Wednesday, March 29, 2023

LUMA Submits ‘Incomplete’ Budget Proposal to Regulator

By on April 7, 2021

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PREB Orders Document Compliance By Monday; Viability of Prepa P3 Finances in Doubt 

SAN JUAN – The Puerto Rico Energy Bureau (PREB) gave LUMA Energy LLC until Monday to submit all of the documents necessary to “adequately evaluate” the first three-year budget proposal submitted by the U.S.-Canadian consortium, which is scheduled to take over the Puerto Rico Electric Power Authority’s (Prepa) transmission and distribution (T&D) system and customer services on June 1.  

In a resolution approved by four of the five PREB commissioners on Monday, the regulator determined that LUMA’s initial budget filings on Feb. 24 were “incomplete,” stressing that the submitted budget documents “lacked an in-depth discussion of key matters, supporting data, analysis, and assessments necessary for the Energy Bureau to make an adequate evaluation.” 

The resolution states that the budget documents submitted to PREB for approval are titled “Petition for Approval of Initial Budgets and Related Terms of Service,” “Initial Budgets: First 3 Years of Recovery & Transformation, February 23, 2021,” and “Request for Approval of Terms of Service and Memorandum of Law in Support Thereof.” 

PREB ordered LUMA to submit “all supporting workpapers used to determine that Initial Budgets are consistent with [Prepa’s] current rate order,” documents showing the “basis, methodology and rationale for the prioritization of the spending initiatives, programs and/or capital expenditures proposed by LUMA” and their anticipated impact, as well as federal and non-federal funding procurement manuals, among other documents. 

LUMA is certified by the Energy Bureau as an electric utility company and is subject to its jurisdiction. The consortium, which concluded a 15-year, $1.5 billion public-private partnership (P3) deal with Prepa last June, is in the transition process of taking over the public utility’s T&D and customer services, hiring new employees and rebranding the utility.  

The regulator warned that LUMA could be fined if it fails to produce such documents by April 12, according to the resolution, which was signed by PREB associate commissioners Lillian Mateo Santos, Ferdinand A. Ramos Soegaard, Sylvia B. Ugarte Araujo, as well as Edison Avilés Deliz, chairman of the bureau. 

The resolution states that the Energy Bureau will establish a “procedural calendar for the instant case” once LUMA submits the required documents, including public and technical hearings and the acceptance of public comments. 

Budget Viability Questioned 

Associate commissioner Ángel R. Rivera de la Cruz wrote a dissenting opinion, questioning whether LUMA could manage Prepa’s T&D and customer services within the current utility base rate structure, which the Energy Bureau approved on Jan. 10, 2017 but was implemented on May 1, 2019, due to the effects of hurricanes Irma and Maria in September 2017.  

Rivera said given that the rate structure was retroactive to Aug. 1, 2016, and PREB established a process to review such base rates every three years, the regulator should begin an “adjudicative process” to review Prepa’s revenue requirement and perhaps develop and design a new rate structure, according to the “current state, conditions and legal construct of the electric system.” 

The associate commissioner said that the regulator’s review of Prepa’s basic rate structure every three years is intended to maintain them aligned with actual costs. He said that LUMA’s filing is “not only incomplete but also inadequate to perform the evaluation needed to establish a new revenue requirement.” 

LUMA Energy President and CEO Wayne Stensby pledged in February that the consortium will not request electricity rate increases during the first three years after its planned takeover of Prepa’s T&D and customer services on June 1. 

“[We] will live within the existing cost envelope or budgets that presently exist in the PREB’s rate order and, therefore, there will be no rate increase as a result of our work and activities,” Stensby said in a roundtable with reporters. “We need to find savings that can help move rates down.” 

“LUMA’s focus seems to be to ‘deliver value’ to the customers… within the self-imposed revenue constraint,” Rivera said in his opinion, in which he noted that LUMA had determined the expenditures limit of $1.2 billion using “back-of-the-envelope” calculations. “However, ‘delivering value’ or even ‘maximize investment benefits’ is not equivalent to making the necessary investments or determining the necessary funds to operate the system in an optimal, reliable and [safe] manner. To that effect, a utility could ‘maximize investment benefits’ or ‘deliver value’ to its customers through certain capital investments, while still underinvesting the necessary resources to operate the system.” 

Rivera also pointed out that LUMA’s failure to provide a power generation budget “is yet another indication that LUMA’s approach to its proposed budgets is flawed.” 

“This uncertainty regarding the generation budget makes it impossible to issue a determination of reasonableness with respect to the Initial Budgets and may also be indicative that the current rates may not be adequate to sustain a safe and reliable system operation of the electrical system.” 

However, in a concurring opinion, Avilés countered that LUMA’s petition was not submitted as a rate setting case, adding that he does not believe that “a new revenue requirement and rate setting procedure [are] necessary nor justified.” 

“Without prejudging the matter, it is sufficient to mention that [Prepa’s] current and projected electricity sales and its revenues are substantially similar to those used to determine the revenue requirement that gave rise to the Current Rate Order,” the PREB chairman wrote, stressing that, at first glance, LUMA’s proposed initial budgets contemplate levels of expenses “which fall within the Current Rate Order.” 

Avilés participated in the bidding process conducted by the Puerto Rico Public-Private Partnership Authority that selected LUMA, a fact that is often mentioned by critics of the P3 deal.    

A request for comment was left with LUMA.

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