On August 13, Tropical Storm Ernesto rapidly intensified just before hitting Puerto Rico and the Virgin Islands. The intensification and trajectory merited a hurricane warning for the Virgin Islands as well as the island municipalities of Vieques and Culebra. Despite not making landfall in either archipelago, Ernesto brought with it winds of up to 50 miles per hour (80.5 kilometers per hour) and up to 10 inches (25.5 cm) of rain to Puerto Rico. The next day, Wednesday, August 14, Puerto Rico woke up with 728,000 clients (almost half) without electricity, thousands without drinking water (because many communities rely on electricity to pump water), and flood warnings throughout the island.
Fortunately, no deaths were reported due to the passage of the storm. But the fragile state of Puerto Rico’s energy infrastructure is not lost on anyone. Seven years after hurricane María devastated Puerto Rico and resulted in the largest power blackout in U.S. history (80% of power was knocked out and some residents didn’t get power back for a year), once again the island’s residents have been forced to experience a crippling power outage affecting at least half the population. Our population is forced to throw away perishable foods, cannot use dialysis machines for patients at home, and cannot cool their homes from the dangerous heat after the storm.
Private electricity companies operate with zero accountability for non-compliance with minimum performance conditions
LUMA, the private consortium in charge of electricity distribution, is not capable of reliably maintaining vital electric service on the island. The most recent proof of this prior to tropical storm Ernesto occurred in June of this year, when more than 340,000 subscribers were left without electricity in the midst of a terrible heat wave. This prompted the energy regulatory body, the Puerto Rico Energy Bureau (NEPR), to demand explanations from LUMA for the 19% increase in power outages between 2023 and 2024.
And why so many outages? Laughably, LUMA says it took on the task of removing overgrown vegetation, since this is “the main cause of service interruptions in Puerto Rico,” a misleading statement according to the Center for Investigative Journalism (CPI). According to LUMA, if the foliage is not to blame, then the fauna is: mice, iguanas, cats, and monkeys are all suspected of causing the blackouts on the island. Everything except its own incompetence and negligence.
It is infuriating that seven years after Hurricane María, after the $750 million cushion that taxpayers in Puerto Rico were forced to contribute so that LUMA could enter the market, after firing the experienced line workers and dismissing their union contracts, after at least seven increases in the electricity rates (after LUMA promised that there would be no such increases), Puerto Rico does not have reliable electricity at prices that the majority of our people can afford.
One reason is that LUMA is allowed to operate in the most outrageous way possible, starting with all the irregularities mentioned above related to the contract and workforce, to its regulatory entities, the NEPR and the Authority for Public-Private Partnerships (AAPP), who are very soft in their oversight of LUMA.
LUMA fails by far in its performance metrics. For example, the average duration of blackouts in Puerto Rico between April 2023 and March 2024 was 1,414 minutes, or almost 24 hours (the average in the United States in 2022 was almost 6 hours). The NEPR established that for LUMA to be in compliance, it must not exceed 1,243 minutes (20.7 hours).
The CPI investigated to find out what would happen in case of non-compliance with the minimum performance conditions that would cause the cancellation of the LUMA contract, but the NEPR and the AAPP passed the hot potato to each other and avoided answering clearly and accurately how long LUMA can breach its contract without its being cancelled. At the moment, LUMA operates under an extension without a term to the original contract that expired in November 2022 granted by Governor Pierluisi, a contract that does not have any penalty for non-compliance to LUMA. It is truly crazy.
What awaits Puerto Rico with Genera in charge of electricity generation?
After Hurricane María, the federal government and the Fiscal Oversight Management Board (FOMB, appointed by Congress through the PROMESA law), decided that the Puerto Rico Electric Power Authority (PREPA) should be privatized before funds from FEMA and other federal agencies for grid reconstruction could be disbursed (read here, in Spanish the story of the politicization and slow-motion destruction of PREPA since the 1950s that led to the privatization of the energy system). This was an ill-advised move given the disastrous privatization experience with not one, but two water utility management private companies in the 1990s.
