Exhibit E

PREPA 2022 CERTIFIED FISCAL PLAN 

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2022 Certified Fiscal Plan for the 

Puerto Rico Electric Power Authority

As certified by the Financial Oversight and Management

Board for Puerto Rico on June 28, 2022

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Disclaimer

The Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), Puerto Rico Electric Power Authority 

(PREPA), the Government of Puerto Rico, its instrumentalities and agencies (collectively, the Government), the 

Financial Oversight and Management Board for Puerto Rico (Oversight Board), and each of their respective officers, 

directors, employees, agents, attorneys, advisors, members, partners or affiliates (collectively, with AAFAF and the 

Government, the Parties) make no representation or warranty, express or implied, to any third party with respect to 

the information contained herein and all Parties expressly disclaim any such representations or warranties. The 

Government has had to rely upon preliminary information and unaudited financials for 2018, 2019 and 2020, as 

provided to the Oversight Board. As such, AAFAF, the Government, and the Oversight Board, as applicable, have made 

certain assumptions that may materially change once those financial statements are fully audited.

The Parties do not owe or accept any duty or responsibility to any reader or recipient of this presentation, whether in 

contract or tort, and shall not be liable for or in respect of any loss, damage (including without limitation consequential 

damages or lost profits) or expense of whatsoever nature of such third party that may be caused by, or alleged to be 

caused by, the use of this presentation or that is otherwise consequent upon the gaining of access to this document by 

such third party. The Parties do not undertake any duty to update the information contained herein.

This document does not constitute an audit conducted in accordance with generally accepted auditing standards, an 

examination of internal controls or other attestation or review services in accordance with standards established by 

the American Institute of Certified Public Accountants (AICPA) or any other organization. Accordingly, the Parties do 

not express an opinion or any other form of assurance on the financial statements or any financial or other information 

or the internal controls of the Government and the information contained herein.

Any statements and assumptions contained in this document, whether forward-looking or historical, are not 

guarantees of future performance and involve certain risks, uncertainties, estimates, and other assumptions made in 

this document. The economic and financial condition of the Government and its instrumentalities are affected by 

various legal, financial, social, public health, economic, environmental, governmental, and political factors. These 

factors are very complex, may vary from one fiscal year to the next and are frequently the result of actions taken or not 

taken, not only by the Government, but also by the Oversight Board and other third-party entities such as the 

government of the United States. Examples of these factors include, but are not limited to:

- The effect of the Coronavirus Disease 2019 (“COVID-19”) on the health and well-being of the people of Puerto

Rico;

- The short-term economic effects of COVID-19 on the global economy and the economies of the United States

and Puerto Rico as they relate to Puerto Rico’s tax revenue and budget;

- The longer-term economic ramifications of behavioral changes caused by COVID-19 (i.e., reduced travel,

increased work from home, reduced activity in large gathering places, etc.);

- The amount of federal government aid provided to U.S. states and territories (including Puerto Rico) the 

efficacy and speed of disbursement of such aid;

- The need to shift resources to create a more resilient structure to prevent or mitigate future pandemics;

- Any future actions taken or not taken by the United States government related to Medicaid;

- The amount and timing of receipt of any distributions from the Federal Emergency Management Agency 

(FEMA), U.S. Department of Housing and Urban Development (HUD)’s Community Development Block 

Grant-Disaster Recovery (CDBG-DR) Program and private insurance companies to repair damage caused by 

Hurricanes Irma and Maria and the major earthquakes that occurred in January 2020;

- The amount and timing of receipt of any additional amounts appropriated by the United States government 

to address the funding gap described herein;

- The timeline for completion of the work being done by PREPA to repair PREPA’s electric system and

infrastructure and the impact of any future developments or issues related to the reconstruction and 

modernization of PREPA’s T&D electric system and infrastructure by LUMA and the legacy generation O&M 

procurement process on Puerto Rico’s economic growth;

- The impact of outmigration and declining population; and

- The timing and impact of the resolution of PREPA and Puerto Rico’s Title III cases and related litigation.

Because of the uncertainty and unpredictability of these factors, their impact cannot be included in the assumptions 

contained in this document. Future events and actual results may differ materially from any estimates, projections, or 

statements contained herein.

Nothing in this document should be considered an express or implied commitment to do or take, or to refrain from 

taking, any action by AAFAF, the Government, or any instrumentality or public corporation within the Government, 

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or the Oversight Board, or an admission of any fact or future event. Nothing in this document shall be considered a 

solicitation, recommendation, or advice to any person to participate, pursue or support a particular course of action 

or transaction, to purchase or sell any security, or to make any investment decision.

By receiving this document, the recipient shall be deemed to have acknowledged and agreed to the terms of these 

limitations. This document may contain capitalized terms that are not defined herein or may contain terms that are 

discussed in other documents or that are commonly understood. You should make no assumptions about the meaning 

of capitalized terms that are not defined, and you should refer questions to AAFAF 

(fiscalplanforpuertorico@aafaf.pr.gov) or the Oversight Board (comments@promesa.gov) in the event clarification is 

required.

The PREPA Certified Fiscal Plan incorporates the macroeconomic and demographic projections developed for and 

presented in the 2022 Certified Fiscal Plan for Puerto Rico as certified by the Financial Oversight and Management 

Board for Puerto Rico on January 27, 2022, in order to comply with Section 201 of PROMESA, incorporating such 

projections does not imply a representation by PREPA of the validity or reasonableness of the underlying assumptions 

or results.

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List of Acronyms and Key Terms

AAFAF Puerto Rico Fiscal Agency and Financial Advisory Authority

ACD Automated Call Distribution

Act No. 83 PREPA’s Enabling Act

Act 120-2018 Puerto Rico Electric Power System Transformation Act

Act 17-2019 Puerto Rico Energy Public Policy Act

Act 211-2018 Act for Implementation of the Puerto Rico Public Service Regulatory Board Reorganization 

Act 57-2014 Puerto Rico Energy Transformation and RELIEF Act

ADC Actuarially Determined Contribution

ADMS Advanced Distribution Management System

AES AES Puerto Rico, parent company AES Corporation., an Independent Power Producer

AICPA American Institute of Certified Public Accountants

AMI Advanced Metering Infrastructure

AP Accounts Payable

AR Accounts Receivable 

A&E Architectural & Engineering

A/C Air conditioning

BBA

CAA

Bipartisan Budget Act of 2018

Clean Air Act

CAIDI Customer Average Interruption Duration Index

CDBG Community Development Block Grant

CDBG-DR Community Development Block Grant Disaster Recovery

CEMIN Customers Experiencing Multiple Interruptions

CHP Combined Heat and Power

CILT Contribution in Lieu of Taxes

COR3 Central Office of Recovery, Reconstruction, and Resiliency

COVID-19 Coronavirus Disease 2019

DART Days Away Restricted or Transferred

DER Distributed Energy Resource

DG Distributed Generation

DHS

DNER

Department of Homeland Security

Department of Natural and Environmental Resources of Puerto Rico

DOE Department of Energy

DR Demand Response

DSO Days Sales Outstanding

EE Energy Efficiency

EHP Environmental and Historical Preservation

EMS Energy Management System

EOC Emergency Operation Centers

EPA Environmental Protection Agency

EPM Enterprise Project Management

ETR Estimated Time of Restoration

EV Electric Vehicles

FAASt FEMA Advanced Award Strategy Initiative

FEMA Federal Emergency Management Agency

FEMA PA 404 FEMA Hazard Mitigation Program

FEMA PA 428 FEMA Public Assistance Program

FERC Federal Energy Regulatory Commission

FCR First Call Resolution 

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FFS

FOMB

Findings of Failure to Submit

Financial Oversight and Management Board for Puerto Rico

Front-End Transition Period of time from and including the Effective Date of T&D OMA to and excluding Service 

Commencement Date

FY Fiscal Year

GASB Governmental Accounting Standards Board

GDB Government Development Bank for Puerto Rico

GenCo

GGHOA

Comprises existing PREPA-owned generation resources; to be operated and maintained by one or 

more private operators

GridCo-GenCo-HydroCo Operating Agreement

GNP Gross National Product

GridCo Comprises transmission and distribution, customer service, and administrative functions of PREPA; 

will be operated by LUMA

GW Gigawatts

GWh Gigawatt-hour

HMGP Hazard Mitigation Grant Program

HoldCo

HydroCo

PREPA successor to be responsible for entity that will be responsible for certain non-operational 

functions

Hydropower Assets to be contributed by PREPA to HydroCo pursuant to a capital contribution 

agreement

HR Human Resources

HUD Department of Housing and Urban Development

IEEE Institute of Electrical and Electronics Engineers

IoT Internet of Things

IPP Independent Power Producer

IRP Integrated Resource Plan

IT Information Technology

kV Kilovolts

kWh kilowatt-hour

LED Light-Emitting Diode

LNG Liquified Natural Gas

LOI Letter of Intent

LUMA LUMA Energy, LLC & LUMA Energy ServCo, LLC

MAIFI Momentary Average Interruption Frequency Index

MATS

MMBTU

Mercury & Air Toxics Standards

Million British Thermal Units

MW Megawatts

MWh

NAAQS

Megawatt-hour

National Ambient Air Quality Standard

NME Necessary Maintenance Expenses

NTE Not to Exceed

NYSE New York Stock Exchange

O&M Operations and Maintenance

OIG Office of Inspector General (Department of Homeland Security)

OIPC Oficina Independiente de Protección al Consumidor

OMS Outage Management System

OPEB Other Post-Employee Benefits

OSHA Occupational Safety and Health Administration

OT Operational Technology

Oversight Board Financial Oversight and Management Board for Puerto Rico

PA

P3

Public Assistance, FEMA program

Public-Private Partnership

P3A Puerto Rico Public-Private Partnerships Authority

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PMO Project Management Office

PPA Power Purchase Agreement

PPE Personal Protective Equipment

PPOA Power Purchase and Operating Agreement

PRDOH Puerto Rico Department of Housing

PREB

PREB IC

Puerto Rico Energy Bureau

Puerto Rico Energy Bureau Independent Coordinator

PREPA Puerto Rico Electric Power Authority

PREPA ERS Puerto Rico Electric Power Authority Employees’ Retirement System

PRM Planning Reserve Margin

PSRB Public Service Regulatory Board

PROMESA

PropertyCo

Puerto Rico Oversight, Management, and Economic Stability Act (2016)

Comprises existing PREPA-owned assets that are not directly related to generation, T&D, or 

irrigation operations

PW Project Worksheet

PV Photovoltaics

RFP Request for Proposal

RFQ Request for Quotation

RFR Request for Reimbursement

RPS Renewable Portfolio Standard

SAIDI System Average Interruption Duration Index

SAIFI System Average Interruption Frequency Index

SCADA Supervisory Control and Data Acquisition

SOQs Statements of Qualifications

SOW Scope of Work

SRP LUMA System Remediation Plan

T&D Transmission and Distribution

T&D OMA Transmission and Distribution Operations and Maintenance Agreement

TRC Total Resource Cost

TWh Terawatt-hour

UAAL

USD

Unfunded Actuarial Accrued Liability

United State Dollar

USGS United States Geological Survey

UTIER Puerto Rico Electrical Industry and Irrigation Workers Union [by its Spanish acronym]

VTP Voluntary Transition Program

WTI West Texas Intermediate

YTD Year-To-Date

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Table of Contents

Disclaimer .........................................................................................................2

List of Acronyms and Key Terms........................................................................4

Table of Contents ............................................................................................... 7

List of Exhibits..................................................................................................11

List of Tables.................................................................................................... 14

Chapter 1. Executive Summary ........................................................................ 15

Chapter 2. Historical Context and Current Challenges..................................... 19

Key Facts about PREPA............................................................................................. 19

Historical Challenges Leading to the Transformation Mandate ............................. 21

Governance Structure................................................................................................23

Current State of T&D .................................................................................................26

Current State of Generation ......................................................................................28

Customer Demographics and Affordability..............................................................32

Overview of Historical Financial Performance........................................................34

Adverse Effects of FY 2020 Major Catastrophic Events.......................................... 40

Impact of 2019-2020 Earthquakes.......................................................................... 41

Impact of COVID-19................................................................................................ 41

Chapter 3. Transformation ..............................................................................44

Introduction and context of Puerto Rico’s Energy Sector Transformation.............44

Energy Sector Transformation: Vision, Objective, and Framework.......................45

Energy Sector Regulatory Reform & Oversight .......................................................47

Transition to Private Operators................................................................................48

Objectives of the Transition to Private Operators ...................................................48

Future Structure of the Energy System and PREPA, as well as roles and 

responsibilities.........................................................................................................50

Transitioning T&D assets to a private operator ......................................................52

Transitioning Legacy Generation Assets to a Private Operator .............................. 61

Implementation of Puerto Rico’s Energy Sector Transformation ...........................65

Chapter 4. Risks and System Resilience ...........................................................66

Climate Risk ...............................................................................................................66

Earthquakes ..............................................................................................................68

Economic Shocks (e.g., COVID-19)............................................................................69

Chapter 5. Resource Planning and Resiliency .................................................. 72

Overview of the Approved IRP..................................................................................73

History of PREB Review and Approval of the IRP ...................................................73

PREB Modified Action Plan and Modified Preferred Resource Plan ......................73

IRP Modified Action Plan Implementation...............................................................76

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Renewable Generation and Storage.........................................................................76

Grid Resiliency Measures ........................................................................................ 77

Enabling Customer Choice ...................................................................................... 77

Role of the IRP in Capital Plans ................................................................................78

Chapter 6. Capital Plans and Federal Funding ................................................. 81

Capital Plans..............................................................................................................81

Overview of the PREPA 10-Year Infrastructure Plan, as amended..........................81

FY 2022Capital Plan Collaboration and Coordination............................................84

Best Practices for Capital Project Delivery ..............................................................84

Reporting Cadence...................................................................................................85

Federal Funding.........................................................................................................85

Overview...................................................................................................................85

Federal Funding Impact..........................................................................................93

Distribution of Federal Funding Responsibilities for the T&D System ..................93

Challenges and Mitigation Measures ......................................................................94

Overview of Reporting Cadence and Level of Detail ...............................................94

Chapter 7. LUMA Improvement Portfolios.......................................................95

Background on LUMA’s improvement programs and Portfolios ............................96

Development of the improvement programs and Portfolios....................................96

Summary of Improvement Portfolios ......................................................................98

Overview of Expected Spend per Improvement Portfolio through FY2025............98

Goals and Roadmap of improvement programs......................................................99

Improvement Portfolios...........................................................................................100

Customer Service Portfolio..................................................................................... 101

Distribution Portfolio............................................................................................. 102

Transmission Portfolio .......................................................................................... 104

Substation Portfolio............................................................................................... 105

Control Center and Buildings Portfolio .................................................................106

Enabling Portfolio..................................................................................................108

Support Services Portfolio .....................................................................................109

Projected impact of LUMA’s improvement portfolios ............................................. 111

Chapter 8. LUMA Performance Metrics ..........................................................112

Summary of the T&D OMA performance metrics ...................................................112

T&D OMA normal operation performance metrics ................................................112

T&D OMA Major Outage Event Performance Metrics ...........................................115

T&D OMA performance metrics revision cadence .................................................117

Incentive Fee calculation approach .........................................................................117

Chapter 9. Operational Measures ...................................................................119

PREPA Operational Measures .................................................................................119

Overview..................................................................................................................119

Key Accomplishments for FY 2022.........................................................................119

Overview of PREPA Initiatives for FY2023 ........................................................... 120

LUMA Operational Measures.................................................................................. 125

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Chapter 10. Legal and Regulatory Structure .................................................. 128

Overview of Regulatory Structure and Key Legislation ........................................ 128

Key Regulatory Issues ............................................................................................. 130

Guiding Principles for Ratemaking.......................................................................131

PREPA’s Current Rate Structure ......................................................................... 132

Overview of CILT Reform........................................................................................ 133

The Role of PREB and Regulatory structure after T&D transformation............... 134

Federal Environmental Law Requirements & Compliance.................................... 135

Chapter 11. Summary of Financial Projections............................................... 138

Baseline rate and Revenue Requirement................................................................ 138

FY 2022 Baseline and Future Revenues and Expenses........................................... 140

Financial Projections for FY 2022 and FY 2023................................................... 140

Forecasted Revenues ............................................................................................ 140

Forecasted Expenses .............................................................................................141

Chapter 12. Revenue ...................................................................................... 143

FY 2022 Actual Revenue Against Budget................................................................ 143

Overview of Load Projections ................................................................................. 144

Macroeconomic Projections and Demographics.................................................. 146

Energy efficiency ................................................................................................. 147

Distributed Generation (DG) .............................................................................. 149

Electric vehicles.................................................................................................... 150

Other assumptions impacting revenue ................................................................... 156

Overview of Fuel and Purchased Power ............................................................... 156

Price Elasticity...................................................................................................... 157

Rate Structure ...................................................................................................... 157

Transformation .................................................................................................... 157

Comparison to Prior Certified Fiscal Plans ............................................................ 158

Chapter 13. Expenses ..................................................................................... 159

Overview of Expense Projections ............................................................................160

Overview of Expenses by Entity...............................................................................161

Overview of GenCo Expense Projections................................................................. 163

Overview of GridCo Expense Projections................................................................ 165

Overview of HoldCo................................................................................................. 166

Chapter 14. Debt Service ................................................................................ 168

Overview of PREPA Debt......................................................................................... 168

Implications of Unrestructured Debt on Projected Rates....................................... 169

Debt Sustainability Analysis ................................................................................... 170

Chapter 15. Pension Plan ................................................................................ 171

Historical Background and Organizational Structure............................................171

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Pension Benefits Background.................................................................................. 172

Other Post-Employee Benefits (OPEB)................................................................ 173

Distribution of Active Participants by Age and Years of Service ......................... 173

Funded Status .......................................................................................................... 174

Implications of Full Funding of ADC vs. PayGo Funding ...................................... 176

Structural Pension Reform Considerations ............................................................177

Short term pension funding considerations..........................................................177

Longer term pension funding considerations .......................................................177

Structural Pension Reform Considerations .........Error! Bookmark not defined.

Chapter 16. Post-Certification Reporting ........................................................179

Non-operational Reports.........................................................................................180

Transmission & Distribution-related Operational Measures ................................ 182

Generation-Related Operational Metrics and Reports .......................................... 182

Chapter 17. Conclusion .................................................................................. 184

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List of Exhibits

EXHIBIT 1: KEY PREPA FY 2020 STATISTICS COMPARED TO PEERS.................................. 20

EXHIBIT 2: RELIABILITY METRICS COMPARED TO PEER GROUP MEDIAN.......................21

EXHIBIT 3: PREPA GOVERNING BOARD COMPOSITION...................................................... 24

EXHIBIT 4: ILLUSTRATIVE REORGANIZED PREPA CORPORATE STRUCTURE................. 26

EXHIBIT 5: PREPA TRANSMISSION LOOPS ............................................................................ 27

EXHIBIT 6: PREPA GENERATION ASSETS .............................................................................. 30

EXHIBIT 7: FY 2021 PREPA CUSTOMER COUNT AND CONSUMPTION BY 

MUNICIPALITY ........................................................................................................................... 32

EXHIBIT 8: PUERTO RICO ELECTRICAL SHARE OF WALLET COMPARED TO PEER 

REGIONS...................................................................................................................................... 33

EXHIBIT 9: PREPA OPERATIONAL DEFICITS FROM FY2000 TO FY2016 ............................ 35

EXHIBIT 10: FY 2022 GROSS REVENUES PER MONTH (USD MILLION) ............................. 37

EXHIBIT 11: FY 2022 BASE RATE REVENUES PER MONTH (USD MILLION) ...................... 38

EXHIBIT 12: FY 2022 BILLED SALES PER MONTH (GWH) .................................................... 38

EXHIBIT 13: FY 2022 BUDGETED AND ACTUAL INCOME AND EXPENDITURE, 

FORECAST OF RECURRING OPERATIONS .............................................................................. 40

EXHIBIT 14: FY 2022 QUARTERLY SALES VARIANCE (GWH)............................................... 42

EXHIBIT 15: FY 2022 QUARTERLY SALES VARIANCE BY CUSTOMER CLASS(GWH)......... 42

EXHIBIT 16: ENERGY SECTOR TRANSFORMATION CURRENT AND FUTURE STATE....... 50

EXHIBIT 17: CURRENT PREPA STRUCTURE ............................................................................51

EXHIBIT 18: FUTURE PREPA STRUCTURE.............................................................................. 52

EXHIBIT 19: KEY MILESTONES IN T&D OPERATOR TRANSITION PROCESS ..................... 53

EXHIBIT 20: T&D OMA FEES BY CONTRACTUAL PERIODS.................................................. 56

EXHIBIT 21: PROJECTED INSTALLATION TIMELINE OF THE RENEWABLE 

GENERATION CAPACITY ORDERED BY PREB ........................................................................ 63

EXHIBIT 22: IRP PREB MODIFIED ACTION PLAN.................................................................. 64

EXHIBIT 23: PROJECTED GENERATION MIX......................................................................... 64

EXHIBIT 24: COMPLETED MILESTONES FOR POWER SECTOR REFORM.......................... 65

EXHIBIT 25: PENDING MILESTONES FOR POWER SECTOR REFORM................................ 65

EXHIBIT 26: IMPACT OF CLIMATE EFFECTS ON PREPA....................................................... 67

EXHIBIT 27: FUEL MIX DURING FISCAL AND CALENDAR YEAR 2021................................ 69

EXHIBIT 28: MARCH THROUGH JUNE DAILY LOAD COMPARISON FROM FY 2019 TO 

FY 2020 (WH) .............................................................................................................................. 70

EXHIBIT 29: COVID-19 CASES FROM MARCH 2020 TO MARCH 2022 ..................................71

EXHIBIT 30: PREB GUIDANCE FOR PROCUREMENT OF RENEWABLE ENERGY 

GENERATION AND BATTERY STORAGE CAPACITY................................................................77

EXHIBIT 31: TOTAL FUNDING FOR GRID AND GENERATION REBUILD AND 

TRANSFORMATION.................................................................................................................... 83

EXHIBIT 32: SUMMARY OF FEMA REIMBURSEMENT RECEIVED THROUGH 

FEBRUARY 25, 2022....................................................................................................................88

EXHIBIT 33: PHYSICAL ASSET HEALTH CONDITION SCORE VALUE DEFINITIONS ........ 97

EXHIBIT 34: ORGANIZATIONAL HEALTH ASSESSMENT MATURITY SCORING 

CRITERIA..................................................................................................................................... 97

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EXHIBIT 35: LUMA’S PROPOSED ANNUAL IMPROVEMENT PORTFOLIO SPENDING 

ESTIMATES FOR FY2023 THROUGH FY2025 (USD MILLION, NOMINAL).......................... 99

EXHIBIT 36: LUMA’S PROPOSED RECOVERY AND TRANSFORMATION ROADMAP....... 100

EXHIBIT 37: CUSTOMER SERVICE PORTFOLIO SPENDING ESTIMATES BY PROGRAM 

(USD MILLION, REAL)............................................................................................................... 101

EXHIBIT 38: DISTRIBUTION PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD 

MILLION, NOMINAL)................................................................................................................103

EXHIBIT 39: TRANSMISSION PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD 

MILLION, NOMINAL)............................................................................................................... 104

EXHIBIT 40: SUBSTATION PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD 

MILLION, REAL) ........................................................................................................................105

EXHIBIT 41: CONTROL CENTER AND BUILDINGS PORTFOLIO SPENDING ESTIMATES 

BY PROGRAM (USD MILLION, REAL)......................................................................................107

EXHIBIT 42: ENABLING PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD 

MILLION, REAL) ....................................................................................................................... 108

EXHIBIT 43: SUPPORT SERVICES PORTFOLIO SPENDING ESTIMATES BY PROGRAM 

(USD MILLION, NOMINAL) ..................................................................................................... 109

EXHIBIT 44: CUMULATIVE IMPROVEMENTS IN PERFORMANCE METRICS 

PROJECTED BY LUMA................................................................................................................111

EXHIBIT 45: REVISED & UPDATED MAINTENANCE SCHEDULE........................................122

EXHIBIT 46: PREB REGULATORY STRUCTURE.....................................................................129

EXHIBIT 47: FY 2023 OVERALL RATE COMPOSITION..........................................................133

EXHIBIT 48: REVENUE REQUIREMENT RATE INCLUDING PAYGO PENSION AND 

OPEX AND UNRESTRUCTURED DEBT (C/KWH) VERSUS LOAD (GWH)........................... 140

EXHIBIT 49: 30-YEAR SALES AND REVENUE PROJECTIONS (GWH AND USD 

MILLION).................................................................................................................................... 141

EXHIBIT 50: CONSOLIDATED FORECAST EXPENSES UNTIL THE END OF THE IRP, 

EXCLUDING DEBT SERVICE (USD MILLION, NOMINAL DOLLARS) ..................................142

EXHIBIT 51: FY2022 YTD (MARCH) BUDGET VS. ACTUALS (USD MILLION).....................143

EXHIBIT 52: FY2022 YTD REVENUE VARIANCE VS BUDGET BY CUSTOMER CLASS 

(USD MILLION)..........................................................................................................................144

EXHIBIT 53: FY2022 SALES AND VARIANCE VS BUDGET (GWH, %) ..................................144

EXHIBIT 54: HISTORICAL BILLING DETERMINANTS (GWH, MW) ....................................145

EXHIBIT 55: 30-YEAR LOAD FORECAST WITH THE INDIVIDUAL EFFECTS OF THREE 

DRIVERS CAUSING LOAD REDUCTION (TWH) .....................................................................146

EXHIBIT 56: COMMONWEALTH OF PUERTO RICO POPULATION PROJECTIONS, IN 

THOUSAND.................................................................................................................................147

EXHIBIT 57: COMMONWEALTH OF PUERTO RICO GNP PROJECTIONS ...........................147

EXHIBIT 58: CUMULATIVE ENERGY EFFICIENCY SAVINGS BY PROGRAM (GWH).........149

EXHIBIT 59: 30-YEAR DISTRIBUTED GENERATION FORECAST BY CUSTOMER CLASS 

(TWH)..........................................................................................................................................150

EXHIBIT 60: 30-YEAR DISTRIBUTED GENERATION FORECAST BY SOURCE (TWH) ......150

EXHIBIT 61: FUEL PRICE FORECAST (USD/MMBTU)........................................................... 157

EXHIBIT 62: PREPA CERTIFIED FISCAL PLAN NET UTILITY SALES IN GWH...................158

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EXHIBIT 63: FY 2023 VS. FY 2027 REVENUE REQUIREMENT PROJECTED 

BREAKDOWN BY CATEGORY (INCLUDING ERS PENSION PAYMENTS, EXCLUDING 

DEBT PAYMENTS)...................................................................................................................... 161

EXHIBIT 64: CONSOLIDATED PREPA EXPENSE BREAKDOWN (USD MILLION) ..............162

EXHIBIT 65: FIVE-YEAR EXPENSE FORECAST FOR GENCO (USD MILLION) ...................165

EXHIBIT 66: FIVE-YEAR EXPENSE FORECAST FOR GRIDCO (USD MILLION)..................166

EXHIBIT 67: FIVE-YEAR EXPENSE FORECAST FOR HOLDCO (USD MILLION).................167

EXHIBIT 68: RATE WITH UNRESTRUCTURED DEBT ADDED (IN NOMINAL 2022 

C/KWH).......................................................................................................................................169

EXHIBIT 69: NUMBER OF PARTICIPANTS AND TOTAL SALARY.........................................174

EXHIBIT 70: PENSION ASSETS AS OF MARCH 31, 2022........................................................ 175

EXHIBIT 71: PENSION FUNDED STATUS AS OF JUNE 30, 2020 .......................................... 175

EXHIBIT 72: PROJECTED PAYGO COSTS AFTER PROJECTED PREPA ERS ASSET 

DEPLETION ................................................................................................................................176

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List of Tables

TABLE 1: PREPA FY2014 TO FY 2021 STATEMENT OF NET POSITION ................................. 36

TABLE 2: TRANSFORMATION OBJECTIVES............................................................................ 45

TABLE 3: DETAILED GOALS AND OBJECTIVES ...................................................................... 59

TABLE 4: CUMULATIVE IMPROVEMENTS IN PERFORMANCE METRICS PROJECTED 

BY LUMA...................................................................................................................................... 60

TABLE 5: TOTAL FUNDING BY PROGRAM OBLIGATED TO GRID AND GENERATION 

REBUILD AND TRANSFORMATION ......................................................................................... 87

TABLE 6: OVERVIEW OF T&D OMA PERFORMANCE METRICS........................................... 113

TABLE 7: OVERVIEW OF T&D OMA MAJOR OUTAGE EVENT PERFORMANCE METRICS 116

TABLE 8: FY2023 INITIATIVES................................................................................................ 120

TABLE 9: RENEWABLE PROCUREMENT – REVISED POTENTIAL TIMELINE................... 121

TABLE 10: FUEL SUPPLY ACTION PLAN ................................................................................. 121

TABLE 11: GENERATION FRONT-END TRANSITION AND REORGANIZATION PLAN.......124

TABLE 12: STUDY ON NET METERING AND DISTIRBUTED GENERATION .......................125

TABLE 13: ENERGY EFFICIENCY PROGRAMS........................................................................148

TABLE 14: ASSUMPTIONS FOR GENCO, GRIDCO, AND HOLDCO EXPENSES....................162

TABLE 15: ILLUSTRATIVE DEBT CAPACITY SENSITIVITY (VALUES IN $000’S)................170

TABLE 16: KEY RETIREMENT PROVISIONS ...........................................................................172

TABLE 17: REPORTING CADENCE .......................................................................................... 180

TABLE 18: NON-OPERATIONAL REPORTS ............................................................................. 181

TABLE 19: REPORTS ON GENERATION-RELATED OPERATIONAL MEASURES................183

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Chapter 1. Executive Summary

The 2022 Certified Fiscal Plan lays out a path towards the completion of the 

operational and financial reorganization of the Puerto Rico Electric Power 

Authority (PREPA) and the successful completion of the transformation of Puerto 

Rico’s energy sector. 

Puerto Rico’s economic recovery depends on a comprehensive and overdue 

transformation of its energy sector to deliver the safe, reliable, and affordable 

service that Puerto Rico’s residents and businesses deserve. Like prior Certified Fiscal 

Plans, the 2022 Certified Fiscal Plan lays out a set of continued actions to further advance and 

accelerate progress on this transformation, including improving and modernizing the 

transmission and distribution (T&D) system, as well as PREPA’s generation fleet, leveraging 

private-sector expertise and experience to enhance T&D and generation system operations,

diversifying the Island’s energy resources, including the deployment of renewable energy 

resources and restructuring legacy obligations. When fully implemented, these transformational 

initiatives will set Puerto Rico on a trajectory to achieve a safe, reliable, affordable, resilient, 

modern electric grid, improving the quality of life for its residents and supporting long-term 

economic growth of the island activity, through private sector expertise independent from 

political interference.

During FY2022, PREPA and the Government made progress on several initiatives:

■ Completed a competitive procurement process to obtain the best available market prices for 

major fuel supply contracts (Diesel and Bunker C) leading to savings in fuel costs compared 

to prior contracts.

■ Supported the procurement process for the Legacy Generation Public-Private Partnership 

(P3) by developing materials for and supporting the administration of the Request for 

Proposal (RFP) and bidder due diligence process for the Legacy Generation P3.

■ Completed the procurement of 18 solar PPOAs totaling approximately 845MW of installed 

capacity from Tranche 1 of the Renewable RFP.

■ Submitted over $200 million in generation projects to FEMA. 

As T&D System operator, LUMA made progress on the following areas:

■ Reduced customer call-wait times by over 95% to less than one minute and increasing 

customer accessibility to e-billing platforms with over a million customers registering on 

electronic portal or downloading the LUMA app.

■ Reduced OSHA DART Rate and OSHA Injury Severity Rate by over 80%.

■ Addressed inherited backlog of DG project interconnection requests, approving over 130 MW 

of new rooftop solar and other DG systems.

■ Gained regulatory approval for 190 initial scopes of work representing $7.8 billion in federal 

funding

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Despite these efforts and progress to-date, much work remains to be done. These 

responsibilities are now shared with the T&D operator, LUMA. Completing the comprehensive 

transformation of Puerto Rico’s energy system, which includes the separation of the transmission 

and distribution ownership from the generation ownership, reaching public policy renewable 

energy targets, reducing outage frequency and duration, enabling rate affordability, improving 

service reliability and customer satisfaction, and ensuring system resiliency and preparedness 

against unforeseen events requires diligent implementation and coordination between LUMA and 

PREPA, along with the support and cooperation of the P3A and PREB, of multiple key initiatives, 

most importantly: 

■ Improving T&D and Generation operations: Improving program management to 

ensure timely and on budget completion of key operational initiatives, including proactive 

maintenance programs.

■ Modernizing and Reconstructing the Transmission and Distribution System: 

Developing and timely executing a capital investment plan to modernize and strengthen the 

electrical grid.

■ Contracting new generation to meet RPS targets: Implementing the PREB-approved 

IRP Modified Action Plan to modernize power generation resources and increase renewable 

energy generation.

■ Effectively and efficiently deploying federal funding: Optimizing the available federal 

funding and other associated obligated funding to enable the transformation of the generation 

portfolio and the T&D Systems. 

■ Improving workforce and public safety: Continue health, safety and technical training 

for employees to develop a safe and competent workforce and continue to improve customer 

and public awareness of electrical hazards.

■ P3A’s completion of the competitive procurement process for one or more 

operators for the PREPA legacy generation assets: Completion of the remaining 

procurement efforts to implement the transfer of operation and maintenance of PREPA’s

legacy generation assets to professional and independent private operators. 

■ Restructuring legacy debt obligations: Supporting ongoing efforts by FOMB and AAFAF 

to restructure PREPA’s existing, unsustainable debt load and regain access to capital markets, 

without unduly affecting electricity rates and the burden on customers and the economy of 

Puerto Rico.

■ Pension Reform: Balancing the objectives of rate affordability with PREPA’s pension 

obligations to employees and retirees, PREPA must support FOMB and AAFAF in addressing 

the pensions in a plan of adjustment that ensures a sustainable reform.

Delays in the implementation of renewable energy projects and energy efficiency 

measures pose a serious risk to Puerto Rico’s ability to meet its renewable energy 

and energy efficiency aspirations. These delays also highlight the need for the Government, 

PREB, PREPA and LUMA to take urgent actions to enable and support the transition and 

transformation of the energy system. PREB and LUMA must also work towards updating the 

existing Integrated Resource Plan to reflect the current pace of deployment, as well as updated 

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macroeconomic conditions, to ensure it serves as an appropriate roadmap for the actions and 

decisions that must be taken in the short- and medium-term. A failure to address the root causes 

of these delays, and to take the remedial actions needed to ensure a reliable energy service may 

set Puerto Rico on a path to erasing the progress made over the last years, leaving the Island’s 

residents and businesses permanently at the mercy of an unreliable, expensive, and inefficient 

energy system.

Puerto Rico’s energy infrastructure lags national standards due to decades of 

operational and financial mismanagement. Delayed capital projects have kept the system 

vulnerable to disruption and increased rates. A historical lack of long-term planning has resulted

in PREPA’s system being technologically outdated, operationally inefficient, and heavily reliant 

on an unreliable, high-cost, and highly polluting oil-fired generation fleet. The dependence on 

outdated generation and low operational efficiency across the organization has resulted in high 

electricity rates and low service reliability. Puerto Rico’s ratepayers spend a higher share of 

income on electricity service than most US ratepayers for service with reliability that falls at the 

bottom of the fourth quartile of peer utilities. While LUMA has brought professional and 

experienced services to the operation of PREPA’s transformation and distribution system and 

mitigated the impact of decades of politicized decision-making regarding grid maintenance and 

operations, these issues with PREPA’s system are a result of long-term failures to invest in and 

maintain its grid.

