IEEFA update: T&D agreement for Puerto Rico power grid sets off alarm bells
Fails to include accountability mechanisms for meeting cost, labor, and green energy goals, Sanzillo tells U.S. House Committee
In testimony submitted to the U.S. House Committee on Natural Resources, IEEFA’s director of finance Tom Sanzillo warned of significant problems with a recent agreement for LUMA Energy to take over transmission and distribution (T&D) of Puerto Rico’s electric power grid.
The agreement fails to address three major challenges, according to
Sanzillo: ensuring affordable rates for island residents, meeting legislatively
established green energy targets, and building productive relations with
organized labor.
“Puerto Rico’s Electric Power Authority (PREPA) agreement with LUMA Energy
Services does nothing to address the legacy of dysfunction and mismanagement of
the island’s electric system. The agreement provides no accountability
mechanism for LUMA to meet either ratepayer savings or renewable energy goals.
This, in fact, will likely only exacerbate the problems faced by an
already struggling energy sector and economy,” said Sanzillo.
First, Sanzillo said, Puerto Rico’s households and businesses need
affordable and stable electricity rates. While the Public Policy
Act of 2019 established a goal of 20 cents per kWh rate and PREPA’s recent fiscal
plan shows this to be operationally achievable, the LUMA Agreement includes
no incentives for meeting, or penalties for failing to meet, this critical
economic goal
Second, Puerto Rico has established a goal of 100% renewable energy by 2050.
By overbuilding natural gas capacity and failing to adopt a more ambitious
green investment plan, the LUMA contract is a critical missed opportunity.
Third, PREPA and the Financial Oversight Management Board (FOMB) have
decided to disregard collective bargaining agreements at PREPA. Sanzillo calls
this move “singularly shortsighted” and one that will prove costly over time.
Further, failing to contain rate increases would cause a cascade of new
problems for households and businesses, including potentially life-threatening
hardship for families with no or severely limited access to electricity.
“The LUMA agreement replicates many of the flaws of PREPA’s past contracting failures,” Sanzillo testified. “The underlying problems of corruption, poor management and lack of contract oversight would be better resolved by the appointment of an Independent Private Sector Inspector General to monitor the use of federal funds within PREPA and to prevent waste, fraud and abuse.”
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.
Full testimony:
Testimony to
U.S. House Committee on Natural Resources hearing on Puerto Rico T&D
agreement by Tom Sanzillo, August 4, 2020
Tom Sanzillo ([email protected]) is IEEFA’s director of finance.
Media Contact:
Vivienne Heston ([email protected]), +1
(914) 439-8921
This article was originally posted on IEEFA and was republished with permission.