Back then, those contracts were canceled by the Puerto Rican government for failing to improve service and meet minimum performance standards. That was only possible because the privatization contracts had clauses that allowed Puerto Rico to rescind them in case of bad performance, and at least those two companies had actual experience in managing water delivery systems. But those lessons were not heeded, and in June 2023, PREPA handed over the operation of its generation fleet to the private company Genera.
New Fortress Energy (NFE), Genera’s parent company, has no experience with renewables and specializes in methane gas. NFE highlighted four themes in their pitch as selected by the AAPP. First, they said, consumers would reap significant cost savings through fuel management and operations optimization. Second, they promised improved reliability and efficiency of the generation system with a focus on distributed energy and microgrids; Third, they said they would retire obsolete plants while simultaneously ensuring reliable, low-cost, and cleaner generation at load centers to support the transition to renewable energy; and fourth, they made a commitment to local hiring and plans to recruit, train, and incentivize employees.
In a report this year to its shareholders, New Fortress Energy leadership stated its plan to replace the aging generating fleet in Puerto Rico with methane gas units, saying that solar power and storage would be complementary to the generation mix. Clearly, there is not a clear pathway for Genera to advance the transition towards renewables that is critically needed in the Puerto Rican grid and is also mandated by the 2019 Energy Public Policy Law.
One year after taking over, Genera says that fuel management and operations optimizations will produce savings of $875 million between now and 2028 and that half of the savings would go to PREPA to reduce consumer bills. The company says it is focused on stabilizing and increasing generation, which fluctuates widely and often causes blackouts when aging generating units go out of service. But the fact is that Genera, like LUMA, does not have the personnel with the knowledge to operate and maintain the plants because they fired them, ignoring PREPA labor union UTIER’s collective bargaining agreements. And their specialization in methane gas means that they have an obvious incentive to promote fossil fuels and not renewables.
After Tropical Storm Ernesto passed, the generation deficit that Genera seems unable to overcome was evident. On Thursday night after Ernesto, a fire at a substation left nearly 100,000 customers without service in the Carolina region. The next day, the Aguirre power plant in the south went offline, leaving around 100,000 more customers without power. To top it off, on Tuesday, nearly a week after Ernesto, another 100,000 were left without power during peak consumption hours in a repeat of the failures at Aguirre.
What do LUMA and Genera do with the money they receive from Congress and the people of Puerto Rico?
LUMA’s budget for fiscal year 2024-2025 is $693 million, provided by the government of Puerto Rico and earmarked for the operation and maintenance of the electric transmission and distribution system. LUMA also charges an annual fee to operate the system, the total of which is expected to add up to $500 million between 2021 and 2025. However, LUMA has postponed its maintenance plans, as in June it suspended plans to make improvements to some 100,000 lighting poles, repair underground circuits, and mitigate fires, a project valued at $65 million due to “budgetary problems.” LUMA says that in addition to those $65 million, they are missing another $45 million to be able to carry out the improvements.
Genera’s contract provides $15 million for transition expenses and an annual fee of $22.5 million for the first five years, which will be reduced after the fifth year to a minimum of $5 million. It also includes incentives of up to $100 million for savings on operating expenses, compliance with occupational safety standards and environmental and fuel purchase recommendations. What the contract does not include are incentives or penalties related to meeting renewable energy generation goals of a minima of 40% by 2025, 60% by 2040 and 100% in renewable sources by 2050, as mandated by the 2019 Energy Public Policy Act.
Generation units will continue to be owned by PREPA because Genera will only be responsible for the operation, maintenance and eventual retirement of obsolete units, which raises much concern about the emphasis that Genera will place on the development of renewable energy.
Puerto Rico needs renewable energy
The climate crisis, public debt, rate hikes, and dependency on fossil fuels strangle the bottom line for Puerto Ricans. The mismanagement and lack of oversight of the Puerto Rican energy system occurs in the context of an unprecedented climate crisis that brings more destructive storms to the Caribbean, which intensify rapidly in short periods of time, and which bring more rain.
