The 13th of August, the tropical storm Ernesto rapidly intensified just before hitting Puerto Rico and the Virgin Islands. The intensification and trajectory warranted a hurricane warning for the Virgin Islands as well as the municipalities of Vieques and Culebra.
Despite not making landfall in either archipelago, Ernesto brought winds of up to 50 miles per hour (80.5 kilometers per hour) and up to 10 inches (25.5 cm) of rain in Puerto Rico. The day after, Puerto Rico woke up to more than 728,000 subscribers (almost half of the total) without electricity, thousands without drinking water (due to many communities relying on electricity to pump water), and flood alerts throughout the island.
Fortunately, no deaths were reported due to the storm. However, the fragile state of Puerto Rico’s energy infrastructure is evident. Seven years after Hurricane Maria devastated Puerto Rico and resulted in the largest and most extensive power outage in U.S. history (80% of the population was left without power and some communities were without service for a year), once again the island is facing debilitating blackouts affecting half of the population.
Our population is forced to discard perishable food, many cannot use medical equipment to dialyze patients at home, or cannot cool off in their homes in dangerous heat after the storm.
Private electric companies operate without supervision or penalty for failing to meet obligations and service levels
LUMA, the private consortium in charge of electric distribution, is unable to maintain the vital electrical service reliably on the island. The most recent test prior to Tropical Storm Ernesto occurred in June of the current year, when more than 340,000 subscribers were left without power amid a severe heatwave. This worries the energy regulatory entity, the Puerto Rico Energy Bureau (NEPR), which recently demanded explanations from LUMA for the 19% increase in interruptions in the electric service between 2023 and 2024.
And why so many interruptions? Ridiculously, LUMA says it undertook the task of removing neglected vegetation since it 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 blame is not on the foliage, it is on the fauna: mice, iguanas, cats, and monkeys are all suspects of causing outages on the island. Everything but their own incompetence and negligence.
It is enraging that almost seven years after Hurricane Maria, from the $750 million cushion that taxpayers in Puerto Rico were forced to contribute for LUMA to enter the market, from firing line watchers whose union contracts were ignored by LUMA, to at least seven increases in kilowatt-hour rates (after LUMA promised that there would be no such increases), Puerto Rico still does not have reliable electricity at prices that most of our people can afford.
And the fact that LUMA is allowed to operate in the most absurd way possible, starting with all the irregularities mentioned above related to the contract and personnel, to the supervisory entities, the NEPR and the Public-Private Partnerships Authority (AAPP), who are very lenient in their oversight of LUMA. LUMA falls far short 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 U.S. 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 inquired to find out what would happen in case of non-compliance with the minimum performance conditions that would trigger the cancellation of LUMA’s contract, but the NEPR and the AAPP passed the hot potato to each other and avoided answering clearly and precisely until when LUMA can breach its contract without it being canceled.
At the moment, LUMA operates under an indefinite extension to the original contract that expired in November 2022 and granted by Governor Pierluisi, a contract that does not have any penalties for non-compliance to LUMA. It is truly madness.
What awaits Puerto Rico with Genera in charge of electric generation?
After Hurricane Maria, the federal government and the Fiscal Oversight Management Board (FOMB) established by Congress through the PROMESA law, determined that the Electric Power Authority (AEE) would be privatized before it could receive federal funds from FEMA and other federal agencies to rebuild the grid.
This was a reckless decision, given the disastrous privatization experiment with not one, but two private water service management companies in the 1990s. Back then, those contracts were canceled by the government of Puerto Rico for not improving the service or meeting minimum performance requirements. This was only possible because the privatization contracts included clauses that allowed the government of Puerto Rico to terminate them in case of poor performance; at least those two companies had experience in managing drinking water systems. But those lessons were not taken into account, and in June 2023, the AEE handed over the operations of its generation fleet to the private company Genera.
New Fortress Energy, the parent company of Genera, has no experience in renewable energy and specializes in methane gas. New Fortress highlighted four themes of the proposal selected by the AAPP. First, it noted that it would achieve significant cost savings for consumers by managing fuel and optimizing operations. Second, it would improve the reliability and efficiency of the generation system with a focus on distributed energy and microgrids. Third, it would retire obsolete plants, guaranteeing reliable, low-cost, and cleaner generation at load centers to support the transition to renewable energy. Finally, it said it was committed to local hiring and had plans to recruit, train, and incentivize employees.
In a report this year to its shareholders, the leadership of New Fortress Energy stated its plan to replace the obsolete generating fleet in Puerto Rico with methane gas units, and that solar energy and storage would be complementary. In other words, it is not clear how Genera’s management will advance the mandate of a minimum of 40% by 2025, 60% by 2040, and 100% generation based on renewable sources by 2050, as mandated by the 2019 Public Policy Energy Law.
A year after taking over, Genera says that through fuel management and operational optimization, they would produce savings of $875 million by 2028, with half of the savings going to the AEE to reduce costs to consumers. The company claims to be focused on stabilizing and increasing generation, which fluctuates significantly and often causes blackouts when the obsolete generation units go out of service. But the fact is that Genera, like LUMA, lacks the staff with the knowledge to operate and maintain the plants because they fired them by disregarding the collective bargaining agreements of the UTIER workers’ union. And their specialization in methane gas is an obvious incentive to promote the expansion of fossil fuels rather than renewable sources.