PREPA’s prior operational shortcomings and inability to implement modest rate

adjustments to cover its rising costs led persistent operational deficits and the 

accumulation of significant legacy debt and pension obligations. As of May 2017, 

PREPA held approximately $9 billion in financial debt obligations, the equivalent of $6,000 per 

customer, while PREPA’s pension liability exceeded $4.3 billion, of which $3.6 billion was 

unfunded, the equivalent of $2,400 per customer.

1 In other words, for every $1.00 owed to 

existing and future retirees, PREPA’s pension plan had less than $.20 available to pay pensioners. 

These liabilities led PREPA to seek a restructuring of its legacy obligations through a voluntary 

petition under Title III of the Puerto Rico Oversight, Management, and Economic Stability Act 

(PROMESA) in 2017.

PREPA and the people of Puerto Rico have also faced compounding negative effects 

from external factors. In September 2017, Hurricanes Irma and Maria devastated the electric 

grid. In January 2020 key PREPA generation assets were damaged by a 6.4 magnitude 

earthquake. Shortly following that disaster, the ongoing Coronavirus Disease 2019 (“COVID-19”) 

pandemic begun which further delayed much needed system maintenance and improvements. 

More recently, fuel global oil prices have increased significantly due to, among other things, the

Russian invasion of Ukraine in February 2022, which has driven rates above ~28 cents per kWh

even though PREPA’s current rates do not provide for payment of debt services or pensions. This 

level of costs for fuel and electricity poses serious financial challenges to PREPA, its customers 

and the overall island economy.

Over the next 30 years, the overall load in Puerto Rico’s electricity system is 

forecasted to decline because of declining population and diminishing inflationadjusted economic activity. The rate of decline is further accelerated as customers leverage 

energy efficiency (EE) and distributed generation (DG) to reduce their reliance on the grid. In this 

1 Based on independent actuarial study conducted performed by Aon Hewitt, valuation results as of June 30, 2020

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context of forecasted declining load, implementing efficiencies will be required to limit the need 

for rate increases to cover fixed costs of the system. 

To successfully execute on the Certified Fiscal Plan and ensure continued progress 

towards transformed energy sector, PREPA – together with LUMA– must effectively 

manage several contingencies and risks. The ongoing effects of the COVID-19 pandemic 

are expected to taper during the coming fiscal year. LUMA is expected to begin executing on large 

capital projects funded by FEMA and other federal agencies. PREPA must also complete 

transitioning matters to LUMA so that LUMA can maintain and prepare the system to withstand 

potential future hurricanes and other weather events. Other contingencies include successfully 

completing debt restructuring and working to ensure timely deployment and reimbursement of 

federal funding for emergency reconstruction vendors and mitigation. PREPA will continue to 

collaborate with key government counterparties including the Oversight Board, the P3A, AAFAF, 

PREB, and Central Office of Recovery, Reconstruction, and Resiliency (COR3) to collectively

ensure successful transformation. 

If successfully implemented, the 2022 Certified Fiscal Plan for PREPA will accelerate the 

transformation of the Island’s energy sector into a safe, resilient, and modern electric grid, 

providing reliable service to customers at predictable and affordable rates, enabling long-term 

economic and job growth. Over the next five years, this transformation will result in access to safe, 

reliable, clean and efficient energy system the people of Puerto Rico deserve.

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Chapter 2. Historical Context and Current Challenges

Key Facts about PREPA

PREPA, formerly known as the Puerto Rico Water Resources Authority until 1979, was created 

through Act No. 83 on May 2, 1941 (PREPA’s Enabling Act). Throughout its history, PREPA has 

served as the sole franchise utility electricity provider in Puerto Rico. Until 2014, PREPA was selfregulated and operated without an independent regulatory body to ensure accountability on longterm planning and rate setting. As of the end of FY 2021, PREPA served approximately 1.5 million 

customers and generated approximately $3.2 billion in revenues from 16 terawatt-hours (TWh) 

of electricity sales.2

PREPA Compared to Similar Public Utilities

PREPA is the largest public power utility in the U.S. by number of customers served but has 

relatively low generation output and energy sales on a per customer basis (Exhibit 1). PREPA 

currently produces an annual net generation of roughly 12 megawatt-hours (MWh) of energy per 

customer, meaning that PREPA delivers less than half as much power per customer than 

comparable mainland utilities. PREPA’s annual peak hourly load is also substantially lower than 

comparable mainland utilities, as Puerto Rico customers do not command sizeable increases in 

load during winter months.

3

2 Monthly Report to PREPA’s Governing Board, June 2021 (interim unaudited financial results). 

3 Annual peak demand in Puerto Rico typically occurs within the August – October period. 

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EXHIBIT 1: KEY PREPA FY 2020 STATISTICS COMPARED TO PEERS4

In terms of service reliability, the people of Puerto Rico have historically experienced lower quality 

service than what is available and required in other jurisdictions. The average PREPA customer 

loses power at least once every 5 to 6 weeks, compared to 1 to 2 times per year for mainland 

customers. This adverse impact on quality of life and economic activity for Puerto Rico’s residents 

and businesses is routinely a cause for concern in economic surveys and poses an underlying risk 

to essential services for residents. 

According to industry benchmarks and LUMA’s assessment during the front-end transition 

period, in 2020 PREPA’s customers experienced nearly 8 times more service interruptions than 

customers of the median US utility within IEEE benchmarks. Similarly, in 2020, the average 

duration of power outages was nearly 10 times longer for PREPA’s customers than for mainland 

customers (see Exhibit 2). Although PREPA had shown modest improvement since 2017, metrics 

assessed for 2020 placed PREPA in the bottom quartile of peer utilities; Puerto Rico residents

4 Based on publicly available data sourced from either EIA 412 or annual reports and the EIA 861 filings for FY 2020. Utilities 

surveyed include Los Angeles Department of Water and Power; Long Island Power Authority; Salt River Project; City Public 

Service of San Antonio, Sacramento Municipal Utility District; Austin Energy; Jacksonville Electric Authority; Seattle City Light; 

Memphis Light, Gas and Water; Omaha Public Power District, New York Power Authority, Nashville Electric Service, Nebraska 

Public Power District, Colorado Springs Utilities. Net Generation includes energy purchases as well as generated energy on a 

net basis.

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and businesses experienced far more outages for far longer periods of time. PREPA’s reliability 

metrics using industry standard methods are illustrated in Exhibit 2.

5

EXHIBIT 2: RELIABILITY METRICS COMPARED TO PEER GROUP MEDIAN6

Historical Challenges Leading to the Transformation 

Mandate

PREPA is the sole electric power utility in Puerto Rico operating an exceptionally complex energy 

system. Operating an electrical network on a mountainous, isolated, tropical island with dense 

vegetation is challenging as it requires significant maintenance of often remote transmission and 

distribution lines. Furthermore, the system cannot rely on access to a larger, regional, and 

interconnected power grid for power generation like most parts of the U.S. mainland. The 

complexity of operating the Puerto Rico energy system has been compounded by decades of 

operational, maintenance, and financial challenges resulting in the system lagging far behind 

national standards. Financially, PREPA’s operational shortcomings and historical failure to adjust 

rates to cover rising costs over time, led to the accumulation of significant legacy debt and pension 

obligations, as well as under-maintained and outdated infrastructure. 

Several long-standing structural issues have led to PREPA’s current financial and operational 

position:

▪ Political influence and lack of continuity in decision making: Historically, 

management decisions have been subject to political influence and changes, leading to high 

management turnover, discontinuity in capital investment plans, and electric customer rates 

that were insufficient to cover operating and maintenance costs and, debt service. Politicized 

decision making ultimately led PREPA to issue more debt to cover current debt service rather 

than to set rates sufficient to do so. As a result, customers have been faced with increasingly 

poor reliability due to aging infrastructure, sub-optimal management and financial 

performance and rate volatility because of a historical overdependence on oil-fired generation 

with its fluctuating market prices, among others.

5 LUMA’s filings with PREB related to performance metrics and System Remediation Plan.

https://energia.pr.gov/wp-content/uploads/sites/7/2021/03/Request-for-Leave-to-File-Amended-Exhibit-2-NEPR-MI-2019-

0007.pdf

6 IEEE Benchmark: https://cmte.ieee.org/pes-drwg/wp-content/uploads/sites/61/2021-IEEE-DRWG-Benchmarking-Results.pdf 

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▪ Lack of rate adjustments to cover costs: PREPA has operated under a fiscal deficit since 

the early 2000s due to, among other things, its inability to implement modest base-rate 

adjustments for non-fuel operations and maintenance (O&M) expenses.7 

▪ Macro-economic challenges. PREPA has been impacted by macroeconomic challenges in 

recent years. Puerto Rico’s economy began to deteriorate, experiencing a 20% decline in real 

gross national product (GNP) since 2007, while growing out-migration led to population 

decline of over 15% since 2004, shrinking PREPA’s revenue base. Consequently, by 2021, 

energy sales fell by 21% from its peak in 2007 and operating revenues declined by 31% over 

the same period. With fewer customers and a lower revenue base, existing customers have had 

to pay higher rates to cover fixed system costs.

▪ Overreliance on fossil fuels with fluctuating prices for power generation.

Although PREPA has reduced its reliance on oil-based power generation by converting certain 

key power units to natural gas-based power generation, PREPA customers are still subject to 

a generation mix highly dependent on antiquated oil-fired units and a rate structure that 

passes through fluctuating fuel costs, resulting in historically volatile rates. This in turn 

challenges customers’ ability to pay and creates affordability pressure for all customer classes. 

Between 2009 and 2014, PREPA’s fuel-adjustment rider increased by around 45% when the 

oil price doubled from $60 to $120 per barrel.8 The combined impact of lower sales and higher 

fuel prices contributed to high and also volatile average customer rates ranging from 20 to 

30 c/kWh. In FY 2021, approximately 43% of generation was fueled by natural gas, 37% was 

oil-fired, 17% was coal fired, and 3% was from renewable sources. For comparison, the US 

national average for oil fired generation is currently less than 1% of total generation. Without 

further investment in lower cost renewable power sources and battery storage, Puerto Rico 

residents and businesses will remain vulnerable to changes in oil and gas prices.9

▪ Unsustainable debt and pension obligations: PREPA accumulated approximately 

$9 billion in debt and over $4 billion in pension liabilities. Rates were not adjusted to cover 

these growing liabilities. Without debt restructuring, electric rate increases of between 6 to 

8 c/kWh in real dollars to pay legacy debt would cause rates as of the date of the certification 

of this fiscal plan to increase above 35 c/kWh and would significantly elevate them on a longterm basis. Additionally, to fully fund pension benefits after plan assets are depleted, which is 

estimated to occur during FY2024, PREPA will be required to contribute over $250 million 

per year on average. This would represent an increase in the monthly electricity rate of 1.5 to 

2.1 c/kWh over the next two decades. For instance, in 2020 rates went down to approximately 

21 c/kWh and then increased exponentially in 2022 to ~26 c/kWh, due to supply chain 

constraints and the Russian invasion of Ukraine.

▪ Underinvestment in grid maintenance and modernization: Given insufficient 

revenues and an inability to implement rate adjustments to cover the substantial liabilities 

mentioned above, PREPA’s management historically reduced, or eliminated altogether, 

7 PREPA has adjusted rates related to fuel and purchased power on a monthly or quarterly basis to reconcile actual costs but did 

not adjust its base rate for non-fuel O&M costs for over 25 years, prior to the 2016 rate filing and rate adjustment.

8 PREPA, FY2009 Monthly Report (interim, unaudited financial results); PREPA, FY2014 Monthly Report (interim, unaudited 

financial results). 

9 Siemens Industry, Puerto Rico Integrated Resource Plan 2018-2019, RPT-015-19, rev. 2 (Schenectady, June 7, 2019), 7-3, 

http://energia.pr.gov/wp-content/uploads/2019/02/PREPA-Ex.-1.0-IRP-2019-PREPA-IRP-Report.pdf; U.S. Energy Information 

Administration, Puerto Rico: Profile Overview, last modified November 21, 2019, https://www.eia.gov/state/?sid=RQ. 

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prudent and needed investments in long-term maintenance and capital improvement 

programs. In recent years, capital investments in the T&D System were limited to the most 

urgent projects to avoid imminent system failure or respond to equipment breakdowns, rather 

than proactively improving the grid. Historic underspending on vegetation management and 

other maintenance resulted in a T&D System highly susceptible to damage from hurricanes, 

earthquakes, and other unforeseen events. 

▪ Aging and inefficient generation fleet: Failed efforts to diversify and maintain

generation resources have resulted in an aged and inefficient generation fleet. PREPA owns 

installed capacity of approximately 4,500 MW with another 1,000 MW contracted under 

PPOAs from AES and EcoEléctrica. The PREPA plants have an approximate average age of 

over 40 years, compared to a national average of 18 years.

10 Aging assets lead to operational 

challenges, including lower operational flexibility because of slower ramp-up capacity, a 

higher likelihood of outages, increased costs per megawatt-hour generated, as well as noncompliance with environmental and health regulations. Further, PREPA-owned generation 

plants have high unavailability due to ongoing deratings, as well as forced and planned 

outages that result in less than 50% of PREPA-owned generation available for service on 

average over the past 12 months when considering the full 8,760 hours in the period.

Considering these long-standing operational and financial challenges, the 2022 Certified Fiscal 

Plan for the Commonwealth of Puerto Rico, which the Oversight Board certified on January 27, 

2022, confirms and updates the continued path towards the full transformation of Puerto Rico’s 

energy sector, as required by Puerto Rico public policy11 and laid out in prior fiscal plans. The 

Puerto Rico electricity system requires a comprehensive transformation to deliver the safe, 

reliable, clean, and affordable service that Puerto Rico’s residents and businesses desperately 

need and deserve. This transformation process is described further in Chapter 3.

Governance Structure

PREPA’s Enabling Act established PREPA as a public corporation having legal existence separate 

and independent from that of the Government of Puerto Rico. The PREPA Governing Board is 

charged with the power to appoint the Executive Director or Chief Executive Officer, as well as all 

other executive officers. 

PREPA’s Governing Board is composed of seven members (Exhibit 3). 

1. Three members are appointed by the Governor of Puerto Rico, with the advice and consent of 

the Senate; these members are selected from a list of candidates prepared by a professional 

recruitment firm. 

2. Three members are appointed by the Governor at his or her sole discretion, one of which must 

be independent and not an employee of any government entity. 

3. One member is elected by PREPA’s customers to represent customer interests.

11 US Congress, Exploring Energy Challenges and Opportunities. Excludes IPP installed capacity of 961 MW: all renewable

energy plants are independently owned and contracted through PPAs.

12 Defined within, but not limited to, Act 17-2019, Act 120-2018 and Act 57-2014. 

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Additionally, Article 16 of Puerto Rico’s Fiscal Agency and Financial Advisory Authority (AAFAF)

Enabling Act provides that AAFAF’s Executive Director is a member of the Board of Directors of 

any instrumentality of the Government of Puerto Rico that is designated as a covered territorial 

instrumentality under PROMESA while such designation is in effect. Given PREPA’s designation 

as a covered territorial instrumentality, AAFAF’s Executive Director, or his designee, is also a 

member of PREPA’s Governing Board.12

Governing Board members appointed by the Governor with the advice and consent of the Puerto 

Rico Senate serve staggered terms, while the members appointed at the Governor’s sole discretion 

are considered at-will directors – except for the independent member, who serves a term of five 

years. The customer interest representative also serves a term of five years.13

EXHIBIT 3: PREPA GOVERNING BOARD COMPOSITION

PREPA and its Governing Board are regulated by the Puerto Rico Electric Bureau (PREB). 

PREPA’s Governing Board is also subject to the oversight of the Oversight Board since the 

enactment of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)

in 2016. Further details on regulatory structure, including the role of the PREB can be found in

Chapter 4 – Legal and Regulatory Structure.

As required by Act-17-201914, PREPA has ceased operating as a vertically integrated monopoly 

and has transferred operational responsibilities for T&D O&M Services to LUMA, as set forth in 

12 Act 2-2017, as amended (3 L.P.R.A. § 9376). 

13 Section 4 of the PREPA Enabling Act (22 L.P.R.A. § 194). 

14 The Puerto Rico Energy Public Policy Act, Act No. 17 of April 11, 2019

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the Transmission & Distribution Operations and Maintenance Agreement (T&D OMA) with 

LUMA. PREPA continues to retain ownership of the electric system assets.

The continuing focus and priority of the PREPA Governing Board is to support and implement 

the various transformational measures outlined in PREPA’s and the Commonwealth’s 2022

Certified Fiscal Plans, including:

1. Complying with PREPA’s obligations under the T&D OMA;

2. Supporting P3A in the completion of the existing P3A competitive procurement process for 

the selection of one or more operator(s) for legacy PREPA generation and the eventual 

transfer of O&M responsibilities;

3. Supporting LUMA, as necessary, to efficiently deploy and manage the maximum amount of 

federal funding allocated by various federal agencies for the repair, reconstruction and 

strengthening of Puerto Rico’s energy infrastructure and related assets, in a manner 

consistent with the T&D OMA and, to the extent applicable, any agreement resulting from the 

legacy PREPA generation procurement process;

4. Continuing to implement short-term operational and managerial reforms that enhance 

financial stability, service quality (of power generation while in control of PREPA), improve 

operational efficiency and environmental compliance, enhance transparency and 

accountability, and reduce political intervention; and

5. Supporting efforts to restructure PREPA’s legacy debt and pension obligations. 

Corporate Reorganization

PREPA has worked and coordinated with the P3A to refine and implement a reorganization of 

PREPA that is consistent with the public policy set forth in Act 17-2019 and meets all additional 

legal and regulatory requirements, including tax, FEMA, PREB, and relevant requirements under 

the T&D OMA. Chapter 3 of this Certified Fiscal Plan outlines PREPA’s future organizational 

structure, after completion of the relevant transformation initiatives.

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EXHIBIT 4: ILLUSTRATIVE REORGANIZED PREPA CORPORATE STRUCTURE

Current State of T&D

Puerto Rico’s T&D System is comprised of three major transmission loops that move electric 

generation from power plants concentrated along the southern coast to load centers concentrated 

in the northeast. The system’s dependence on north-south transmission creates operational 

inefficiencies and grid vulnerabilities. The impact of Hurricane Maria was particularly devastating 

for these north-south lines, which cut through dense, forested terrain. 

The system’s original transmission loop is the Central Loop, connecting Costa Sur, EcoEléctrica, 

and Aguirre power plants in the south with the San Juan power plant in the north via transmission 

centers at Aguas Buenas, Manatí, and Bayamón. The Western Loop, which entered service in 

2002, connects Costa Sur and EcoEléctrica power plants in the south with PREPA’s Mayaguez 

plant in the west and the Cambalache plant in the north. The Eastern Loop, which entered service 

in 2006, connects Aguirre and AES power plants in the south through transmission centers at 

Yabucoa in the east and Aguas Buenas and Sabana Llana in the north. 

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EXHIBIT 5: PREPA TRANSMISSION LOOPS

Transmission System Overview

LUMA operates 178 transmission centers operating at 230 kV, 115 kV, and 38 kV. These centers 

link over 1,100 miles of transmission lines (230/115 kV) and over 1,500 miles of sub-transmission 

lines (38 kV). Of these lines, 96% are overhead and the remaining 4% are underground. LUMA

also operates approximately 44,000 transmission structures, divided across the three 230 kV 

loops in the west, east, and central parts of the island. The 115 kV lines serve all the major load 

centers, while the 38 kV sub-transmission system serves more remote interior regions, as well as 

most industrial and commercial customers.

Distribution System Overview

Puerto Rico’s distribution system serves approximately 1.5 million customers utilizing roughly 

1,200 circuits. There is just under 32,000 miles of distribution lines, including nearly 17,000 

miles of primary voltage lines and approximately 15,000 miles of secondary lines and service 

drops. The system connects approximately 60 115 kV substations, about 280 38 kV substations, 

and nearly 825 privately owned substations. There are approximately 298,000 distribution poles 

and approximately 213,000 service transformers. Most of the distribution system is comprised of 

overhead lines, with approximately 20% of underground lines located primarily in urban centers. 

Distribution poles are galvanized steel, concrete, and wood.

Challenges to the Transmission and Distribution System

The T&D system faces notable geographic challenges given that its primary load center is in the 

north (San Juan Metro Area and Humacao Industrial District, approximately 70% of total load) 

while most of the more economical and efficient generation resources are in the south 

(approximately 70% of online generation capacity). The three 230 kV transmission loops that link 

generation from the south to demand in the north traverse mountainous and densely forested 

terrain, creating access limitations for repairs or reconstruction. 

In the aftermath of hurricanes Irma and Maria in 2017, recovery efforts were delayed by limited 

accessibility to these transmission lines. The extent of the hurricane damage was exacerbated by 

a failure to manage vegetation and execute routine maintenance – a report by the Government 

Accountability Office assessing the impact of the hurricanes on the electrical grid found that 

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“[PREPA] canceled its vegetation management program” prior to the hurricanes, thus 

“[contributing] to the destruction of the grid.”15 PREPA’s T&D maintenance and management 

practices had fallen short of industry standards, leading to higher costs and lower reliability for 

customers. 

To address these challenges and improve operational performance and customer service, support 

rigorous capital project execution, and ensure ongoing fiscal balance and control, the P3A, in 

collaboration with PREPA and the Oversight Board, selected LUMA Energy (LUMA) to take on 

the responsibilities to operate and maintain PREPA’s T&D System. In addition, the improvement 

programs & portfolios for grid modernization outlined in the LUMA Initial Budgets and System 

Remediation Plan (SRP), along with the initiatives that have already begun, will be instrumental 

to strengthening Puerto Rico’s electrical grid. Further details are provided in Chapter 6 and

Chapter 7. 

LUMA’s T&D Assessment Findings

As part of LUMA’s Front-End Transition work prior to June 1, 2021, and as required by the T&D 

Operation and Maintenance Agreement (T&D OMA)16, LUMA performed an initial assessment of 

PREPA, its organization, and assets. LUMA's preliminary assessment at the time indicated an 

organizational systems and processes that required significant improvement, and physical assets 

that were in poor condition from storm damage, age and deferred maintenance. Both categories 

of deficiencies have corresponding negative effects on customer service, system performance, 

resiliency, and reliability. Further information on the assessment methodology and results can be 

found in Chapter 7 – LUMA Improvement Portfolios. LUMA, as the selected operator for the T&D 

System, began operating and maintain the T&D System in earnest as of June 1, 2021. 

Current State of Generation

Electricity is supplied by PREPA-owned generation plants and procured from independent power 

producers (IPPs) under power purchase and operating agreements (PPOAs). PREPA-owned 

power plants have 4,961 MW of installed generation capacity. However, PREPA-owned 

generation experiences above industry average forced outage rates, primarily due to the average 

unit age of more than 40 years; between 30% and approximately 40% of this capacity is typically 

out of service, including units that are indefinitely out of service and in need of significant 

overhaul. As a result, on average, only around 60% to 70% (3,000 to 3,500 MW) of PREPA-owned 

generation capacity is available for dispatch. In addition to PREPA-owned generation assets, 

electricity supply from IPPs consists of 984 MW from two conventional power plants and 254 MW 

from various renewable energy providers. Given PREPA’s frequent outages, it is often necessary 

to dispatch generation units with higher cost fuel. For example, the April 2019 maintenancerelated transformer explosion and resulting loss of Aguirre Unit 2 for approximately 12 months 

15“2017 Hurricane Season: Federal Support for Electricity Grid Restoration in the U.S. Virgin Islands and Puerto Rico,” U.S. 

Government Accountability Office. April 2019. https://www.gao.gov/assets/700/698626.pdf. 

16 O&M references are to the Operation and Maintenance Agreement (T&D OMA) dated as of June 22, 2020 by and among 

PREPA, LUMA Energy, LLC, LUMA Energy Servco, LLC and the P3A. All language and statements under this chapter are 

meant to be illustrative only and shall be interpreted in accordance with, and subject to, the T&D OMA including the terms, as 

defined thereunder.

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(with average fuel cost of ~$130/MWh) was compensated by increasing generation from low 

efficiency diesel peaking units (with average fuel cost of ~$200/MWh).

17

Generation units in Puerto Rico are powered primarily by fossil fuels: In FY 2021, almost 40% of 

the Puerto Rico’s electricity was generated by petroleum-fired power plants, and more than 97% 

of total electricity was generated from non-renewable resources.

As part of the efforts to diversify and modernize the Island’s generation fleet and reduce reliance 

on oil-fired generation resources, PREPA has renegotiated or completed the procurement of up 

to 1000 MW of new renewable generation capacity. However, as of the close of the first quarter of 

2022, none of these projects have commenced construction, resulting in significant delays 

compared PREB-established procurement and development timelines (See Exhibit 21). Due to 

initial delays in the procurement process for these resources, PREB has determined that the

procurement for the second tranche for renewable energy generation and storage resources RFP 

will be managed by the PREB and a third-party procurement contractor, in order to advance the 

integration of renewable energy into the grid in compliance with the PREB approved IRP and 

Modified Action Plan. 

Under the T&D OMA, PREPA’s generation resource planning is now performed by LUMA and 

includes resource adequacy studies and integrated resource planning. Every three years, LUMA, 

as agent of PREPA, is required to prepare and submit to PREB an Integrated Resource Plan (IRP)

for a 20-year planning period. Act 57-2014 defines the IRP as a resource plan that shall consider 

all reasonable resources, including both energy supply (e.g. utility-scale generation) and energy 

demand (e.g. energy efficiency, demand response, and distributed generation), to satisfy the 

current and projected future needs of Puerto Rico’s energy system and of its customers at the 

lowest reasonable cost.18 Furthermore, Act 57-2014 mandates that the IRP shall also include the 

environmental impact of the energy system.19 On August 24, 2020, PREB approved in part and 

rejected in part PREPA’s most recent proposed IRP and ordered the adoption and 

implementation of a Modified Action Plan and Modified Preferred Resource Plan. 

LUMA, PREPA and the future operator of PREPA’s generation assets will use the Modified Action 

Plan and Modified Preferred Resource Plan as a roadmap for repairs, upgrades, and replacements 

of existing generation resources as well as which new generation resources should be procured 

and developed.

20 The approved IRP and Modified Action Plan envision a transformation of the 

energy sector of Puerto Rico by increasing the share of renewable generation and storage, retiring 

all existing coal and heavy fuel oil generation, enhancing grid resilience through T&D System

hardening, and enabling customer choice by supporting the incorporation of distributed 

generation (DG) and implementation of demand response (DR) and energy efficiency (EE)

programs. Further information on the IRP and the Modified Action Plan can be found in Chapter 

5. 

Resource Adequacy

As indicated in Section 2.2 of Chapter 2, energy consumption and peak system demand have been 

in decline for 16 years. Despite increases in recent months, declines in energy consumption and 

17 PREPA FY21 Q2 Budget to Actual Report submitted to the Oversight Board. 

18 Act 17-2019, Puerto Rico Energy Public Policy Act, approved April 11, 2019, Section 5.2(ll).

19 Act 57-2014, Puerto Rico Energy Transformation and RELIEF Act, approved May 27, 2014, Section 6C(h)

20 PREB Docket NEPR-MI-2020-0012 on IRP compliance and Modified Action Plan - 

https://energia.pr.gov/expedientes/?docket=nepr-mi-2020-0012

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peak demand are expected to continue over the next years and decades, primarily due to (1) 

declining population and weaker macroeconomic forecasts, (2) increased energy efficiency

measures, and (3) greater adoption of distributed generation where customers generate their own 

power, use less power from the grid and inject power back into the grid. 

However, the increasing age and condition of the PREPA generating units is expected to continue 

to be susceptible to forced outage events that necessitate load shedding, further constraining 

LUMA’s ability to service its customers. The challenges associated with an unreliable generation 

fleet are expected to continue until an appropriate, proactive maintenance program is in place 

and old, inefficient units are replaced in newer resources. LUMA is currently developing its 

Resource Adequacy Study, which will provide a review of the resources in Puerto Rico, in 

preparation for filing with PREB in June 2022.

EXHIBIT 6: PREPA GENERATION ASSETS

Challenges to the Generation System

As an island system, Puerto Rico’s power grid is geographically isolated, and thus unable to import 

additional power to serve the customers of Puerto Rico. In addition, PREPA’s baseload generation 

units are relatively large as a percentage of system peak load, such that a single unit outage can 

cascade into an Island-wide outage, as experienced in 2016 2018 and 2022. To protect against 

this, generating units are required to spend significant operating hours at partial load to maintain 

reliability, reducing generation efficiency and increasing overall costs. 

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Most of PREPA’s current generation fleet runs on old and outdated steam generation technology 

with long ramp times. This means that older plants (such as steam turbines) take longer to reach 

peak load and have limited operational flexibility to change load because they have less responsive

control systems and require more time to heat up. While these older steam plants are generally 

more economic than other PREPA-owned units due to lower-cost fuel, they are operationally 

limited by applicable federal mercury and air toxic standards (MATS) and the U.S. Environmental 

Protection Agency (EPA) Consent Decree. Many of PREPA’s older steam plants that use lower 

cost fuel have been designated “limited use” by EPA to have an annual heat input capacity factor

of less than 8 percent over a 24-month period. The MATS rule imposes stringent emission 

limitations for both particulate matter and acid gasses, as well as requires work practice standards 

applicable during start-up and shutdown of power plants and regular burner and combustion 

control tune-ups.21 To-date, PREPA has paid relatively minor amounts in stipulated penalties for 

528 opacity deviations under the air portion of the Consent Decree, which occur during start-up 

and shutdown processes, but much more substantial penalties could be assessed under EPA’s 

jurisdictional authority.

Puerto Rico’s few renewable energy facilities represent the system’s cleanest generation resources 

and are designated “must run”.22 During FY 2021 PPOA’s for existing and operational renewable 

energy projects were negotiated to reduce pricing by over 10%, to an average cost of 17 c/kWh.

Despite the recent fuel price volatility and sharp increases in fuel oil and LNG costs during FY 

2022, these facilities are still some of the most expensive generation sources for Puerto Rico23, 

since, at the time of procurement, renewable generation capacity was priced much higher than 

the market price available today.

PREPA’s aged legacy generation assets began experiencing frequent forced outage events during 

the months of July, August, and September of 2021. These outage events were due to various 

factors, including a combination of high peak demand and energy use, with unanticipated 

generator forced outages that resulted in very tight reserve margins, and at times, generation 

shortfalls that resulted in brown-out conditions as well as long load shedding events. 

The condition and performance of PREPA’s aging plants has continued to deteriorate availability 

of the system’s generating units dropped by 17% from 2015 to 2020 and has consistently 

performed below peers. Forced outages of generating units have also seen an increase of 15% over 

the same period and underperformed peer units, exemplifying the unreliability of PREPA’s legacy 

generating fleet. The net heat rate of generating units has also seen an increase of 377 Btu/kWh 

from 2016 to 2020. These trends point to growing inefficiencies and unreliability as these units 

continue to age. The underlying root cause for outages in PREPA’s legacy generation plants is 

related to their age and the need for a well-developed and effectively executed (preventive and 

pro-active) maintenance program. 

PREPA’s aging, inefficient, and unreliable generation fleet must be replaced and modernized. The 

roadmap for this modernization is defined in the IRP approved by PREB, which outlines the 

21 “White Paper on Environmental Compliance Issues at Puerto Rico Electric Power Authority Generation Facilities,” Hogan Lovells

US LLP, March 25, 2021.

22 “Must run” facilities require PREPA to pay for energy produced up to the contracted capacity even if not needed to meet system 

demand.

23 Average cost of generation for FY2022 through March was approximately $170 for renewable PPOAs compared with $110 for 

LNG, $160 for Residual, and $210 for Diesel. For FY 2020 and FY 2021, PREPA thermal generation costs were $100 to $130 

per MWh on average.

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actions and investment in new generation that must be taken to reduce generation costs and 

achieve greater reliability and resiliency. Further detail is provided in Chapter 3. 

Customer Demographics and Affordability

PREPA currently serves approximately 1.5 million customers, of which 91% are residential, 8% 

are commercial, and less than 1% are industrial. Almost half of PREPA’s load is driven by 

commercial customers, which represented 44% of FY 2021’s total consumption of 16 TWh. This 

is followed by residential customers, which account for 42% of electricity demand, and industrial 

customers, at 12%.24 The majority of PREPA’s residential and commercial customers are located 

in the San Juan metropolitan area (Exhibit 7A and Exhibit 7C). Industrial customers, on the other 

hand, are spread across the island, located primarily within the San Juan metropolitan area, the 

Humacao district (southeast of San Juan), the north-central coast (Arecibo, Manatí and Vega 

Baja) and the municipality of Ponce (southern coast) (Exhibit 7E and Exhibit 7F).

EXHIBIT 7: FY 2021 PREPA CUSTOMER COUNT AND CONSUMPTION BY MUNICIPALITY

On average, Puerto Rico’s consumers pay more for electricity relative to their income than 

consumers in any U.S. state. Based on the 2021 Certified Fiscal Plan rates of 21 c/kWh, for 

households earning the median Puerto Rico income, the yearly electricity bill amounted to 5.6% 

24 Additional load is attributed to public lighting and agriculture.

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share of wallet25, subsidies notwithstanding. As rates increased since the 2021 Certified Fiscal 

Plan, this burden has only gotten worse. Median share of wallet in Puerto Rico is significantly 

higher compared to U.S. mainland states, where households with median income pay is 2.4% of 

their yearly income for electricity (Exhibit 8). Low-income households are disproportionately 

affected by the current rate structure. 

EXHIBIT 8: PUERTO RICO ELECTRICAL SHARE OF WALLET COMPARED TO PEER REGIONS26

Various ongoing policy goals and performance improvement initiatives will impact affordability 

in Puerto Rico. Puerto Rico’s legislative mandate calling for drastically increased renewable 

generation should improve rate stability, and customer rates if the combined costs of solar energy 

plus necessary battery storage is less than PREPA’s current and long-term average cost of 

generation. If appropriately administered, the competitive procurement of utility scale renewable 

generation and storage resources provides a unique opportunity to address and mitigate rate 

stability and affordability concerns.

The impact of programmatic energy efficiency will likely also have a positive impact on customer 

affordability by reducing electricity consumption for the average customer, thus lowering their 

electricity bill. From an overall system perspective, the impact on rates may vary. Aggregate 

system costs—and therefore rates—may decrease due to lower customer consumption and peak 

25 Share of wallet is defined as the percentage of per household electric utility service expenditures relative to median per household

income.

26 Based on most recent data available, detailed below:

SOURCES: Population: World Bank (CY20)

 Average rate for residential customers: LUMA report available at indicadores.pr (CY21) for Puerto Rico; EIA (CY19) for Hawaii, 

US Southeast states and US; Jamaica Public Service Company annual report (CY20) for Jamaica; NREL (CY20) for Dominican 

Republic

 Household consumption: Census (CY19) American Community Survey for number of households for Puerto Rico, Hawaii, US 

Southeast states and US; Statistic Institute of Jamaica (CY11) for household size for Jamaica; Encuesta Nacional de Gastos e 

Ingresos de los Hogares (CY18) for number of households for Dominican Republic; LUMA report available at indicadores.pr 

(CY21) for residential demand for Puerto Rico; EIA (CY19) for residential demand for Hawaii, US Southeast states and US; NREL

report (CY20) for energy demand for Jamaica and Dominican Republic Median income: Census (CY19) American Community 

Survey for Puerto Rico, Hawaii, US Southeast median and US median; World Bank (CY18) GNI per capita as proxy for income 

for Jamaica; Encuesta Nacional de Gastos e Ingresos de los Hogares (CY18) for Dominican Republic.

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demand reducing the amount of investment required in generation and peaking resources. At the 

same time, rates may increase as system costs are spread over fewer kWh generated and sold per 

year. The IRP Modified Action Plan recognizes the benefit of energy efficiency as a “least cost 

resource” and contemplates further studies and implementation of programs to achieve greater 

energy efficiency through programmatic initiatives. If, however, efficiency measures are delayed 

or not achieved, there will be a more gradual decline in electricity demand that would also affect

rates and overall affordability.

