In September 2017, Hurricane Maria swept across Puerto Rico, shredding the territory’s electricity grid and knocking out power for almost all the island’s 3.4 million residents for months. Then this past June, a large fire at an electrical substation in San Juan plunged more than 800,000 Puerto Rican homes into darkness and knocked out power to another 330,000 the following week. In August, September and October, a series of equipment failures and poor maintenance led to cascading power outages across the island, leaving hundreds of thousands of Puerto Ricans without electricity for days. In late September, more than 178,000 Puerto Ricans were without power after a gas-fired power plant near San Juan malfunctioned.
Puerto Rico’s decades-old power grid is held together by patchwork repairs that has left it vulnerable to natural disasters such as earthquakes and hurricanes. It is plagued by aging equipment with generators averaging 45 years old, lack of maintenance and past mismanagement and political corruption of an inefficient system. The politicized public power system led to such things as grants of free electricity to ice skating rinks and other outrageous mismanagement even before the hurricane hit. The system is so frail that a power plant recently went offline because seaweed blocked its filters. Federal aid totaling $12.4 billion has been earmarked to help repair the territory’s electrical systems.
Puerto Rico’s bankrupt public utility, which is still in charge of power generation, declared an emergency to hasten repairs to its plants. Electricity rates, which are higher in Puerto Rico than in almost all of the 50 states, have increased by 50 percent, despite the deterioration in service. In June, LUMA Energy, a private company under a 15-year contract, took over the island’s electricity transmission system from the government authority, which is the part of the power system most damaged by Hurricane Maria. Luma expects to spend $3.85 billion to revamp the transmission and distribution system. Luma’s crews have restarted four substations, some of which had been out of operation since Hurricane Maria.
But, Luma’s entrance has led to new challenges, including public distrust and the retirement or redeployment of experienced line workers who knew how to deal with the island’s outdated infrastructure. The inability of the Puerto Rico Electric Power Authority, PREPA, and the new private Canadian-American consortium to provide reliable power has led to finger-pointing, tense legislative hearings and growing protests by residents.
LUMA’s parent companies, Canada-based ATCO and Houston-based Quanta Services, created the company in 2020 to bid on the Puerto Rico contract. Power outages have surged under LUMA’s watch becoming a daily occurrence since June and service restoration times have worsened, doubling to an average of 5 hours and 23 minutes in the months since its takeover, according to data posted by LUMA and analyzed by the University of Puerto Rico. Residents have also reported voltage fluctuations that have damaged or destroyed home appliances and electronics. Many residents have blamed the problems on a lack of skilled workers—just 250 LUMA employees qualified to repair the grid were working at the time the company took over. LUMA now reports having about 900 line workers, but more than 3,000 of the 4,200 PREPA employees eligible to transition to LUMA did not do so.
The Institute for Energy Economics and Financial Analysis estimated that the provisions in LUMA’s contract would increase utility rates on the island to as high as 30 cents per kilowatt hour, more than double the average amount that customers pay on the U.S. mainland. LUMA has requested to raise electricity rates several times to help compensate for costs incurred during its transition despite the Puerto Rican government paying the company a fixed annual fee of $115 million.
In the coming months, FEMA will decide exactly which projects will receive funding from the $9.6 billion in aid appropriated for repairing Puerto Rico’s grid. In October, Puerto Rico’s governor announced FEMA’s first disbursement of $7.1 million to the territory. PREPA and LUMA have submitted dozens of individual repairs and upgrades for review that together make up about $2.8 billion.
Legislation
In April 2019, the Commonwealth of Puerto Rico passed a law, the Energy Public Policy Act, or Act 17, that requires Puerto Rico to produce 100 percent of its electricity from renewable energy sources, (e.g. solar and wind) by 2050. The legislation also requires the territory to implement benchmarks, including obtaining 40 percent of the island’s electricity from renewable sources by 2025 and eliminating coal-fired power by 2028. Thus, PREPA has four more years to increase its renewable energy portfolio from 2.5 percent in fiscal year 2020, according to the Energy Information, to 40 percent. In 2016, President Barack Obama and Congress appointed a financial oversight board as part of the utility’s bankruptcy plan, which has broad control over the territory’s budgetary decisions, but little accountability to Puerto Rico’s lawmakers.
Lessons to Be Learned
Puerto Rico’s energy system has clearly been neglected with aging plants and infrastructure needing maintenance. Long politicized, its public power system was more responsive to the political whims of elected officials than to the efficient and reliable operation of the system. This is a warning for the Biden administration. As the President Biden pushes a net zero carbon electricity system by 2035 and increases political decision-making onto the U.S. grid, neglecting maintenance for renewable investment can only put the system in peril. In California, rolling blackouts resulted when electric generation shortages occurred due in part to less supply from renewable generators. California’s PG&E neglected maintenance on its transmission and distribution lines due to using its investment funds for new renewable generators to meet California’s renewable energy standard instead of performing maintenance. For this decision, the company was accused of starting wildfires and was fined.
While U.S. mainland electric generators are much younger on average than those of Puerto Rico, much of the new generators over the past decades have been wind turbines and solar panels—generators that typically operate for half the time or less than coal, natural gas or nuclear units, which means replacement and investment will be needed on a much more frequent basis than in the past. This will be the case while Biden’s agenda will need renewable plants to meet new electricity demand and to replace retiring coal, nuclear and natural gas plants.
Further, the renewable subsidies that have been continually extended, particularly the production tax credit (PTC) for wind, are causing less maintenance and less electric output as they expire for the generator. The PTC supplies a subsidy per unit generated for the first ten years of the unit’s operation. A study found that after the 10-year period, less maintenance was performed on the unit and its output was reduced. It is believed the subsidy caused the lower maintenance and production because the same phenomena did not occur with European wind turbines.
Biden needs to learn from the perils of Puerto Rico’s electricity system as well as that of Europe’s energy system where energy shortages are causing prices to spike, placing more people in energy poverty. Politicizing something so important as the provision of life-sustaining electricity for those dependent upon it does not have a good track record in the places where it has been attempted.
