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Puerto Rico’s power authority board takes initial steps to privatize power generation

Semta News
Semta News
5 Min Read

SAN JUAN, Puerto Rico — The governing board of the Puerto Rico Electric Power Authority, the public corporation currently in charge of energy generation on the island, approved a contract that brings the U.S. territory one step closer to privatizing power generation.

In a 4-1 vote, board members authorized a contract to an undisclosed private company for the operation, maintenance and forfeiture of power generation units owned by the bankrupt power authority. Tomás Torres Placa, the member representing consumers’ interests on the board, was the only dissenting vote.

Officials have said they won’t disclose the name of the chosen private company until the contract is officially finalized. Details of the agreement will also not be made public until it is signed by Gov. Pedro Pierluisi and approved by the federal oversight board managing Puerto Rico’s finances.

Despite this, board President Fernando Gil Enseñat provided a brief overview of the contract in a partially public hearing Thursday.

The chosen company will be contracted for 10 years, Gil Enseñat said, adding that the approved contract has clauses allowing a revision of the terms halfway through.

Gil Enseñat said the company is charging “basic and reasonable” fees for the job and the contract contains bonuses based on six compliance aspects, the most crucial being operational efficiency and savings in fuel costs.

Sergio Marxuach, policy director at the Center for a New Economy, a Puerto Rico-based nonpartisan think tank, wondered whether the prospective private company will “just run the existing system until Puerto Rico is able to produce more renewable energy.”

“That’s unclear,” he told NBC News in Spanish on Tuesday.

According to local policies, 40% of Puerto Rico’s electricity must come from renewable energy sources by 2025, with the goal of achieving 100% renewable electricity by 2050. Less than 4% of Puerto Rico’s power generation currently comes from renewable energy.

“Secondly, how much is this going to cost? They won’t do this for free,” Marxuach said. “And third, how will this impact our electric bill?”

Power customers in Puerto Rico endured seven electric rate increases last year, even though people there already pay about twice as much as mainland U.S. customers for unreliable service.

Fermín Fontanés Gómez, executive director of the Puerto Rico Public-Private Partnerships Authority, announced Sunday that board members of his office unanimously voted in favor of the contract.

The contract approvals are the result of a privatization process that started after 2017, when the Puerto Rico Electric Power Authority declared bankruptcy following years of low liquidity, limited access to capital markets and the burden of long-term debt.

In that same year, Puerto Rico was hit by Hurricane Maria, one of the biggest and deadliest natural disasters on U.S. territory in 100 years, further deteriorating the already-fragile and disinvested power grid.

Power generation units in Puerto Rico are on average about 45 years old, twice those of the U.S. mainland. Some units have been found to be six decades old. They’re mainly reliant on fossil fuels.

As part of the ongoing privatization process, the Puerto Rico Electric Power Authority relinquished the island’s power transmission and distribution system to Luma Energy. The consortium made up of Atco in Canada and Quanta Services Inc. in Texas started operating on the island in June 2021.

At the time, government officials promised Luma Energy and the partial privatization of the power grid would improve electric services, but the territory’s residents are still grappling with frequent outages, longer service restoration times and customer service issues as well as voltage fluctuations.

When faced with Hurricane Fiona in September 2022, the grid was unable to withstand the Category 1 storm, triggering an islandwide blackout that took more than two weeks to undo.

In the time between Luma Energy’s takeover and Fiona, multiple fires left hundreds of thousands of customers without power, with the biggest incident taking place in April 2022. On other occasions, Luma Energy blamed outages on bad weather and sargassum, a type of seaweed.

Luma Energy has said it has reduced outage frequency by 30% over the past year and initiated 251 federally funded projects to permanently rebuild the patched-up grid following hurricanes Maria and Fiona.

The Puerto Rico Electric Power Authority’s bankruptcy remains ongoing as the public corporation attempts to restructure its nearly $9 billion public debt, the largest of any government agency. It’s unclear whether privatizing power generation would have any impact on such efforts.

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