Another policy that may impact customer affordability is the net metering framework currently 

in place pursuant to Act 17-2019, which pursues a distributed generation system to provide for 

resiliency and further reduction on reliance on imported fuels. Under Act 17-2019 customers that 

use distributed generation (i.e. rooftop solar) under certain circumstances are entitled to offset 

the energy they purchase from PREPA with the energy they export to the grid on a one-to-one 

basis, at the prevailing retail rate. This policy will increase total residential renewable generation 

in the Puerto Rico system, but as more net metering systems are installed under full retail rate 

credit, net metering customers will be able to bypass charges that cover items like grid services. 

This policy is set to remain in place for at least five (5) years from the enactment of Act 17-2019, 

after which PREB is mandated to conduct a study to determine net metering policy on a go 

forward basis.

Additionally, LUMA’s capital investments (federally funded) into the system (e.g., T&D line 

hardening to reduce outages and associated cost) as well as the operational improvement 

initiatives that LUMA has planned (e.g., mitigate vegetation risk immediately in the most critical 

areas to reduce outages) should lead to improved resilience and services and increased 

productivity which in turn will lower costs for PREPA’s customers. Similarly, transformation of 

PREPA’s generation fleet with a diversified fuel mix and reduced fuel costs will have a positive 

impact on costs, reduced volatility, and rates and in turn make electricity more affordable for 

PREPA’s customers.

Overview of Historical Financial Performance27

PREPA’s persistent financial deficits are a result of, among other things, decades-long fiscal and 

operational mismanagement, and a historical inability to adjust energy rates to a level that would 

ensure PREPA could cover its costs and the capital investments required to modernize its energy 

system. PREPA has been operating under a structural financial deficit since 2004, which has 

worsened over time. To cut costs, PREPA historically reduced or stopped investing in system 

upgrades, leading to an energy system that is vulnerable and prone to frequent and extended 

outages and voltage fluctuations. Additionally, PREPA has failed to fully fund its pension plan 

and, since 2014, has not paid its debt service other than through the issuance of additional bonds.

Over the past decade, revenues have decreased due to out-migration and economic decline, as 

well as increased adoption of distributed generation and energy efficiency measures. As the 

revenue base contracted, higher rates and associated volatility led to an increase in outstanding 

collections and bad debt, causing customers to further invest in energy efficiency and reduce their 

27 All reference years are fiscal years (i.e., July 1 to June 30); Figures presented are unconsolidated, showing PREPA only and 

excluding the irrigation division; fuel, tourism (hotel), and public lighting subsidies are shown as revenue reductions rather than 

expenses. 

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reliance on the grid, all with an adverse impact on PREPA's revenues. In response to these 

liquidity challenges, PREPA financed its fuel procurement through credit lines, which further 

contributed to PREPA’s unsustainable debt. 

PREPA’s rates have also been insufficient to cover operating costs, pension costs, and debt 

obligations. PREPA’s operating cash flow fell from a deficit of $188 million in FY2000 to its worst 

point, with a deficit in excess of $800 million during FY2008, leading PREPA to rely on financing 

to make up for revenue shortfalls (Exhibit 9). By FY2014, PREPA’s financial condition had 

deteriorated to the point where it had to enter into forbearance agreements with creditors, it 

having become apparent that there were insufficient funds to pay debt service. On July 2, 2017, 

the Oversight Board filed a petition on PREPA’s behalf for bankruptcy relief under Title III of 

PROMESA before the U.S. District Court for the District of Puerto Rico.

EXHIBIT 9: PREPA OPERATIONAL DEFICITS FROM FY2000 TO FY2016

From FY2014 to FY 2017, PREPA’s annual operating results and one-time accounting 

adjustments depict an increasingly distressed financial situation. Between FY2014 and FY2015, 

the operating deficit increased from $58 million to $489 million, with the recognition of PREPA’s 

substantial net pension liability due to changes in Governmental Accounting Standards Board 

(GASB) accounting rules for pensions. Additionally, because of changes in pension accounting 

assumptions and liability valuation, PREPA faced an additional $1.6 billion in unfunded pension 

liability in FY2015. The ongoing recognition of net pension liability and accrued interest has 

ballooned PREPA’s negative net position to over 70% of balance sheet assets. Although operating 

expenses have declined in recent years, revenues have declined at a faster pace, resulting in a 

growing deficit.

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TABLE 1: PREPA FY2014 TO FY 2021 STATEMENT OF NET POSITION

Since filing for bankruptcy relief under Title III of PROMESA in July 2017, PREPA has improved 

its cash flow and liquidity monitoring, reporting, controls, and communications. These 

improvements have been instrumental in preserving PREPA’s financial stability through the

significant disruptions caused by hurricanes Irma and Maria, the earthquake in January 2020, 

the COVID-19 pandemic and the current geopolitical situation impacting fuel supply and prices. 

As of April 30, 2022, PREPA’s total operating cash position was approximately $1.1 billion. Of 

the $1.1 billion, $760 million was in various operating accounts required by the T&D OMA and 

$337 million was in other PREPA unrestricted cash accounts.

28While the measures implemented 

by PREPA have been effective in maintaining financial stability, there are several significant 

factors that will impact PREPA’s future liquidity including among other things, the — funding for 

the transformation of PREPA’s legacy generation assets, operational working capital 

requirements, the restructuring of legacy debt obligations, underfunded pension obligations, 

capital and maintenance requirements (including funding for federally-funded permanent work 

projects), and the costs to exit Title III.

Collections and debt settlement between public corporations and government 

agencies

Government accounts and public corporations are a key driver of overall electricity sales revenue 

for PREPA. However, they are also a historically underperforming client base with regards to 

collections and pending receipts. Issues with municipality receipts and CILT reform 

notwithstanding (see CILT reform subsection in Chapter 10), Commonwealth agencies and public 

corporations hold accounts payable to PREPA in excess of $200 million for past due energy

services. Following the Service Commencement Date on June 1, 2021, LUMA’s Customer 

Experience Directorate took over the responsibility of collections, including with respect to

28 The $1.1 billion total operating cash position excludes approximately $134 million of cash in various other restricted cash accounts.

(USD million) FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021

Operating revenues 4,469 3,865 2,995 3,265 2,552 3,612 3,325 3,058 

Operating expenses:

Fuel expense (2,345) (1,887) (1,215) (1,218) (1,052) (1,408) (1,470) (1,253)

Purchased power (808) (790) (687) (729) (586) (682) (734) (778)

O&M expense (752) (1,129) (1,241) (1,394) (2,564) (1,271) (738) (1,059)

Depreciation (342) (382) (517) (519) (343) (367) (381) (374)

Total operating expenses (4,246) (4,189) (3,661) (3,860) (4,544) (3,728) (3,323) (3,463)

Operating income / (loss) 223 (323) (666) (595) (1,992) (116) 2 (405)

Interest expense, net (410) (424) (425) (447) (484) (463) (438) (414)

Impairment loss on GDB deposits (145)

(Loss) / Gain before CILT and other (187) (892) (1,091) (1,043) (2,476) (579) (436) (820)

CILT and other subsidies (278) (273) (172) (178) (192) (169) (115) (67)

Contributed capital 45 21 8 7 35 73 (2) (750)

Change in net position (420) (1,144) (1,255) (1,213) (2,633) (676) (552) (1,637)

Net position at beginning of year (847) (1,267) (3,578) (4,838) (6,174) (8,008) (8,609) (9,161)

Change in pension accounting cost and corrections (1,644) (124) 799 74 

Net Effect of the 2015 Restatement 477 

Net position at end of year (1,267) (3,578) (4,833) (6,175) (8,008) (8,609) (9,161) (10,799)

Unaudited, subject to 

material change

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government and public corporation accounts. PREPA will be working with LUMA during the new 

FY 2023 in a process of reconciling aged accounts with debtors in the upcoming years. 

Overview of FY 2022 Revenue Budget to Actual29

During the first nine months of FY 2022, PREPA’s monthly gross revenues were approximately 

20% above projections, driven primarily by an increase in the price for fuel, leading to higher 

rates. The base rate revenues were approximately 2% below projections for the first nine months 

of FY 2022, largely due to actual electricity demand being 3% lower than projected.

EXHIBIT 10: FY 2022 GROSS REVENUES PER MONTH (USD MILLION)

29 Gross revenues include revenues collected from customers for consumption, whereas consolidated revenues include revenues 

collected from customers for consumption, revenue for other income sources, and other adjustments (bad debt expense, CILT 

and subsidies, etc.)

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EXHIBIT 11: FY 2022 BASE RATE REVENUES PER MONTH (USD MILLION)

EXHIBIT 12: FY 2022 BILLED SALES PER MONTH (GWH)

Key variances in PREPA’s consolidated year-to-date budget to actual through Q3 FY 2022 (which 

includes LUMA’s T&D/Customer Experience, Energy System Dispatch and Shared Services 

budget to actual data) include: (1) higher than budgeted fuel costs due to higher-than-expected 

generation, fuel prices, and diesel dispatch; and (2) higher than budgeted expenses by GridCo 

(LUMA) which are to align with budgeted amounts by the end of FY 2022.

Fuel Costs

The most significant negative variance in PREPA’s year-to-date performance against budget 

through Q3 is due to fuel costs. Compounding the higher than projected fuel prices, PREPA’s more 

cost-efficient Costa Sur and San Juan units only had limited operational capacity for the first half 

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of the fiscal year. Due to marked increases in global oil prices, Q4 fuel costs are expected to be 

higher than in prior periods.

GenCo and HoldCo

PREPA observed minor positive variances in labor line items due to ongoing retirements and 

limited replacement hiring. Underspending on generation related maintenance to date reflects a 

combination of project execution delays that PREPA is addressing and plans on having resolved 

by the final quarter of FY 2022. On the other side, as reflected in Exhibit 13, as of March 2022, 

HoldCo has substantially overspent its budget by ~120%.

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EXHIBIT 13: FY 2022 BUDGETED AND ACTUAL INCOME AND EXPENDITURE, FORECAST OF 

RECURRING OPERATIONS

Adverse Effects of FY 2020 Major Catastrophic Events

Aside from PREPA’s historic operational and financial challenges, the company’s operational and 

fiscal condition was further affected by a series of catastrophic events. In September 2017, 

hurricanes Irma and María caused substantial damages to the T&D System across the entire 

island. Moreover, in January 2020, a magnitude 6.4 earthquake near Puerto Rico’s southwestern 

coast caused significant damage to PREPA’s Costa Sur power plant and left most of Puerto Rico 

without electric service for hours. The effects of the earthquake were quickly followed by the 

onslaught of the historic global COVID-19 pandemic. The enforcement of strict health protection 

and economic directives and measures in Puerto Rico had a negative effect on commercial activity 

Preliminary and subject to material change

($ Millions) Q3-YTD

Budget

Q3-YTD

Actual Variance-$ Variance-%

Revenue

Total Gross Revenue $ 2,614 $ 3,131 $ 517 20%

Bad Debt Expense (48) (48) - `

CILT & Subsidies (198) (190) 8 -4%

Total Consolidated Revenue $ 2,368 $ 2,893 $ 525 22%

Expenses

A. Fuel & Purchased Power $ 1,495 $ 2,064 $ 569 38%

B. Genco:

GenCo Labor Operating $ 58 $ 51 $ (7) -12%

GenCo Non-Labor/Other Operating 39 40 0 1%

Shared Services Agreement Impact 42 10 (32) -76%

Total GenCo Maintenance Projects 80 59 (21) -26%

Total Genco Operating & Maintenance $ 219 $ 159 $ (59) -27%

C. HoldCo:

HoldCo Labor Operating $ 13 $ 10 $ (3) -24%

HoldCo Non-Labor / Other Operating 65 85 20 31%

Total HoldCo Operating $ 78 $ 95 $ 17 22%

D. GridCo:

GridCo Labor Operating $ 158 $ 210 $ 53 34%

GridCo Non-Labor / Other Operating 265 263 (2) -1%

Operator Service Fees 86 88 1 2%

2% Reserve for Excess Expenditures 8 - (8) -100%

Maintenance Projects 69 65 (4) -6%

Shared Services Agreement Impact (41) (44) (3) 7%

Total GridCo Operating & Maintenance $ 544 $ 582 $ 38 7%

Total Expenses $ 2,336 $ 2,900 $ 564 24%

Surplus / (Deficit) $ 33 $ (7) $ (39) -120%

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on the island and would have severely impacted PREPA’s liquidity position if residential 

consumption had not registered a comparable and offsetting increase during the lockdown

periods.

The following sections summarize the effects of the earthquakes and COVID-19 on PREPA’s 

financial and operational health. 

Impact of 2019-2020 Earthquakes

From December 28, 2019, to January 15, 2020, Puerto Rico experienced over 300 magnitude 3 

or higher earthquakes, 10 of which reached or exceeded magnitude 5.30 The strongest earthquake 

took place on January 7, 2020, reaching a peak magnitude of 6.4. This earthquake inflicted 

significant damage on the Costa Sur power plant, an 820 MW natural gas-fired facility. At the 

island-wide level, PREPA required several hours to reestablish service, underscoring the system’s 

lack of quick restart capabilities and vulnerability to sudden loss of generation units.

Repairs of Costa Sur’s Units 5 and 6 were successfully completed by mid-August 2020 and

January 2021, respectively, with a total estimated repair cost of $39 million. As a result, however, 

during the outage period PREPA had to rely on fuel oil and diesel generation capacity to 

compensate for the lost natural gas-fired generation at Costa Sur. The costs associated with such 

oil and diesel generation are expected to be reimbursed by FEMA and PREPA’s insurance. 

Impact of COVID-19

Starting March 16, 2020, Puerto Rico began enacting economic, health and social distancing 

measures under Executive Order 2020-023 to cope with the spread of COVID-19. The public 

health and economic impact of COVID-19 have had a ripple effect on the power sector. Social and 

lockdown measures required PREPA to halt all non-essential work, including vegetation 

management and maintenance projects, and led to a decline in generation levels and customer 

sales. By late March 2020, average daily collections had dropped by 50%, forcing PREPA to 

implement strict financial controls to preserve liquidity.31 By the end of June 2020, average daily 

collections had returned to normal levels relative to forecast and expected collections. 

The first quarter of FY 2022 shows higher than expected quarterly sales driven largely by an 

increase in residential customer consumption. Both commercial and industrial customer class 

sales in the second quarter were lower than expected, leading to an unfavorable variance. All three 

customers classes exhibited unfavorable variances in the third quarter of FY 2022. (Exhibit 14 and 

Exhibit 15).

30 “As Aftershocks Continue in Puerto Rico, USGS Supports Quake Recovery,” U.S. Geological Survey, January 17, 2020, 

https://www.usgs.gov/news/aftershocks-continue-puerto-rico-usgs-supports-quake-recovery. 

31 Several factors influenced the decision by customers to not pay the utility bills, chief among them, the enactment of Act 39-2020, 

which, among others, prohibited the disconnection of electricity services due to non-payment.

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EXHIBIT 14: FY 2022 QUARTERLY SALES VARIANCE (GWH)

EXHIBIT 15: FY 2022 QUARTERLY SALES VARIANCE BY CUSTOMER CLASS32 (GWH)

As the COVID-19 pandemic evolves, ongoing evaluation will be critical to PREPA and LUMA 

management’s ability to be prepared for unexpected changes in forecasts. An assessment of 

PREPA’s and LUMA’s response to the COVID-19 pandemic will inform PREPA’s and LUMA’s

32 Excludes public lighting, agricultural, and other customer classes and as such will not add up to the totals seen in Exhibit 14.

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emergency and contingency plans to respond to future unforeseen events better and more 

effectively.

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Chapter 3. Transformation 

The Government, together with PREPA and the P3A, in fulfilment of Commonwealth public policy 

and as required in the Certified Fiscal Plan, is in the midst of completing the transformation of

Puerto Rico’s energy sector into a modern, efficient, reliable, and sustainable system. The 

transformed energy sector will improve the everyday lives of Puerto Rico’s residents, allow 

businesses to create jobs and thrive sustainably, and help attract and maintain investment in 

Puerto Rico. This chapter provides an introduction and context to the transformation of the 

energy sector (Section 3.1) followed by the vision, objectives, and framework for the 

transformation (Section 3.2), including the appropriate regulatory reforms (Section 3.2.1) and the 

ongoing transition to private operators (Section 3.3). Section 3.2.2.3 provides an overview of the 

completed transition of operations and maintenance (O&M) of the Transmission and Distribution 

(T&D) System to LUMA. This overview includes a discussion of LUMA’s obligations related to the 

T&D System under the O&M Agreement (OMA) as well as LUMA’s compensation structure, which 

is comprised of a fixed fee and a variable fee tied to performance improvements determined by 

objective, transparent, and quantitative metrics being developed by the PREB. This chapter also 

provides an update on the ongoing process to transition PREPA’s legacy generation assets to a 

private operator (Section 3.2.2.4). The chapter concludes with the status of each milestone in the 

implementation of Puerto Rico’s energy sector transformation (Section 3.4).

Introduction and context of Puerto Rico’s Energy Sector 

Transformation 

On January 22, 2018, in the aftermath of Hurricane Maria, the Government of Puerto Rico, in 

coordination with the Oversight Board, outlined a public policy vision for the transformation of 

the energy sector. The vision states the need for a customer-centric, safe, reliable, resilient, 

sustainable, and cost-efficient electric power service that meets environmental, regulatory, and 

statutory requirements. This development will be enabled by competent and experienced thirdparty operators for the generation and T&D System along with improved independent regulatory 

oversight and insulation from political interference.

Previous PREPA and Commonwealth Certified Fiscal Plans have outlined a comprehensive 

transformation of Puerto Rico’s energy sector to address PREPA’s financial and operational 

challenges. Over the last three years, PREPA has taken numerous steps to address these 

challenges, including supporting the selection of LUMA as T&D Operator and the transfer of T&D 

System operations to LUMA on June 1, 2021. PREPA continues to support the ongoing 

competitive procurement efforts of the P3A to select one or more operators to maintain and 

operate PREPA’s existing legacy generation assets. Additionally, PREPA concluded and selected 

18 renewable energy projects (equivalent to ~850MW of renewable energy) as part of the Tranche 

1 RFP process. 

Tranche 2 is pending PREB action through an appointed Independent Coordinator for 

procurement, to add an additional 500MW of renewable generation and 250MW of battery 

storage capacity. 

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Energy Sector Transformation: Vision, Objective, and 

Framework

The Government of Puerto Rico’s vision to transform the energy sector has the following 

objectives:

TABLE 2: TRANSFORMATION OBJECTIVES

Transformation objectives33

Customercentricity▪ Focus on customer service and customer experience in planning and operations 

of the energy system

▪ Increase customer engagement as stakeholders and options for customers to 

meet individual needs

Affordability ▪ Ensure the delivery of electricity service in a cost-effective manner consistent 

with PREB oversight and orders

▪ Improve operational efficiency 

Reliability ▪ Establish an adequate and reasonable level of service reliability and quality to 

improve customer satisfaction and economic development

Resilience ▪ Expand and develop structurally hardened infrastructure to allow for adequately 

rapid overall system recovery after the impacts of catastrophic natural disasters 

(hurricanes, earthquakes, etc.) and other adverse events 

▪ Continuous monitoring and testing of emergency preparedness capabilities

Sustainability ▪ Diversify energy resources by prioritizing clean renewable energy deployment, 

and reduce the carbon intensity of the power sector

▪ Incentivize customers to use energy wisely and efficiently

To achieve the vision and objectives outlined above, the Government took the following steps to 

establish a legal framework that mandates PREPA separate its T&D and generation functions and 

transfer operation and maintenance responsibilities to third-party, professional operators, 

leveraging private sector management, experience, and expertise to effectively deliver reliable 

electricity to Puerto Rico’s residents:

▪ June 20, 2018 – Enactment of the Puerto Rico Electric System Transformation Act (Act 

120-2018) to provide the legal authority (under Puerto Rico law) and mechanisms for the sale, 

transfer or private operation and maintenance of PREPA’s T&D and generation assets, 

services, and functions through public-private partnerships.

▪ April 11, 2019 – Enactment of the Puerto Rico Energy Policy Act (Act 17-2019), which 

establishes a regulatory framework to attract private investment and ensure independent, 

professional oversight of energy market participants. Moreover, Act 17-2019 specifically 

prohibits PREPA from continuing to operate as a vertical monopoly, mandating the 

unbundling of the T&D System and generation operations into separate and distinct entities. 

33 See, “2020 Certified Fiscal Plan for the Puerto Rico Electric Power Authority,” as certified by the Financial Oversight and 

Management Board of Puerto Rico on June 29, 2020.

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▪ June 22, 2020 – PREPA and P3A executed the T&D OMA with LUMA as the private 

operator for PREPA’s T&D System operations.

34

▪ November 10, 2020 – The P3A launched the RFP to identify and select one or more private 

operators for PREPA’s existing generation assets. 

▪ June 1, 2021 – LUMA began Interim Service Commencement under the Supplemental 

Agreement to the T&D OMA, providing for LUMA to assume T&D operations while PREPA 

remains in Title III.

▪ December 22, 2021 – P3A received proposals from various proponents to operate and 

maintain PREPA’s existing generation assets.

PREPA and/or the relevant Government entities will continue to promote and support the 

transformation and modernization of the energy system, particularly regarding the 

implementation of the following key elements:

1. Reorganization of PREPA: One of the key tenets and requirements of previous 

Certified Fiscal Plans and Commonwealth energy policy for transformation is the 

unbundling of the electric system from a vertically integrated monopoly structure into one 

in which roles and responsibilities are reallocated across multiple entities and are operated 

by different parties. To that end, the T&D OMA among PREPA, P3A and LUMA was 

executed on June 22, 2020. On June 1, 2021, LUMA took over operations. In December 

2021, the PREPA Governing Board approved the legal creation of PREPA's planned 

subsidiaries. The focus in the coming months will be to; (i) create the approved 

subsidiaries (PREPA GenCo, PREPA GridCo, PREPA HydroCo, and PREPA PropertyCo);

and (ii) assign separate PREPA's assets, roles, and responsibilities into each of the 

subsidiaries. 

2. Implementing regulatory reform: A strong and independent energy sector regulator 

is essential for injecting certainty and stability into the energy market, promoting much 

needed investment, and enforcing compliance with the energy sector’s transformation 

objectives. The framework of regulatory reform was approved by the government and Act 

57-2014 established an independent regulator, the Puerto Rico Energy Bureau (PREB). 

The focus in coming years will be continuing to support the independence of the regulator 

and enabling the regulator to execute its mandate. This process will be accomplished by 

supporting the development of a strengthened regulatory framework, including efficient, 

clear, transparent, fair, and accountable proceedings.

3. Transitioning the operation and management of PREPA’s legacy generation 

and T&D assets to private operators, while supporting the responsible

transition of the island’s energy generation to a reliable system based on 

100% renewables: Bringing on a private operator to manage and operate PREPA’s 

legacy generation assets will improve affordability, efficiency, operational resilience, and 

performance, while new modern generation capacity is developed. As to the T&D System, 

34 O&M references are to that certain Operation and Maintenance Agreement (T&D OMA) dated as of June 22, 2020, by and among 

PREPA, LUMA Energy, LLC, LUMA Energy Servco, LLC and the P3A. All language and statements under this chapter are meant 

to be illustrative only and shall be interpreted in accordance with, and subject to, the T&D OMA including the terms, as defined 

thereunder.

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PREPA has successfully transitioned operation and maintenance functions to LUMA on 

June 1, 2021, along with customer service and energy operation center responsibilities. 

This effort should yield improved customer experience, support rigorous capital project 

execution to modernize the T&D system, strengthen grid resilience, ensure political 

independence, enable the integration of renewable generation capacity, and ensure 

ongoing fiscal balance and control. PREPA, as owner of the assets, will continue to support 

LUMA as necessary, pursuant to the T&D OMA. The P3A serves as the sole administrator 

of the T&D OMA with respect to LUMA’s performance. Similarly, for the private 

operator(s) of its legacy generation assets, PREPA has been supporting the RFP process 

led by P3A, which will also be the sole administrator of the generation OMA and will work 

towards ensuring a timely and successful transition once the P3A completes the selection 

process.

35

4. Restructuring legacy debt obligations: One of the objectives of PREPA’s 

transformation and restructuring under PROMESA is ensuring that it regains access to 

capital markets at reasonable prices. Given PREPA’s significant legacy debt obligations, a 

sustainable restructuring plan is necessary for PREPA to exit Title III and regain access to 

traditional credit markets. Without restructuring, customers will ultimately experience 

higher rates, resulting from, among other things, repayment of a higher legacy obligation 

and risk premiums associated with the Title III case. Ultimately, successful restructuring 

of outstanding bonds and debt obligations will reduce PREPA’s legacy debt, helping to 

support more affordable rates than what would otherwise be required, and enabling access 

to capital markets for future capital needs, consistent with standard utility practices. This 

will enable PREPA, through the selected private operators for the T&D System and legacy 

generation assets, to achieve and sustain its transformation goals, to modernize Puerto 

Rico’s power grid and to pass on subsequent efficiencies to end users. Restructuring of 

legacy debt obligations are further discussed in this chapter in Section Error! Reference 

source not found. and in Chapter 14. 

PREPA’s Certified Fiscal Plan and the energy public policy and legal framework established by the 

Government36 provide the roadmap to complete the island’s energy system transformation. If 

successfully implemented, a reformed energy system will lead to a modern and reliable energy 

services across Puerto Rico: a diversified fuel mix and more stable fuel and purchased power costs, 

anchored on low-cost renewable energy generation resources; increased operational efficiencies; 

and a well-funded, financially sustainable utility. These outcomes will benefit the customers and 

businesses of Puerto Rico through more reliable, clean, and safe electricity service.

Energy Sector Regulatory Reform & Oversight

Completing Puerto Rico’s energy system transformation, advancing ongoing changes in PREPA’s 

historical roles and responsibilities, and assigning such responsibilities to selected qualified 

private operators is imperative. The first step in this restructuring process was taken with the 

enactment of Act 57-2014, which established Puerto Rico’s energy regulator, PREB. Act 57-2014 

eliminated PREPA’s prior authority to self-regulate and transferred such authorities and 

35 The Department of Energy (DOE) and various national labs are working on initiatives included in the PR100 Study - The Puerto 

Rico Grid Resiliency and Transition to 100% Renewable Energy Study – which was coordinated with the Governor of Puerto 

Rico.

36 Puerto Rico Energy System Transformation, Act No. 120-2018; Puerto Rico Energy Policy Act, Act No. 17-2019

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responsibilities to PREB. In Puerto Rico’s transformed energy system, those regulatory roles and 

responsibilities remain at PREB. PREB has the responsibility to “regulate, monitor, and enforce 

the energy public policy of the Commonwealth of Puerto Rico.” As Puerto Rico’s energy sector 

continues its transformation into a vibrant, modern system, PREB will continue to be responsible 

for the development of, and adherence to, a robust regulatory framework that promotes prudent 

investments by regulated utilities, increases quality of service to customers, and ensures that

industry trends and technological advancements are appropriately and sustainably incorporated 

into Puerto Rico’s energy system. To that end, PREB’s regulatory oversight of all regulated energy

stakeholders will directly impact the transformed energy sector and have significant influence on 

Puerto Rico’s energy services. 

Chapter 10 (Power Sector Reform) of the Commonwealth Certified Fiscal Plan describes the 

necessary steps to ensure that PREB becomes a best-in-class regulator, provides a description of 

what PREB’s roles and responsibilities will be in the near-term and long term, and delineates 

responsibilities between PREB and the Oversight Board.

Transition to Private Operators

As required by Act 17-2019 and as outlined in PREPA’s 2020 and 2021 Certified Fiscal Plans,

PREPA is required to separate its vertically-integrated operations into Generation and T&D 

System functions – GenCo and GridCo, respectively. GridCo comprises transmission and 

distribution system and associated operations, customer experience, system operations and 

planning and administrative functions, now operated by LUMA.37 GenCo comprises existing 

PREPA-owned generation resources that are to be operated and maintained by one or more 

private operators until their retirement, as laid out in the PREB-approved IRP.

38 GenCo’s 

responsibilities will also include environmental compliance, safety and plant retirement and 

decommissioning. Additionally, GenCo and LUMA will be responsible for working closely to 

ensure appropriate short-, mid- and long-term system planning and timely and efficient execution 

of system-wide capital improvements.

In addition to GridCo and GenCo, PREPA will create two additional subsidiaries: (1) HydroCo, 

which will own and operate PREPA’s hydroelectric generating and irrigation assets; (2) HoldCo, 

which will be responsible for certain non-operational functions; and (3) PropertyCo, which will 

own the remaining PREPA assets that are not directly related to generation, T&D, or irrigation 

operations.

39

Finally, PREPA’s existing day-to-day roles and responsibilities will be limited to those strictly 

necessary to ensure compliance with federally funded capital investment requirements, shortand long-term financing, financial disclosure and auditing requirements, recordkeeping and 

other obligations established by federal and Commonwealth laws.

Objectives of the Transition to Private Operators

Private operation of PREPA’s T&D and generation assets forms a critical part of the 

transformation and the implementation of system modernization, generation upgrades, 

37 T&D OMA at Sec. 5.

38 See Section 1.8 of the Puerto Rico Energy Public Policy Act; Act 17-2019.

39 Initiatives addressing restructuring needs in the near term are further described in Chapter 9: Operational Measures.

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reliability, efficiency, federal funding, and capital delivery initiatives. The overall objective of the 

various private operators is to address and correct many of the operational and infrastructure 

deficiencies that have plagued PREPA’s T&D and generation services over the last decades, 

improve service quality, and deliver safe, reliable service at affordable rates, as determined by 

PREB within its rate-setting authority. As such, the private operators must deliver financial and 

operational performance improvements across the following six dimensions:40

▪ Improve operational performance through systematic improvements and 

introducing and leveraging experienced personnel. LUMA and the GenCo operator 

hereinafter selected by the P3A should focus on reducing PREPA’s historic dependency on 

outsourced contracts by insourcing activities, empowering, and training the local labor force, 

and achieving economies of scale. Specifically relating to T&D, through the T&D OMA, LUMA 

is incentivized to improve the performance of the T&D System over time based on 

Performance Metrics reviewed and approved by PREB.

▪ Upgrade technology to increase reliability and improve system resilience and 

efficiency. While PREPA had limited experience with industry-standard technology, LUMA 

and the GenCo operator(s) should be capable, qualified, and focused on implementing

modern technologies, digital capabilities, and infrastructure to enhance operational 

efficiencies and reliability, contributing to system performance improvements. 

▪ Improve processes and procedures. Drawing on their operational expertise, LUMA and 

the GenCo operator(s) will further focus on streamlining and standardizing management 

processes and improve operational efficiencies. These efficiencies will also translate into 

improved operations and customer experience.

▪ Make decisions with limited political interference. LUMA and any other private 

operators are subject to independent regulatory oversight by PREB, with contractual oversight 

from the P3A with respect to its performance under the T&D OMA, thus creating an 

environment that allows for decisions to be made free of the kind of political interference that 

has led to the myriad problems with the operation of the utility as described above. This leads 

to the adoption of standard industry practice where experienced utility operators make 

operational decisions with oversight from an independent regulator and free of substantive 

control by PREPA itself, whose governing board is politically appointed as described above. 

This will in turn depoliticize system management, improve operational performance, 

competitive procurement utilization, management and maintenance of the T&D System, and 

the generation facilities, leading to tangible improvements in overall quality of service and 

affordability. The operations of the T&D System by LUMA and, eventually, the generation 

assets by a generation operator, must remain free of control by PREPA, subject only to 

contractual oversight by the P3A and regulatory oversight by PREB.

▪ Implement effective and efficient capital project delivery. LUMA and the GenCo

operator(s) are incentivized to establish the mechanisms and processes critical to effectively 

delivering capital infrastructure programs essential for the effective and timely

transformation of the energy system and to ensuring federal funding required for grid 

modernization and generation asset improvements are well spent, which in turn will increase 

grid resilience, reliability, sustainability, and efficiency, and recover and mitigate high risk 

40 Commonwealth Certified Fiscal Plan, Chapter 10 “Power Sector Reform”

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gaps. For instance, the T&D grid mitigation and remediation activities41 included in the 

System Remediation Plan, as required under the T&D OMA, will improve service quality and 

bring the Puerto Rico energy system up to par with peer utilities on reliability and safety.42

▪ Enable renewable energy generation and transmission. LUMA, as the T&D System

operator, is assisting with renewable grid and dispatch integration, enabling the transition to 

a clean, reliable, and sustainable energy sector. This includes renewable energy program 

management, T&D System modernization, and renewable generation scheduling and 

dispatch. These efforts are required to meet the goals set up by Act 17-2019, which mandates 

that Puerto Rico obtain 40% of its electricity from renewable resources by 2025, 60% by 2040, 

and 100% by 2050.

Future Structure of the Energy System and PREPA, as well as roles and

responsibilities

Act 17-2019 calls for “transitioning from the current, vertically integrated monopoly comprising 

PREPA, to an energy system with multiple players as well as changes to the roles and 

responsibilities that have historically been concentrated within PREPA, and their reallocation 

across multiple entities.” Consistent with such energy key practices outlined in the T&D OMA, 

PREPA has transferred day-to-day roles and responsibilities over the operation of the T&D system 

and anticipates transferring the operation and maintenance of its generation systems, including: 

deployment of federally and non-federally funded capital investments and short-, medium-, and 

long-term system planning. Exhibit 16 provides an overview of the current and future state of the 

Puerto Rico Energy Sector.

EXHIBIT 16: ENERGY SECTOR TRANSFORMATION CURRENT AND FUTURE STATE

41 PREPA grid infrastructure reconstruction will also be informed and guided by the 10-year Infrastructure Plan submitted by PREPA 

to FEMA in December of 2020 and subsequently updated as of March 2021, as part of the global settlement with FEMA for the 

reconstruction of the island’s energy infrastructure. Reconstruction will also be guided by the March 2022 Update to the PREPALUMA 90-Day Plan, Docket ID: NEPR-MI-2021-0002 

42 SRP filing on Fri Apr 16, 2021, Docket ID: NEPR-MI-2020-0019, RFI-LUMA-MI-20-0019-210406-PREB-004

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PREPA has worked and coordinated with the P3A to develop a reorganization plan that is 

compliant with the energy policies of the Government of Puerto Rico and to meet its obligations 

under the T&D OMA. PREPA is currently developing the plan for its required reorganization and 

will be submitting it to the PREB for approval. 

The T&D OMA establishes or otherwise confirms certain rights and responsibilities of PREPA as 

owner and the P3A as administrator, including requiring that PREPA or its successor: (1) comply 

with applicable laws; (2) cooperate with LUMA in its efforts to obtain and effectuate approval of 

any governmental body; (3) execute and file condemnation proceedings; (4) manage PREPA’s 

legal matters; and (5) in coordination with the P3A, and when doing so does not result in 

duplicative efforts, audit LUMA’s compliance with federal funding requirements.

Additionally, the T&D OMA requires that “[f]rom and after the Service Commencement Date, and 

at all times during the Term [of the T&D OMA], [PREPA or its successor] and the [P3A], including 

any of their Subcontracts, maintain staffing in connection with the [T&D] O&M Services only at 

those levels strictly necessary for [PREPA] and [the P3A] to timely and efficiently perform their 

obligations under [the] [T&D OMA]”.43 Based on the above, PREPA has developed and is 

implementing a reorganization of PREPA’s organizational structure, consistent with the T&D 

OMA and Act 17-2019. 

Exhibit 17 and Exhibit 18 provide an overview PREPA’s structure before and after the 

reorganization, respectively. Exhibit 18 reflects the interim structure before the creation of GridCo 

and HoldCo as distinct separate entities, as well as the creation of HydroCo and PropertyCo. 

Overtime, PREPA must establish a GridCo entity that encompasses only those T&D System 

functions and responsibilities transferred to LUMA. Any other remaining PREPA operations are 

to be encompassed within HoldCo, or within the other remaining subsidiaries. 

