LUMA exec says yearly fee represents many things

By The Star Staff

What does the $100 million yearly fee that will be paid to LUMA Energy for operating the Puerto Rico Electric Power Authority’s transmission and distribution system, actually pay for?

Mario Hurtado, LUMA Energy’s vice president, says the amount represents many things, including profit and risk. But the fee will also pay for some of the expenses of LUMA Energy’s top-level managers.

Hurtado spoke at recent hearings before the island’s energy regulator looking into the private operator’s budget for the first three years. During those hearings, officials from the Puerto Rico Energy Bureau (PREB) discussed numerous topics, including the use of federal funds, contracting, emergency response, and policies and procedures.

The question about the fee came about when one of the PREB’s consultants, Jorge Camacho, asked about the estimated $88 million per year over the next three years that LUMA Energy will be spending in professional and technical outsourced services. During the questioning, Camacho asked “What are LUMA’s fees paying for? What is Puerto Rico buying for $100 million?”

Hurtado said that under the contract LUMA signed last summer, LUMA provides operation and management for the Puerto Rico Electric Power Authority’s (PREPA) transmission and distribution (T&D) system, and it provides services not as an equity owner.

“The expenses, generally speaking, to carry out those services are classified as transmission and distribution pass-through expenditures under the contract and those expenses are largely summarized in these budgets,” he said. “The fee is meant to represent the profit to LUMA for providing those services under the terms of the contract. It also represents many things. It represents the risk … there’s guarantees. There’s lots of other elements. It’s the product of a competitive process in a negotiation over many months.”

Under the contract, he said, LUMA is divided into LUMA ServeCo and LUMA Management Co. The management side of the business will be in charge of the oversight and some of the expenses of the management portion will not be reimbursed, he said.

According to the documents submitted to the PREB, LUMA’s T&D operating budget is $625 million in 2022, $622.7 million in 2023, and $582 million in 2024. The capital budget is $774.4 million for 2022, $1.1 billion for 2023, and $1.3 billion in 2024, most of it coming from federal funds. The operating budget includes LUMA’s fees, which will be $100 million for 2022, $110 million for 2023, and $125 million for 2024. It also includes a 2% reserve of about $10 million for excess expenditures.

The budget for generation, which will be managed by PREPA, is estimated at $288 million for 2022, $278 million for 2023, and $254 million for 2024.

The budget sets aside $145 million for 2022, $85 million for 2023, and $80 million in 2024 for other expenditures that include bankruptcy and advisory costs.

Regarding the fees, the budget does not include the estimated $130 million the government will pay for LUMA’s services during the front-end transition phase of the contract, which began last summer and ends at the end of the month.

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