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Op-Ed: Puerto Rico officials fail to learn from past hurricanes as Fiona ravages grid

Hurricane Fiona — a Category 1 hurricane that hit the southwest coast of Puerto Rico in September — called attention again to the terrible condition of the island’s grid. Unlike Hurricane María, a Category 5 storm that directly hit the island and destroyed much of its electrical infrastructure, Fiona should not have resulted in an island-wide blackout.

A more comparable storm would be Hurricane Hortense, which made landfall in southwestern Puerto Rico in 1996, causing significant flooding of the island. In that instance, however, only 40% of the island lost power.

The unacceptably slow response to Fiona — power still was not fully restored several weeks afterward — is the combined result of the mismanagement of LUMA Energy, the island’s private grid operator, and the lack of investment in grid improvements after Maria.

Nothing has been done to repair the grid

Fiona also underscored that five years after Maria, almost none of the federal money allocated for permanent work on the electrical grid has actually been spent.

According to a September 2022 Government Accountability Office report, only $40.3 million in Federal Emergency Management Agency (FEMA) funds for the island in the category of “utilities” has been spent, even though more than $12 billion in FEMA funds have been allocated for the reconstruction of the grid.

The oversight of power generation is supposed to be driven by an integrated resource plan approved by the Island’s regulator, the Puerto Rico Energy Bureau (PREB) and implemented by the Puerto Rico Electric Power Authority (PREPA).

The plan calls for an aggressive strategy to expand the commonwealth’s energy portfolio to reach 100% renewable energy by 2040. PREPA is theoretically responsible for the generation buildout. In its first attempt at an expansion of renewable energy, it issued a request for proposals and signed up solar developers — and nothing happened.

The lack of progress led the energy bureau to replace PREPA with a third-party provider. The new team issued another request for proposals this week.

People invest in solar power while public officials stand by
The most significant steps taken to improve the resiliency of the electrical grid since Maria have been the initiatives undertaken by private individuals, communities, and businesses to install rooftop solar and storage. The level of private investment represented by the 43,700 rooftop solar systems installed since Maria is at least 10 times the amount of FEMA funds that have actually been spent on the grid.

There are now more than 54,000 grid-connected solar systems on the island. In the most recent fiscal year ending June 2022, the systems supplied more electricity to homes (3.6% of the island’s electricity consumption) than utility-scale renewable energy projects (2.3% of consumption). However, in the recent certified fiscal plan, PREPA has actually created disincentives to households that install their own solar capacity.

LUMA is not the answer
After Maria, then-Gov. Ricardo Rosselló’s flagship initiative to improve the electrical grid was to privatize it via public-private partnerships. LUMA Energy, a joint venture between Houston-based Quanta Services and Calgary-based ATCO, took over the non-generation functions of the power system (transmission, distribution, administration, power dispatch, billing, etc.) in June 2021.

The partnership has not resulted in any new private investment in the island’s grid, and by introducing a new operator and reconfiguring the oversight of the grid, the Puerto Rico government created new delays in being able to receive post-María federal funds.

LUMA is not required to invest any of its own money in the grid, instead operating under a fee-for-service contract. LUMA’s contract provides it with an annual fixed fee, plus the possibility of earning performance incentives (but no financial penalties for poor performance).

In its second-quarter earnings call, LUMA made it clear that it views its management contract as opening the door for Quanta to be hired to perform federally funded construction work in Puerto Rico.

First, its priority is to collect its management fee and secure incentives for good performance. Although the company is supposed to be focused on grid operations, it is now moonlighting in search of multibillion-dollar construction contracts. Quanta Services has been upfront about its goals, and its contractors are currently in Puerto Rico responding to Fiona; they will be compensated with federal funds over and above their operations contract.

Author Tom Sanzillo is the Institute for Energy Economics and Financial Analysis’ director of finance. Comments to tsanzillo@ieefa.org.

So far, LUMA Energy is doing a poor job with operations. It is worth noting that even after Fiona, LUMA has never attempted to hire or contract the thousands of skilled former PREPA employees who were displaced by the privatization and who collectively have hundreds of years of experience with the island’s electrical system.

Instead, LUMA has continued to rely on an understaffed and inexperienced workforce and to bring in outsiders who have no experience with Puerto Rico’s grid.

Rather than being part of the PREPA team to make sure operations run smoothly and ensuring that a solid oversight apparatus is in place to choose high-quality contractors, LUMA is busy making sure it can game the system and pad its profits.

Third-party oversight needs to replace LUMA
Federal attention has once again turned towards Puerto Rico after Fiona, with President Joe Biden making an Oct. 3 visit to the island. It is clear that five years after María, neither the government strategy of privatization nor the allocated federal funding has been effective in creating a more resilient grid.

Rep. Raúl Grijalva, D-Ariz., has spearheaded a letter from 34 members of Congress to free up $5 billion for rooftop solar. Right now, that is the only initiative that is working — and it is being done by individual homeowners.

The Institute for Energy Economics and Financial Analysis (IEEFA) has repeatedly called for third party oversight of the whole operation. The new arrangement with LUMA, PREPA, PREB and FOMB is falling apart. PREPA has failed to implement the solar energy goals, LUMA is obsessed with seeking big deals for itself, the FOMB is feckless and the PREB has done a good thing replacing PREPA on solar energy.

Still, PREPA’s failure just makes the need for independent oversight even more obvious.

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This story was written by our staff based on a press release.

1 Comment

  1. Jorge Vila November 2, 2022

    Nothing new!


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