems stem from LUMA Energy’s failure to hire thousands of skilled former electrical system workers from the Puerto Rico Electric Power Authority (PREPA); the workers have since been transferred to other government agencies to perform unrelated jobs.

Compounding the electrical system problems, there have been periodic rolling blackouts in recent weeks resulting from power plant outages, due to the ongoing and worsening failure to adequately fund maintenance of power plants owned and operated by PREPA. Back in 2016, consultants to the Puerto Rico Energy Bureau warned that PREPA’s generation budget had “not been consistent with operation of a safe and reliable system since at least FY2014.” Yet the generation maintenance budget has not increased since that warning, staying slightly below $100 million for the last several years. In the most recent quarter, PREPA spent only $16 million (or an annualized amount of $64 million).

Protests are expected in the coming days and weeks due to the power outages resulting from the combination of generation problems and LUMA Energy’s inability to properly manage the transmission and distribution system.

On top of this, LUMA Energy recently sought a rate increase of 2.5 cents per kilowatt-hour due to fossil fuel costs, which was partially granted. Despite all the talk of renewable energy after Hurricane Maria, Puerto Rico continues to get 97% of its electricity from fossil fuels. Both petroleum and natural gas prices continue to rise, and this is compounded by the generation problems that have led to the use of more inefficient and expensive units.

The Oct. 6 Natural Resources Committee hearing on Puerto Rico’s electrical system and the LUMA Energy contract is timely. This hearing needs to be the start of a thorough investigation into LUMA’s performance, how they were chosen for this contract over more qualified bidders, and their ability to manage billions of dollars of taxpayer dollars headed towards Puerto Rico’s electrical system. Members of Congress should also ask questions about why federal funds have not been earmarked for renewable energy, despite the obvious need to transition from Puerto Rico’s expensive and unreliable oil and natural gas plants. Here are five questions that IEEFA would like answered on Wednesday:

1. Why did the LUMA privatization result in thousands of skilled electrical workers being assigned to other government agencies where their skills are wasted, and what plans are there to put this human resource back to work in repairing and rebuilding the electrical system?
2. Given that service has deteriorated in the months since LUMA took over the operation of PR’s grid, what oversight actions are being taken to ensure that LUMA is capable of managing billions of dollars of federal funds?
3. What plans are there to maximize the development of solar energy in Puerto Rico, including using federal resources to invest in rooftop solar?
4. Why is there a continual push to increase the amount of natural gas in the system when prices are so volatile?
5.   Will the government of Puerto Rico impose an independent private sector inspector general within PREPA to put a stop to the agency’s long history of waste, contracting scandals, and misallocation of funds?

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

Related items:

IEEFA. Paying for Failure: High Fees for Finance Consultants Shortchange Puerto Rico Electrical Grid, April 2021.

IEEFA. Testimony of Tom Sanzillo, Puerto Rico House of Representatives Commission on Economic Development, Planning, Telecommunications, Public-Private Partnerships and Energy, April 2021.

IEEFA. Contract Between Puerto Rico, LUMA Energy Sets up Full Privatization, Higher Rates for Island Grid, October 2020.