IEEFA U.S.: New questions raised about Puerto Rico-LUMA grid privatization contract

April 15, 2021 (IEEFA) ⎼ The Institute for Energy Economics and Financial Analysis is questioning the wisdom of a contract to privatize Puerto Rico’s power grid in a letter to the Financial Oversight and Management Board (FOMB).

In the letter released today, Tom Sanzillo, IEEFA’s director of financial analysis, raised several issues that have come to light since the oversight board approved the LUMA Energy contract last June, including the circumstances surrounding the procurement process and the purported savings promised by LUMA. 

Sanzillo responded to an April 6 FOMB letter that threatened legal action if Puerto Rico political leaders passed bills that delayed or amended the LUMA contract. LUMA, a consortium of Texas and Canadian companies, is scheduled to take over the non-generation functions of the Puerto Rico Electric Power Authority (PREPA) under a 15-year contract on June 1.

IEEFA questioned the lack of independent judgment apparently exercised by Puerto Rican government officials who awarded the contract to LUMA. IEEFA’s review of the procurement record found that four of the five selection committee members gave identical scores to LUMA and one other bidder for the contract in 37 of 38 categories; three of the members made the same mathematical mistake in tallying their scores. Scores recommended by FTI Consulting also appeared to have been copied directly to the scoring sheets. 

Sanzillo questioned the FOMB’s conclusion that the LUMA contract is consistent with plans to provide a path to fiscal balance for PREPA and Puerto Rico. He noted the contract provides no penalties to LUMA for failing to save money or to meet renewable energy goals. 

Finally, IEEFA noted that only 1,300 PREPA employees had applied for 4,000 open LUMA jobs by late March. Under Puerto Rico law, the former PREPA employees will be transferred to other government positions, adding a significant amount to the commonwealth’s labor costs and saving no money.

“In its defense of the LUMA Energy contract, the board is turning a blind eye to some of the same fiscal practices that led the commonwealth into bankruptcy,” Sanzillo said. “These include politically-driven contracting processes; poorly documented cash transfers between commonwealth entities; lack of clarity and accountability for budgetary savings initiatives; failure to prioritize renewable energy; and costly and shortsighted labor management.”

Link

IEEFA Letter to Financial Oversight and Management Board for Puerto Rico

Author contact

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

Media contact

Vivienne Heston ([email protected]) +1 (914) 439-8921.

About IEEFA
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.