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Puerto Rico PPP Authority defends Luma contract, cites legal mandate and projected savings
Summary
The Authority for Public‑Private Partnerships told a Senate commission the Luma Energy operations-and-maintenance contract complied with Law 120 and Law 29, retained government ownership of assets, and projected hundreds of millions in net savings by 2027; senators pressed for procurement records and questioned transparency.
The Authority for Public‑Private Partnerships defended the government’s 15‑year operations‑and‑maintenance contract with Luma Energy on the record before a Senate commission, saying the procurement followed the statutory framework and that oversight and consumer protections remain in government hands.
“Honorable presidente, la autoridad para las alianzas público privadas comparece para presentar sus comentarios en torno a la resolución del senado número uno,” said Fermín Fontané, the Authority’s executive director, in opening remarks describing the committee’s inquiry and the Authority’s role in the selection process. Fontané and legal adviser Isis Pérez reviewed the procurement history, legal authorities and contract mechanics at the hearing.
The Authority told senators the procurement was carried out under Law 120 (the statutory transformation of the electric system) and Law 29 (the public‑private partnership statute), and that those laws expressly authorize the selection procedures used to evaluate proposals and delegate operations and certain functions of the Autoridad de Energía Eléctrica (AE). The Authority said the transaction is an operation‑and‑maintenance agreement rather than a sale: Puerto Rico retains legal title to AE assets and revenues, the Authority explained.
Fontané outlined the timeline of the competitive process: a solicitation of qualifications published Oct. 31, 2018; an RFP issued in January 2019; thousands of documents and hundreds of questions exchanged with proposers; site visits and public‑interest safeguards designed to preserve competition; and a selection of Luma as the preferred proposer on Jan. 11, 2020. The contract and alliance report later received a compliance certificate from the Negociado de Energía on June 17, 2020, and were approved by the relevant boards on June 22, 2020.
On compensation, the Authority described a two‑part price structure: a fixed annual payment for services (estimated at roughly $70–100 million in years one through three and about $105 million thereafter) plus an incentive pool (roughly $13–19 million initially, moving to $20 million in subsequent years) payable only when performance metrics in the contract are met. The Authority said these amounts are market outcomes from a competitive process and that incentive payments are not automatic.
Fontané also presented operational metrics and projections used to justify the transaction. Citing a Negociado de Energía study, he said Puerto Rico’s average outage durations and interruption indices were far above industry benchmarks. The Authority offered Luma’s projected reductions in technical and nontechnical losses — for example, nontechnical losses projected to fall from about 7.7% to 5.0% by 2027 — and an estimate that combined operational savings and loss reductions could reach roughly $293 million annually by 2027, with cumulative net savings of about $323 million by that year.
The Authority emphasized regulatory controls remain: ‘‘El negociado de energía es quien tiene la facultad final para aprobar el aumento de tarifas por servicio,’’ Fontané said, underscoring that the Negociado will determine any rate changes through its administrative process that includes public participation. He also stressed that operator payments under the contract do not come from FEMA funds and that the contract was structured to preserve eligibility for federal recovery funds.
Addressing a frequent public concern, Fontané told the commission the operator cannot abandon the contract at will: ‘‘Contra lo que se ha argumentado en muchos medios, el operador no puede terminar el contrato a su discreción y con ello dejar a la deriva el sistema eléctrico de Puerto Rico,’’ citing contract provisions that limit termination for force majeure to specific, extended events and require notice and mitigation obligations.
The hearing closed the Authority’s presentation with staff agreeing to provide the commission with the applicable PPP regulation and evaluation materials from the ARFP process the committee requested.
Next steps: senators said they will review the documentation and continue questioning Authority officials in follow‑up sessions. The commission’s formal inquiry under Senate Resolution No. 1 remains active.
