CAMBIO warns of the rising cost of external consultants under LUMA
By John McPhaul
The organization CAMBIO warned Wednesday of an increase in expenses for the hiring of external consultants in the operation of the island’s electrical system after LUMA Energy took control of the transmission and distribution system last year.
This, the group said, is despite the fact that the executive director of the Public-Private Partnerships Authority (P3A) had emphasized that the privatization contract would reduce the costs of external consultants and improve administrative efficiency.
According to financial documents filed by LUMA with the Puerto Rico Energy Bureau and published by the P3A in a report on the finances of the Puerto Rico Electric Power Authority (PREPA), in fiscal year 2022, LUMA spent $103.5 million on consultants and legal services. That represented a 55% increase compared to fiscal year 2021, when PREPA spent $67 million on those items, and 125% compared to fiscal year 2020, when PREPA spent $46 million. (In both cases, representation expenses before the bankruptcy court are excluded.)
“We were sold that privatization was going to bring knowledge and experience to reduce dependence on contractors, but we see the opposite,” said engineer Ingrid Vila Biaggi, president and co-founder of CAMBIO. “LUMA contracts external consulting and legal services for $100 million in addition to the $117 million it already receives under its privatization contract. Clearly they are being paid for an expert report that they do not have and that they end up subcontracting, making the service more expensive.”
The organization also denounced that there is little transparency about the contracts signed by LUMA because many are not on the website of the Comptroller’s Office. For example, although LUMA spent $7.1 million on legal services in fiscal year 2022, the contracts for legal services available in the Comptroller’s Office’s contract registry only total $250,000 for that year.
“We sent a letter to the Comptroller urging her to demand that LUMA file its contracts and comply with the law,” said Cathy Kunkel, CAMBIO’s energy program manager. “LUMA is spending public money and the people have the right to know who is receiving this money and for what kinds of services.”
Meanwhile, in the early months of the current fiscal year, LUMA awarded multimillion-dollar contracts to outside contractors for project management and engineering services related to the billions of dollars in FEMA funds earmarked for grid reconstruction. Among them is a $120 million, three-year contract with a single contractor, TRC Solutions.
“We were told that one of the reasons for bringing LUMA to Puerto Rico was their knowledge of handling federal funds allocated to the electrical system. Even now they say that removing LUMA would delay work with federal funds,” Vila Biaggi said. “However, the hirings show that LUMA evidently has no capacity to handle federal funds. Also, how does this differ from so many embezzlement cases we have seen in Puerto Rico in which the government selects companies without the necessary expertise that subcontract to third parties to perform the work, increasing costs for the country? This information adds to the questions we have raised from day one about the irregularities in the contracting process of LUMA and its poor service, and leads to the conclusion that this contract has to be terminated.”