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Puerto Rico on its way to privatizing power generation despite widespread skepticism

Critics worry the process could further delay Puerto Rico’s transition to renewable energy and still not bring access to reliable electricity to an island riddled with power outages.
Power lines in Castaner, Puerto Rico, on Nov. 14, 2022.
Power lines in Castaner, Puerto Rico, on Nov. 14.Alejandro Granadillo / Bloomberg via Getty Images file

SAN JUAN, Puerto Rico — The government of Puerto Rico is a step closer to privatizing power generation on the island despite widespread skepticism among consumers, who crave a reliable source of electricity after decades of random power outages.

Board members of the Puerto Rico Public-Private Partnerships Authority unanimously approved a contract for the operation and maintenance of power generation units owned by the Puerto Rico Electric Power Authority, the public corporation currently in charge of energy generation on the U.S. territory.

Fermín Fontanés Gómez, executive director of the Puerto Rico Public-Private Partnerships Authority, announced the contract's approval in a press release Sunday. Fontanés Gómez did not disclose the name of the private company that will take over power generation units. He said details of the agreement will be made public once it becomes official.

The contract needs to be approved by the governing board of the Puerto Rico Electric Power Authority and signed by Gov. Pedro Pierluisi before it can be officially implemented. It is expected to be fully approved soon.

Power generation units in Puerto Rico are on average about 45 years old, twice those of the U.S. mainland. Some units have been found to be six decades old. They're mainly reliant on fossil fuels.

Without the contract being public, Puerto Ricans have more questions than answers when it comes to the future of Puerto Rico's power grid.

"Everyone knows that most of those power plants are obsolete," Sergio Marxuach, policy director at the Center for a New Economy, a Puerto Rico-based nonpartisan think tank, told NBC News in Spanish.

Marxuach wondered whether the prospective private company will "just run the existing system until Puerto Rico is able to produce more renewable energy? That's unclear."

According to local policies, 40% of Puerto Rico's electricity must come from renewable energy sources by 2025, with the goal of achieving 100% renewable electricity by 2050. Less than 4% of Puerto Rico's power generation currently comes from renewable energy.

"Secondly, how much is this going to cost? They won't do this for free," Marxuach said. "And third, how will this impact our electric bill?"

Power customers in Puerto Rico endured seven electric rate increases last year, even though people in Puerto Rico already pay about twice as much as mainland U.S. customers for unreliable service.

Queremos Sol, a coalition of organizations and individuals advocating for Puerto Rico's sustainable future, has said officials should learn from the privatization process of the island's power transmission and distribution, which was handed over to Luma Energy in mid-2021.

“The same mistake can’t be repeated,” the group told lawmakers in a letter Friday.

Luma Energy, a consortium made up of Atco in Canada and Quanta Services Inc. in Texas, took over Puerto Rico's power transmission and distribution system in June 2021. The system was previously managed by the Puerto Rico Electric Power Authority.

At the time, government officials promised Luma Energy and the partial privatization of the power grid would improve electric services. Instead, residents experienced frequent outages, longer service restoration times, poor customer service and voltage fluctuations that often damaged appliances and other home electronics.

The privatization process follows ongoing issues around Puerto Rico Electric Power Authority's bankruptcy. In 2017, the corporation previously in charge of the electrical grid declared bankruptcy following years of low liquidity, limited access to capital markets and the burden of long-term debt.

A few months later, Puerto Rico was hit by Hurricane Maria, one of the biggest and deadliest natural disasters on U.S. territory in 100 years, further deteriorating the already-fragile and disinvested power grid.

When faced with Hurricane Fiona in September 2022, the grid was unable to withstand the Category 1 storm, triggering an islandwide blackout that took more than two weeks to undo.

In the time between Luma Energy’s takeover and Fiona, multiple fires left hundreds of thousands of customers without power, with the biggest incident taking place in April 2022. On other occasions, Luma Energy blamed outages on bad weather and sargassum, a type of seaweed.

Luma Energy has said it has reduced outage frequency by 30% over the past year and initiated 251 federally funded projects to permanently rebuild the patched-up grid following hurricanes Maria and Fiona.

Queremos Sol's letter was addressed to two Puerto Rican lawmakers who were previously against privatizing power generation units but recently changed their minds. They agreed to support Pierluisi's push for privatization as long as the contract includes certain conditions.

Some of these include ensuring that any savings resulting from the privatization process be reflected in lower electric bills and banning the company from subcontracting any partners, allies, subsidiaries or other organizations linked to the prospective company — instead prioritizing companies on the island.

It's unclear if the contract with the prospective company looking to take over power generation addresses these.

Issues with subcontractors linked to the main company already came to light with Luma Energy's contract, Marxuach said. "That's how they're able to make more money."

Queremos Sol also warned that privatizing power generation could "further delay the transition to renewable energy" if the company decides to continue "operating existing fossil fuel-fired plants."

The Puerto Rico Electric Power Authority’s bankruptcy remains ongoing as the public corporation attempts to restructure its nearly $9 billion public debt, the largest of any government agency. It's unclear whether the privatization process would have any impact on such efforts.

NBC News has reached out to the Puerto Rico Public-Private Partnerships Authority about the new contract, how it could affect Puerto Rico's transition to renewable energy and whether it would adversely impact the power authority's bankruptcy process.