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IEEFA U.S.: Hearing on Puerto Rico grid plans fails to ask question: Why?

October 08, 2021
Tom Sanzillo

Many questions were raised at the Oct. 6 U.S. House of Representatives Natural Resources Committee hearing on Puerto Rico’s electrical system. The topic: How billions of dollars of Federal Emergency Management Agency (FEMA) funds destined for Puerto Rico’s grid will be spent.


Since the LUMA takeover, electrical service has deteriorated


Currently, the government of Puerto Rico has earmarked no federal funds for renewable energy and storage. If it followed its own plans, no money would be spent on any projects other than renewable energy until all strategies to maximize renewable energy have been exhausted. 

Early in the hearing, representatives of the Puerto Rico Electric Power Authority (PREPA) dodged the question of whether the funds would be spent in accordance with Biden administration climate policy, i.e., to support a rapid decarbonization of Puerto Rico’s electrical system. 

Later in the hearing, there was agreement between Puerto Rico’s non-voting member of Congress, Resident Commissioner Jenniffer González-Colón, and PREPA’s new chief executive CEO that some FEMA funds should be spent on new liquefied natural gas (LNG) projects. They ignored the fact that natural gas prices are increasing and that PREPA’s contract with New Fortress Energy to bring gas to its San Juan power plant has exceeded its budget. Clear, professional plans for renewable energy have been designed, approved by the island’s regulators and included in PREPA’s budget by the oversight board. If followed, there would be no need for natural gas plants that are more expensive and pose greater risks during hurricanes. 

The federal funds destined for the electrical system will be managed by LUMA Energy, the private operator that took over management of PREPA on June 1. Since the LUMA takeover, electrical service has deteriorated on the island. When LUMA took over, the Puerto Rico Public-Private Partnerships (P3) Authority became the oversight entity representing the government of Puerto Rico and the ratepayers. The executive director of the P3 Authority acknowledged that power outages “appear to have worsened” under LUMA. The LUMA chief executive also acknowledged that the duration of outages has increased. He said fewer than one-third of former PREPA workers took jobs with LUMA, representing a loss of thousands of workers with years of experience and training on Puerto Rico’s electrical system.


It’s a bad plan carried out by poor manager


The hearing clarified that the government of Puerto Rico is proceeding to use $14 billion in federal funds to rebuild its electricity grid, but it’s a bad plan carried out by poor managers. The plan being followed by the government does not meet the Biden administration’s climate goals, ignores a regulator-approved grid buildout that includes renewable energy and chooses a more expensive alternative. The plan is being carried out by LUMA Energy, a private company with an inadquate workforce that has managed to make things worse in a short time.

We already know how this story ends. 

The only question not answered at the hearing is, why does it have to end this way?

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


Related items:

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

IEEFA. IEEFA U.S.: Testimony shines light on additional problems with Puerto Rico LUMA deal, April 2021.

IEEFA/CAMBIO. We Want Sun and We Want More: 75% Distributed Renewable Generation in 15 Years in Puerto Rico Is Achievable and Affordable. March 2021. 

IEEFA. News alert: IEEFA calls on FEMA to reject funding new natural gas plants in Puerto Rico. January 2021.

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

Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures.

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