EXHIBIT 17: CURRENT PREPA STRUCTURE

43 T&D OMA at Sec. 6.4.

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EXHIBIT 18: FUTURE PREPA STRUCTURE

Transitioning T&D assets to a private operator

On June 22, 2020, LUMA executed the T&D OMA and began transition to become the private 

operator for PREPA’s T&D System assets. This agreement was the result of a competitive process 

run by the P3A. Following the selection, LUMA and PREPA embarked on the front-end transition 

process required under the T&D OMA, to ensure the transition of responsibilities. The completion 

of this process occurred on May 31, 2021, and LUMA’s initial service commencement began 

providing services on June 1, 2021. 

The following sections provide an overview of the T&D System transition to LUMA.

3.3.3.1. Transformation Process 

The P3A conducted the T&D RFP process to select a qualified O&M service provider for the T&D 

System. The process followed an objective and transparent set of bidding and evaluation 

procedures. Evaluation of eligible bids was performed in accordance with legal requirements 

under the P3 statute, Act 29-2009, as amended, by the P3A Partnership Committee, established 

by the P3A pursuant to Section 5 of the Puerto Rico Electric System Transformation Act, Act No. 

120-2018, as amended. 

On May 15, 2020, the Partnership Committee recommended to the Board of Directors of the P3A 

that the contract for the management, operation, maintenance, repair, restoration, and 

replacement of the Puerto Rico electric T&D System be awarded to LUMA44.

LUMA was announced as the selected T&D O&M services provider on June 22, 2020, after 

approval of the selection was issued by the P3A Board, the Oversight Board, PREPA’s Governing 

Board, PREB, and the Governor. Thereafter, PREPA, the P3A and LUMA signed the T&D OMA 

44 LUMA is an entity formed by ATCO Ltd. and Quanta Services Inc.

 https://www.atco.com/en-ca/about-us/news/2020/122897-atco-and-quanta-form-luma-to-transform-puerto-rico-s-electricity.html.

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which the Oversight Board approved, enabling the commencement of the front-end transition 

period called for under the agreement (Exhibit 19).

EXHIBIT 19: KEY MILESTONES IN T&D OPERATOR TRANSITION PROCESS

Pursuant to the T&D OMA, contract oversight and compliance responsibilities are, and to 

maintain ’UMA's independence must remail, the ongoing responsibility of PREB and the P3A, 

each within their respective areas of authority and responsibility under applicable law and 

contract provisions. The Oversight Board will continue its oversight role for PREPA as long as it 

remains a covered territorial instrumentality under PROMESA. This role includes the 

certification of PREPA’s Certified Fiscal Plans and Budgets, and the adjustment of PREPA’s debts 

and liabilities in its Title III case. Further discussion of Puerto Rico’s energy system regulatory 

landscape can be found in Chapter 10 (Legal and Regulatory Structure).

3.3.3.2. Overview of the LUMA T&D OMA 

The T&D OMA was executed by and among LUMA, PREPA, and the P3A. Under the T&D OMA, 

LUMA will provide O&M services pertaining to the T&D System for a minimum term of 15 years. 

An O&M structure was preferred over a sale or concession of the T&D assets because such assets 

remain property of PREPA and thus allows PREPA and the Government to maintain access to and 

eligibility for federal funds for the reconstruction and modernization of the electric grid after 

Hurricanes Irma and María – and any future natural disasters that may cause damage to such 

infrastructure.

The T&D OMA outlines requirements, responsibilities, costs, and milestones for the transition of

operation of the T&D System by LUMA. These various items are established for purposes of the 

front-end transition period, the Interim Period, the O&M Services and the back-end transition 

period. The following section provides an overview of the key elements outlined in the T&D OMA:

a. Front-End Transition

The purpose of the front-end transition plan was to ensure the orderly transition of the 

responsibility for the management, operation, maintenance, repairs, restoration, and 

replacement of the T&D System to LUMA in compliance with the target established for Service 

Commencement Date. The front-end transition period began on June 22, 2020, and concluded 

on May 31, 2021, at which time LUMA assumed responsibility over the operation and 

maintenance of the T&D System under an “interim period” while PREPA contemplates its Title 

III case, upon which the full 15-year term of the T&D OMA will commence. 

During the front-end transition LUMA, PREPA and the P3A worked together on activities 

designed to ensure an orderly transition to LUMA. Such activities included, among others: 

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▪ Development and implementation of operational takeover plans

▪ Development and approval of system remediation plans

▪ Evaluation of customer service facilities, assets, policies, and procedures 

▪ Development of IT/OT communication plans, gap analysis, cyber security, and business 

continuity plans

▪ Formalizing changes to control processes, establishing financial accounting system, and 

account structure, preparing initial budgets and forecasts

▪ Setting up a governance framework, and policies and procedures related to federal 

funding, and

▪ Development of back-end transition plans

During the front-end transition period, and pursuant to the terms of the T&D OMA, PREPA paid 

LUMA a front-end transition service fee and reimbursable expenses as shown in Exhibit 20. 

b. Supplemental Agreement and Interim Period

The T&D OMA established as a condition precedent to LUMA taking over operation and 

maintenance responsibilities over the T&D System that PREPA complete its debt restructuring 

process and exists Title III of PROMESA. Given the view that PREPA would not be able to exit 

Title III by the expected the June 1, 2021, Service Commencement date proposed by LUMA, the 

Oversight Board required LUMA, PREPA and the P3A engage in negotiations with the purpose of 

enabling LUMA to begin providing O&M services prior to PREPA’s exit from Title III. As a result, 

PREPA, LUMA and the P3A negotiated and executes a Supplemental Agreement to the T&D OMA, 

which provided for an 18-month Interim Service Period under which LUMA would be able to 

commence providing T&D services while PREPA’s Title III case remained pending. The Interim 

Service Period is separate from the 15-year service term outlined in the T&D OMA, which would 

begin on the date in which PREPA’s exit from Title III is achieved. 

c. T&D O&M Services

After having achieved contractual milestones for transition of T&D operations, the responsibilities 

for aspects of the operation and maintenance of PREPA’s T&D System, including billing and other 

customer service functions, was transferred to LUMA for the Interim Period set forth in the 

Supplemental Agreement to the T&D OMA. These services and responsibilities include day to day 

operations and maintenance of the T&D System, long-term systems and resource planning, 

generation dispatch, asset management, operation and maintenance, community and media 

relations, reporting and record keeping, finance and accounting, and oversight and 

implementation of federally funded projects, among others specified in the OMA Scope of 

Services. Emergency response and customer service responsibilities, including billing, outage 

reporting, and connections, are also part of LUMA’s responsibilities as T&D System operator. 

Therefore, under the T&D OMA, LUMA’s scope of services is the following45:

1. T&D System Operation Services: responsible for all electric transmission, distribution, 

load serving and related activities for the safe and reliable operation and maintenance of the 

T&D System. These include system operator activities, engineering activities, maintenance of 

technical documentation, energy efficiency activities, planning, environmental and 

45 T&D OMA Annex I

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regulatory, legal services, insurance and claims, collection of bills from PREPA’s customers, 

and other activities.

2. Asset Management and Maintenance Services: responsible for managing and 

maintaining all assets of the T&D System including machinery, equipment, structures, 

improvements, and condition assessments of the electrical system components. These include 

inventory control, fleet management and refueling, necessary equipment and systems, 

information technology, public lighting, and generator interconnection.

3. Continuous Improvement Services: development and administration of research and 

development to increase operational efficiency and effectiveness, establishing and conducting 

a continuous improvement program designed to enhance LUMA’s performance, monitoring 

industry advancement and technological changes.

4. Government, Community and Media Relations: communications with customers and 

government officials, responsible for coordinating and conducting communications with 

local, state, and federal representatives and organizations, community and media relations, 

and customer contact.

5. Testing, Reports and Records: preparing monthly operations report, producing and 

delivering information to P3A as requested, and developing and maintaining comprehensive 

document management program.

6. Regulatory, Finance, and Accounting Services: responsible for regulatory proceedings, 

finance, accounting, budgeting, long-term financial forecasting, and treasury operations 

related to the T&D System. 

7. Health, Safety, Environment, and Quality: responsible for ensuring system wide 

compliance with standardized safety programs to prevent and reduce risk of occupational 

injuries through hazard identification and reduction activities.

8. Emergency Response: curtailments and shutdowns, implementation of the emergency 

response plan that addresses disaster recovery and emergency response and restoration, and 

all necessary business continuity, reporting and communication functions relating to the T&D 

System.

9. Maintenance: performing all ordinary maintenance of all property constituting T&D 

System, including machinery, structures, improvements, and electrical system components, 

to keep the T&D System in operational condition.

10. Customer Service: maintaining staff dedicated to assisting customers, toll-free customer 

service hotlines, establish and maintain website for customer inquiries and complaints, public 

outreach and education campaign, customer satisfaction, and meter-related services 

including repair and replacement of meters.

11. Federal Funding: responsible for (together with PREPA and P3A) developing a federal 

funding procurement manual46 (subject to approval by COR3, FEMA, and DHS OIG)47, 

ensuring compliance with Federal Funding requirements for contracts that involve Federal 

Funding, and ensuring compliance with applicable law, regulation, and policy for any federally 

funded work48, acting as agent (after prior written consent by PREPA and P3A) of PREPA in 

connection with any federal funding requests related to the T&D System49.

46 Submitted on January 21, 2022. Motion in Compliance with Resolution and Order of January 21, 2022 and Submitting Responses 

to Requests on the LUMA Procurement Manual, Case No. NEPR-MI-2021-0004, February 25, 2022. 

47 T&D OMA, Section 4.5 j

48 T&D OMA, Section 5.9 c

49 T&D OMA, Section 5.9 e

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d. Service fees

Pursuant to the T&D OMA, PREPA paid compensation to LUMA during the front-end transition.

Furthermore, PREPA currently pays LUMA for the T&D O&M services based on the fee structure 

shown in Exhibit 20 during the Interim Period. Aside from the fixed fee component, LUMA will 

be eligible to receive the T&D O&M services Incentive Fee if LUMA is able to achieve or exceed 

the performance metrics outlined in the T&D OMA50 , as approved by PREB once the regulator 

emits a final order on metrics to judge performance. Certified Fiscal Plan

EXHIBIT 20: T&D OMA FEES BY CONTRACTUAL PERIODS51

e. Shared Services Agreement

The T&D OMA contemplated the likelihood that GenCo – before PREPA transfers GenCo and 

associated operating, administrative, and/or maintenance functions to one or more private 

operators – would need certain administrative and other services that historically were provided 

by PREPA. As such, the T&D OMA provides that to ensure the continuity of GenCo operations 

LUMA will – as agent of PREPA – provide certain services (the “Shared Services”) to PREPA. To 

that end, PREPA and LUMA signed a Shared Services Agreement that sets forth the services that 

LUMA shall provide during the time prior to a transfer of GenCo to one or more private operators, 

and for a term not to exceed three years from its effective date unless otherwise mutually extended 

by the parties. The negotiated Shared Services Agreement includes Finance & Accounting, IT, and 

operational services. Per the T&D OMA, shared services provided by LUMA are to be provided at 

cost. In other words, LUMA does not earn a mark-up or profit. The exact scope and amount of the 

50 Official Performance Metrics are subject to approval by the PREB 

51 All fees are based on 2020 dollars that will be adjusted by inflation for each year. 

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shared services provided, as well as the compensation for these services, are detailed in the Shared 

Services Agreement that was executed by PREPA and LUMA on June 1, 2021.52

f. Back-End Transition

To ensure an orderly and structured transition of the T&D services back to the Government or to 

a successor operator in the future, the T&D OMA requires, and LUMA prepared and submitted to 

the PREB and the P3A, a detailed back-end transition plan, to be updated on an annual basis. This 

plan includes reasonable arrangements for the hiring of LUMA employees by the Government of 

Puerto Rico or a successor operator, treatment of severance costs associated with LUMA 

employees not hired by a successor operator, and the transition and handover of T&D O&M 

Services back to the Government of Puerto Rico or to a successor operator.

g. Transformation Impact on Current PREPA Employees

There are legal requirements governing the treatment of former PREPA employees to protect and 

ensure job security during the transformation. These protections are included in Act 120-2018, as 

amended by Act-17-2019, and provide safeguards for ongoing employment and certain applicable 

retirement benefits and vested rights for PREPA employees. Act 120-2018 provides that regular 

PREPA employees will have employment either by joining LUMA (or any other operator selected 

through a P3A process), at PREPA, to the extent such positions exist and are necessary for PREPA 

to meet its obligations, or within the Government of Puerto Rico, as determined by the Puerto 

Rico Human Resource Administration and Transformation Office (OATRH). 

Pursuant to Act 120-2018, OATRH and the Puerto Rico Office of Management and Budget (OMB) 

identified open positions across Puerto Rico’s central government to ensure that jobs would be 

available for every PREPA employee that wanted to stay employed with the Government. To that 

end in April 2021, PREPA and OATRH sent more than 4,000 transfer notices to PREPA 

employees. Through the transfer notices, PREPA employees were notified, in accordance with Act 

8-2017 and Act 120-2018, the substitute employer agency or instrumentality of the Government 

of Puerto Rico for employment by June 1, 2021 (unless they accept positions with LUMA). 

Following the June 1, 2021, deadline, it is estimated that approximately 2,900 PREPA employees 

took positions within the Government of Puerto Rico. 

In addition to having the opportunity to continue working with the Government of Puerto Rico, 

employees had the option to exit public service and participate in a voluntary transition program 

(“VTP”). The Oversight Board approved the Government’s proposal to issue a VTP for nongeneration PREPA employees, amended PREPA’s FY 2021.

3.3.3.3. LUMA Objectives and Performance Management

As contemplated within the LUMA Initial Budgets, LUMA completed the transition for, and 

implementation of, management and operation of the T&D System while maintaining maximum 

business continuity. LUMA as T&D System operator will implement new policies, procedures, and 

plans (including the Emergency Response Plan, Vegetation Management Plan, and Security Plan, 

among others) which will improve the state and effective operation of the T&D System, its 

52 Shared Service Agreement, dated as of June 1, 2021 by and among The Puerto Rico Power Authority as Owner, The Puerto Rico 

Public-Private Partnerships Authority as Administrator and LUMA Energy, LLC as ManagementCo and LUMA Energy SERVCO, 

LLC

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reliability and service to PREPA’s customers. Key activities in the next three years of LUMA 

operations include the following:

• Operations

o Continue to develop and roll-out new work methods and communicate to crews 

on engineering standards, new methodologies and industry practices, provide 

required ongoing safe and reliable services to customers, and

o Further improve line and substations work and vegetation, fleet, and materials 

management.

• Customer Service

o Continue to provide professional, courteous, and responsive communication 

when addressing customer needs,

o Continue to unwind system customizations and improve customer care and 

billing system (including installation of effective meter systems that facilitate 

billing for actual vs estimated consumption), and

o Develop robust real-time and historical reporting to inform data-driven decisions.

• Utility Transformation: Provide the technical and programmatic framework 

required to deliver safe and reliable service to customers, including:

o Finalize plans for PREB related to Energy Efficiency, Demand Response and 

Electric Vehicles,

o Collaborate with US DOE and national labs, together with PREPA and the 

government of Puerto Rico on the Puerto Rico Grid Resilience and Transitions to 

100% Renewable Energy Study (PR100),

o Continue to evaluate and implement key initiatives including establishing 

enhanced T&D standards, preparing planning studies, field and desktop 

assessments and deployment of distribution automation, and

o Continue to implement project management system for capital programs.

• Support Services: Improve functions that are required for the management and 

support of the T&D System assets, including continuing to build a safety-first culture,

continuing to develop and implement an overall IT OT framework and improving 

systems procedures and processes for functions including Finance, Regulatory and 

Human Resources.

In accordance with its obligations under the T&D OMA and with PREB’s directives (specifically 

those stated in the Resolution and Order dated November 20, 2020, in case by PREB NEPR-MI2020-0008), LUMA began execution of the FEMA-funded T&D work, including the planning and 

critical engineering work on major initial projects.

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Through the activities and priorities outlined in this chapter as well as Chapter 7 and Chapter 8, 

LUMA must pursue the following objectives, which are explained in more detail and linked to 

specific performance metrics53 in Table 3 below:

• Prioritize safety

• Improve Customer Satisfaction

• Achieve System Rebuild and Resiliency

• Pursue Operational Excellence, and

• Prioritize Sustainable Energy Transformation

TABLE 3: DETAILED GOALS AND OBJECTIVES54

Goal Objective Performance Metric

Prioritize 

Safety

▪ Promote a safe workplace. Implement 

procedures, controls, training programs, 

increase PPE, and awareness

▪ Implement effective public safety practices. 

Reduce public exposure to safety risks

▪ OSHA Recordable Incident Rate

▪ OSHA Fatalities

▪ OSHA Severity Rate

▪ OSHA DART Rate

Improve 

Customer 

Satisfaction

▪ Deliver a positive customer experience. 

Improve customer service quality, accessibility, 

and reliability.

▪ Increase Service Reliability. Reduce the 

frequency and duration of interruptions to 

customers’ electricity service

▪ Deliver electricity at reasonable prices. Reduce 

operating costs, technical and non-technical line 

losses, and reduce days sales outstanding and 

write-offs

▪ J.D. Power Customer

Satisfaction Survey - Residential

Customers

▪ J.D. Power Customer

Satisfaction Survey - Business

Customers

▪ Average Speed of Answer

▪ Customer Complaint Rate

▪ Abandonment Rate

▪ SAIFI

▪ SAIDI

System

Rebuild and

Resiliency

▪ Effectively deploy federal funding. Ensure 

efficient management of funding, in compliance 

with FEMA guidelines for reimbursement

▪ Restore / reconstruct damaged grid 

infrastructure. Focus first on critical loads, 

severely damaged infrastructure, and vulnerable 

community lifelines

▪ Improve resiliency of vulnerable infrastructure. 

Identify and assess infrastructure and systems 

for vulnerability and health, to focus near-term 

investment

▪ Capital Budget – Federally

Funded

▪ Distribution Line Inspections &

Targeted Corrections

▪ Transmission Line Inspections &

Targeted Corrections

▪ T&D Substation Inspections &

Targeted Corrections

Operational

Excellence

▪ Enable systematic management of the business. 

Improve information systems and processes to 

▪ Operating Budget

▪ Capital Budget – Non-Federally

Funded

53 Performance Metrics are subject to approval by PREB. 

54 LUMA Initial Budget, February 2021 Update, p.510 Appendix E

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enable systematic, data-driven, and efficient 

management

▪ Pursue project delivery excellence. Improve

execution of capital projects (on time, budget, 

scope), carefully manage risk

▪ Enable employees to execute business 

operations systematically. Increase employee 

effectiveness (engagement, productivity) and 

learning (quickness to adjust, performance 

improvement)

▪ Overtime

▪ Days Sales Outstanding -

General Customers

▪ Days Sales Outstanding -

Government Customers

Sustainable

Energy

Transformation

▪ Modernize the grid. Incorporate smart grid

technologies into rebuilding efforts, increase 

hosting capacity, reduce load-shedding events, 

increase deployment of AMI and new DER 

(Distributed Energy Resource) interconnections

▪ Enable the digital transformation Upgrade IT 

OT capabilities, enhance cybersecurity 

capabilities, replace all end of use devices, 

upgrade software to manage the T&D System as 

well as economic dispatch

▪ Enable the sustainable energy transformation. 

Ensure system infrastructure is rebuilt to 

accommodate higher penetration of intermittent 

distributed resources, increase penetration of 

renewable resources and battery storage, reduce 

consumption through energy efficiency and DR 

programs

LUMA translated its priorities and activities into a set of tangible improvement portfolios, which 

are outlined in more detail in Chapter 7 (LUMA Improvement Portfolios). As a result of its 

improvement programs, LUMA must work to achieve the projected improvements in 

Performance Metrics55 shown in Table 4.

TABLE 4: CUMULATIVE IMPROVEMENTS56 IN PERFORMANCE METRICS PROJECTED BY LUMA 

Performance Metric57 Fiscal Year 2022 Fiscal Year 2023 Fiscal Year 2024

Customer Service 11% 26% 31%

Safety 22% 36% 48%

System Average interruption 

Frequency Index (SAIFI)

7% 20% 30%

System Average interruption 

Duration Index (SAIDI)

10% 25% 40%

55 System Remediation Plan, Docket ID: NERPPREB NEPR-MI-2020-0019; RFI-LUMA-MI-20-0019-210406-PREB-006, filed April 

16, 2021

56 Cumulative improvements shown

57 Subject to PREB regulatory process and approval.

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Based on the historical state and efficiency of PREPA’s grid operations, LUMA is aware of the 

challenges ahead, and is focusing efforts on key success factors to mitigate them, including 

1. Safety first;

2. Data driven decision making;

3. Leading with solutions; and 

4. Implement a transparent and collaborative approach to decision making.

The risks to the T&D transformation are discussed in detail in LUMA regulatory filings with 

PREB. Specifically, the Program Briefs filed by LUMA regarding the Initial Budgets and the SRP 

outline risks of not proceeding within SRP Section 2.6 Program Risks.

Transitioning Legacy Generation Assets to a Private Operator

Like the T&D System, the electricity supply system of Puerto Rico is in the midst of a transition 

from being publicly operated and maintained entity to a multi-party, privately owned and 

operated generation system. This transition will play an integral role in boosting generation 

efficiency and productivity, and environmental compliance, which is projected to have the 

following impacts:

1. Improved reliability of services

2. Improved quality of the supply of electricity

3. Adherence to environmental and sustainability standards 

To that end, the operation and maintenance of PREPA’s existing legacy generation assets will be 

transferred to one or more qualified private third parties, while those generation assets are duly 

decommissioned and retired, in accordance with the IRP and Act 17-2019. To improve the 

flexibility, reliability, resiliency, efficiency, and sustainability of Puerto Rico’s energy supply, the 

generation fleet transformation will include:

1. Transition of the operation and maintenance of PREPA’s legacy generation 

assets to one or more private operators: Private operator(s) will be responsible for 

the optimal operation and maintenance of PREPA’s assets through a GenCo Operation 

and Maintenance Agreement contract structure, similar to the T&D OMA transaction, 

until the legacy generation units are retired and replaced by new, more efficient and 

compliant, generation. PREPA-owned generation assets are expected to deliver enhanced 

reliability and efficiency for the remainder of their operating period under the stewardship 

of private operators, which is currently being procured by the P3A through a competitive 

process.

2. Replacement and modernization of the legacy generation fleet: Puerto Rico’s 

aging, inefficient, and unreliable generation fleet must be urgently replaced and 

modernized to reduce outages and generation costs as well as comply with environmental 

regulations. The roadmap for this modernization is the PREB-approved IRP, which 

outlines the actions and investment in new generation that must be procured to reduce 

generation costs and achieve greater reliability and resiliency. These investments include 

increasing the share of renewable generation through a competitive procurement process 

for new compliant generation capacity to be obtained via power purchase agreements. This

process will reduce reliance on fossil fuels along with their associated price volatility and 

set Puerto Rico on a path to compliance with the RPS target outlined in Act 17-2019. In 

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addition, increased flexibility and reliability will result from GridCo’s deployment and 

integration of energy storage, distributed generation, and the use of minigrid/microgrid 

technologies.

3.2.2.4.1. Process for Transitioning Legacy Generation Assets to a Private Operator

To transform the PREPA-owned legacy thermal generation operations, the P3A , in fulfilment of 

public policy and as required in the Certified Fiscal Plan, is leading a competitive process to 

identify, qualify, and select one or more private operators to operate PREPA’s legacy thermal 

generation assets and eventually decommission such assets, pursuant to an OMA similar in 

structure to the LUMA T&D OMA that will provide for independent oversight of the private 

operator by PREBA and P3A. The competitive process follows a similar phased approach as the 

T&D transaction, including but not limited to the following:

• Phase I: Transaction preparation (COMPLETED)

• Phase II: Request for quote (RFQ) (COMPLETED)

• Phase III: Request for proposal (RFP) (COMPLETED)

o Preparation and release of RFP documentation to shortlisted participants

o Detailed due diligence by participants

o Release and negotiation of transaction documents

o RFP proposal submissions by participants

• Phase IV: Selection of selected proponent by P3A Partnership Committee (IN PROGRESS)

• Phase V: Closing

3.2.2.4.2. Modernizing the Legacy Generation Fleet – New Generation Capacity 

Future new generation capacity will have to meet modern operational, efficiency, environmental, 

and renewable public policy requirements. To this end, PREB issued a Final Resolution and Order 

on PREPA’s IRP in August 2020. This Final Resolution and Order led to PREPA’s development 

of a detailed Procurement Plan (with PREB’s guidance and approval) for renewable resources and 

battery energy storage to achieve compliance with the renewable portfolio standard (RPS) as 

articulated in Act 82-2010, the Puerto Rico Energy Diversification Policy through Sustainable and 

Alternative Renewable Energy Act. In addition to the Procurement Plan, all agreements to supply 

new generation capacity must be transparently negotiated with an eye towards maximum 

flexibility and efficiency to improve the Island’s generation capacity, in a process that is free of 

political interference and focus on particular constituencies, but rather focused on what is 

necessary to improve the Island’s generation capacity. 

Additionally, after months of delays, in February 2021, PREPA issued the first tranche (Tranche 

1) of a series of RFPs for provision of renewable energy in support of Act 17’s RPS goals, and for 

battery energy storage in support of capacity requirements needed to meet PREPA’s peak load 

requirements and in support of integration requirements for renewable energy generation. The 

guidance for renewable energy and energy storage RFP tranches, as well as the projected 

installation timeline, is contained in Error! Reference source not found.58 and Exhibit 21.

58 The quantities outlined in the RFP tranches may be adjusted to accommodate for installations of distributed generation (DG) that 

contribute to meeting overall quantities and for other resources that PREPA may identify.

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On February 2, 2022, PREB approved 18 of the solar PPOAs recommended by the Evaluation 

Committee for Tranche 1. 

As it relates to additional tranches of renewable energy RFP’s, PREB, not PREPA, sets the timeline 

for issuance of these tranches and will hold the primary responsibility of executing on the 

procurement process for the new renewable generation capacity. PREPA submitted a complete 

set of Tranche 2 RFP documents to PREB on October 29, 2021, per PREB order. PREB issued a 

resolution and order on January 27, 2022, establishing an independent coordinator to manage all 

future renewable energy procurements and described the coordinator’s corresponding role and 

responsibilities. As of May 6 ,2022, PREB had not issued any resolution and order establishing 

PREPA and LUMA’s respective roles in any future tranche.

EXHIBIT 21: PROJECTED INSTALLATION TIMELINE OF THE RENEWABLE GENERATION 

CAPACITY ORDERED BY PREB

In all, with the addition of the remaining five (5) RFP tranches,59 Puerto Rico can anticipate the 

procurement of 3.75 GW of renewable energy and 1.5 GW of battery storage. This procurement is 

intended to set Puerto Rico on a path to reach its target of 100% renewable energy by 2050.

However, Puerto Rico’s actual ability to reach Act 17’s RPS targets will depend on the pace at 

which renewable resources are procured, the timeline for permitting and building those resources, 

the availability of reasonable financing alternatives, the reasonability of proposed pricing terms, 

and the progress made in upgrading the T&D system in order to enable to safe and reliable 

integration of renewable resources. The future generation mix forecasted by PREPA is expected 

to reach the RPS goal of 100% renewable generation (i.e., total renewable generation as a 

proportion of total sales) by FY2050 (Exhibit 23). However, as previously mentioned, the system 

is currently not on pace to achieve the renewable energy additions necessary to support RPScompliance and, consequently, is behind schedule in the expected retirement date of existing 

generation resources. LUMA and PREB must, as soon as practicable, initiative a new IRP process 

with the aim of developing an up-to-date Action Plan that considers current macroeconomic and 

59 The RFPs are open to all forms of renewable energy, including solar photovoltaic, wind, energy storage, hydro, virtual power plants 

(VPPs), or any combination of those technologies

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industry trends as well as conditions that may constraint compliance with the current Modified 

Action Plan and provides an updated outlook into the evolution of the Island’s energy sector. 

EXHIBIT 22: IRP PREB MODIFIED ACTION PLAN

EXHIBIT 23: PROJECTED GENERATION MIX

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

 -

 2

 4

 6

 8

 10

 12

 14

 16

 18

 20

(Generation TWh) Coal (AES) Heavy Fuel Oil

Diesel Natural Gas

Utility Scale Renewables Renewable DG

Natural Gas (CHP) RPS Compliance

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Implementation of Puerto Rico’s Energy Sector 

Transformation

To achieve this Certified Fiscal Plan’s savings projections, several reforms to the energy sector 

must be implemented immediately or otherwise continued. Several of the measures 

recommended in earlier Certified Fiscal Plans have been completed and are listed in Exhibit 24.

Exhibit 25, in turn, describes additional mandatory reforms necessary to ensure the 

transformation of the electricity sector and compliance with PREPA’s and the Commonwealth’s 

Certified Fiscal Plans, and to meet this Certified Fiscal Plan’s growth and revenue targets. 

EXHIBIT 24: COMPLETED MILESTONES FOR POWER SECTOR REFORM

EXHIBIT 25: PENDING MILESTONES FOR POWER SECTOR REFORM

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Chapter 4. Risks and System Resilience

The electric power system in Puerto Rico has endured significant infrastructure damage in recent 

years due to severe hurricanes and earthquakes. In the future, the frequency and intensity of 

atmospheric events is anticipated to increase further as climate change accelerates.60 These 

natural risks for Puerto Rico’s energy infrastructure have been exacerbated by historic 

underspending on CapEx, maintenance and vegetation management which compounds the 

damage and impact from natural disasters while simultaneously making the system vulnerable to 

commonplace disturbances. To mitigate such risks and to achieve a safe, modern, sustainable, 

and reliable energy system, resilience measures for both the Transmission and Distribution (T&D)

System and generation assets must be prioritized. 

To this end, PREPA and LUMA, have developed capital plans to repair, remediate, and modernize 

the existing system and improve its resiliency against extreme events. Among other funding 

sources, the capital plans rely on the $9.6 billion, net of cost share, in funds allocated by FEMA to 

PREPA to modernize and harden the power system against natural disasters.61 For the T&D 

System, LUMA has proposed a budget of nearly $2.6 billion from FY2023 through FY2025 for 

infrastructure repair, modernization, and hardening projects. Further information on capital 

plans can be found in Chapter 6 (Capital Plans and Federal Funding) and Chapter 7 (LUMA 

Improvement Portfolios) for PREPA and LUMA, respectively. Further information on Federal 

Funding sources and uses also can be found in Chapter 6.

The following sections address in summary the risks posed to Puerto Rico’s electricity system 

resulting from: (1) climate risk; (2) earthquakes; and (3) economic shocks (e.g., COVID-19). 

Historical responses and preparedness are also discussed and potential actions to mitigate these 

risks are considered as well. 

Climate Risk

Puerto Rico is at high risk for the wide-ranging effects of climate change. Hurricanes, wildfires, 

heat stress, and coastal flooding are all risks to Puerto Rico and its electricity system. Climate 

projections show that Puerto Rico could experience significant climate events in the next 30 years, 

including: (1) decrease in frequency, but greater intensity, of extreme precipitation events; and 

(2) a potential rise in sea level of one to two feet, which could lead to risks from coastal flooding 

and inundation, particularly in the populated areas on the northeastern part of the island (i.e., 

San Juan).62,63 Historically, mean wind speeds have remained relatively stable when comparing 

observational data from 1979-1999 to 2000-2019 while maximum wind speeds have increased in 

both intensity and frequency over the past several decades.64 If these trends continue, Puerto Rico 

could see additional extreme wind events in the future.

60 U.S. National Oceanic & Atmospheric Administration National Centers for Environmental Information & Cooperative Institute for 

Climate & Satellites-North Carolina. Intermediate sea-level rise scenario.

61 $10.7 billion figure includes cost-share and insurance payouts. 

62 U.S. National Aeronautics and Space Administration Earth Exchange (NEX) down-scaled climate model data, historical for 

1976-2005 and future Representative Concentration Pathways (RCP) 4.5 scenario for 2021-2050.

63 U.S. National Oceanic & Atmospheric Administration National Centers for Environmental Information & Cooperative Institute for

Climate & Satellites-North Carolina. Intermediate sea-level rise scenario. 

64 European Centre for Medium-Range Weather Forecasts, ERA5 Historical Reanalysis Data (1979-2019).

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In September 2017, Hurricanes Irma and Maria affected PREPA’s already vulnerable grid, causing 

an island-wide blackout. The transmission and distribution network suffered the most damage. 

In the future, devastating severe weather events like hurricane Maria are likely to occur more 

frequently, with similar scale events of precipitation now nearly five times more likely to form 

than during the 1950s; this increase is due largely to the long-term effects of climate change.65

The operational impact of climate-related events is sizable. In the wake of hurricanes Irma and 

Maria, over 2,700 transmission poles were damaged, and 92% of inspected substations were 

affected, with 41% of substations suffering major damage.66 The distribution system was not 

adequately maintained and upgraded to be able to withstand hurricanes rated Category 4 or 

higher and, as a result, 75% of circuits were damaged while certain generating units also suffered 

significant damage.67 The cost of responding to climate-related events is substantial. In the 

aftermath of the 2017 hurricanes, Puerto Rico received $3.2 billion in emergency federal funding 

for assistance with electrical restoration on the island.68

Although it is difficult to estimate and quantify the size of climate change’s risk on Puerto Rico’s 

electricity system infrastructure and operations, the increased intensity of individual wind and 

rain events are projected to result in higher costs of repair and reduced demand due to outages 

on a per-event basis (Exhibit 26). Additional work remains to improve operational practices—

including routine preventative maintenance (T&D and generation)—and strengthen the 

infrastructure to prevent future adverse weather events from causing a similar or even greater 

scale of damage. 

EXHIBIT 26: IMPACT OF CLIMATE EFFECTS ON PREPA

65 Keellings, D., & Hernández Ayala, J. J. (2019). Extreme rainfall associated with Hurricane Maria over Puerto Rico and its 

connections to climate variability and change. Geophysical Research Letters.

66 PREPA Central Office for Recovery, Reconstruction and Resiliency, Energy System Modernization Plan, 3, 6.

67 Puerto Rico Energy Resiliency Working Group, Build Back Better, A-3, A-6, A-7, 21.

68 “2017 Hurricane Season: Federal Support for Electricity Grid Restoration in the U.S. Virgin Islands and Puerto Rico.” United 

States Governmental Accountability Office. April 2019.

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LUMA and the GenCo operator(s), are key to properly and sustainably addressing the challenges

posed by climate change and accelerate access to and deployment of federal funds.

69 PREPA’s 

capital plan for generation assets as well as LUMA’s set of improvement programs for the T&D 

System outline the portfolio of projects that will most efficiently and effectively improve system 

resilience and strengthen the energy system against future extreme weather events, which are 

expected to increase in frequency and magnitude. LUMA has already identified and proposed 

numerous initiatives that will bolster the electric power system to withstand extreme weather 

events, including flood mitigation measures for critical grid assets such as control buildings and 

substations as well as transmission and distribution support structure replacement and 

hardening. For example, LUMA’s Transmission Line Rebuild program will ensure all 

transmission towers meet the 150-mph wind resistance standard as required in Act 17-2019. As 

currently envisioned, federally funded capital will be utilized to fund much of this work. LUMA 

has also proposed the establishment of an integrated and proactive vegetation management 

program for long-term, sustainable vegetation control and restoration of T&D System right of 

ways.70

LUMA’s ongoing vegetation management activities, in accordance with LUMA’s Vegetation 

Management Plan (VMP) include work to abate or mitigate immediate vegetation risk in the most 

critical locations, along with an ongoing program to clear and re-establish Rights-of-Way (ROWs) 

to standard widths. This includes immediate response for the highest risk sites, those that pose 

hazards to public safety or routinely experience tree-caused service interruptions and reclaiming 

ROW corridors (especially those impacting the T&D System). In addition, LUMA has completed 

an initial vegetation clearing, first herbicide treatment, and second herbicide treatment at all 

substation sites.