The islands, sovereign or not, pay high and highly variable costs for fossil fuels, largely due to the volatility of their prices in global markets. Fossil fuels account for 94% of electricity generation in Puerto Rico. These costs are the main reason for the multiple increases in rates according to LUMA. Agreed. So, why not transition to renewable sources? Renewable energy can solve the uncertainty in the face of fluctuating fossil fuel prices.
The following graph shows the cost per kilowatt-hour for residential electricity consumption in Puerto Rico and the United States. Clearly, these costs are much higher in Puerto Rico. These prices include increases in bills and fuel costs.
Priorities must be established that benefit the people of Puerto Rico, not private interests
Another important context is that the FOMB, which has absolute control over Puerto Rico’s budgets and plans, prioritizes Puerto Rico’s creditors and not the energy system. In its fiscal plan to restructure PREPA’s debt, the FOMB recognizes that rate increases could be used to transform the energy grid into a modern, efficient, and clean (i.e., fossil-free) entity. But in the same statement they choose to use the money from the rate increases to pay creditors. One of the principles of a bankruptcy plan should be to give PREPA the necessary resources to provide quality electric service, so the board should set aside funds for this before paying creditors.
LUMA, Genera, the FOMB, lack of accountability, climate change. The unsustainable situation in the electrical system and the risks to which it exposes the population of Puerto Rico have been aggravated by handing over the electric generation, transmission and distribution resources to private interests with zero accountability mechanisms, who were welcome with open arms to come and profit from the millions of dollars allocated by FEMA after Hurricane María. Even though Puerto Rico’s 2019 Energy Public Policy Act mandates substantial progress in renewable energy goals sources by 2050, it barely reaches 5% today.
Currently, Puerto Rico has 14 billion dollars ($14,000,000,000) in federal funds to rebuild the electrical grid. The problem is not so much the availability of funds, but rather the implementation by the public and private agencies mentioned, which obtusely ignore studies such as Queremos Sol and PR100 that demonstrate the viability of reducing hydrocarbon imports while meeting energy demand in Puerto Rico.
Clearly, the privatization of generation, transmission, and distribution into private hands has contributed to exacerbating the underlying problem, which is the stubborn insistence on hydrocarbons and the lack of investment in the transition to renewable sources. By handing over the grid to private interests, as recent administrations in Puerto Rico and the FOMB have done, they have enabled the parent companies of LUMA and Genera to profit from millions of federal dollars without having the authority or willingness to address the underlying issues in terms of the needs of Puerto Ricans.
The energy crossroads in which Puerto Rico finds itself is complex, and here I have only outlined some of its characteristics. The solutions lie within a large and complex web of federal and Puerto Rican agencies, multinational companies, and communities in Puerto Rico, but they should follow a very simple logic: prioritize the stability of the electrical system to ensure its functionality both in everyday life in Puerto Rico and during emergency situations such as storms, hurricanes, and floods—events that will become increasingly destructive as climate change progresses.
Here are some potential solutions:
- The combined $14 billion dollars available to LUMA and Genera must be spent wisely so that PREPA can be resourced to provide adequate electricity services;
- NEPR and AAPP have to fulfill their oversight function, clarify the minimum performance conditions to maintain the LUMA and Genera contracts, and establish and enforce penalties for poor performance;
- Respect UTIER’s collective bargaining agreements and rehire Puerto Rican union workers with the experience and knowledge to keep the system running;
- The FOMB must allocate, in its debt adjustment plan, a sufficiently large amount to enable the transition of the AEE to a modern and efficient company, with a clear path towards compliance with the Energy Public Policy Act.
- Integrate into the search for renewable energy solutions the community-led expertise and science in studies such as Queremos Sol and PR100, made up of broad coalitions of vulnerable communities, scientists, community-based renewable energy experts, and private sector actors.