After Tropical Storm Ernesto, the generation deficit that Genera does not seem to be able to overcome was evident. During Thursday night after Ernesto, a fire in a substation left nearly 100,000 subscribers in the Carolina region without service, and the next day the Aguirre Power Plant in the south went out of service, leaving about 100,000 subscribers without power. To top it off, on Tuesday, almost a week after Ernesto, another 100,000 were left without power during peak consumption hours when the breakdowns at Aguirre recurred.
What are LUMA and Genera doing with the money they receive from Congress and the people of Puerto Rico?
LUMA’s budget for the fiscal year 2024-2025 is $693 million, provided by the government of Puerto Rico and intended for the operation and maintenance of the electric transmission and distribution system. LUMA also charges an annual fee for operating the system, the total of which is expected to amount to $500 million between 2021 and 2025.
However, LUMA has postponed its maintenance plans since in June it suspended plans to make improvements to about 100,000 lighting poles, repair underground circuits, and fire mitigation, a project valued at $65 million for “budgetary reasons.” LUMA says that in addition to those $65 million, they need another $45 million to be able to carry out the improvements.
Genera’s contract grants it $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 saving in operational expenses, compliance with occupational safety standards and environmental and fuel procurement recommendations. What the contract does not include are incentives or penalties related to compliance with renewable generation goals as mandated by the Public Policy Energy Law. The generation units will continue to be owned by the AEE because Genera will only be responsible for the operation, maintenance, and eventual retirement of obsolete units, which contributes to concerns about the emphasis that Genera will place on renewable energy development.
Puerto Rico needs renewable energy
The climate crisis, public debt, endless rate hikes, and dependence on fossil fuels are strangling the people of Puerto Rico. All this 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 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. 94% of electricity generation in Puerto Rico is carried out with fossil fuels. These costs are the main reason for the multiple rate increases according to LUMA. 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, largely due to the cost of purchasing fossil fuels – something LUMA does not control.
The costs of residential rates for electricity consumption have increased dramatically in Puerto Rico and are much higher than the average cost in the United States. Note the steep jump just after Hurricane Maria and the upward trend since 2021. Data Source: Energy Information Administration Form https://www.eia.gov/electricity/data/eia861m/
Priorities must be established for the benefit of the people of Puerto Rico, not individual interests
Another important context is that the Fiscal Oversight Management Board, which has absolute control over Puerto Rico’s budgets and plans, prioritizes Puerto Rico’s creditors over the energy system. In its fiscal plan to restructure the AEE’s debt, the Board acknowledges that rate hikes could be used to transform the energy network into a modern, efficient, and clean entity (i.e., free of fossil fuels). But in the same statement, they opt to use the money from the rate hikes to pay the creditors. One of the principles of a bankruptcy plan would be to leave the AEE with the necessary resources to provide a quality electric service so the Board should allocate funds for that before paying the creditors.
LUMA, Genera, the Board, lack of oversight, climate change. The unsustainable situation in the Puerto Rican energy system and the risks it exposes the Puerto Rican population to have been exacerbated by the delivery of the production, transmission, and distribution energy system to private interests without real oversight, who were given the opportunity to profit from the millions of dollars allocated by FEMA after Hurricane Maria. Despite the Public Policy Energy Law creating mandates to substantially increase generation based on renewable sources by 2050, it only reaches 5% today.
At present, Puerto Rico has $14 billion in federal funds to rebuild the power grid. The problem is not so much the availability of funds, but the implementation by the mentioned public and private agencies, which obtusely ignore studies like Queremos Sol and PR100 that demonstrate the feasibility of reducing hydrocarbon imports while meeting Puerto Rico’s energy demand.
Clearly, the privatization of generation, transmission, and distribution into private hands has contributed to exacerbating the underlying problem of stubborn insistence on hydrocarbons and lack of investment in transitioning to renewable sources. With the delivery to private interests that recent governments in Puerto Rico and the Board have made of the energy heritage, they have enabled the parent companies of LUMA and Genera to profit from millions of federal dollars but without the authority or willingness to address the underlying issues in line with the needs of Puerto Ricans.
Solutions
The energy crossroads in which Puerto Rico finds itself is complex, and here I have only outlined some of its characteristics. The solutions lie in a large and complicated tangle 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 electricity system to ensure its operation both in everyday life in Puerto Rico and during emergency situations such as storms, hurricanes, floods – events that will become increasingly destructive as climate change progresses.
Here are some possible solutions:
The $14 billion available to LUMA and Genera must be invested wisely so that the AEE has the necessary resources to provide a reliable electric service;
NEPR and AAPP must fulfill their oversight function, clarify what the performance conditions are to maintain the contracts of LUMA and Genera, and establish and enforce penalties for underperformance;
Respect the collective bargaining agreements of UTIER and hire Puerto Rican union workers with the experience and knowledge to keep the system running;
The Fiscal Oversight Management Board must allocate, in its debt adjustment plan, a sufficiently large amount to enable the AEE to transition to a modern and efficient company, with a clear path to compliance with the Public Policy Energy Law;
Integrate community experience and the science of studies like Queremos Sol and PR100 into the search for renewable energy solutions, made up of broad coalitions of vulnerable communities, scientists, renewable energy experts at the community level, and private sector actors.
