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Senate hearing raises questions about Luma contract, projected savings and rate impacts
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Summary
Experts at a March 26, 2021 Senate hearing told senators that the Luma contract’s claimed savings rest on hypothetical assumptions, that additional unlisted fees and passthroughs could raise costs, and that public funds and a proposed $894M financing play a central role; witnesses also say Luma reportedly made no upfront capital investment.
A Senate public hearing on March 26, 2021 examined the operations and maintenance contract between the Puerto Rico Electric Power Authority (Autoridad de Energía Eléctrica, AEE) and the private operator Luma. Witnesses who worked at AEE or reviewed the contract told the Senate the agreement depends on hypothetical savings projected by consultants and shifts many costs to ratepayers.
Héctor Rosario, who said he worked at AEE for about 34½ years, summarized documentary evidence and exhibits and warned that “es un contrato de adhesión que protege a los intereses de Luma más a los del pueblo y los clientes de la autoridad.” He told the committee that the contract’s claimed efficiencies derive from hypothetical assumptions in consultant reports rather than from a documented sensitivity analysis.
Rosario and other witnesses pointed to specific numbers in the contract and related documents: they said Luma was set to receive $136.4 million in 2021 and had requested an additional 11.5 percent increase (about $15.65 million). The witnesses said fixed payments of roughly $83 million appear for 2022 and that payments plus incentives cited for later years could sum to $445 million across an initial contract period. They also presented a projection that, after adding contract charges and a proposed transition charge tied to debt restructuring, residential rates could rise from about 18.13¢/kWh to roughly 24.78¢/kWh (and up to about 25.78¢/kWh if other items are included).
“We have to be clear: those ahorros parten de una base hipotética,” Rosario said while reviewing exhibit analyses prepared by consultancy firms. Witnesses criticized the FTI/STI analyses for comparing Puerto Rico to mainland U.S. utilities instead of island systems like Hawaiʻi and for failing to include robust sensitivity tests to account for lower demand projections and other uncertainties.
Panelists also described contract terms that would shift many administrative and transition costs to the authority and ultimately to ratepayers. Ively Sánchez Saltaire, a longtime former AEE official, and others noted provisions (including a Share Services Agreement) that would have the authority pay consultant and administrator costs and that could extend Luma’s role into generation, planning and policy areas. Sánchez Saltaire pointed to Section 4.5(g) and related clauses that require a rate order as a condition precedent while still allowing the operator or related entities to seek rate actions under certain circumstances.
Panelists further raised questions about how the Luma transition would be financed. They cited AFAP and Financial Oversight and Management Board materials indicating a proposal to allocate roughly $894 million from government funds as part of the transaction financing, and they warned that if these funds are provided as loans they would carry interest that ultimately affects rates.
Witnesses also challenged claims about private investment. Citing investor presentations and SEC‑subject materials, Rosario and Santini Gaudier said the operator and consortium members represented that they “do not pay a single cent” in Puerto Rico and that capital investments in large part would come from federal or public sources. “No invierte,” Rosario said of the private operator’s claim in an investor presentation.
Legal and governance concerns circulated throughout the hearing. The panel questioned whether use of public funds to support creation or operation of a private company complies with constitutional and statutory limits on public property and funds. Santini Gaudier testified that Luma’s incorporation date postdated the adjudication date in the procurement documents and committed to provide incorporation records to the commission for the record.
Senators and witnesses also pressed the AEE board’s review process: senators noted the contract was presented to the AEE board on June 19 and approved on June 22, 2020 — a three‑day interval that some witnesses said was too short for adequate review of a complex agreement.
The hearing concluded with panelists offering to submit documentary evidence and exhibits to the commission for further review. Witnesses recommended that the Senate request more detailed breakdowns of the additional $15.65 million request, a clear statement of passthroughs and administrator costs, and documentation showing any private capital commitments by Luma or its consortium members.
The Senate took formal steps to add the exhibits discussed to the hearing record and asked witnesses to deliver outstanding documents within an agreed timeframe. The committee signaled intent to continue technical review and requested follow‑up materials rather than taking immediate legislative action at the session’s close.