Earthquakes 

The U.S. Geological Survey forecasts the yearly chance of a magnitude 5+ earthquake in Puerto 

Rico is currently at over 99%, and it will remain at above 50% for the next three to ten years.71

Earthquakes have caused serious damage to utility infrastructure, as well as damage to 

transmission lines because of falling trees. This risk must be properly managed and considered in 

future improvement plans.

On January 7, 2020, a 6.4 magnitude earthquake struck the southwestern coast of the Island, 

causing significant damage to the Costa Sur Power Plant and less severe, but notable, damage to 

EcoEléctrica. In the immediate aftermath of the earthquakes, about two-thirds of the island’s 

population was left without power for several days. The loss of these two natural gas power plants 

increased the system’s reliance on more costly oil-fired power plants. In the near term, PREPA’s 

diesel peaking plants were dispatched to balance the load. As a result of the January 7 earthquake, 

the share of total monthly generation from natural gas declined by about 70%, from December 

2019 to January 2020, while the share of generation from diesel fuel oil increased by almost 

69 See additional detail on the transformation of Puerto Rico’s power sector in Chapter 3.

70 Further information on capital plans can be found in Chapter 6 (Capital Plans and Federal Funding) and Chapter 7 (LUMA 

Improvement Portfolios) for PREPA and LUMA, respectively. 

71 van der Elst, N.J., Hardebeck, J.L., and Michael, A.J. “Potential duration of aftershocks of the 2020 southwestern Puerto Rico 

earthquake”. U.S. Geological Survey Open-File Report 2020–1009. https://doi. org/10.3133/ofr20201009.

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twofold (Exhibit 27). PREPA was able to return Costa Sur Unit 5 to service by August 2020 and 

Unit 6 by January 2021, respectively, with a total estimated repair cost of $39 million.

EXHIBIT 27: FUEL MIX DURING FISCAL AND CALENDAR YEAR 2021

The geography of Puerto Rico is susceptible to ongoing and future seismic events, and therefore 

earthquake resilience measures to strengthen system infrastructure are essential in protecting 

against service disruptions. For future mitigation, critical generation resources must be 

diversified and distributed to ensure damage to a few power generation facilities does not cause 

long-term power shortages as well as hardening and reinforcing of existing facilities. For the T&D 

System, investments in critical infrastructure modernization must include hardening projects that 

strengthen the system against future earthquakes, specifically system control centers and other 

critical support buildings, transmission towers, distribution facilities, and substations. For 

generation assets, diversifying the available capacity through the development and integration of 

renewable energy and storage facilities will mitigate the risk associated with losing specific 

generation sites. Any new facilities must be designed and built to strict, earthquake-compliant 

codes to mitigate risk from future earthquakes.72 PREPA and LUMA will continue assessing 

infrastructure risks and targeting structural enhancements to limit damage from earthquakes as 

part of future capital planning and project execution.73

Economic Shocks (e.g., COVID-19)

The economic impact of COVID-19 response measures has had a ripple effect on the power sector. 

On March 15, 2020, Puerto Rico enacted social distancing measures under Executive Order 2020-

023 to manage the spread of the COVID-19 virus. After the curfew was implemented, generation 

72 Preston, Benjamin L., et al. “Resilience of the U.S. Electricity System: A Multi-Hazard Perspective.” Prepared for the U.S. 

Department of Energy’s Office of Energy Policy and Systems Analysis. August 18, 2016. 

73 Further information on capital plans can be found in Chapter 6 (Capital Plans and Federal Funding) and Chapter 7 (LUMA 

Improvement Portfolios) for PREPA and LUMA, respectively. 

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levels declined, alongside customer sales. In the four weeks immediately following the 

announcement of the curfew, total daily generation declined between 8 to 12% compared to the 

prior year’s figures.

74 After the initial four weeks, generation levels showed a gradual return to 

levels consistent with FY 2019 averages.75 Exhibit 28 shows how daily load for March through 

June varied from FY 2020 and FY 2021 due to the COVID-19 measures. 

EXHIBIT 28: MARCH THROUGH JUNE DAILY LOAD COMPARISON FROM FY 2019 TO FY 2020

(WH)

Following the curfew announcement, PREPA initially experienced a steep drop in collections. At 

its worst point, average daily rate collections fell to less than half of forecasted planned collections 

and threatened PREPA’s cash position. However, by June 2020, PREPA’s monthly cash balance 

had returned to pre-COVID levels. PREPA’s successful weathering of this potential liquidity crisis 

was a result of liquidity and cash flow management processes implemented since 2017, as well a 

strategic collection effort. On March 16, 2020, as the initial curfew was announced PREPA held 

$416 million in its operating account – from March 2019 through February 2020, PREPA 

maintained an average operating cash balance of $350 million despite the disruption and 

damages caused by the January 2020 earthquakes.

After two years of experience since the government enacted curtailment restrictions addressing 

COVID-19, PREPA continues to closely monitor cash balances, collections, customer 

consumption, and accounts payable to maintain a sustainable level of liquidity for ongoing 

operations. Since June 1, 2021, LUMA has been in charge of Customer Experience (including 

collections) and must ensure adequate collection effort and results in close coordination with 

PREPA to hold sufficient liquidity. Management and advisors continue to analyze potential 

forecast scenarios to understand the various impacts of changes in collections, fuel costs, and 

other major expenses. LUMA must also continue to work with other government agencies and 

74 Starting with Sunday March 15, 2020, ending with Saturday April 11, 2020. This figure compares net generation for the same 

day and week with the prior year, starting with the first full week in January. For example, Sunday, January 5, 2020, was 

compared with Sunday, January 6, 2019, and Monday, March 16, 2020, compared with Monday, March 18, 2020.

75 Average system load was within 1% of FY 2019 for the same four-week period, and slightly more than 1% higher than peak for 

the same period.

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large customers to accelerate receivables, engaging PREPA’s support as necessary to collaborate 

in this important effort.

The Commonwealth of Puerto Rico has progressed significantly since the World Health 

Organization first declared COVID-19 a global pandemic on March 11, 2020, driven in large part 

by the administration of 6.9 million cumulative vaccine doses (~80% of population fully 

vaccinated). While the commonwealth was at higher risk of COVID-19 due to factors such as an 

older population and higher levels of poverty, COVID-19 deaths suffered in the territory of 1,291

per million inhabitants were less severe as compared to the 2,897 per million inhabitants in the

United States, overall.

76 On March 2, 2020, 186 new COVID-19 cases were recorded, down from 

a peak of 6,617 new cases on January 8, 2022.77

EXHIBIT 29: COVID-19 CASES FROM MARCH 2020 TO MARCH 2022

The Puerto Rico power grid and its operators must be prepared for additional future economic 

shocks and recessions that may be triggered by causes other than a global pandemic, such as 

banking crises, trade and fuel disruptions, and political crises, among others. To mitigate future 

disruptions under curfew or adverse economic conditions on the utility sector, operational 

measures to increase remote control of the grid (e.g., distribution automation technologies, smart 

meter installation) must be considered in addition to pursuing measures to enhance system 

reliability and resilience. During an economic shock, declining collections would lead to a lower 

cash balance, elevating the need for effective liquidity management in the short term. In the longer 

term, fiscal measures, such as restructuring legacy debt obligations, will help insulate, or 

minimize the risk to, the Puerto Rico utility sector from future economic shocks.

76 Johns Hopkins Coronavirus Resource Center. https://coronavirus.jhu.edu/region/us/puerto-rico

77 The New York Times Daily Coronavirus Dashboard. https://www.nytimes.com/interactive/2021/us/puerto-rico-covid-cases.html

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Chapter 5. Resource Planning and Resiliency

Act 57-2014 and Act 17-2019 require LUMA, on behalf of PREPA, prepare and submit to PREB an 

IRP for a 20-year planning period, which shall be revised every three years. Act 17-2019 defines 

the IRP as a resource plan that shall consider all reasonable resources, including both energy 

supply (e.g. utility-scale generation) and energy demand (e.g. energy efficiency, demand response, 

and distributed generation), to reliably satisfy the current and projected future needs of Puerto 

Rico’s energy system and its customers at the lowest reasonable cost.78 Act 57-2014 also mandates 

that the IRP include evaluations of the Transmission and Distribution System (e.g. capacity and 

reliability) and the environmental impact of the energy system.79 

PREB approved the current IRP on August 2020, requiring PREPA, LUMA and any future

generation operator to follow a Modified Action Plan and Modified Preferred Resource Plan until 

an updated IRP is approved, with the following grid and generation modifications to form the 

three core elements of the Approved IRP: 

1. Increasing share of renewable generation and storage – including the additions of 

new renewable energy generation, energy storage, retiring or converting all existing coal and 

heavy fuel oil generation, and system modifications (e.g., synchronous condensers) to enable 

integration of inverter-based generation;

2. Enhancing grid resilience – including capital investment in the Transmission and 

Distribution System to support greater resilience and reliability and further optimization 

proceedings to determine optimal T&D System investments to improve resiliency; and

3. Enabling customer choice – including changes to the system to support the incorporation 

of DG (e.g., rooftop solar photovoltaic) and recommended EE and DR programs, allowing the 

customer to play a meaningful role in Puerto Rico’s electricity grid.

As of June 1, 2021, LUMA is responsible for the T&D System’s operations and is responsible for 

implementing several aspects of the approved IRP. PREB has issued an order taking over direct 

responsibility for managing the procurement of new renewable energy resources, commencing 

with the Tranche 2 RFP process through an independent coordinator, Acción Group, LLC (Acción 

Group).

80

LUMA also acts as PREPA’s representative before PREB and any other local, state, or federal 

government agencies, and therefore is responsible for preparing and proposing a new IRP for 

review and approval by PREB. Given the current state of geopolitics, the supply chain shocks from 

the Covid-19 pandemic, the Russian invasion of Ukraine, the energy markets and the increased 

demand for renewable energy sources, LUMA and PREB must consider reviewing and updating 

the existing IRP as soon as possible, ahead of the currently established schedule.

78 Act 17-2019, Puerto Rico Energy Public Policy Act, approved April 11, 2019, Section 5.2(ll). 

79 Act 57-2014, Puerto Rico Energy Transformation and RELIEF Act, approved May 27, 2014, Section 6C(h).

80 See PREB October 29, 2021 Resolution and Order (Case No. NEPR-MI-2020-0012).

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Overview of the Approved IRP

History of PREB Review and Approval of the IRP

PREPA filed its first IRP in 2015, which was approved by PREB in September 2016.81 As a result 

of Hurricanes Irma and Maria in 2017, Puerto Rico not only faced the unprecedented challenge 

of rebuilding the electric power system, but also had to rethink how to harden and modernize the 

grid to better equip Puerto Rico against future natural catastrophes, while diversifying fuel 

sources and increasing the grid’s reliance on renewable energy resources.

On February 13, 2019, PREPA filed its initial proposed IRP for PREB’s approval (Initial IRP). 

After reviewing the Initial IRP, PREB issued a motion with findings and requested PREPA to refile 

the Initial IRP after addressing certain items.82 On June 7, 2019, PREPA refiled its proposed IRP 

after making revisions required by PREB (Proposed IRP). PREB issued its Final Resolution and 

Order on PREPA’s Proposed IRP on August 24, 2020. 

PREB Modified Action Plan and Modified Preferred Resource Plan

PREB’s Final Resolution and Order (Final Order) approved in part and rejected in part the 

Proposed IRP and ordered the adoption and implementation of a Modified Action Plan and 

Modified Preferred Resource Plan in lieu of PREPA’s proposed Action Plan and Preferred 

Resource Plan (Approved IRP).83 The following three notable modifications to the grid were 

approved by PREB, which form the core elements of the Modified Action Plan and Modified 

Preferred Resource Plan for PREPA: 

1. Increasing share of renewable generation and storage while retiring or converting existing coal 

and heavy fuel oil generation; 

2. Enhancing grid resilience through hardening capital projects, including potential minigrids 

and microgrids; and

3. Enabling customer choice through DG, EE, and DR programs.

Act 17-2019 outlines Puerto Rico’s aspiration to generate 100% of its electricity from renewable 

sources by FY2050. Unfortunately, the timelines for the procurement and deployment of 

renewable resources originally established in the IRP are unlikely to be achieved given the 

procurement processes mandated by PREB have fallen significantly behind schedule (three out of 

six tranches, covering at least 2,000MW of renewable capacity and 1,000 MW of storage capacity,

are already delayed by up to 18 months) and the projects selected as a result of Tranche 1 have yet 

to be finalized and executed. Additionally, cost for the deployment of renewables have increased 

significantly, and current market-based renewable energy prices are already higher than those 

projected in the IRP. As a result, the base case projections in this Certified Fiscal Plan for the 

81 Final Resolution and Order, In Re: Integrated Resource Plan for the Puerto Rico Electric Power Authority, Case No. CEPR-AP2015-0002, September 23, 2016.

82 Resolution and Order, In Re: Completeness of Puerto Rico Electric Power Authority Integrated Resource Plan Filing, Confidential 

Treatment of Portions of the Integrated Resource Plan and Requested Waivers, Case No. CEPR-AP-2018-0001, March 14, 2019. 

83 Final Resolution and Order, In Re: Review of the Puerto Rico Electric Power Authority Integrated Resource Plan, Case No. 

CEPR-AP-2018-0001, August 24, 2020.

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share of renewables in FY2025, FY2040, and FY2050 only reach 13%, 53%, and 70%, respectively, 

compared to targets of 40%, 60%, and 100%. 

Act 17-2019 also requires the phase-out of coal-fired power plants by December 31, 2027. As a 

result, the current coal-burning units at Guayama are scheduled to retire in FY2028, which will 

significantly reduce base-load generation capacity in Puerto Rico. While the existing coal-fired 

generation capacity is expected to be replaced with an equivalent proportion of renewable 

resources, given the delays outlined before, it is unclear if such renewable resources will be 

available when needed. Should there be no available new renewable resources, and absent a 

thorough plan to identify the necessary, environmentally compliant and cost-effective resources 

to ensure a continued provision of reliable generation, there is a significant risk that older, less 

efficient, more expensive and more polluting, oil-fired generation units would need to be 

deployed.

Uncertainties over the ability to achieve certain targets and the projections for key load drivers 

create significant risks that Puerto Rico’s energy system may find itself without the necessary

generation resources to meet a potentially higher and more variable demand than projected, e.g., 

because of load increases that require outdated units to run longer, adding to failure and outage 

risks. Some of uncertainties that, unless appropriately addressed, represent risks to the mediumand long-term reliability of the system include:

• Energy Efficiency: Act 17-2019 outlines the target to reach a 30% reduction of net load 

below the 2019 baseline by 2040 through energy efficiency measures. To date, there is 

however no implementation or financing plan in place that would be typical for energy 

efficiency programs with targets of this scale, and it is unclear how energy efficiency 

measure will be implemented or how much impact on load such measures will have.

• Distributed Generation: The current Certified Fiscal Plan has a general growth factor 

projection for customer adoption of distributed generation solutions but lacks a bottomup, granular modeling that incorporates assumptions on the future costs and benefits to 

ratepayers that incentivize adoption. As such, the actual pace at which DG technologies 

are adopted in Puerto Rico may vary from those currently assumed by PREB and LUMA. 

• Electric Vehicles: The EV uptake projections included in the current Certified Fiscal 

Plan are based on historical averages and make broad, top-down assumptions about the 

adoption of electric vehicles resulting in very high EV penetration as compared to 

projections in other locations. A overestimated long-term EV growth rate may cause 

LUMA and PREB to overestimate generation needs beyond those actually necessary, 

potentially incurring in costs in excess of those needed to serve Puerto Rico’s energy 

needs.

To mitigate the risk of pursuing an energy policy that is not backed by actionable implementation 

plans and creates uncertainty for critical infrastructure planning, PREB and LUMA must

accelerate the review and update of the IRP. Developed during 2019, and finally approved in 

August 2020, the process for the ordinary 3-year review and update should be already ongoing. 

More importantly, regardless of the 3-year update cycle, macroeconomic events since then, as well 

as the actual implementation progress, require an urgent, thorough and near-term review of the 

IRP. As such, PREPA and LUMA should aim to commence a new IRP review process during the 

first quarter of FY2023.

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Increasing Share of Renewable Generation and Storage

In the Final Order, PREB ordered PREPA to develop a plan to procure 3,750 MW of renewable 

energy and 1,500 MW of battery storage by 2025. In addition, PREB approved the installation of 

up to 81 MW of local peaking capacity procured through a technology-agnostic, competitive bid 

RFP process that is open to all single or aggregate sources of demand and supply-side options. 

PREB also approved the conversion of eight (8) retired steam plants to synchronous condensers 

to enable voltage stability following the installation of inverter-based renewable generation and 

battery storage. The Final Order clarified that the conversion plan will be subject to additional 

studies and coordinated with retirement schedules, with funding for said works yet to be 

determined. 

PREB rejected the development and construction of most proposed new fossil fuel generation 

resources, including the retirement and wholesale replacement of all eighteen (18) existing gas 

turbine peaking units, any new liquified natural gas infrastructure, and large-scale development 

efforts on a new combined cycle gas turbine unit at Palo Seco. PREB did authorize up to $5 million 

for preliminary economic, siting, permitting, and feasibility analysis at the Palo Seco site for a new 

fossil fuel-powered unit and fuel infrastructure, so long as it does not interfere with or delay the 

procurement of renewable energy or battery storage. Regarding fossil fuel-powered power PPOAs

PREB approved both the extension of the EcoEléctrica contract through 2032 and the cessation 

of the agreement for coal-fired AES units by the end of 2027, pursuant to Act 17-2019. 

Finally, PREB approved the retirement of approximately 2.4 GW of existing fossil fuel units84

subject to the EPA’s MATS rule.

Enhancing Grid Resilience

The Final Order found that the Proposed IRP adequately established the need for (1) transmission 

system upgrades; (2) the expenditure of up to $2 billion for hardening of transmission 

infrastructure; and (3) the investment of $911 million in distribution system upgrades to enhance 

resiliency and support distributed generation. However, PREB ordered PREPA to seek PREB 

approval for specific T&D expenditures prior to making any final planning or investments. PREB 

also announced the opening of an optimization proceeding that will determine the optimal 

transmission investments for ensuring a more resilient electric power system, including assessing 

the ability for small-scale distributed resources—such as minigrids—to contribute to resiliency. 

Enabling Customer Choice

The approved IRP’s Modified Action Plan enables further customer choice through various 

programs, including DG, EE, and DR. PREB ordered PREPA to further enable DG by ensuring all 

distribution system planning and expenditures support DG. Regarding DR, the Modified Action 

Plan requires PREPA to develop internal systems and external programs and offerings available 

to all customer classes to engage aggregators of DR resources to offer, dispatch, and be 

compensated for cost-effective DR resources. For EE, PREB ordered PREPA to take all necessary 

steps to support PREB’s forthcoming EE Regulation and underlying objective of 30% EE savings 

84 Units to be retired are Aguirre 1 & 2, Costa Sur 3, 4, 5, & 6, Palo Seco 1, 2, 3, & 4, San Juan 7, 8, 9, & 10, and AES’s coal 

generation facility. 

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by 2040 (compared to FY 2019 net utility sales) as mandated in Act 17-2019, including providing 

support for program implementation, analysis, funding, and financing. 

IRP Modified Action Plan Implementation 

PREPA and LUMA are required to comply with and implement the IRP Modified Action Plan.

LUMA is now responsible for developing subsequent IRPs and amendments to it.

Renewable Generation and Storage

Under the Modified Action Plan, PREPA was required to develop a detailed procurement plan for 

the acquisition of renewable resources and battery energy storage to achieve compliance with the 

RPS subject to the Energy Bureau’s guidance and approval. Then, consistent with the PREBapproved procurement plan, PREPA was required to issue a series of RFPs for the provision of (a) 

renewable energy in support of Act 82’s RPS mandate, and (b) battery energy storage in support 

of (1) capacity needed to meet PREPA’s peak load requirements and (2) requirements for 

integration of renewable energy generation. These competitive procurements must be open to all 

forms of renewable energy including, but not limited to, wind, hydro, solar photovoltaic, Virtual 

Power Plants (VPPs), and storage. Successful proponents of renewable generation and energy 

storage projects will enter long-term PPOAs, energy storage services agreements, or grid services 

agreements (in the case of VPPs) with PREPA.

On February 22, 2021, as part of its efforts to implement the Modified Action Plan, PREPA issued 

an RFP85 for 1,000 megawatts of renewable power production and 500 MWs of battery storage, 

incorporating recommendations from PREB and the Oversight Board. The RFP solicited

proposals for the design, construction, installation, ownership, operation, and maintenance of 

renewable energy resources, energy storage resources, and VPPs for sites across Puerto Rico and 

for a service period of up to 25 years. The RFP is the first of six (6) planned RFP tranches to be 

released over the next three (3) years seeking a cumulative 3,750 MWs of renewable energy 

resources and 1,500 MWs of energy storage resources.86 The cadence of each tranche RFP and 

the respective minimum required renewable energy and battery storage capacity to be procured 

per tranche, as ordered by PREB in the Modified Action Plan, is included in Exhibit 30. PREB is 

responsible for reviewing and approving any recommended projects and associated PPOA’s 

resulting from the RFP process if deemed to be consistent with the IRP and Puerto Rico energy 

public policy.

Given the delays that occurred during the Tranche 1 RFP process, PREB determined it would 

appoint an independent coordinator, Acción Group to conduct the Tranche 2 and 3 RFPs. Acción 

Group’s roles will include, without limitations: (a) prepare RFP documents; (b) manage all 

communications; (c) manage communications protocols; (d) manage code of conduct; (e) make 

recommendations regarding the RFP process; (f) develop evaluation methodology, models, 

criteria, and assumptions; (g) conduct evaluations of proposals; (h) lead contract negotiations; (i) 

report to PREB during process; and (j) assure that the goals of Tranches 2 and 3 RFPs and related

Updated Procurement Plan provisions are achieved.

85 PREPA RFP No. 112648, February 22, 2021. 

86 More information on the status of the RFP process can be found in Chapter 3.

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EXHIBIT 30: PREB GUIDANCE FOR PROCUREMENT OF RENEWABLE ENERGY GENERATION AND 

BATTERY STORAGE CAPACITY

Grid Resiliency Measures

As the T&D System operator, LUMA is responsible for planning and implementing grid resiliency 

measures. As part of the Front-End Transition, LUMA developed capital plans, to be funded with

federal- and non-federal capital, to repair, reconstruct, and modernize the existing T&D system 

and improve resiliency against extreme events. In its proposed Annual Budgets, filed on April 1, 

2022, LUMA budgeted approximately $2.6 billion from FY2023 through FY2025 for T&D 

infrastructure repair, modernization, and hardening projects. Further information on capital 

plans can be found in Chapter 6 (Capital Plans and Federal Funding) and Chapter 7 (LUMA 

Improvement Portfolios) for PREPA and LUMA, respectively. Further information on sources and 

uses of federal funding can be found in Chapter 6 (Capital Plans and Federal Funding).

Enabling Customer Choice

PREB’s Modified Action Plan calls for further customer choice through various programs, 

including DG, EE, and DR. Since Commencement on June 1, 2021, LUMA has made significant 

advancements with respect to DG, EE, and DR. Further, LUMA has supported PREB’s new 

initiative on Electric Vehicles which was launched in October 2021.

LUMA is responsible for the integration of DG and the activation of net energy metering on 

customers’ bills. When a customer installs behind the meter generation, they can apply for a net 

energy metering credit on their bill. This allows customers to give electricity back to the grid in 

exchange for a credit on their bill. Pursuant to Act 17-2019 the credit is equal to the full retail rate 

of electricity. At Commencement, there was a backlog of over 8,000 net energy metering 

applications. Since June 1, 2021, LUMA has activated net energy metering service for over 21,000 

solar customers representing ~100 MW of renewable energy.

Act 57-2014 requires PREB to establish regulations governing EE and DR programs. PREB 

adopted a regulation for DR87 on December 10, 2020, and EE88 on January 21, 2022. The adopted 

DR and EE regulations utilize similar program approaches for development, administration, 

87 Adoption of Regulation for Demand Response, In Re: Regulation for Energy Efficiency and Demand Response, Case No. 

NEPR-MI-2019-0015, December 10, 2020. 

88 Adoption of Regulation for Energy Efficiency, In Re: Regulation for Energy Efficiency, Case No. NEP-MI-2021-0005, January 

21, 2022.

Tranche RFP target 

release date

Actual or new 

release date Minimum Cumulative Minimum Cumulative

1 Dec 2020 Feb 2021 1,000 1,000 500 500

2 Jun 2021 TBD 500 1,500 250 750

3 Dec 2021 TBD 500 2,000 250 1,000

4 Jun 2022 TBD 500 2,500 250 1,250

5 Dec 2022 TBD 500 3,000 125 1,375

6 Jun 2023 TBD 750 3,750 125 1,500

PREB guidance for procurement of renewable generation and battery storage capacity

Solar PV or equivalent 

other energy, MW

4-hr battery storage 

equivalent, MW

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78

implementation, and funding. Both documents require LUMA, or a program administrator (to be 

selected by LUMA following a competitive bid process) to develop and implement DR and EE 

programs. Implementation of the adopted and proposed regulations is centered on three-year 

periods driven by three-year plans which will be developed by LUMA, on behalf of PREPA, and 

approved by PREB. Each three-year plan will identify the proposed DR or EE programs, budgets, 

and goals for a three-year period. LUMA is required to prepare and submit separate three-year 

plans for DR and EE. Following the first and second years of implementation of each three-year 

plan, LUMA will be required to submit an annual update to PREB for approval that describes in 

detail any proposed changes to the program offerings, performance metrics, targets, and/or 

budget. 

All DR and EE programs must be assessed for cost-effectiveness through a custom cost-benefit 

test called the “Puerto Rico Test” which will be developed by PREB. Until the Puerto Rico Test is 

defined, a standard interim cost/benefit test—currently the standard Utility Cost Test—will be 

used to determine cost-effectiveness of proposed programs. For both EE and DR, Evaluation, 

Measurement, & Verification (EM&V) activities are required to be performed. Per the DR 

regulation, PREB will be responsible for evaluating DR programs while LUMA will be responsible 

for measuring and verifying the DR resources provided by all DR program providers through a 

set of formal procedures approved by PREB. In the proposed EE regulation, PREB will be 

responsible for EM&V activities. 

The adopted DR and EE regulations permit the PREB-approved program budgets to be recovered 

in customer rates. In addition, the DR regulation permits LUMA to develop and implement (with 

PREB’s approval) time-varying rates and/or demand charges informed by the costs of distribution 

or transmission infrastructure and energy supply and capacity, so long as the rate structure does 

not discourage beneficial electrification. 

A Resolution and Order89 filed by PREB on February 1, 2022 detailed the actions that follow from 

the EE Regulation which are 1) to establish a schedule for the filing of the first Three-Year DR 

Plan to coincide with the Transition Period Plan and the start of the energy efficiency programs; 

2) to invite stakeholders to a workshop on February 28, 2022 regarding the process for developing 

and implementing the Three-Year DR plan and its association with the Transition Period Plan;

and 3) to provide a template for the Transition Period Plan under section 2.02(C)(4) of the EE 

Regulation. According to the EE Regulation, LUMA can combine the planning processes and 

documents for EE and DR, and LUMA has stated a desire for such coordination. After amending 

the deadline for the Transition Period Plan, PREB ordered LUMA to submit a proposed Transition 

Period Plan on or before June 6, 2022. The deadline for the first Three-Year EE Plan is still March 

1, 2024. 

Role of the IRP in Capital Plans 

The Modified Action Plan and Modified Preferred Resource Plan within the IRP are key plans that 

in turn inform strategic capital plans, operational initiatives, and supply- and demand-side 

programs for the generation fleet and the T&D Systems. The generation portfolio’s 10-year 

89 Notice of Revised Transition Period Plan Schedule, Workshop, and Plan Template, In Re: Demand Response Plan Review, 

Implementation, and Monitoring, Case No. NEPR-MI-2021-0006, February 1, 2022.

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Infrastructure Plan and the T&D System’s improvement programs & portfolios, including the 

LUMA SRP90, are all required to comply with the Approved IRP. 

PREPA’s 10-Year Infrastructure Plan is a work plan that was developed at the request of FEMA 

and COR3, following FEMA’s obligation of $9.6 billion earmarked for PREPA to repair and/or 

replace electrical systems, power generation systems, and to make other grid improvements. The

development of this 10-Year Infrastructure Plan by PREPA preceded the Interim Service 

Commencement Date (June 1, 2021) when LUMA assumed the operation and maintenance 

responsibilities of the T&D System. The 10-Year Infrastructure Plan outlined PREPA’s proposed 

investments in Puerto Rico’s electric systems over the next decade. On December 30, 2020, PREB 

required PREPA to submit the 10-Year Infrastructure Plan to PREB for its review to confirm the 

alignment of the 10-Year Infrastructure Plan with the Approved IRP. By resolution and order91

dated January 25, 2021, PREB found that certain elements of the 10-Year Infrastructure Plan were 

inconsistent with the Approved IRP and the Modified Action Plan. PREPA filed a revised plan 

addressing PREB’s comments and requested PREB approval on February 16, 2021. On March 26, 

2021, PREB issued a resolution and order92 accepting those elements of PREPA’s revised 10-Year 

Infrastructure Plan that were consistent with the Approved IRP and Modified Action Plan. For 

those elements that it found not aligned with the Approved IRP and Modified Action Plan, PREB 

ordered PREPA to further modify the revised 10-Year Infrastructure Plan. PREB also ordered 

PREPA to submit to the Bureau for evaluation and approval all capital investment projects PREPA 

had submitted to FEMA or any other federal or local agency. Associated with the 10-Year 

Infrastructure Plan, PREPA had submitted 88 Statements of Work for approval, all of which were 

conditionally approved or classified as a deferred project, and 7 of which were provided final 

approval by PREB.93

LUMA developed a comprehensive strategic planning framework, the Recovery and 

Transformation Framework, which is based on the Government of Puerto Rico’s public policy and 

Applicable Law for the electric system in Puerto Rico. The Recovery and Transformation 

Framework used public policy and previously produced plans to set overarching guiding 

principles to prioritize and sequence all LUMA’s improvement programs. The Recovery and 

Transformation Framework was used to ensure:

• That LUMA’s priorities align with Puerto Rico’s broader public policy objectives and 

customer needs,

• That the programs included in the SRP were developed and prioritized consistently 

alongside non-SRP programs,

• A balance of investment in programs that directly contribute to Performance Metrics 

improvements and those that do not, and

90 The System Remediation Plan is a plan to remediate, repair, replace and stabilize such equipment, systems practices, and 

services, as may be needed to enable LUMA to perform its O&M Services in compliance with Contract Standards.

91 Resolution and Order, Determination on alignment with the Approved Integrated Resources Plan and Modified Action Plan, In 

Re: Review of the Puerto Rico Electric Power Authority’s 10-Year Infrastructure Plan – December 2020, Case No. NEPR-MI2021-0002, January 25, 2021.

92 Resolution and Order, PREPA’s Revised 10-Year Plan Evaluation, In Re: Review of the Puerto Rico Electric Power Authority’s

10-Year Infrastructure Plan – December 2020, Case No. NEPR-MI-2021-0002, March 26, 2021.

93 Resolution and Order, PREPA’s Revised 10-Year Plan Evaluation, In Re: Review of the Puerto Rico Electric Power Authority’s 

10-Year Infrastructure Plan – December 2020, Case No. NEPR-MI-2021-0002, February 28, 2022.

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• That LUMA’s Initial Budgets include all federally funded, non-federally funded capital and 

O&M expenditures across all programs and deliverables and remained within current 

2017 Rate Order limits to avoid increasing customer base rates.

Since the Service Commencement Date in June of 2021, LUMA has developed a set of 

improvement portfolios for the T&D System to align with the Recovery and Transformation 

Framework. These improvement programs are presented within LUMA’s Annual Budget and SRP

filings. In developing the goals and mission of the framework guiding these Portfolios, LUMA 

referenced public policy, and various plans including the Approved IRP and Modified Action Plan 

to ensure the improvement portfolios are aligned with some aspect of the Approved IRP and 

Modified Action Plan.94 In addition, LUMA states that compliance with the Approved IRP was an 

objective in designing individual improvement initiatives.95LUMA’s Initial Budgets and SRP were 

approved by PREB on May 31, 2021.

96

Further information on the content of the improvement portfolios can be found in Chapter 7

(LUMA Improvement Portfolios). With LUMA’s onboarding, PREPA is now responsible only for 

capital projects related to operations under its control (i.e. legacy generation, hydro and 

irrigation).

94 See Section VI.A in Petition, Filing of System Remediation Plan under Section 4.1(d) of the Operation and Maintenance 

Agreement for Energy Bureau’s Evaluation and Approval, In Re: Review of the Puerto Rico Electric Power Authority’s System 

Remediation Plan, Case No. NEPR-MI-2020-0019, February 24, 2021. 

95 See SRP, Section 1.4.2 as attached to Petition, Filing of System Remediation Plan under Section 4.1(d) of the Operation and 

Maintenance Agreement for Energy Bureau’s Evaluation and Approval, In Re: Review of the Puerto Rico Electric Power 

Authority’s System Remediation Plan, Case No. NEPR-MI-2020-0019, February 24, 2021.

96 Resolution and Order, In Re: Determination of LUMA’s Initial Budgets, Case No. NEPR-MI-2021-0004, May 31, 2021.

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Chapter 6. Capital Plans and Federal Funding

Over the coming years, significant federal funding resources are available for the rebuilding and 

transformation of Puerto Rico’s energy generation and T&D Systems. Approximately $14 billion 

of federal and state funds has been obligated to this effort. The inflow of obligated federal capital—

as well as the state funding commitment for cost-share amounts—is a significant opportunity to 

modernize Puerto Rico’s energy infrastructure and position it as a crucial enabler of general 

economic recovery. 

LUMA, as T&D operator is now responsible for the deployment of funds to improve and 

reconstruct the island’s T&D System. Capital projects for the generation facilities will remain 

PREPA’s responsibility until transition to the new private operator(s) is complete. PREPA and 

LUMA have developed capital plans and roadmaps that reflect their perspectives on critical needs 

to recover and reconstruct the energy system. 

LUMA’s improvement portfolios as outlined in LUMA’s Budgets define the capital plan for T&D 

assets, facilities, and IT OT, telecommunications, and grid management systems, among others. 

PREPA near-term generation projects include repair of damages incurred during the 2017 

hurricanes, emission control improvements, spare parts replenishments, equipment 

modernization, and system continuity investments.97 Near-term dams and hydro projects focus 

on improving dam safety as well as repairing damage from sediment, storm debris, and erosion. 

Finally, PREB must approve all federally funded projects and associated funding before 

significant planning and execution can begin, irrespective of PREPA or LUMA responsibility.

Capital Plans

Overview of the PREPA 10-Year Infrastructure Plan, as amended 

As part of its federal funding related work with FEMA and COR3, PREPA initially developed a 10-

year Infrastructure Plan. This plan, which was finalized in December 2020 and is updated every 

90 days per FEMA guidelines, provides an overview of:

▪ PREPA’s infrastructure investment strategy,

▪ The context for the selection of projects included in the plan,

▪ A prioritized list of the proposed infrastructure projects,

▪ The expected benefits and projected costs associated with the prioritized projects,

▪ Key milestones, and the estimated time horizon for each project, and

A brief overview of PREPA’s approach to manage execution of the program and the 

proposed portfolio of projects. 

LUMA’s capital plans and programs are based on the Recovery and Transformation Framework 

– which used public policy to set overarching guiding principles to prioritize and sequence 

improvement programs together. Described further in Chapter 7 (LUMA Improvement 

Portfolios), the Recovery and Transformation Framework, as approved by PREB as part of its 

97 See Chapter 5 for further information on the ongoing regulatory process to ensure the Revised 10-Year Infrastructure Plan aligns 

with the IRP and Modified Action Plan. 

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Initial Budget proceedings, is based on LUMA’s broad review of key reports, plans, laws, and 

regulations to form a comprehensive picture of the policy and stakeholder landscape. 

