The Privatization of Puerto Rico's Power Grid Is Mired in Controversy

When Hurricane Maria razed Puerto Rico in September 2017, the storm laid bare the serious flaws and pervasive neglect of the island's electricity system. Nearly all 3.4 million residents lost power for weeks, months, or longer-a disaster unto itself that affected hospitals and schools and shut down businesses and factories.

The following January, then-Gov. Ricardo Rossello signaled plans to sell off parts of the Puerto Rico Electric Power Authority (PREPA), leaving private companies to do what the state-run utility had failed to accomplish. Rossello, who resigned last year, said it would take about 18 months to complete the transition.

Our objective is simple: provide better service, one that's more efficient and that allows us to jump into new energy models," he said that June, after signing a law to start the process.

Yet privatization to date has been slow, piecemeal, and mired in controversy. Recent efforts seem unlikely to move the U.S. territory toward a cleaner, more resilient system, power experts say.

As the region braces for an unusually active" 2020 hurricane season, the aging grid remains vulnerable to disruption, despite US $3.2 billion in post-Maria repairs.

PREPA's contracts to private companies have mainly focused on retooling existing infrastructure

Puerto Rico relies primarily on large fossil fuel power plants and long transmission lines to carry electricity into mountains, coastlines, and urban centers. When storms mow down key power lines, or earthquakes destroy generating units-as was the case in January-outages cascade across the island. Lately, frequent brownouts caused by faulty infrastructure have complicated efforts to confront the COVID-19 outbreak.

In most of the emergencies that we've had, the centralized grid has failed," says Lionel Orama Exclusa, an electrical engineering professor at the University of Puerto Rico-Mayaguez and member of Puerto Rico's National Institute of Energy and Island Sustainability.

He and many others have called for building smaller regional grids that can operate independently if other parts fail. Giant oil- and gas-fired power plants should similarly give way to renewable energy projects distributed near or within neighborhoods. Last year, Puerto Rico adopted a mandate to get to 100 percent renewable energy by 2050. (Solar, wind, and hydropower supply just 2.3 percent of today's total generation.)

So far, however, PREPA's contracts to private companies have mainly focused on retooling existing infrastructure-not reimagining the monolithic system. The companies are also tied to the U.S. natural gas industry, which has targeted Puerto Rico as a place to offload mainland supplies.

In June, Luma Energy signed a 15-year contract to operate and maintain PREPA's transmission and distribution system. Luma is a newly formed joint venture between infrastructure company Quanta Services and Canadian Utilities Limited. The contract is valued between $70 million and $105 million per year, plus up to $20 million in annual incentive fees."

Wayne Stensby, president and CEO of Luma, said his vision for Puerto Rico includes wind, solar, and natural gas and is somewhere down the middle" between a centralized and decentralized grid, Greentech Media reported. It makes no sense to abandon the existing grid," he told the news site in June, adding that Luma's role is to effectively optimize that reinvestment."

Orama Exclusa says he has mixed feelings" about the contract.

If the private consortium can effectively use federal disaster funding to fix crumbling poles and power lines, that could significantly improve the system's reliability, he says. But the arrangement still doesn't address the fundamental" problem of centralization.

Last September, U.S. prosecutors charged Cobra's president and two officials in the Federal Emergency Management Agency with bribery and fraud.

He is also concerned that the Luma deal lacks transparency. Former utility leaders and consumer watchdogs have noted that regulators did not include public stakeholders in the 18-month selection process. They say they're wary Puerto Rico may be repeating missteps made in the wake of Hurricane Maria.

As millions of Puerto Ricans recovered in the dark, PREPA quietly inked a no-bid, one-year contract for $300 million with Whitefish Energy Holdings, a two-person Montana firm with ties to then-U.S. Interior Secretary Ryan Zinke. Cobra Acquisitions, a fracking company subsidiary, secured $1.8 billion in federal contracts to repair the battered grid. Last September, U.S. prosecutors charged Cobra's president and two officials in the Federal Emergency Management Agency with bribery and fraud.

A more recent deal with another private U.S. firm is drawing further scrutiny.

In March 2019, New Fortress Energy won a five-year, $1.5 billion contract to supply natural gas to PREPA and convert two units (totaling 440 megawatts) at the utility's San Juan power plant from diesel to gas. The company, founded by billionaire CEO Wes Edens, completed the project this May, nearly a year behind schedule. It also finished construction of a liquefied natural gas (LNG) import terminal in the capital city's harbor.

This is another step forward in our energy transformation," Gov. Wanda Vazquez Garced said in May during a tour of the new facilities. Converting the San Juan units will allow for a cheaper and cleaner fuel" and reduce monthly utility costs for PREPA customers, she said.

Critics have called for canceling the project, which originated after New Fortress submitted an unsolicited proposal to PREPA in late 2017. The ensuing deal gave New Fortress an unfair advantage," was full of irregularities, and didn't undergo sufficient legal review or financial oversight, according to a June report by CAMBIO, a Puerto Rico-based environmental nonprofit, and the Institute for Energy Economics and Financial Analysis.

The project would continue to lock in fossil fuels on the island and would prevent the aggressive integration of renewable energy," Ingrid Vila Biaggi, president of CAMBIO, told the independent news program Democracy Now!

The U.S. Federal Regulatory Commission, which oversees the transmission and wholesale sale of electricity and natural gas, also raised questions about the LNG import terminal.

On 18 June, the agency issued a rare show-cause order demanding that New Fortress explain why it didn't seek prior approval before building the infrastructure at the Port of San Juan. New Fortress has 30 days to explain its failure to seek the agency's authorization.

Concerns over contracts are among the many challenges to revitalizing Puerto Rico's grid. The island has been mired in a recession since 2006, amid a series of budget shortfalls, financial crises, and mismanagement-which contributed to PREPA filing for bankruptcy in 2017, just months before Maria struck. The COVID-19 pandemic is further eroding the economy, with Puerto Ricans facing widespread unemployment and rising poverty.

The coming months-typically those with the most extreme weather-will show if recent efforts to privatize the grid will alleviate, or exacerbate, Puerto Rico's electricity problems.