MIL-OSI Energy: IEEFA U.S.: Testimony shines light on additional problems with Puerto Rico LUMA deal

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Source: Institute for Energy Economics and Financial Analysis

Grid privatization contract suffers host of issues likely to result in higher prices for islanders

April 6, 2021 (IEEFA) ⎼ New research has revealed major problems in the procurement process that resulted in the selection of LUMA Energy to operate Puerto Rico’s electrical grid, according to testimony given today to a Puerto Rico House of Representatives committee.

Tom Sanzillo, director of financial analysis at the Institute for Energy Economics and Financial Analysis (IEEFA), told Puerto Rican lawmakers that an October IEEFA report already found that the deal to outsource the island’s grid management to a private company lacked sufficient oversight; hid additional costs; lacked performance metrics; and mismanaged the utility’s workforce.

And since that report was released, Sanzillo said, additional issues have come to light. “The way the contractor was selected raises several disturbing questions,” he said.

New questions raised by Sanzillo, a former New York State deputy comptroller, include:

  • How did four of the five members of the “partnership committee” charged with evaluating the bids presented by LUMA Energy and another company in response to Puerto Rico’s RFP for the contract arrive at identical scores in 37 of 38 categories?
  • Was the Puerto Rico Public-Private Partnerships (P3) Authority aware that Quanta Services, a Houston-based company that makes up one-half of LUMA, lobbied federal officials on PREPA-related issues while competing for the privatization contract? Puerto Rican law prohibits lobbying federal officials during a relevant procurement process unless explicitly permitted by the P3 Authority.
  • How does PREPA plan to pay back the $894 million loan from the commonwealth government that the Financial Oversight Management Board for Puerto Rico now says will be needed to ensure expenses are covered? Why has this cost not been factored into any published budgets related to the contract?
  • How is LUMA proposing to achieve the vaguely specified “efficiencies” in its budget that are supposed to save $110 million by 2024—and that are critical to LUMA keeping its promise not to raise rates during the first three years of the contract?
  • As the entity that will be responsible for administering billions of dollars of federal funds for electrical system reconstruction in Puerto Rico under a contract that contains no incentives or penalties related to renewable energy metrics, can LUMA Energy be depended upon to help Puerto Rico meet its renewable energy goals?

“Given the many hidden costs of the contract and the lack of accountability to achieve any level of savings, it is virtually certain that rates will go up, not down,” Sanzillo said. “The contract is not in the best interests of the people of Puerto Rico and should be cancelled.”

Full testimony: Testimony of Tom Sanzillo – Before the Puerto Rico House of Representatives Commission on Economic Development, April 6, 2021

(Spanish translation): Testimonio de Tom Sanzillo – Ante la Comisión de Desarrollo Económico, 6 de abril de 2021

Exhibits: Related to testimony of Tom Sanzillo to Puerto Rico Commission on Economic Development

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.

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