COR3 and FEMA have identified the 10-year Infrastructure Plan, as amended, as a “living 

document” that requires update and resubmission every 90-days. Updates are expected as PREPA 

and LUMA advance their preparatory plans and filings before the PREB. LUMA referenced the 

initial T&D System priorities and projects in PREPA’s December 2020, 10-Year Infrastructure 

Plan, to develop its improvement portfolios presented in the LUMA Initial Budgets and SRP, 

which are currently under review by the Puerto Rico Energy Bureau (PREB).

98

Like previous Certified Fiscal Plans and the 10-Year Infrastructure Plan, as amended, this 

Certified Fiscal Plan references capital projects irrespective of funding source. This approach 

provides a holistic view of the work to be performed on Puerto Rico’s energy system, work that 

will be enabled by a variety of funding sources as discussed further in this chapter. It includes 

federally- and non-federally funded capital, as well as funding allocated through the budgetary 

and rate-making process to PREPA’s Necessary Maintenance Expense (NME) program.

6.1.1.1 PROJECT PRIORITIZATION CRITERIA

The prioritization of capital projects is based on energy public policy, specifically the IRP, and 

inclusion of PREB’s guidance in response to the IRP approval process. Other overarching 

prioritization criteria included safety, impact to the community, relative complexity of the work, 

and regulatory requirements. 

Given certain financial and other limitations, not all capital projects can be pursued at once. 

Therefore, initial development and prioritization methodology was based on the considerations 

most relevant to each investment focus area, with some common criteria for all capital projects, 

that include: 

▪ Current status of asset (i.e., out of service, damaged)

▪ Safety, environmental, and regulatory compliance needs

▪ System operations needs and grid constraints

▪ Impacts of reliability performance and/or critical load infrastructure, and

▪ Severe storm hazard mitigation

The capital projects identified in the 10-year Infrastructure Plan span three time-horizons: nearterm (i.e., 2021-2023), mid-term (i.e., 2024-2027), and long-term (i.e., 2028 and beyond). A 

proportion of projects are expected to be initiated in the near-term in that they have either already 

begun architectural and engineering (“A&E”) design or are expected to do so during the years

2022 or 2023. There are several policy and operational reasons for this sequencing, which include 

the following:

▪ To deliver operational results to customers as quickly as possible

▪ To support execution of the approved IRP and Modified Action Plan

▪ Some reconstruction projects already have completed preliminary engineering and are 

ready to proceed into the 30% A&E design phase

98 Chapter 7 (LUMA Improvement Portfolios) provides a detailed overview of LUMA’s improvement portfolios and prioritized capital

projects.

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▪ Some infrastructure projects are very large in scope and must be initiated in the near-term 

to be completed within the later years of the plan, and

▪ In many cases, demolition work, environmental remediation, rights-of-way, permits, and 

approvals must be carried out before the actual reconstruction project begins.

6.1.1.2 OVERVIEW OF PRIORITIZED PROJECTS

The 10-year Infrastructure Plan included eight (8) asset categories within its needs assessment 

framework: (1) generation; (2) dams and hydro; (3) transmission; (4) distribution; (5) 

substations; (6) IT / Telecom; (7) buildings, and (8) environmental. As otherwise mentioned, and 

including transmission, distribution, substations, IT/Telecom, and buildings, are projects 

associated with the T&D System as well as the grid management and communication systems that 

will be planned and executed by LUMA.99 The total funding obligated by program and asset 

category is included below in Exhibit 31.

EXHIBIT 31: TOTAL FUNDING FOR GRID AND GENERATION REBUILD AND TRANSFORMATION100

All cost estimates provided in the 10-year Infrastructure Plan as amended were “class 5” 

estimates, meaning they were estimated in an early phase of the project development process. 

These cost estimates are expected to vary, based on industry standards, from 50% below to 100% 

above the actual final project costs. There are several factors—including the refinement of specific 

project costs, inflation trends, changes in the demands and needs of specific assets and the system 

over time, and requirements and suitability of identified program funds—that are expected to lead 

to changes in the projects that are ultimately implemented and their respective costs.

99 The LUMA improvement portfolios are discussed further in Chapter 7 (LUMA Improvement Portfolios).

100 Includes federal funds, cost-share, insurance payouts, and state matched amounts. PREPA 10-Year Infrastructure Plan, March 

2021 Update, p. 13. Note: All costs, funding sources, and subtotals are estimates subject to change. 

$2,642 

$5,500 

$1,519 

$962 

$686 

$781 

$125 

Transmission

Distribution

Hydro, Dams & Irrigation

Generation

IT & Telecommunications

Substations

Buildings

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FY 2022Capital Plan Collaboration and Coordination

The significant near-term planning and analyses that was completed by PREPA, its investment in 

comprehensive plans for the 10-year and 20-year time horizons, and the ongoing analysis and 

work of LUMA (including the proposed Recovery and Transformation Framework and activities 

included in LUMA’s Initial Budgets and SRP), will help ensure that each completed capital project 

will contribute to the identified strategic and performance goals for the system. Furthermore, over 

the mid-term and long-term, completion of additional capital projects should substantially 

improve and accelerate the transformation of the island’s electric infrastructure into a modern, 

customer-centric, affordable, reliable, resilient, and sustainable system (transformational 

change).101 

Going forward, LUMA and PREPA must ensure that their capital project prioritization allows for 

navigating potential trade-offs that may arise from the labor and capital needs required to 

complete selected milestones. Both PREPA and LUMA must continue collaborating to ensure that 

these capital planning efforts advance with the pace and scale that are required for the recovery 

and transformation effort to meet stated public policy goals. 

Best Practices for Capital Project Delivery

PREPA and LUMA must follow industry best practices for the implementation of their portfolio 

of capital projects to avoid costly schedule and budget overruns. To this end, PREPA has 

implemented an Enterprise Project Management (EPM) program which will support PREPA 

responsible capital works. During the front-end transition period throughout FY 2022, LUMA has 

largely completed development of its new Capital Programs team, specifically designed to handle 

large capital projects.

As PREPA and LUMA begin their deployment of projects, they must ensure that operations are 

based on industry best practices regarding:

▪ Permitting

▪ Contractor oversight

▪ Planning

▪ Workflow management

▪ Safety

▪ Training & qualifications

▪ Performance management; and

▪ Reporting requirements.

Additionally, each must develop an approach to address and mitigate potential supply chain 

constraints, created by the inflow of federal funds across instrumentalities and by overall 

macroeconomic conditions.

6.1.3.1 RISKS AND MITIGATION MEASURES

101 See, 10-Year Infrastructure Plan, March 2021 Update, p. 26-28, and LUMA Draft System Remediation Plan, February 23, 2021, 

p. 27-29, 50.

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Energy infrastructure improvements of the magnitude described in current planning stages have 

never been undertaken in Puerto Rico. A successful execution that addresses the challenges 

described above, and that ultimately meets desired policy goals, will require the collaboration and 

attention of all stakeholders in the energy supply system, regulators, government officials and 

policy makers. Given PREPA’s history of underperformance in capital execution, the successful 

transition of the Legacy Generation operations and maintenance to new private operator(s) 

selected by the P3 Partnership Committee will be perhaps the most important step in meeting 

these challenges. Ultimately, the real time collaboration and alignment between PREPA, LUMA, 

P3A, COR3, PREB, the Oversight Board, and other governmental entities and federal stakeholders 

will be pivotal to ensure the successful and timely implementation and completion of capital 

project plans principally funded with FEMA and CDBG program funds. Failures in addressing 

process needs and in achieving collaboration between stakeholders will have dire repercussions

in the restructuring of the electric system, with delays impacting the integration of renewable 

resources, the strengthening of the grid, electricity costs to residents and businesses and more.

Reporting Cadence

PREPA’s project management process outlined above includes project reporting requirements 

that are purposefully inclusive of, and transparent with, all key stakeholders (local, federal, the 

Oversight Board, etc.) and decision-makers. The magnitude of capital improvements that are to 

be undertaken (whether by PREPA and/or private operators), and the historic juncture of the 

Island’s energy sector transformation, and the new role of LUMA as operator of the T&D System

and the forthcoming legacy generation operator(s) in the future, require that all stakeholders be 

fully and timely informed of changes and developments at all times, and that all stakeholders work 

together above and beyond leading utility practices. Transparency and collaboration are key to 

attaining the public policy and Certified Fiscal Plan objectives. 

As part of such sweeping transparency, PREPA (for Generation) and LUMA (for the T&D System) 

intend to develop and publish specific project dashboards and routine reports to allow 

stakeholders to have access to real-time data and to participate and seek information at any 

interval as needed on both specific projects and the system. Reporting requirements as set by the 

Oversight Board are available in Chapter 16, Post-Certification Reporting.

Federal Funding

Overview 

As a result of the severe damage inflicted by several natural disasters that struck Puerto Rico 

between 2017 and 2020, PREPA has qualified for federal support through multiple programs that 

fund eligible emergency work and permanent projects. The natural disasters included Hurricanes 

Irma and Maria in 2017 and a major earthquake that struck Puerto Rico in early January 2020 

(the “2020 Earthquake”). As previously stated, this damage was exacerbated by years of 

underinvestment, and substandard operation and maintenance practices that resulted in a 

vulnerable energy infrastructure.

The amount of federal funds projected to flow into Puerto Rico, and specifically the share 

obligated for its energy infrastructure, provides Puerto Rico with the unique opportunity to 

modernize and rebuild its currently vulnerable system. It will be crucial to use these funds 

efficiently; federal funds can only be used for their approved purpose.

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Funds from several distinct federal programs are available to PREPA and LUMA, each with its 

own funding guidelines and reimbursement processes:

1. FEMA’s Public Assistance (“PA”) Program: This program provides funds for 

communities to recover from federally declared disasters or emergencies through Sections 

428 (“FEMA PA 428”) and 406 (“FEMA PA 406”). Funding is provided for both 

emergency assistance and for permanently restoring infrastructure.102 Under certain 

circumstances, funding can be extended beyond restoring infrastructure and cover future 

hazard mitigation. For example, measures that directly reduce the potential of future, 

similar disaster damages.103 PREPA must meet a 10-25% cost-share requirement 

(depending on the type of projects) for all funding under the PA program.104

2. FEMA’s Hazard Mitigation Grant Program (“FEMA 404 HMGP”): This program 

funds protection to undamaged parts of a facility or may be used to prevent or reduce 

damages caused by future disasters. Under Section 404 PREPA must meet a 25% costshare requirement for this source of funding, which has to date been met by funding from 

CDBG, however, there is no guarantee that future share cost funding will be financed by 

the CDBG monies.105. 

3. Federal Housing and Urban Development (HUD) Community Development 

Block Grant (CDBG) – Disaster Recovery (DR) and Mitigation (MIT) 

Programs: Funds from the CDBG programs must address a disaster-related impact in a 

Presidentially-declared disaster area and meet several additional criteria. PREPA intends 

to use the funds from this program to cover the cost-share requirements of the PA and 404 

HMGP programs

As Table 5 below shows, an excess of $14 billion dollars—including cost-share and state matched 

funds—has been obligated to rebuild energy infrastructure over the next decade. It should be 

noted that FEMA funding comes with a 10-25% cost-share requirement that PREPA, as subgrantee, must cover for both generation and T&D System projects. For most projects, PREPA 

expects to use HUD CDBG funds to cover the cost-share. For this reason, HUD CDBG funds are 

not shown separately in Table 5. 

102 FEMA Public Assistance Alternative Procedures (Section 428) - Guide for Permanent Work from February 10, 2020. Document 

#: FEMA-4339-DR-PR

103 FEMA press release, last updated March 18, 2021, retrieved from: https://www.fema.gov/press-release/20210318/fema-hazardmitigation-grants-404-and-406

104 FEMA Public Assistance Alternative Procedures (Section 428) - Guide for Permanent Work from February 10, 2020. Document 

#: FEMA-4339-DR-PR

105 HMGP 404 for DR-4339 was fully matched by CDBG.

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TABLE 5: TOTAL FUNDING BY PROGRAM OBLIGATED TO GRID AND GENERATION REBUILD AND 

TRANSFORMATION106

Asset Category FEMA 428 ($M) FEMA 404 ($M) FEMA 406 ($M)

Estimated Total 

Cost ($M)

Distribution $5,500 $0 $0 $5,500

Transmission $2,642 $0 $0 $2,642

Generation $109 $853 $0 $962

Substations $782 $0 $0 $781

Hydro, Dams, and Irrigation $861 $659 $0 $1,519

IT and Telecommunications $686 $0 $0 $686

Buildings $125 $0 $0 $125

Total $10,705 $1,512 $0 $12,216

To date, PREPA has received approximately $1.8 billion in funds through the FEMA Public 

Assistance Program, mainly related to damages caused by Hurricanes Irma and Maria. The funds 

have been used to cover contractor expenses related to reconstruction work, as well as increased 

cost from peaking units (typically low-utilization, highly flexible, and more expensive generation 

facilities designed to provide power during times of peak demand), among others. Section 0

provides an overview of the FEMA Public Assistance funding received to date. PREPA has so far 

received new obligations on FEMA 404 amounting to $1.5 billion and $4.7 million on HUD CDBG 

funds.

6.2.1.1 OVERVIEW ACROSS PROGRAMS AND SOURCES

FUNDING RECEIVED TO DATE: FEMA’S 428 AND 406 PUBLIC ASSISTANCE PROGRAM

The cash funding PREPA has received to-date that has been provided through FEMA PA is related 

to eligible emergency costs associated with the 2017 hurricanes and the 2020 Earthquake, as 

shown in detail in Exhibit 32.

Through February 2022, PREPA has received $1.6 billion in FEMA PA funds related to 

Hurricanes Irma and Maria. The funds received relate to contractor expenses, mutual aid 

assistance, incremental costs incurred by PREPA related to increased peaking unit usage, and 

other eligible costs incurred by PREPA. PREPA expects to receive additional reimbursements 

once various PWs are obligated and/or modified by FEMA, and PREPA can submit RFRs. 

PREPA has received $238 million out of the total $317 million appropriated by FEMA PA as of 

February 2022 for incremental costs related to increased peaking unit usage associated with the 

damages caused by the 2020 Earthquake from January through June 2020. On December 2020, 

PREPA submitted a cost revision to increase obligated funds for the period of July 2020 up to 

106 Includes federal funds, cost-share, insurance payouts, and state matched amounts. PREPA 10-Year Infrastructure Plan, March 

2021 Update, p. 13. Note: All costs, funding sources, and subtotals are estimates subject to change. 

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January 2021 totaling $515 million. Nevertheless, amount expected to be funded by FEMA will be 

reduced by insurance proceeds and local cost-share requirements.

On February 27, 2022, the president of the United Stated filed a notice amending the notice dated 

January 16, 2020, increasing the federal share from 75% up to 90%. FEMA is currently 

performing amendments to previously obligated projects for all sub-recipients to claim additional 

funding. 

EXHIBIT 32: SUMMARY OF FEMA REIMBURSEMENT RECEIVED THROUGH FEBRUARY 25, 2022

FEMA PA Reimbursements

Category (USD Million)

Cobra $944.4

Mutual Aid 304.5

Hurricane Peaking Units Fuel & O&M 149.1

Force Account Labor 52.2

Management Cost 15.5

Other 20.0

XGL 6.4

Local Contractors 13.6

Whitefish 76.3

Subtotal for Hurricanes $1,582.0

Earthquake Peaking Units Fuel & O&M $238.0

Total Emergency Reimbursement $1,820.0

FUNDING RECEIVED TO DATE: FEMA’S 404 HAZARD MITIGATION GRANT PROGRAM 

(“FEMA 404 HMGP”)107

To date, PREPA has not received any funds under FEMA 404 HGMP projects. Currently, COR3 

and the Governor are discussing eligible permanent work FEMA 404 HMGP projects, and PREPA 

has been approved a total of $953 million108 related to improvements for generation and water 

facilities. These projects are outside of, and in addition to, the Global Settlement. A total of $1.4 

million have been submitted to COR3 for reimbursement, outstanding as of March 2022. Several 

requests for information have been received and PREPA is working alongside COR3 to close 

outstanding matters. 

107 Source: https://www.epa.gov/sites/production/files/2015-10/documents/hmgp.pdf

108 Source: FEMA approval letters dated September 29, 2020, October 15, 2020, and October 16, 2020.

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FUNDING RECEIVED TO DATE: HUD CDBG–DISASTER RECOVERY AND MITIGATION 

PROGRAMS109

To-date PREPA has received $1.8 million in CDBG funds related to hurricane Irma peaking units. 

The CDBG-DR program is intended to cover the 25% local cost-share associated with emergency 

work repairs for Hurricane Irma and the 10% local cost-share related to permanent work repairs 

from damages caused by Hurricane Maria. The CDBG-DR program is not intended to cover the 

25% local cost-share related to damages caused by the 2020 Earthquake, which have been funded 

by PREPA.

On July 28 of 2021, PREPA executed a sub-award agreement with the Puerto Rico Department of 

Housing to utilize CDBG-DR funds to provide the non-federal cost share match for eligible project 

amounting to $4,687,041.54. More recently, on March 25, 2022, HUD issued a partial approval 

of the Commonwealth’s Action Plan for its electrical power system enhancements and 

improvements program. On March 31, 2022, the partially approved CDBG-DR Energy Action 

Plan was published on the PRDOH CDBG-DR webpage.

110 This plan confirms the initial 

availability of $500,000,000 for 10% cost share requirement for permanent work for damages 

from hurricane Maria for FEMA PA funds.111

For permanent work outside of the Global Settlement PREPA must seek federal funding 

assistance from FEMA 404 HMGP for the federal cost-share and CDBG-MIT for the local costshare.

6.2.1.2 EMERGENCY WORK REIMBURSEMENT PROCEDURE

All cash funding for emergency work received by PREPA to-date related to the 2017 hurricanes 

and the 2020 Earthquake has been provided through FEMA PA.

The general procedure for PREPA as the subrecipient to obtain FEMA PA funds related to 

emergency work includes PREPA incurring and tracking eligible costs, the development of Project 

Worksheet (PWs) through the FEMA obligation process, the obligation of funds to the recipient, 

and the Request for Reimbursement (RFR) and subsequent cash funding to the subrecipient. The 

detailed steps are as follows:

▪ PREPA incurs costs due to damages caused by the disaster(s)

▪ PREPA tracks these costs and works with FEMA and COR3 to determine eligibility

▪ FEMA creates a PW which then goes through various levels of review until the PW is 

obligated

▪ Once the PW is obligated, the funds are appropriated for the recipient (i.e., COR3)

▪ PREPA can then submit a RFR to COR3

109 Source: https://www.hud.gov/hudprograms/disaster-recovery

110 See, https://cdbg-dr.pr.gov/en/download/cdbg-dr-action-plan-for-the-electrical-systems-enhancements-effective-on-march-25-

2022/?ind=1648758532100&filename=2022%2003%2025_ADM_POLI_Action%20Plan_Energy%20Action%20Plan%20Draft.p

df&wpdmdl=25442&refresh=627c0f6e213681652297582 

111 Ibid, Energy Grid Rehabilitation and Reconstruction (ER1) Cost Share Program, Table 20, page 116. 

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▪ COR3 reviews the RFR and draws down funds from FEMA related to the obligated PW, 

which will be subsequently sent to PREPA as the subrecipient; and 

▪ Funds are then transferred from COR3 to PREPA.

As previously stated, the federal share of assistance under FEMA PA is not less than 75% of the 

eligible cost. For Hurricane Irma the FEMA PA federal share covers 75% of eligible costs and for 

the 2020 Earthquake a 90% cost-share was recently amended. For Hurricane Maria FEMA PA 

federal share covers 100% of costs incurred by PREPA through August 16, 2018, and 90% 

thereafter. For PREPA to receive funds to cover the local cost-share associated with the 2017 

hurricanes, PREPA and PRDOH must execute the related grant agreement which is pending final 

approval.

PREPA has submitted projects to PRDOH to obtain CDBG-DR funds to cover the local cost-share 

related to emergency projects for Hurricane Irma and Maria. On July 28, 2021, PREPA executed 

a sub-award agreement with the Puerto Rico Department of Housing to utilize CDBG-DR funds 

to provide the non-federal cost share match for eligible project amounting to $4.7 million. PREPA 

expects to pay the local cost-share related to the 2020 Earthquake.

6.2.1.3 PERMANENT WORK REIMBURSEMENT PROCEDURE

6.2.1.3.1 FEMA PA 428

PREPA must receive reimbursement for the federal share of permanent work through FEMA PA 

428. Funding for permanent work is applicable to projects related to restoring facilities through 

repair or restoration to pre-disaster design, function, and capacity in accordance with codes or 

standards.112 Through FEMA PA 428, FEMA will fund the federal share of 90% of the eligible 

costs related to the Global Settlement. The procedures for drawing down the funds obligated as 

part of the agreed upon settlement as set forth in the FEMA Advanced Award Strategy Initiative 

(“FAASt”). 

Specifically related to damages caused by Hurricanes Irma and Maria, the Bipartisan Budget Act 

(“BBA”) allows FEMA to provide assistance to restore disaster-damaged facilities or systems that 

provide critical services to an industry standard without regard to pre-disaster condition. FEMA 

may approve standards that are widely accepted and used, or best practices that are generally 

accepted by experts in the industry if standards are reasonable. BBA allows for the repair or 

replacement of components not damaged by the disaster if the work is required to restore the 

critical service function of the facility or system to approved industry standard(s). The predisaster condition of components, regardless of damage, is not a factor in determining the eligible 

scope of work.

The federal share of the Global Settlement under FEMA PA 428 is $9.5 billion (or 90% of the 

$10.7 billion after deducting expected insurance proceeds of $193 million). While PREPA has 

assumed that the 10% local cost-share of the Global Settlement (which is approximately $1.05 

billion) is expected to be funded by CDBG-DR, only $500 million for local cost-share has been 

submitted by PRDOH to HUD for approval. PREPA must work diligently to identify the source of 

funds needed to cover the remaining ~50% cost-share requirement, including requiring the 

112 Source: FEMA Public Assistance Applicant Handbook as of March 2010.

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necessary rate adjustments. Failure to identify an adequate source of funding may jeopardize the 

ability to access and deploy a significant portion of FEMA funds. 

The Global Settlement may be structured as a reimbursement program, but PREPA management 

is currently working with COR3 to request advances to assist with PREPA’s liquidity position. 

PREPA may request an advance from COR3 if the following criteria are met:113

▪ PW is obligated by FEMA

▪ Procurement for the advance is complete and the subrecipient has awarded the contract 

to the vendor

▪ Subrecipient provides a complete set of procurement and award documents for the 

contract which advance funds are requested

▪ Subrecipient provides a timeline of when costs are expected to be incurred and paid

▪ Subrecipient has no outstanding/unsubstantiated advance payments for the contract 

which advance funds are requested; and

▪ COR3 determines the subrecipient has immediate cash needs.

If PREPA, or its authorized agent, must request reimbursements instead of receiving advances, 

the process is expected to be like the process for emergency work (see Section Error! Reference 

source not found.). However, for permanent work, the following additional actions must occur 

prior to RFR submission:

▪ PREPA, or its agent, submits the proposed project Scopes of Work (SOW)

▪ The SOWs are reviewed by COR3 and FEMA to determine eligibility; and 

▪ PREPA/agent may not commence work prior to receiving approval from FEMA PA and 

FEMA Environmental and Historical Preservation (EHP). Initiation of construction prior 

to FEMA PA and FEMA EHP completion of reviews may jeopardize part of or all the 

federal funding for the project.

6.2.1.3.2 FEMA 404 HMGP

PREPA expects to obtain FEMA 404 HMGP funds for various permanent work mitigation projects 

outside of the Global Settlement. FEMA 404 HMGP projects are typically funded at a 75% federal 

cost-share. However, on October 22, 2018, FEMA approved the Governor’s request, dated 

February 26, 2018, to use the Global Match approach to meet the HMGP 25% non-federal costshare requirement. Therefore, the Government of Puerto Rico dedicated approximately $1 billion 

in CDBG-DR funding to provide the required cost-share for HMGP projects.

This means that all HMGP projects are expected to be fully funded, with no additional local costshare required from PREPA. The CDBG-DR funding is expected to provide eligible matching 

projects that will count as the HMGP cost-share.

The expected process to ultimately obtain these funds is as follows:

113 Refer to Ch. 7 – Payment and Cash Management section of the COR3 Disaster Recovery Federal Funds Management Guide.

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▪ COR3 will notify PREPA as subrecipient of available FEMA 404 HMGP funding

▪ After notification of available funds, PREPA will submit a Letter of Intent (LOI) describing 

overall scope of any hazard mitigation projects to COR3

▪ COR3 will review the LOI and determine which projects are aligned with the Governor’s 

strategy and notify PREPA of which projects are approved

▪ PREPA can then prepare a comprehensive package including additional details related to 

scope, any necessary clearances and anticipated costs/budget related to the project to be 

submitted to COR3 and FEMA for review and approval

▪ Upon FEMA review, FEMA may include conditions for approval for the subrecipient

▪ PREPA can begin incurring costs only for projects which have been approved by COR3 

and FEMA

▪ Once costs are incurred, PREPA can submit RFRs

▪ COR3 will review RFRs for consistency with the project and eligibility prior to funds being 

disbursed to PREPA; and

▪ Funds will then be transferred from COR3 to PREPA.

6.2.1.4 FUNDING SOURCES FOR 10% COST-SHARE REQUIREMENT

Under the Global Settlement, PREPA, or its agent, is required to meet a 10% local cost-share 

requirement for its FEMA-funded permanent work projects. PREPA plans to meet its local costshare portion through the CDBG-DR program, as it becomes available. If these funds are not 

available, PREPA must find funding elsewhere and/or adjust rates to cover the local cost-share 

obligation.114 Failure to identify the funds necessary for cost-share may prevent PREPA from 

having access to the portion of the Global Settlement contributed by FEMA.

Access to CDBG-DR and CDBG-MIT funds are subject to various US HUD actions. The 

Appropriations Act requires HUD to allocate almost $2 billion of CDBG-DR funds to provide 

enhanced or improved electrical power systems in response to Hurricane Maria. HUD announced 

the allocation of these funds to the Commonwealth and provided that the electrical power system 

allocation shall be governed by a subsequent notice. Therefore, the grantee is prohibited from 

using CDBG-MIT funds for mitigation activities to reduce the risk of disaster related damage to 

electric power systems until after HUD publishes the Federal Register notice governing the use of 

the almost $2 billion for enhanced or improved electrical power systems.115

To receive CDBG-DR and CDBG-MIT funds for the local cost-share associated with permanent 

work projects, HUD must file a Federal Register notice governing the use of the almost $2 billion 

CDBG-DR funds for enhanced or improved electrical power systems. The CDBG-DR and CDBGMIT reimbursement process will follow the “Implementation Guidance for Use of Community 

Development Block Grant Disaster Recovery Funds as Non-Federal Cost Share” issuance dated 

October 13, 2020. On June 22, 2021, HUD published Federal Register Vol. 86, No. 117 (June 22, 

114 The financial projections included in this Certified Fiscal Plan assume CDBG funds cover the local cost-share required for 

federal funding. 

115 See Docket No. FR-6109-N-04. 

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2021), 86 FR 32681, which governs the use of the $2 billion CDBG–DR allocation for enhanced 

or improved electrical power systems in Puerto Rico and the U.S. Virgin Islands. Of those $2 

billion, $1.9 billion was allocated to Puerto Rico to enhance the Puerto Rico electrical power 

system, with only $500 million available for PREPA use as cost-share matching, as the remainder 

is assigned to facilitate community projects and private and non-profit sector developments. 

PREPA will need to identify the source of funding for the remainder of their matching 

responsibilities, with the risk of not delivering on available FEMA funds for the recovery and 

reconstruction of the energy system.

Federal Funding Impact

The successful transformation of Puerto Rico’s energy system will require significant capital 

investment at least over the next ten (10) years. Federal funding plays a critical role in mitigating 

the burden of these costs on ratepayers. With adequate federal funding, the overall impact on 

energy rates would not be too burdensome in the next ten (10) years.

The appropriated federal funds are necessary for the full deployment of Puerto Rico’s grid 

modernization plans. If federal funding fails to materialize, or costs turn out to be more expensive,

Puerto Rico would have to make a difficult choice between increasing energy rates to meet 

unfunded capital investment needs, or remain unable to implement the necessary repairs and grid 

system modernization called for in Puerto Rico Public Policy and captured in the IRP approved 

by the Puerto Rico Electric Bureau (PREB), 10 year-Infrastructure Plan, PREPA and 

Commonwealth Certified Fiscal Plans, and LUMA’s Recovery and Transformation Framework as 

detailed within the Initial Budgets and SRP.

Beyond the dollar impact on customers, a lack of federal funding would have serious 

consequences on the resiliency of the system and the achievement of PREPA’s long-term energy 

vision and LUMA’s Recovery and Transformation Framework. Lack of federal funding availability 

for the rebuild of the T&D System and generation facilities represents a significant risk for overall 

service delivery and affordability. Federal funding is also critical for delivering system 

improvements necessary for resiliency and environmental compliance, including deployment of 

microgrids, distributed energy resources, and renewable resources. 

Distribution of Federal Funding Responsibilities for the T&D System116

Puerto Rico’s energy sector continues advancing its transformation pursuant to Puerto Rico’s 

energy public policy. During FY 2022, LUMA will continue to have full control over the operation 

and maintenance functions of the T&D System and will provide the O&M Services that are 

detailed and defined under the T&D OMA, which includes performing and supervising Capital 

Improvements of the T&D System. 

The T&D OMA provides specific roles and responsibilities for LUMA, PREPA, and the P3A related 

to the use, management, recordkeeping, and oversight of federal funds used for T&D System

capital improvements (which include grid reconstruction). The parties to the T&D OMA will 

cooperate, and work as described in the T&D OMA to ensure legal compliance, effective and 

116 This section references that certain Operation and Maintenance Agreement (T&D OMA) dated as of June 22, 2020, by and 

among PREPA, LUMA Energy, LLC, LUMA Energy Servco, LLC and the P3A. All language and statements under this section 

are meant to be illustrative only and shall be interpreted in accordance with, and subject to, the T&D OMA. 

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efficient use of federal funding, maximized eligibility of projects for federal funding, and secure 

adequate recordkeeping and access for compliance audit purposes. 

Challenges and Mitigation Measures117

PREPA and LUMA are coordinating to assess risks and mitigation measures as part of the broader 

capital planning process for federally funded capital expenditures under the T&D OMA. The key 

areas of risk include (local and federal) permitting, federal funding compliance, and eligibility of 

T&D-related projects for federal funding (maximizing eligibility of new or additional projects 

beyond those eligible under FEMA 428). 

LUMA’s has established a Risk Management office to be responsible for identifying project risks, 

analyzing risk probability, impact and ranking, planning risk mitigation and calculating required 

contingency levels for mitigating unavoidable risks. Further LUMA continues to prepare a risk 

assessment and analyses in support of prioritization and planning for T&D System capital projects 

taking into account the IRP, load and energy forecasts, fuel price and quantity forecasting, long 

and short-range system plans and proposed annual operating and maintenance plans.

As established under the T&D OMA, PREPA and LUMA must cooperate also with the P3A in 

obtaining and maintaining all government approvals as defined under the agreement. Regarding 

federal funding, as well as project eligibility matters, LUMA is responsible for procurement and 

administration of federal funding, with PREPA and P3A support as relevant, as well as compliance 

with applicable law, regulation, and policy, as prescribed by the T&D OMA.118

Overview of Reporting Cadence and Level of Detail

PREPA’s reporting related to restoration progress, reconstruction progress, spending, and

reimbursements for emergency work has been provided on a weekly basis and will continue until 

project completion and settlement of outstanding amounts. The restoration and reconstruction 

flash report includes key information by major category of spending, including but not limited to: 

amounts submitted to FEMA, obligated amounts by PW, federal funding received, cash paid to 

suppliers, invoice amounts, payables outstanding, and status of RFR, etc. While substantially all 

activity to date has been related to emergency work, future permanent work will be reported as 

agreed to in the T&D OMA. LUMA must develop its own T&D System reporting cadence and 

structure for relevant stakeholders, including PREPA as T&D System owner and subrecipient of 

federal funds under FEMA regulations. 

117 Ibid. 

118 See, e.g., T&D OMA, Sect. 5.9 (a), (b) and (c).

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Chapter 7. LUMA Improvement Portfolios

LUMA is responsible for overseeing T&D System improvements, including planning and 

execution of capital projects. Funds of $10.7 billion were obligated for use in the rebuilding and 

transforming of Puerto Rico’s energy generation and T&D System. 

As a required part of the Front-End Transition, LUMA developed a set of improvement programs

to restore and modernize Puerto Rico’s T&D System, including the management system and 

processes. Programs were subsequently organized into seven interdependent portfolios of similar 

topics that together cover all functional areas of the utility. These improvement portfolios are 

described in the LUMA Initial Budgets and the SRP. LUMA’s Initial Budget was reviewed by P3A 

and approved by the PREB on May 31, 2021, prior to service commencement and program 

implementation.

119 Additionally, LUMA’s SRP was reviewed by P3A and approved by PREB on 

June 23, 2021, prior to service commencement and program implementation.120 Subsequently 

LUMA filed Annual Budgets for Fiscal Year 2023 with PREB on April 1, 2022, and an update to 

the SRP on April 14, 2022. The relationship between LUMA’s Budgets and SRP is as follows: 

▪ LUMA Budgets: The LUMA budgets contain operating and capital expenditures for the 

T&D System for the next fiscal year and projected budgets of the same for the subsequent 

two fiscal years, together the next three years of LUMA’s operation of the T&D System. All 

improvement portfolios and associated expenditures for FY2023-FY2025 are included in 

the most recent LUMA budget application. 

▪ System Remediation Plan: The SRP is a plan to “remediate, repair, replace, and 

stabilize equipment, systems, practices, and services” in the T&D System such that the 

legacy assets and processes that may not comply with the standards of performance 

required under the T&D OMA can be brought up to compliance. Only initiatives to 

remediate high-probability, high-impact asset or process failures are included in the SRP. 

As such, the SRP forecasts a subset of T&D program-related improvement programs and 

related operating and capital expenditures through FY2029. 

In developing the improvement programs for both physical system assets and the management 

system and processes, LUMA utilized a three-stage approach of: (a) assessing the current state of 

the system; (b) analyzing and comparing the current state to industry standards and the T&D 

OMA contract standards and developing initiatives to address any identified gaps; and (c) 

prioritizing and sequencing the initiatives based on criticality and guiding documents. Similar

programs were compiled into seven (7) portfolios: (1) customer service; (2) distribution; (3) 

transmission; (4) substations; (5) control center & building; (6) enabling; and (7) support 

services. 

The improvement portfolios use a range of funds depending on the scope of each program and 

funding usage limitations (e.g. limitations on the use of certain types of federal funds). Programrelated operating expenditures, federally funded capital, and non-federally funded capital are 

allocated to improvement programs. LUMA has projected spending an estimated $3.5 billion on 

improvement portfolios from FY2023 through FY2025.

119 Determination on LUMA’s Initial Budgets filing on May 31, 2021 Docket ID: NERP-MI-2021-0004, 

120 Resolution and Order Approving the Proposed System Remediation Plan filing on June 23, 2021 Docket ID: NERP-MI-2020- 

0019

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Through the implementation of its improvement portfolios, LUMA has already achieved 

significant operational improvements within the first nine months of Fiscal Year 2022 including 

improving safety metrics by an average of 82%, activating over 17,000 net energy metering 

customers representing 95 MW of distributed solar energy, enabling over 1 million electronic 

registration or app downloads to allow customers to connect with LUMA online. In addition, 

LUMA has fielded over 2.7 million calls, all while reducing customer call wait times to less than 1 

minute from over 26 minutes and demonstrating an 80-point improvement in the J.D. Power 

Customer Satisfaction score. LUMA has also developed 190 initial scopes of work representing 

$7.8 billion of federal funding and have advanced 79 projects, representing $1.2 billion into 

preliminary engineering. Section 7.4 gives an overview of expected continual improvements.

Background on LUMA’s improvement programs and 

Portfolios

Development of the improvement programs and Portfolios

To develop the improvement programs and Portfolios outlined below, LUMA utilized a threestage approach of: (1) assessing; (2) analyzing; and (3) planning. 

Assessment

In the assessment stage, LUMA conducted a gap assessment and determined the condition of 

PREPA’s existing T&D System assets and management systems and processes. In evaluating the 

physical assets, LUMA assigned each asset a health condition score from 0 to 4 as defined in 

Exhibit 33. For the existing management system and processes, 

Exhibit 34 includes the organizational maturity scoring criteria LUMA used to score different 

portions of the existing organization. 

In assessing the assets, LUMA identified that a lack of accurate data to inform business and asset

management decisions was particularly prevalent. Based on the sample of asset inspections, asset 

health was consistently poor from storm damage and deferred maintenance. In assessing the 

organization, low maturity scores were noted with most organizational areas rated as “Unfocused” 

or “Aware.” LUMA noted in the SRP that most North American electric utilities have a maturity 

rating between “Developing” and “Competent.” Based on the results of its assessment, LUMA 

indicated that physical assets and the organizational systems and processes required significant 

improvement resources and capital.

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EXHIBIT 33: PHYSICAL ASSET HEALTH CONDITION SCORE VALUE DEFINITIONS

EXHIBIT 34: ORGANIZATIONAL HEALTH ASSESSMENT MATURITY SCORING CRITERIA

Analysis

In the analysis stage, LUMA compared the conditions found in the assessment stage to industry 

standards and developed over 600 initiatives to remediate identified concerns, enact 

infrastructure recovery, achieve operational and customer satisfaction improvements, and meet 

regulatory imperatives (e.g. Renewable Portfolio Standards). All initiatives were screened for 

inclusion in the SRP and initiatives to remediate high-probability, high-impact asset or process 

failures were included as SRP initiatives.

Planning

In the planning stage, LUMA utilized a framework to prioritize and sequence the programs, 

further discussed in Section 7.2. LUMA’s planning process referenced several guiding documents, 

including the approved Integrated Resources Plan (IRP) and Modified Action Plan, previous 

Certified Fiscal Plans, COR3’s Grid Modernization Plan, Act 17-2019, numerous independent 

engineering reports and FEMA damage assessment reports. Improvement programs were 

developed with Puerto Rico’s public policy in mind. 

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Summary of Improvement Portfolios

Initiatives were grouped into programs and programs were subsequently organized into seven (7)

interdependent portfolios of similar size that together cover all functional areas of the utility: 

1. The customer service portfolio includes programs to improve customer service 

through modernized customer service technology, improve billing systems, implement 

advanced metering infrastructure, establish a “Voice of the Customer” program, and 

upgrade and replace distribution streetlights. 

2. The distribution portfolio includes improvements to the distribution system, including 

overhead and underground distribution line rebuilds, pole and conductor repairs, system 

inspections, spot repairs and replacements as needed, and implementation of technology 

that enables planning.

3. The transmission portfolio includes improvements to the transmission system, 

including line rebuilds and hardening, priority pole replacements, system inspections, 

spot repairs and replacements as needed, and improved transmission monitoring systems, 

as well as telecommunications investments to improve first responder and emergency 

response communication and centralized monitoring and control. 

4. The substations portfolio includes investments to rebuild, harden, and modernize 

transmission and distribution substations, including physical security upgrades, and 

studies to eliminate major cascading outages and ensure system compliance with 

applicable laws, codes, and regulations. 

5. The control center & buildings portfolio includes investments in rebuilding 

damaged facilities, upgrading security systems, and implementing energy and advanced 

distribution management systems that enable renewable energy, demand response, and 

battery storage integration and dispatch. 

6. The enabling portfolio includes a number of safety and operational excellence 

programs such as: provision of new tools and Personal Protective Equipment (PPE); skills 

and safety training for all employees; a new program management office to plan and 

execute large capital projects; a new data system to manage T&D asset data; and 

vegetation and fleet management. 

7. The support service portfolio includes cross-functional programs that service all 

departments, such as Human Resources, IT / OT, and finance. This portfolio also includes 

studies on renewables integration and minigrids. 

Overview of Expected Spend per Improvement Portfolio through FY2025

LUMA included the proposed annual spending estimates for each portfolio from FY2023 through 

FY2025 in the Initial Budgets. The estimates for FY2025 include federally funded programs, nonfederally funded capital expenditures, and program-related operational expenditures. The 

proposed annual estimated expenditures for each portfolio as filed to PREB on April 2, 2022, are 

included in Exhibit 35.

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EXHIBIT 35: LUMA’S PROPOSED ANNUAL IMPROVEMENT PORTFOLIO SPENDING ESTIMATES 

FOR FY2023 THROUGH FY2025 (USD MILLION, NOMINAL)

Portfolio FY2023 FY2024 FY2025

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpEx Total Spending 

Estimate

Total Spending 

Estimate

Total Spending 

Estimate

Customer Experience 107 7 21 135 119 139 

Distribution 151 15 13 179 306 577 

Transmission 126 0 0 127 279 374 

Substations 111 22 2 135 173 71

Control Center and 

Buildings 45 4 3 51 91 89

Enabling 20 22 71 113 124 122 

Support Services 9 10 84 102 92 91 

Grand Total 569 78 195 842 1,185 1,463

Goals and Roadmap of improvement programs

In order to prioritize and sequence the improvement work, LUMA developed a Recovery and 

Transformation framework and roadmap to guide planning and decision making across all FrontEnd Transition deliverables, including the SRP and improvement portfolios. LUMA states that 

the framework references public policy objectives, stakeholder needs, and regulatory and 

contractual requirements. The framework has five (5) key goals in delivering LUMA’s stated 

mission of customer-centric, reliable, resilient, safe, sustainable electricity at reasonable prices:

1. Prioritize Safety – Reform utility activities to support a strong safety culture 

focused on employee safety and the safety of the people of Puerto Rico;

2. Improve Customer Satisfaction – Transform operations to deliver a positive 

customer experience and deliver reliable electricity at reasonable prices; 

3. System Rebuild and Resiliency – Effectively deploy federal funding to restore the 

grid and improve the resilience of vulnerable infrastructure; 

4. Operational Excellence – Enable employees to pursue operational excellence 

through new systems, processes, and training; and

5. Sustainable Energy Transformation – Modernize the grid and utility to enable 

sustainable energy transformation.

The recovery phase of the roadmap begins with the restoration of the high-risk infrastructure and 

processes to a safe and functioning state. During this phase, LUMA will complete remedial 

investments to systems and processes, in addition to the grid. After stabilizing infrastructure and 

processes, LUMA will implement the transformation phase, with the goal of redesigning the utility 

to meet Puerto Rico’s energy policies and needs for the coming decades. Recovery and 

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transformation are not distinct, sequential phases as many transformation programs will begin 

alongside and in coordination with recovery programs. The recovery and transformation roadmap 

is included in Exhibit 36. 

EXHIBIT 36: LUMA’S PROPOSED RECOVERY AND TRANSFORMATION ROADMAP121

Improvement Portfolios

After developing its improvement programs as outlined above, LUMA subsequently organized 

them into seven (7) interdependent portfolios of similar size that together cover all functional 

areas of the utility: (1) customer service; (2) distribution; (3) transmission; (4) substations; (5) 

control center & buildings portfolio; (6) enabling; and (7) support services. For each of the 

programs contained in the portfolios, LUMA developed a program summary, benefits, costs, and 

key milestones. The programs within each portfolio are summarized below with estimated annual 

funding and sources for that funding. For one or two key programs within each portfolio, 

additional detail and benefits are included.

Further detail on all improvement programs can be found in Appendix C of LUMA’s Annual 

Budgets’ submission to PREB.

122 A summary of major improvement programs is summarized 

below by portfolio. 

121 Filing of System Remediation Plan under Section 4.1(d) of the Operation and Maintenance Agreement for Energy Bureau’s 

Evaluation and Approval. In Re: Review of the Puerto Rico Electric Power Authority’s System Remediation Plan. Case No. 

NEPR-MI-2020-0019. February 24, 2021. 

122 Annual Budgets filing in Case No. NEPR-MI-2021-0004. April 1, 2022.

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Customer Service Portfolio

Customer service will be enhanced in multiple ways. LUMA’s Voice of the Customer program and 

the deployment of enhanced customer service technology will improve interactions with 

customers. In addition, streetlighting will be repaired and billing systems improved. Advanced 

Metering Infrastructure (AMI) will expand remote meter reading, along with a host of reporting, 

control, and customer engagement capabilities. The exhibit below presents a summary of the 

spending of each of the largest programs in the Customer Service Portfolio. 

EXHIBIT 37: CUSTOMER SERVICE PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD 

MILLION, REAL) 

FY2023 FY2024 FY2025

Customer Experience 

Programs

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpEx

Total 

Spend 

Estimate

Total 

Spending 

Estimate

Total 

Spending 

Estimate

Distribution Streetlighting 105 - - 105 70 80

Billing Accuracy and Back Office - 1 12 13 12 11

Loss Recovery Program - - 5 5 8 16

Distribution Meter Replacement 

& Maintenance 2 1 1 4 22 22

Standardized Metering and 

Meter Shop Setup - 4 1 4 4 7

Modernize Customer Service 

Technology - 2 1 3 2 3

Streetlight Billing - - 1 1 1 -

Voice of the Customer - 0 1 1 1 1

AMI Implementation Program - - - - 0 -

Grand Total 107 7 21 135 119 139

A key Improvement Program in the Customer Service Portfolio is the billing accuracy and backoffice program. 

Billing Accuracy and Back-Office

Program Summary:

The billing accuracy and back-office program includes updates to bill print and delivery (BP&D) 

and other back-office systems to ensure LUMA can continue to produce customer invoices. 

Current technology, machines and systems are outdated, creating a financial liability in delayed 

revenue of ~$12.5 million for each day invoices are not produced. This upgrade includes 

acquisition of new hardware and software to support billing and customer contracts, along with 

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removing redundant bill printing and enveloping equipment. Additionally, the program supports 

back-office processing of service order paperwork and mobilizes resources to address backlogs of 

estimated and unbilled accounts. The program also implements a customer experience metrics 

dashboard and agent routing technology for Billing Services to reduce resolution time and 

increase customer satisfaction.

Program Benefits:

The benefits of this program include: 

▪ Providing more reasonable prices for customers by improving efficiencies and removing 

billing backlogs; 

▪ Delivering a more positive customer experience by refining efficiency in handling billing 

and associated back-office functions, along with increasing use of digital platforms to 

engage with customers;

▪ Improving the systematic management of the business by ultimately eliminating the 

significant backlog of estimated, unbilled and other exception related accounts, which will 

enhance back-office efficiency, improve collections metrics, and reduce accounts 

receivable;

▪ Improving employee productivity and work quality by improving automated distribution 

and management of back-office work to back-office agents;

▪ Improving the resilience of the billing system by outsourcing the BP&D function to a thirdparty vendor with a reliable emergency response plan and business continuity plan; and

▪ Enable the digital transformation by actively reducing manual processes currently in place 

and help support the implementation of a workforce management system.

Distribution Portfolio

The distribution system received temporary emergency repairs after hurricanes Irma and Maria 

to quickly restore service and has required further permanent recovery work. The majority of 

distribution portfolio spending over the next three years will therefore be focused on improving 

system recovery and resilience. Investments in reliability improvements will also aid in providing 

a better customer experience and distribution automation investments will contribute to enabling 

the sustainable energy transformation. The exhibit below presents a summary of the spending for 

the largest programs in the Distribution Portfolio. 

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103

EXHIBIT 38: DISTRIBUTION PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD MILLION, 

Nominal)

FY2023 FY2024 FY2025

Distribution Programs

Federal 

Funded 

Capital

Non-Federal 

Funded 

Capital

OpEx

Total 

Spend 

Estimate

Total 

Spending 

Estimate

Total 

Spending 

Estimate

Distribution Pole & Conductor 

Repair 54 1 11 66 71 81

Distribution Line Rebuild 51 5 0 56 161 422

Distribution Automation 26 8 1 36 53 53

Distribution Lines Assessment 20 0 1 21 20 20

Grand Total 151 15 13 179 306 577

A key improvement program in the Distribution Portfolio is distribution line rebuild. 

Distribution Line Rebuild

Program Summary:

This program replaces damaged or ineffective overhead and underground distribution lines. This 

program includes the following initiatives, a mix of SRP and non-SRP work:

▪ Perform distribution line upgrades to improve reliability and resiliency;

▪ Restore out of service circuits as deemed necessary;

▪ Complete unfinished circuit construction presently abandoned as deemed necessary;

▪ Perform circuit voltage conversions to improve distribution capacity (non-SRP);

▪ Build new distribution line extensions to connect new customers (non-SRP); and

▪ Install underground cable and/or tree wiring to improve service reliability and resiliency 

to critical customers (non-SRP).

Program Benefits:

The benefits of this program include: 

▪ Providing a safe workplace and improving public safety by repairing and/or replacing 

assets that are in poor or damaged condition and present potential safety risks;

▪ Increasing service continuity and reliability to customers by replacing and upgrading 

facilities that have poor reliability performance and by adding and completing facilities 

that allow for alternate feeds; and 

▪ Enabling grid modernization where practical, as replaced assets such as switches may be 

incorporated into future distribution automation schemes.

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Transmission Portfolio

Transmission assets damaged by Hurricanes Irma and Maria received temporary emergency 

repairs to quickly restore service. FEMA has allocated nearly $2 billion for further permanent 

repairs and/or replacement of these assets, to upgrade them to current codes and standards. 

LUMA’s Transmission Portfolio is comprised of a set of “Recovery” programs to complete these 

system hardening upgrades including rebuilding towers, reinforcing anchors, and replacing poles 

and associated hardware and conductors. The Transmission Portfolio also includes significant 

investments in telecom backbone modernization which will help enable transformation. The 

exhibit below presents a summary of the spending for each of the largest programs in the 

Transmission Portfolio.

EXHIBIT 39: TRANSMISSION PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD MILLION, 

NOMINAL)

FY2023 FY2024 FY2025

Transmission Programs

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpEx

Total 

Spend 

Estimate

Total 

Spending 

Estimate

Total 

Spending 

Estimate

Transmission Line Rebuild 85 - - 85 232 314

IT OT Telecom Systems & Network 32 - 0 32 39 51

Transmission Priority Pole Replacements 6 - - 6 6 6

Assessment of Transmission Lines 3 0 - 3 3 3

Grand Total 126 0 0 127 279 374

A key improvement program in the Transmission Portfolio is the IT OT Telecom Systems & 

Network program.

IT OT Telecom Systems & Network

Program Summary:

This program includes IT and OT telecom investments to improve and revamp PREPA’s mobile 

radio system, phone exchange and telephone systems and fiber optic and microwave data radio 

systems. These systems are used to carry all PREPA IT and OT data. Capability enhancements will 

include improved first responder and emergency response communication, greater resilience of 

the internal telecommunications network, an enhanced microfiber network and network control 

center to improve centralized monitoring and control over facilities and IT traffic.

Program Benefits:

The benefits of this program include: 

▪ Improving communications between employees and contact call centers, control centers, 

colleagues or customers, including during emergency conditions like traffic accidents, 

equipment failures and severe weather conditions;

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▪ Enabling the implementation of Advanced Metering Infrastructure in the distribution 

network and its associated benefits (see Section 7.3.1);

▪ Improving control of protection circuits—which protect both people and equipment from 

accidental harm when coming in contact with a high voltage line—by repairing the 

microwave radio and fiber backbone;

▪ Improving reliability as the data networks and telecom systems are repaired and provide 

more accurate outage prediction, detection, and remediation as more smart meters are 

connected;

▪ Informing operational decision-making with better-quality operational data from 

upgraded data networks and improved data integration between systems;

▪ Enabling the transition to a modern, sustainable grid by upgrading the system to be 

compatible with modern sustainable energy systems (e.g. internet, IoT protocols, etc.); 

and

▪ Improving system resiliency by reducing the cyber risk to the networks by creating 

separate systems configured on different networks.

Substation Portfolio

LUMA plans to rebuild, harden, and modernize substations over the next three years. Substations 

will be repaired, rebuilt, and made safer, while increasing mitigation against future disasters. 

These programs will result in significant improvements to system resilience and safety. The 

exhibit below presents a summary of the spending for each of the largest programs in the 

Substation Portfolio. 

EXHIBIT 40: SUBSTATION PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD MILLION, 

REAL)

FY2023 FY2024 FY2025

Substation Programs

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpEx

Total 

Spend 

Estimate

Total 

Spending 

Estimate

Total 

Spending 

Estimate

Substation Rebuilds 95 7 - 102 139 49

Substation Security 15 1 1 18 15 4

Substation Reliability - 14 - 14 19 18

Regional & Technical Facilities Security - 0 1 1 1 1

Grand Total 111 22 2 135 173 71

A key improvement program in the Substation Portfolio is Substation Rebuilds. 

Substation Rebuilds

Program Summary:

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This program focuses on improvements to transmission and distribution (T&D) substations to 

strengthen the electric grid. This includes (1) hardening and modernizing T&D substations, (2) 

making upgrades to the latest codes, industry standards and practices and (3) replacing 

electromechanical and electronic relays. To accomplish this, LUMA will conduct required 

assessment, repair, and rebuilding of damaged substations per the latest codes, industry 

standards and practices to improve long term reliability, install Gas Insulated Switchgear (GIS), 

replace electromechanical and electronic relays, and repair and / or rebuild substations impacted 

by flooding. 

This program will also focus on the demarcation requirements for Transmission and Generation 

(T&G) assets, required under the T&D OMA, specifically the Scope of Services as set forth in 

Annex I. The program must also include high accuracy metering to accurately measure power 

generation into the network and facilitate communication with the system operator. This

measurement will provide transparency of total net power generation and energy losses to the 

network. This demarcation will also be defined in a non-complicated manner to provide LUMA 

and GenCo operators sufficient clarity regarding the separation of assets to prevent misoperation, and subsequent damage to equipment and / or system outages. This initiative is subject 

to change based on the recommendations from the Sargent and Lundy Demarcation Study and 

the plant retirement projections called for in the IRP.

Program Benefits:

The benefits of these programs include: 

▪ Improving workplace and public safety by addressing critical substation issues (e.g.

missing grounding components, bent structures, etc.) and bringing most substations up 

to optimum safety levels;

▪ Increasing service reliability by replacing damaged equipment and bringing most 

substations to optimum reliability levels;

▪ Improving resiliency and system restoration times by rebuilding and upgrading assets, 

deploying Gas Insulated Switchgear, and reducing the susceptibility of high voltage 

equipment to flooding; and

▪ Improving employee productivity and efficiency by collating data to support system 

operations, grid modelling, and asset conditions.

Control Center and Buildings Portfolio

Control centers are critical facilities that play a vital role in the safe, reliable, and economic 

performance of the entire electric grid. It is imperative that control center operators have access 

to tools that provide situational awareness and a comprehensive and integrated visibility of the 

all the systems—generation, transmission, and distribution. This visibility allows the operators, 

using real time data, to minimize the impact to customers and the electrical system from outages 

and system instability that could cause a complete collapse of the system resulting in a black-out 

scenario.

LUMA’s near-term spending in the Control Center & Buildings Portfolio involves a number of 

improvements in policies, procedures, and technologies that will enable LUMA to better operate 

the system more reliably and efficiently. LUMA will also invest in rebuilding damaged facilities, 

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upgrading security systems, and Advanced Distribution Management Systems that enable 

renewable energy, demand response, and battery storage integration and dispatch. The exhibit

below presents a summary of the spending for each of the largest programs in the Control Center 

& Buildings Portfolio.

EXHIBIT 41: CONTROL CENTER AND BUILDINGS PORTFOLIO SPENDING ESTIMATES BY 

PROGRAM (USD MILLION, REAL)

FY2023 FY2024 FY2025

Control Center and Buildings Programs

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpEx

Total 

Spend 

Estimate

Total 

Spending 

Estimate

Total 

Spending 

Estimate

Critical Energy Management System 

Upgrades 25 0 - 26 20 6

Facilities Development & Implementation 10 2 2 15 25 44

Control Center Construction & Refurbishment 9 0 - 9 39 26

Warehouse Security 0 1 - 1 1 -

Critical Energy Management & Load 

Generation Balancing - 0 0 0 7 13

Critical System Operation Strategy & 

Processes - - 0 0 - -

Grand Total 45 4 3 51 91 89

Critical upgrades to the Energy Management System (EMS) is one of the key improvement 

programs in the Control Center & Buildings Portfolio. 

Critical Energy Management System Upgrades

Program Summary:

This program will replace an obsolete and unsupported EMS and add relevant technology to 

operate the electric system safely and reliably. This program will also implement an Advanced 

Distribution Management System (ADMS). The EMS is a computer-based system that is used by 

operators to monitor, control and optimize the performance on the generation, Transmission and 

Distribution System.

Program Benefits:

The benefits of this program include: 

▪ Improving reliability by providing modern tools for better visibility of equipment 

operations; and

▪ Enabling the integration of new energy sources (e.g. renewables, DG, etc.) and energy 

storage systems through the implementation of new digital technologies.

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Enabling Portfolio

The Enabling Portfolio is composed of safety and operational excellence programs that provide a 

safe workplace through new procedures, tools, and training. Investment programs include 

providing new tools and PPE (including their inventory and management), training in skills and 

safety for all employees, creating a new program management office specifically designed to 

handle large capital projects, and implementing new data systems to accurately store and manage 

data on T&D assets gathered through inspections. LUMA will implement new project and 

business management procedures and controls to ensure transparent, systematic management of 

the business and to effectively administer federal grant funding. The exhibit below presents a 

summary of the spending for each of the largest programs in the Enabling Portfolio. 

EXHIBIT 42: ENABLING PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD MILLION, REAL)

Enabling Programs

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpEx

Total 

Spend 

Estimate

Total 

Spending 

Estimate

Total 

Spending 

Estimate

Vegetation Management - - 50 50 60 60

Compliance, Studies, Technology & Performance 16 2 - 18 9 8

HSEQ and Technical Training - - 15 15 8 5

T&D Fleet 2 8 2 12 29 25

Tools Repair & Management - 6 - 6 7 5

Asset Data Integrity - 5 0 5 3 3

Permits Processes & Management - - 2 2 2 -

Workflow Processes & Tracking - - 1 1 1 10

Materials Management 0 0 0 1 5 5

Project Management Software & Tools 1 - - 1 - -

Construction & Commissioning Management 

Office 1 - - 1 - -

Operator Training - - 0 0 - -

Emergency Response Preparedness - 0 - 0 2 0

Project Controls, Risk Management & Estimating 

Offices 0 - - 0 - -

Capital Programs, PMO & Funding Management 

Office Setup 0 - - 0 - -

Grand Total 20 22 71 113 124 122

A key improvement program in the Enabling Portfolio is vegetation management. 

Vegetation Management

Program Summary:

This program includes work to abate or mitigate immediate vegetation risk in the most critical 

locations, along with an ongoing program to clear and re-establish rights of way to standard 

widths. This includes an immediate response for the highest risk sites—those that pose hazards 

to public safety or routinely experience tree-caused service interruptions—and reclaiming rights 

of way corridors, specifically those impacting the T&D Systems. The program will also use a fieldenabled IT tool to manage the vegetation management program; vegetation management 

training; and along with ongoing line clearance, pruning, tree removal, herbicides, etc. In 

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addition, the program will evaluate and pilot an advanced AI remote sensing project to improve 

vegetation management.

Program Benefits:

The benefits of this program include: 

▪ Mitigating public safety risks by correcting the backlog of untrimmed trees;

▪ Improving system reliability by reducing outages from vegetation-caused line faults (a 

substantial contributor to the poor reliability of the system);

▪ Increasing the efficiency of the workforce and the reliability of the system by proactively 

trimming and managing vegetation in order to reduce the time and challenge of assessing 

storm damage and improving site access for preventative maintenance; and

▪ Improving reliability of the system following future hurricanes or other weather events by 

clearing existing debris and vegetation encroaching on rights of way.

Support Services Portfolio

The Support Services Portfolio includes key cross-functional programs that affect/serve all LUMA 

teams and departments. They include HR programs for attracting and retaining a high performing 

employee base through standardized processes for performance management, talent 

management, succession planning, recruitment and onboarding management, learning 

management, and compensation management. Other programs include implementation of 

processes and tools to secure information resources while permitting appropriate access to 

authorized stakeholders at any time and at any location through information systems that are 

prudently maintained. The portfolio also includes regulatory studies and plans to inform the 

development of a more detailed roadmap for meeting IRP milestones. The exhibit below presents 

a summary of the spending for each of the largest programs in the Support Services Portfolio. 

EXHIBIT 43: SUPPORT SERVICES PORTFOLIO SPENDING ESTIMATES BY PROGRAM (USD 

MILLION, NOMINAL)

FY2023 FY2024 FY2025

Support Services Programs

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpE

x

Total 

Spending 

Estimate

Total 

Spendin

g 

Estimate

Total 

Spending 

Estimate

HR Programs - 0 62 63 64 65

Renewables Integration, Minigrids & Generation 

Studies - 3 5 8 4 2

IT OT Asset Management 6 0 1 7 3 6

Update to Third Party Use, Audit, Contract and Billing 

Procedures 3 - 3 6 4 4

IT OT Cybersecurity Program - 2 2 4 5 6

IT OT Enablement Program - 1 2 3 3 4

Critical Financial Systems - 3 0 3 3 1

Critical Financial Controls - - 2 2 1 -

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110

FY2023 FY2024 FY2025

Support Services Programs

Federal 

Funded 

Capital

NonFederal 

Funded 

Capital

OpE

x

Total 

Spending 

Estimate

Total 

Spendin

g 

Estimate

Total 

Spending 

Estimate

Land Record Management - 1 2 2 2 2

Resource Planning and Processes to Improve Resource 

Adequacy and Cost Tracking - - 1 1 - -

Improvements to Systems Dispatch for Increased 

Reliability and Resiliency - - 1 1 - -

Land Acquisition & Dispute Management - - 1 1 1 -

Financial Management Functions - - 1 1 1 1

Waste Management - - 0 0 0 0

IT OT Collaboration & Analytics - 0 - 0 0 2

Integrated Safety & Operational Management System - 0 0 0 0 0

Safety Equipment - 0 0 0 0 0

Public Safety - - 0 0 0 0

Grand Total 9 10 84 102 92 91

The Renewables Integration, Minigrids, and Generation Studies is a key program within the 

Support Services Portfolio. 

Renewables Integration, Minigrids & Generation Studies

Program Summary:

This program involves completing planning, technical studies, program development, and pilot 

implementation related to support compliance with the IRP and regulatory requirements linked

to renewable integration, distributed energy resources and generation. The activities conducted 

in this program will lead to a coordinated, data-driven approach to the energy transition. 

Program Benefits:

The benefits of this program include: 

▪ Enabling renewable energy integration by guiding customers and developers to areas, 

regions, and nodes where renewable resources will add more value to the grid with 

contained overall cost;

▪ Improving understanding and planning for the impacts of the integration of renewable 

energy sources and new technologies and potential mitigation options; and

▪ Enable the implementation of renewables, distributed energy resources, and potential 

minigrids by ensuring existing system infrastructure is rebuilt to accommodate these new 

sources.

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Projected impact of LUMA’s improvement portfolios

Through its various improvement portfolios, LUMA expects significant improvements in key 

performance metrics, as shown below.

EXHIBIT 44: CUMULATIVE IMPROVEMENTS IN PERFORMANCE METRICS PROJECTED BY LUMA123

123 The performance metrics are subject to the PREB regulatory process and final PREB approval. 

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Chapter 8. LUMA Performance Metrics

Electric utilities operate critical infrastructure and are held to high standards of transparency and 

reporting. This enables effective regulatory oversight, ensures performance is achieved, and 

builds trust between service providers, regulators, customers, and key stakeholders. A set of 

performance metrics is a crucial prerequisite to meet these requirements. LUMA, who has 

assumed the full role of O&M service provider for PREPA’s T&D System as of June 1, 2021, will 

be held to these performance standards. 

LUMA will be evaluated against a set of metrics in three categories: 1) customer service metrics; 

2) technical, safety, and regulatory metrics; and 3) financial performance metrics. These metrics 

enable transparency and help assess whether the negative performance trends observed under 

PREPA (see Chapter 2 for details) have reversed. The metrics LUMA will be reporting on and 

which it will be measured against are outlined in detail in its T&D OMA.124 As part of its work 

during the Front-End Transition period, LUMA has proposed to the Puerto Rico Electric Bureau 

(PREB) any desired revisions to these performance metrics as well as developing baselines and 

performance targets for each. Any modifications proposed by LUMA, including the proposed 

baselines and targets, are subject to final approval by PREB.

To ensure incentives are aligned, LUMA’s compensation is tied to achieving certain target 

thresholds for each of the performance metrics. In other words, LUMA’s performance metrics are 

standards by which LUMA’s performance may be measured and incentives are granted if targets 

are achieved. Incentives will be paid in the form of a variable and capped incentive fee (see Section 

8.2).

The following overview summarizes LUMA’s performance metrics as presented to PREB in the 

revised Annex IX of the T&D OMA. On September 24, 2021, LUMA submitted to PREB a Revised 

T&D OMA Annex IX with a proposed set of performance metrics, baselines, and performance 

targets for PREB to review, modify if appropriate, and approve.125 As of the certification of this 

Certified Fiscal Plan, the proposed Revised Annex IX to the T&D OMA has not been approved by 

PREB and therefore may change in whole or in part. The proceeding is currently ongoing with 

written testimonies submitted and discovery performed. PREB’s procedural calendar for the 

review of LUMA’s performance metrics has changed numerous times over the last 12 months. The 

most recent procedural calendar that was set with the Evidentiary Hearing May 16 through 20, 

2022 was postponed indefinitely until PREB issues a ruling on several outstanding matters that 

would impact the proceeding.

Summary of the T&D OMA performance metrics

T&D OMA normal operation performance metrics

LUMA’s performance for normal operations will be measured by and evaluated against 

performance metrics across three major categories:

124 Annex IX. Performance Metrics. Puerto Rico Transmission & Distribution System Operation & Maintenance Agreement. June 22, 

2020. 

125 Request for Authorization to Submit Revised Pre-Filed Testimony of Melanie Jeppesen, Second Amended Revised Annex IX to 

the OMA, and Redline of Second Amended Revised Annex IX to the OMA. In Re: Performance Targets for Luma Energy ServCo, 

LLC. Case No. NEPR-AP-2020-0025. = September 24, 2021. 

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113

1. Customer service metrics to ensure LUMA is achieving a high-level of customer 

satisfaction across all customer classes

2. Technical, safety, and regulatory metrics to verify LUMA is operating a safe, 

reliable electric grid while remaining compliant with applicable safety, environmental, and 

other regulations

3. Financial performance metrics to ensure LUMA is operating sustainably within the 

Operating and Capital Budgets (both federally funded and non-federally funded)

LUMA’s metrics, by category, and a description are included in Table 6. This overview reflects the 

revised Annex IX of the T&D OMA as filed with PREB on September 24, 2021. As discussed above, 

PREB has not yet approved these proposed performance metrics.

TABLE 6: OVERVIEW OF T&D OMA PERFORMANCE METRICS126

Metric LUMA description

Customer service metrics

J.D. Power Customer 

Satisfaction Survey (Residential 

Customers)

Third party measure of customer satisfaction

J.D. Power Customer 

Satisfaction Survey (Business 

Customers)

Third party measure of customer satisfaction

Average speed of answer 

(minutes)

The average wait time from the moment the customer enters 

the Automated Call Distribution (ACD) queue to the time the 

call is answered by an agent

Customer complaint rate Total annual complaints registered with PREB divided by the 

total number of customers and then multiplied by 100,000 

Abandonment rate The percentage of callers who hang up (abandon) while the 

call is still in the ACD queue

Technical, safety, and regulatory metrics127

Occupational Safety & Health 

Administration (OSHA) 

Recordable Incident Rate 

Total number of OSHA recordable incidents as a result of 

work-related injury

OSHA Fatalities All work-related fatalities

OSHA Severity Rate Total number of work-related injuries with severity days (both 

restricted and lost time days)

OSHA Days Away Restricted or 

Transferred 

(DART) Rate

Total number of OSHA recordable cases with lost-time days 

(away, restricted or transferred)

System Average Interruption 

Frequency 

Index (SAIFI)

Indicates how often the average customer experiences a 

sustained interruption over a predefined period of time

System Average Interruption 

Duration Index 

(SAIDI)

Indicates the total duration of interruption for the average 

customer during a predefined period of time

126 Subject to final PREB approval

127 The descriptions for SAIFI and SAIDI are from the Institute of Electrical and Electronics Engineers (“IEEE”) Guide for Electric 

Power Distribution Reliability Indices IEEE Std. 1366TM-2012.

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Metric LUMA description

Distribution Line Inspections & 

Targeted

Corrections

The number of distribution line inspections

completed, with data recorded in a database for

analysis. Category 0 and Category 1 findings

shall be incorporated in a plan to be addressed

within 60 days of identification.

Transmission Line Inspections 

& Targeted

Corrections

The number of transmission line inspections

completed, with data recorded in a database for

analysis. Category 0 and Category 1 findings

shall be incorporated in a plan to be addressed

within 60 days of identification.

T&D Substation Inspections & 

Targeted

Corrections

The number of distribution and transmission

substation inspections completed with data

recorded in a database for analysis. Category 0

and Category 1 findings shall be incorporated in

a plan to be addressed within 60 days of

identification.

Financial performance metrics

Operating budget Measures ability to stay within budget

Capital budget: federally funded Measures ability to stay within budget

Capital budget: non-federally 

funded 

Measures ability to stay within budget

Overtime Measures ability to manage overtime costs under normal 

operations (excluding emergency events)

Days Sales Outstanding (DSO) -

General Customers

Measures ability to collect bills from general customers

Days Sales Outstanding (DSO) -

Government Customers

Measures ability to collect bills from government customers

The Revised Annex IX includes modifications to the draft Annex IX within the T&D OMA through 

proposed additions, deferrals, and deletions, which are currently under review by PREB and are 

further detailed below. Most deferrals are due to limited or insufficiently accurate operation data 

to develop a baseline or target performance. LUMA’s proposed modifications are under review by 

PREB. Some of these the key deferrals or deletions are further explained below for clarification: 

Deferrals: 

• First Call Resolution (FCR): PREPA’s systems historically did not have the ability to track 

and report FCR. LUMA proposed deferring the calculation and reporting of this metric 

until a new cloud-based Contact Center platform is fully implemented and FCR 

performance tracking can be established. This is currently targeted for Year 2. 

• Customers Experiencing Multiple Interruptions (CEMIN): Due to data quality issues, 

including lack of accurate customer information and lack of customer connectivity in the 

Outage Management System, LUMA proposed deferring CEMIN until after the 

information can be corrected and a baseline accurately determined, currently expected to 

be Year 4.

• Momentary Average Interruption Frequency Index (MAIFI): Due to data availability and 

quality issues, LUMA recommended deferring the MAIFI metric until it can be accurately 

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measured. This requires replacing the Energy Manage System which is currently targeted 

for year 4 or 5.

• Reduction in Network Line Losses: PREPA does not currently allocate losses to the 

components of the system. Such allocation requires the development of an appropriate 

model, as well as additional metering and other measures. This is currently targeted for 

Year 2.

• Customer Average Interruption Duration Index (CAIDI): Proposed eliminating based on 

growing industry concerns that CAIDI is very limited as a performance metric. Since 

CAIDI is the ratio between SAIDI and SAIFI, CAIDI can be misleading because it can 

remain the same even when the SAIDI and SAIFI values decrease.

Most performance metrics in the T&D OMA Annex IX have three (3) calculated performance 

levels; (1) an initial baseline level based on historical operating data or an analysis subject to 

approval by PREB; (2) a target level expected to be achieved over the initial three-year period and 

determined by consideration of past performance, effort and resources required and available to 

achieve performance improvements, including available budgets; and (3) a minimum level for 

eligibility to earn credit towards the Incentive Fee for that particular metric. On the other side, 

four (4) metrics will be binary: OSHA fatalities; operating budget; capital budget: federally 

funded; and capital budget: non-federally funded. For binary metrics, failing to meet the metric 

is equivalent to missing the minimal performance level and LUMA will be ineligible to earn credit 

towards the Incentive Fee through that particular metric. 

A subset of the performance metrics has been designated Key Performance Metrics. If LUMA fails

to meet the determined minimum performance level for any three Key Performance Metrics for 

three consecutive contract years and this failure is not excused by a Force Majeure Event, Outage 

Event, or Owner Fault, then LUMA shall be in a Minimum Performance Threshold Default of the 

T&D OMA. A list of proposed Key Performance Metrics are included in the T&D OMA and are as 

follows: 

1. Customer service metrics: Average Speed of Answer and Abandonment Rate;

2. Technical, safety, and regulatory metrics: OSHA Fatalities, OSHA Severity Rate, 

SAIFI, SAIDI, and Distribution Line Inspections & Targeted Corrections;

3. Financial performance metrics: Operating Budget, Capital Budget: Federally 

Funded, and Capital Budget: Non-Federally Funded. 

T&D OMA Major Outage Event Performance Metrics 

The T&D OMA also includes a set of Major Outage Event Performance Metrics to measure 

LUMA’s performance during a Major Outage Event. For the purposes of the T&D OMA and Major 

Outage Event Performance Metrics, a Major Outage Event is defined as:128

“Major Outage Event” means an event as a result of which (i) at least two hundred 

and five thousand (205,000) T&D Customers are interrupted for more than 15 

128 As stated in Section 2.8 of Request for Authorization to Submit Revised Pre-Filed Testimony of Melanie Jeppesen, Second 

Amended Revised Annex IX to the OMA, and Redline of Second Amended Revised Annex IX to the OMA In Re: Performance 

Targets for Luma Energy ServCo, LLC, Case No. NEPR-MI-2020-0025, September 24, 2021. 

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minutes or (ii) at any point in time during the event, there are one thousand five 

hundred or more (≥1,500) active outage events for the T&D System, which are 

tracked in the Outage Management System (OMS). The major outage event is 

deemed ongoing so long as the interruptions/outages continue to remain above 

the stated cumulative amounts, in each case for a period of twenty-four hours or 

longer (≥24) and are caused by an act of God. If such an act of God is a storm, the 

storm must be designated as a named storm by the U.S. National Weather Service 

or a State of Emergency declared by the Government of Puerto Rico. The major 

outage event shall be deemed to have ended when the cumulative number of T&D 

customers remaining interrupted falls below ten thousand (10,000) for a 

continuous period of eight (8) hours.

The T&D OMA Annex IX metrics for a Major Outage Event and a description of each metric are 

included in Table 7. 

TABLE 7: OVERVIEW OF T&D OMA MAJOR OUTAGE EVENT PERFORMANCE METRICS129

Metric Description

1. Preparation Phase Completion of steps to provide timely and accurate emergency event 

preparation following an alert from U.S. National Weather Service or 

the company's private weather service, in accordance with the 

Emergency Response Plan, for an event expected to impact the 

company's service territory.

2. Downed Wires Response to downed wires reported by municipal public 

Officials

3. Damage Assessment Completion of preliminary damage assessment 

4. Crewing 50% of the forecast crewing [from mutual assistance] committed to the 

utility.

5. Estimated Time of 

Restoration (ETR) for 90% of 

Service Outages

Estimated Time of Restoration for 90% of service outages (made

available by utility on web, IVR, to Customer Service Representatives 

(CSRs), etc.)

6. ETR Accuracy for 90% of 

Service Restoration

Regional ETR accuracy

Municipal ETR accuracy

7. Municipality Coordination Coordination with municipalities regarding road clearing, down wires, 

critical customers, etc.

8.Municipal Emergency 

Operation Centers (EOC) 

Coordination Puerto Rico 

Commonwealth/Federal EOC 

Coordination

Coordination with municipal Puerto Rico Commonwealth and 

Federal EOCs.

9. Utility Coordination Coordination with other utilities (communications, water, etc.)

10. Safety Measure of any employee or contractor injured doing hazard work 

during storm/outage and restoration

11. Mutual Assistance Crew requests made through all sources of mutual assistance or other 

pre negotiated contracts with utility service providers

129 Subject to final PREB approval. 

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Metric Description

12. Call Answer Rates Customer calls answered by properly staffed call centers 

(use of IVR and other technology is an acceptable solution).

13. Web Availability Company’s website, specifically the section pertaining to outage impact 

and restoration, must be available around the clock during a major 

storm event and information must be updated hourly until final 

restoration. In the event no new information is available, the web site 

must display the last time and date that information was updated. The 

web site and/or section pertaining to outage impact and restoration 

may be taken offline for a short period during off peak hours to perform

system maintenance.

14. PREB and Administrator 

(P3A) Reporting

Provide storm event information to PREB and Administrator (P3A) in 

accordance with Electric Outage Reporting System guideline 

requirements to be established in the ERP for LUMA.

15. Customer Communications Availability of press releases, text messaging, email and social media.

16.Outgoing message on 

telephone line

Recorded message providing callers with outage information is 

updated within two hours of communication of press releases.

T&D OMA performance metrics revision cadence

Within LUMA’s Revised Annex IX submission, LUMA proposes that the performance metrics for 

both normal operation and a Major Outage Event, as well as the baseline, target, and minimum 

performance levels, remain through the third contract year. The draft Annex IX proposes fiveyear revision cadence, however given the quality of the PREPA data and the speed of change 

within the first Contract Years of the T&D OMA, LUMA proposed reviewing metrics prior to the 

fifth contract year. Any changes to the performance metrics must be reviewed and may be 

submitted to PREB for approval. 

Incentive Fee calculation approach 

LUMA’s performance in the contract year as measured against the normal operation performance 

metrics shall determine LUMA’s eligibility to the T&D OMA Incentive Fee. Each category of 

metrics is allocated a percentage of the incentive compensation pool and each metric within the 

category is assigned a certain number of base points. Customer service metrics and financial 

performance metrics are allocated 25% of incentive compensation pool each while technical, 

safety, and regulatory metrics are allocated 50%. If LUMA exceeds the minimum performance 

level for a particular metric, LUMA may earn from 25% to 150% of the base point value for that 

metric depending on the extent to which LUMA exceeds the minimum performance level. The 

more LUMA exceeds the minimum performance level, the larger the multiplier on the base point 

value. This process is repeated for all metrics and categories to determine LUMA’s overall point 

score and the corresponding Incentive Fee.130 For the first contract year, performance levels will 

be adjusted proportionately if the service commencement date occurs after the beginning of the 

fiscal year. 

130 Further information on this process and an example Incentive Fee calculation can be found in the OMA at 

https://www.p3.pr.gov/wp-content/uploads/2020/06/executed-consolidated-om-agreement-td.pdf 

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Finally, if any Major Outage Event (including a Major Outage Event that is a Force Majeure Event) 

prevents LUMA from achieving one or more of the normal operation performance metrics, LUMA 

is still entitled to earn the Incentive Fee for the period of the Major Outage Event as long as LUMA 

achieves the Major Outage Performance Metrics during such period of time. 

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Chapter 9. Operational Measures

PREPA Operational Measures 

Overview

Operational measures defined in previous PREPA Certified Fiscal Plans remain imperative for the 

transformation of Puerto Rico’s energy sector. Together, these measures span all aspects of the 

energy service value chain – generation, transmission and distribution, and customer service –

and address chronic issues in electric service reliability, safety, sustainability, and affordability.

Consistent with requirements set forth in PROMESA Section 201(b) and guidance provided by 

the Oversight Board, PREPA, as a covered territorial instrumentality, is required to identify and 

describe operational improvements necessary or beneficial to achieve its fiscal targets and 

advance the energy sector transformation goals described in Chapter 3 (Transformation). The 

Certified Fiscal Plan broadly defines “operational measures” as groups of projects or activities that 

share a common theme and are targeted at revenue enhancement, expense savings and/or 

performance improvements. PREPA must continue working on implementing multiple measures 

for its remaining operations, as it works with P3A to achieve the Commonwealth Government’s 

vision and the Certified Fiscal Plan’s requirements FY 2022.

Key Accomplishments for FY 2022

Over the course of the past fiscal year, PREPA made progress towards several key operational 

measures as part of its transformation. However, much work remains to be done to complete other 

operational measures across PREPA’s generation assets and T&D System. Highlights of key 

accomplishments are presented below.

■ Fuel Procurement: At the beginning of FY 2022, PREPA issued RFPs for both diesel and 

bunker-C and completed the evaluation and selection process by the end of September and 

October, respectively. Both RFPs attracted considerable market interest and resulted in 

improved terms to PREPA when compared to prior agreements

• On October 29, 2021, PREPA executed a $606 million fuel contract with Puma Energy 

Caribe LLC for bunker-C fuel. The contract price adder in the competitively procured 

agreement represents an ~33% price reduction compared to the previous bunker-C fuel 

supply contract. 

• On November 18, 2021, PREPA executed a $265.5 million diesel fuel supply contract with 

Novum Energy Trading Inc. The contract price adder in the competitively procured 

agreements represents a 19% savings when compared to the terms provided by the previous 

diesel supplier, Puma Energy Caribe LLC, which was PREPA’s sole provider of diesel fuel 

since 2014.

■ Renewable PPOA procurement: Although the process is delayed, PREPA selected 18 

projects that represented savings when compared to prior pricing terms achieved through 

non-competitive means. However, all these projects are still pending final negotiations and 

execution and have not commenced construction.

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Overview of PREPA Initiatives for FY2023

As LUMA continues to advance remediation and transformation of the T&D System, and as the 

new Legacy Generation operator begins its transition period, PREPA must continue to implement 

interim initiatives on generation asset-related initiatives, Title III-related financial reporting and 

implementation requirements, and support of Legacy Generation P3 and reorganization efforts 

needed to complete the transformation objectives. 

TABLE 8: FY2023 INITIATIVES

9.1.3.1 RENEWABLE PROCUREMENT

In PREB’s final order on the IRP, it ordered PREPA to develop and execute a plan to procure 

renewable generation and battery storage in a series of six (6) tranches. On February 22, 2021, 

PREPA issued an RFP for up to 1,000 megawatts of renewable power production and up to 500 

MWs of battery storage, incorporating recommendations from PREB and the Oversight Board. 

The RFP solicits proposals for the design, construction, installation, ownership, operation, and 

maintenance of renewable energy resources, energy storage resources, and VPPs for sites across 

Puerto Rico and for a service period of up to 25 years. On February 2, 2022, PREB approved 18 of 

the solar PPOAs recommended by the Evaluation Committee. 

As it relates to the Tranches 2 through 6, PREB has not yet clarified the timeline for issuance of 

these tranches nor certain key details on process. On June 9, 2022, PREB issued a resolution and 

order establishing PREPA and LUMA’s respective roles in any future tranche. Some of PREPA’s 

responsibilities include, but are not limited to: (a) Select one (1) PREPA Governing Board 

member, selected from the members appointed by the Governor at his sole discretion to form part 

of the Selection Committee; (b)Provide guidance and input to the Energy Bureau and PREB-IC 

concerning the lessons learned of Tranche 1 to ensure they are incorporated in future tranches; 

(c)Provide legal advice and resources in ensuring the RFP documents, including the PPOAs to be 

included as part of the RFP and final contracts execution. On the other hand, the roles and duties 

of LUMA include, but are not limited to: (a) Select one (1) LUMA officer, with knowledge and/or 

experience in similar transactions, to form part of the Selection Committee; (b) Provide any data 

and information required by the PREB-IC; (c) Provide guidance and input to the Energy Bureau 

and PREB-IC concerning the lessons learned of Tranche 1 regarding interconnection studies, 

FY2023 Initiative Category Initiative List

1) Renewable Procurement 1.1 Renewable Generation & Battery Storage RFP

2) Fuel Supply

2.1 Fuel Needs and Cost Analysis

2.2 Diesel Fuel Supply Contract

2.3 Bunker Fuel Supply Contract

3)Generation Repair and 

Maintenance

3.1 Federally Funded Generation Capacity

3.2 San Juan Repairs

3.3 Plant Maintenance Program

3.4 Environmental Regulatory Compliance Program

4) Pension Reform 4.1 Pension Plan Reform Implementation

5)PREPA Reorganization and 

Legacy Generation P3

5.1 Legacy Generation P3 Transition

5.2 PREPA Reorganization Implementation

6) Net Metering Program 6.1 Study on Net Metering and DG

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system impacts and other related technical matters to ensure they are incorporated in future 

tranches. Finally, PREB also reiterated that any final decisions required during the RFP process 

shall be determined by the PREB and that PREPA and LUMA’s roles shall in no manner delay the 

RFP process.131

TABLE 9: RENEWABLE PROCUREMENT – REVISED POTENTIAL TIMELINE

Projects # Milestones Proposed Deadline

Renewable Generation 

& Battery Storage RFP

1 Execute Tranche 1 RFP PPOA’s approved by PREB and FOMB Q1 FY2023

2 Issue RFP for Tranche 2 Q1 FY2023

3 Issue RFP for Tranche 3 Q3 FY2023

4 Issue RFP for Tranche 4 Q1 FY2024

5 Issue RFP for Tranche 5 Q3 FY2024

6 Issue RFP for Tranche 6 Q1 FY2025

9.1.3.2 FUEL SUPPLY

PREPA’s current Light Distillate No. 2 Fuel Oil (“diesel”) and bunker fuel (“HFO”) supply and 

delivery contracts expire on October 29 and November 18, 2022, respectively, but include an 

optional one-year extension under the same terms and conditions as the current contracts. In 

light of this, prior to issuing an RFP for future diesel and HFO contracts, PREPA must analyze 

whether a competitive procurement process is expected to yield more favorable results than those 

that PREPA would maintain if it elected to extent the existing agreements. Should PREPA 

conclude a competitive procurement process would be most beneficial, it must endeavor to begin 

such process as early as possible, as reflected in Table 10 below.

TABLE 10: FUEL SUPPLY ACTION PLAN

131 Resolution and Order, Roles of PREPA and LUMA in the Procurement Process for Upcoming Tranches, In Re: The

implementation of the Puerto Rico Electric Power Authority integrated resource plan and modified action plan, Case No. NEPRMI-2020-0012, June 9, 2022

Projects # Milestones Proposed Deadline

Diesel Fuel Supply 1 Begin Fuel Needs & Cost Analysis May 2022

2 Begin competitive process to award a new contract for diesel fuel 

supply, if determined to be in PREPA’s best interest.

June 2022

3 Finalize competitive process to award a new contract for diesel 

fuel supply, if determined to be in PREPA’s best interest.

September 15, 2022

4 Finalize agreement with selected supplier and seek approval to 

execute the contracts with the PREPA Governing Board and the 

Oversight Board

October 31, 2022

5 Current contract expires November 18, 2022

6 Commence new contract November 19, 2022

Bunker Fuel Supply 1 Begin Fuel Needs & Cost Analysis May 2022

2 Begin competitive process to award a new contract for bunker fuel 

suppliers, if determined to be in PREPA’s best interest

June 2022

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9.1.3.3 GENERATION PLANNING AND MAINTENANCE

During FY 2023, PREPA will undertake measures to execute on critical maintenance work for 

generation plants and implement performance improvement projects. PREPA’s necessary 

maintenance plan for FY2023 was prepared against the backdrop of the forced outages and 

ensuing blackouts during 2021 that impacted nearly all of Puerto Rico, along with recent ongoing 

outages, including the most recent island-wide blackout in early April 2022, as well as ensuring 

that the legacy generation system can achieve a minimum level of reliability, stability, compliance, 

and ability to maintain sufficient reserves to avoid severe outage incidents. 

PREPA’s Governing Board, approved an emergency declaration on October 8, 2021 authorizing 

the use of emergency procurement procedures to: (i) address immediate repairs; (ii) support 

scheduled maintenance programs; and (iii) maintain necessary reserves to avoid future major 

plant outages. 

EXHIBIT 45: REVISED & UPDATED MAINTENANCE SCHEDULE

GenCo’s Outage Schedule

Unit Capacity Outage Schedule Timeline

SJ CC 5 2020 NA

SJ CC 6 220 NA

SJ 7 100 March 2023 – June 2023

SJ 8 100 November 2022 - January 2023

SJ 9 100 October 2022 – November 2022

SJ 10 100 NA

PS 3 6216 January 2023 – April 2023

PS 4 216 May 2023 – June 2023

CS 5 410 November 2022 – February 2023

CS 6 410 May 2023 – June 2023

AG 1 450 NA

AG 2 450 March 2023 – April 2023

One of the key areas of focus for planned maintenance for FY2023 is the projects at the San Juan 

Combined Cycle Power Plant, units 5 and 6, which are PREPA's most modern base load units with 

the capability to burn diesel or natural gas. Both units supply roughly 35% of load for the north 

region and 15% for the rest of the island with efficient, environmentally compliant, and reliable 

energy. These units are fueled with natural gas, which offers a reduction of 90% in SO2 emissions 

rates compared with diesel fuel oil within an area classified by the U.S. Environmental Protection

Projects # Milestones Proposed Deadline

3 Finalize agreement with selected supplier and seek approval to 

execute the contracts with the PREPA Governing Board and the 

Oversight Board

August 31, 2022

4 Current contract expires October 29, 2022

5 Commence new contract October 30, 2022

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Agency (EPA) as a non-attainment area. Potential emissions from other pollutants such as PM, 

PM10, PM2.5, H2SO4, NOx, and CO were also reduced due to the implementation of the San Juan 

5 and 6 natural gas conversion, and the emission limits accompanied by these efforts. The 

reliability and availability of San Juan Units 5 and 6 is critical to maintain a stable and efficient 

electrical system. By running San Juan Units 5 and 6 at higher capacity factors with natural gas, 

PREPA has been able to reduce its reliance on other generating units that consume heavy fuel oil, 

yielding additional emissions reductions. With these units, PREPA can achieve significant 

reductions in air emissions, at lower generation costs. 

PREPA is planning to perform major maintenance and repairs on San Juan unit 6 during FY 2023, 

after the peak summer months have passed. Furthermore, PREPA plans to complete the necessary 

Installation of Modules D & E, Heat Recovery Steam Generator and the Supply and the 

Installation (Replacement) of the Online Condenser Cleaning System of Unit 5.

PREPA’s maintenance plan will also address the Hydrogas and Cambalache Division power 

plants, which includes the 220MW of capacity at Mayagüez, 248MW of capacity at Cambalache 

(165MW excluding Unit1), and 378MW of capacity from the 18 Frame 5 peaking and emergency 

backup units distributed across the island at various power plant complexes and distributed 

peaking facilities. PREPA routinely faces capacity limitations and a total lack of availability at 

these power plants, and units, which are responsible for immediate emergency response and 

electrical grid restoration during load sheds and after blackouts. Greater availability of these units 

could have mitigated or avoided altogether the most recent blackout event that occurred starting 

on April 6, 2022. PREPA FY 2023 Generation NME Budget includes major inspection, 

maintenance, and repairs at most of the Division’s facilities, including annual costs of the LTSA 

for Cambalache and specific projects for maintenance of Mayagüez and the 18 Frame 5 peaking 

units. Maintenance and repairs costs at Mayagüez also include expansion of water 

demineralization capacity to ensure adequate production availability for the full plant operation.

Natural Gas Generation

PREPA is evaluating the use of federal funding to install new base load gas powered generation in 

the North of the island to improve reliability, allow for orderly integration of renewables, and 

lower overall generation costs for the benefit of Puerto Rico. PREPA is also evaluating the 

expansion of certain units’ capability to use natural gas with federal funding. To that end, on 

February 11, 2022, PREPA submitted a motion before PREB titled Petition for Leave to Conduct 

Works in PREPA’s Steam Units to Achieve Environmental Regulatory Compliance, on PREB 

docket no. NEPR-MI-2021-0002. 

PREPA is seeking leave from PREB to pursue the conversion of San Juan units 7-10 to natural gas 

as a potentially necessary step to achieve attainment with the 2010 1-Hour SO2 National Ambient 

Air Quality Standard (NAAQS) in the San Juan air district. Doing so would enable PREPA to avoid

costly sanctions and achieve compliance with the Mercury and Air Toxics Standards (MATS) 

required by EPA, 40 CFR 63 Subpart UUUUU - National Emission Standards for Hazardous Air 

Pollutants. The MATS became effective on April 16, 2012, at the San Juan site, if the IRP 

renewable deployment schedule is delayed.

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9.1.3.4 PENSION REFORM 

Please refer to Chapter 15 (Pension Reform) for a detailed discussion regarding the challenges 

faced with PREPA's employee retirement system

9.1.3.5 PREPA REORGANIZATION AND LEGACY GENERATION P3

To achieve Puerto Rico’s energy system transformation, a change in PREPA’s historical roles and 

responsibilities and their reassignment through multiple entities is imperative. Accordingly,

PREPA’s vertically integrated operations to be disaggregated into Generation and T&D utility 

functions – GenCo and GridCo, respectively. GenCo is comprised of existing PREPA-owned 

generation resources that are to be operated and maintained by one or more private operators 

until their retirement, as mandated by Act 17-2019132 and outlined in PREPA’s approved 

Integrated Resource Plan. In addition to the selection of LUMA as the T&D operator, Puerto Rico’s 

transformed energy sector also rests on the GenCo private operator(s) as the party responsible 

for, among other activities, the operation and maintenance of existing PREPA-owned generation 

resources, environmental compliance, safety, and plant retirement and decommissioning. 

Additionally, the private operator(s) will be responsible for working closely with LUMA to ensure 

appropriate short-, mid-, and long-term system planning and timely and efficient execution of 

system-wide capital improvements. As such, on November 10, 2020, the P3A issued a RFP to 

select one or more private operators for PREPA’s existing generation assets. (See Chapter 3)

In addition to the measures outlined above, PREPA must play an integral role in the Front-End 

Transition to the legacy generation P3 O&M service provider in FY 2022, in accordance with the 

milestones and requirements specified in the O&M agreement. In FY2023, PREPA must continue 

to advance and complete corporate reorganization activities (see Table 11 below for objectives and 

milestones). 

TABLE 11: GENERATION FRONT-END TRANSITION AND REORGANIZATION PLAN

Projects # Milestones 

Proposed

Deadline

Front-End 

Transition to Legacy 

Generation P3 

Service Provider

1 Formation of teams and development of plans to prepare 

the organization for financial, operational, and legal 

transition 

July 1, 2022

2 Complete all other conditions and requirements before 

Service Commencement Date

TBD133

PREPA 

Reorganization Plan 

Implementation 

1 Submit subsidiaries for approval by PREB July 31, 2022

2 PREB to issue its determination on the creation of the 

subsidiaries

August 30, 2022

3 Submitting an updated work plan with detailed dates 

and workstreams.

August 30, 2022

4 Finalize the creation of the subsidiaries: GenCo, GridCo, 

HydroCo, PropertyCo and HoldCo (including defined 

roles and responsibilities)

August 30, 2022

5 Finalization and execution of the GGHOA September 30, 2022

6 Transferring of Assets (capital agreements) February 28, 2023

132 The Puerto Rico Energy Public Policy Act, Act No. 17 of April 11, 2019

133 Subject to the milestones for service commencement once the OMA is signed.

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9.1.3.6 STUDY ON NET METERING AND DISTRIBUTED GENERATION 

As provided in Act 114-2007, as amended by Act 17-2017, existing customers who have installed 

distributed generation (i.e. rooftop solar) systems and who participate in the net metering 

program are entitled to receive a credit for the excess energy exported to the grid that is equal to 

the cost of the energy purchased from the grid. On other words, the energy exported to the grid is 

purchased by LUMA at the same price (the prevailing retail electricity rate) as the energy 

purchased by the customer from LUMA. Under Act 17-2019, this same compensation and credit 

structure will apply to new net metering customers, at least until April 11, 2024 (5-years from the 

enactment of Act 17-2019), and until PREB concludes a study on net metering and distributed 

energy and issues a determination establishing a new net metering compensation and crediting 

structure. 

While renewable DG provides unquestionable benefits to rooftop solar customers and the system 

as a whole, a sub-optimal net metering program may have unintended detrimental effects and 

risks an unequitable distribution of costs throughout the system. Similarly, by requiring LUMA 

to purchase the excess energy produced by net metering customers at the prevailing energy rate, 

the effective cost to ratepayers of the renewable energy generated by net metering customers may 

be higher than the cost of purchasing that same quantity of electricity from other resources. As of 

June 2022, LUMA was required to pay $0.28 for each kWh of energy exported to the grid by net 

metering customers, a cost that is then passed on, on whole or in part, to all other remaining 

customers. 

Accordingly, as required by Act 17-2019, PREB must commence the net metering and distributed 

generation study contemplated in Section 4 of Act 114-2007, as amended by Act 17-2019, which 

study must be concluded by June 30, 2023. Thereafter, PREB must initiate a process for 

implementing the conclusions and recommendations of the study and updating a net metering 

compensation and crediting structure, which process must be concluded on or before April 11, 

2024, with the updated net metering structing coming into effect on that same date. 

TABLE 12: STUDY ON NET METERING AND DISTIRBUTED GENERATION

LUMA Operational Measures

In April 2022, LUMA submitted its Annual Budgets and update to the SRP to PREB for approval. 

These filings are closely interrelated and are aligned through LUMA’s Recovery and 

Projects # Milestones

Proposed 

Deadline

Responsible 

Party

Study on Net 

Metering and DG

1 Conclude study on net metering and distributed 

generation required by Section 4 of Act 117-2007, as 

amended by Act 17-2019

June 30, 2023 PREB

2 Conclude administrative proceeding to establish 

updated net metering compensation and crediting 

structure 

On or before April 

11, 2024

PREB

3 Implement updated net metering compensation and 

crediting structure

April 11, 2024 PREB

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Transformation Framework. The Framework seeks to align T&D System O&M Services with 

current Puerto Rico public energy policy.

The activities proposed within LUMA’s filings aim to improve safety for utility employees and the 

people of Puerto Rico (including better training and safety equipment), improving customer 

experience, including faster response and resolution times, greater service reliability, and overall,

more effective delivery of utility services. LUMA also anticipates it will complete significant 

remediation and improvement work to the utility grid across Puerto Rico, while driving 

operational excellence through system measures. Further, the activities described in LUMA’s

filings will lay the groundwork for grid modernization, digital transformation, and renewable 

energy integration called for in Act 17-2019134, as well as this and prior Certified Fiscal Plans, and 

outlined in the Modified Action Plan of PREPA’s Integrated Resource Plan (IRP).

The information presented below is a summary of the initiatives included in LUMA’s Annual 

Budgets and SRP. LUMA’s improvement programs have been organized into portfolios of similar, 

interdependent programs that together cover all functional areas of the utility. The following 

overview describes the seven (7) portfolios at a high level. 

The customer service portfolio includes a set of programs to improve customer service 

through modernized customer service technology, improve billing systems, implement advanced 

metering infrastructure, establish a “Voice of the Customer” program, and upgrade and replace 

distribution streetlights. 

The distribution portfolio includes improvements to the distribution system, including 

overhead and underground distribution line rebuilds, pole and conductor repairs, system 

inspections, spot repairs and replacements as needed, and implementation of technology that 

enables better planning.

The transmission portfolio includes improvements to the transmission system, including line 

rebuilds and hardening, priority pole replacements, system inspections and spot repairs with 

replacements as needed, and improved transmission monitoring systems, as well as 

telecommunications investments to improve first responder and emergency response 

communication and centralized monitoring and control. 

The substations portfolio includes investments to rebuild, harden, and modernize 

transmission and distribution substations, including physical security upgrades, and studies to 

eliminate major cascading outages and ensure system compliance with codes and regulations. 

The control center & buildings portfolio includes investments in rebuilding damaged 

facilities, upgrading security systems, and implementing energy and advanced distribution 

management systems that enable renewable energy, demand response, and battery storage 

integration and dispatch. 

The enabling portfolio includes a number of safety and operational excellence programs and 

initiatives including the provision of new tools and Personal Protective Equipment (PPE), skills 

and safety training for all employees, a new program management office to plan and execute large 

134 The Puerto Rico Energy Public Policy Act, Act No. 17 of April 11, 2019.

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capital projects, a new data system to manage T&D asset data, and vegetation and fleet 

management. 

The support service portfolio includes cross-functional programs that service all 

departments, such as Human Resources (HR), IT / OT, and finance. This portfolio also includes 

studies on renewables integration and minigrids.

More details on the improvement portfolios, including a summary of annual spending estimates 

for each portfolio for FY 2022 through FY2024, are provided in Chapter 7 (LUMA Improvement 

Portfolios). 

As part of LUMA’s obligations under the T&D OMA, LUMA has assumed reporting of certain 

statistics related to the T&D System and system planning. LUMA reports these statistics along 

with PREPA’s generation related statistics to PREB quarterly as part of PREB’s review of the 

Performance of the Puerto Rico Electric Power Authority within docket NEPR-MI-2019-0007. 

Since commencement, LUMA’s implementation of improvement programs described within the 

seven portfolios and in Chapter 7 (Improvement Portfolios), has resulted in several improvements 

to system statistics include faster customer service with wait times both for customers visiting one 

of LUMA’s 25 customer service centers and for those calling one of LUMA’s on-island customer 

contact centers. LUMA answered calls 94% faster than the first quarter of FY 2022 and reducing 

wait times at customer service centers by 25%. Further, during the second quarter of FY 2022, 

LUMA received 44% fewer customer complaints, the lowest number in Puerto Rico since Act57-

2017 complaints started to be recorded. LUMA has also put into service more than 590 vehicles 

enabling crews to attend outages quicker and have provided modern and functional tools and 

personal protective equipment for its employees as well as over 50,000 hours of safety and 

technical training for LUMA employees to enable them to perform the work safely and more 

effectively.

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Chapter 10. Legal and Regulatory Structure

Overview of Regulatory Structure and Key Legislation

Historical Context 

For much of its history, PREPA was structured as an unregulated monopoly, it did not have a 

strong, independent third-party regulator. The successful transformation of Puerto Rico’s energy 

sector into a safe, reliable, affordable, and modern system depends on the presence and active 

involvement of a rational, politically independent, and professionally supported regulator. The 

utility industry has long recognized that an independent regulator is critical to overseeing the 

performance of utility energy service providers and protecting the interests of consumers. The 

regulator plays a vital role in ensuring that: (i) energy rates are just and reasonable; (ii) targets 

for quality of service, efficiency improvement, and renewable resources are met; and (iii) capital 

spending programs are implemented on time and budget. 

The Puerto Rico Energy Bureau (PREB) was established by Act 57-2014 as an independent and 

professional regulatory body to promote and enable the transparent implementation of Puerto 

Rico’s energy policy. Act 57-2014 also established standards and procedures for PREB to assess 

and approve electricity rates, requiring that rates be “just and reasonable, as well as consistent 

with sound fiscal and operational practices which result in a reliable service at the lowest 

reasonable cost.”135

As Puerto Rico’s energy sector continues its transformation into a reliable, sustainable, modern 

and efficient system, PREB will be responsible for promoting prudent investments, assuring 

increased quality of service to customers, and ensuring industry trends and technological 

advancements are appropriately incorporated into Puerto Rico’s energy system.136 To fully 

achieve its purpose, PREB must remain financially and operationally independent from the 

Commonwealth Government and its determinations must be free from any direct or indirect 

political influence or interference.

Several legislative acts have strengthened the regulatory framework and empowered PREB with 

greater authority and independent administrative budget, setting forth ambitious goals for private 

sector operations and revitalization of the energy sector. 

Act 17-2019

Act 17-2019 established a comprehensive energy policy that sets forth aspirations for the 

transformation of Puerto Rico’s electric sector and establishing regulatory guidelines for the 

realization of these goals. Key tenets and requirements of the Act include:

■ Unbundling – Functional Reorganization: The Act requires the unbundling of the 

electric system through the transfer of operation and maintenance responsibilities of PREPA’s 

transmission and distribution (T&D) and generation assets to private operators, thereby 

ending PREPA’s existing vertically integrated monopoly.

135 Act 57-2014, as amended.

136 Ibid.

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■ System modernization and renewable energy: Along with promoting grid resiliency 

through the development of microgrids for critical loads and facilities, the Act strongly 

promotes renewable energy and distributed generation. It updates Puerto Rico’s Renewable 

Portfolio Standard (RPS) (e.g., 40% by 2025, up from 20%; 60% by 2040, and 100% by 2050), 

allows faster permitting and interconnection for residential renewable projects, and mandates 

the elimination of coal-fired generation by January 1, 2028.

■ Expanded PREB authority under Puerto Rico law: The act confirms PREB’s role as an 

independent, apolitical regulator and expands its authority to (i) establish mechanisms for 

imposing incentives/penalties, (2) exercise a high degree of scrutiny over the maintenance of 

the electric network, (3) require reporting on the state of the electricity systems, and (iv) use 

alternative mechanisms to regulate tariffs based on service costs. The act also delineates 

PREB’s annual budget of $20 million and makes it clear that this budget is not subject to 

executive or legislative approval. In addition, PREB is currently mandated to transition from 

its current employee structure to one with no less than 75% civil servant employees and no 

more than 25% trust employees.137

PREB’s Organizational Structure

Although administratively located within the Public Service Regulatory Board (PSRB), PREB is a 

functionally independent entity (Exhibit 46). PREB is comprised of five commissioners and 

makes decisions with majority approval. Commissioners are appointed by the Governor with the 

advice and consent of the Puerto Rico Senate and serve staggered terms.138 Commissioners must 

meet certain requirements relating to professional education and experience to hold their position 

and can only be removed for just cause.

EXHIBIT 46: PREB REGULATORY STRUCTURE

137 See Act 17-2019, Section 5.13 amending Section 6.7(k) of Act 57-2014. 

138 PREB has its full slate of five commissioners, including the Chairman, in place. Under Act 57-2014, as amended, the terms are: 

The Chairman shall hold office for six (6) years, two (2) commissioners for four (4) years; and two (2) commissioners for two (2) 

years. The successors of all commissioners shall be appointed for six (6) year terms.

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Key Regulatory Issues

PREB’s statutory mandate as an independent regulator is to promote an efficient, reliable, 

resilient, and customer-responsive energy system. As such, PREB’s primary responsibilities 

include (1) rate setting, (2) Integrated Resource Plan (IRP) approval and compliance, (3) 

protecting the interests of customers and consumers, and (4) ensuring workforce safety. 

Pursuant to its enabling act, as amended, PREB is responsible for the oversight and 

implementation of Puerto Rico’s energy public policy, including the various transformations 

currently under way with PREPA’s T&D System and the legacy generation assets. Some of PREB’s 

more important responsibilities include: 

■ Oversight & Execution – exercising direct oversight responsibilities of, and ensuring 

execution by, all energy market participants (including the T&D operator, operators of 

existing generation assets and current and new independent power producers, etc.) to ensure 

full compliance with energy public policy goals as mandated by law. This includes (a) 

overseeing the quality and reliability of the electric power services provided by PREPA, LUMA,

and any other electric power company certified in Puerto Rico, and (b) formulating and 

implementing strategies to achieve the objectives of Act 57-2014 as amended by Act 17-2019, 

including, but not limited to, reducing and stabilizing energy costs permanently, controlling 

volatility in the price of electricity in Puerto Rico, and ensuring that prices are fair and 

reasonable, consistent with the public interest, and compliant with the parameters established 

by PREB through regulations. 

■ Rates and Resource Planning – reviewing rates and approving those found to be just and 

reasonable, ensuring expenditures in the energy system are prudent and consistent with 

energy public policy, and ensuring appropriate long-term resource planning through the 

periodic review and updates of IRPs and other capital investment plans. 

■ Transparency – requiring any electric power service company certified in Puerto Rico to 

keep, maintain, and regularly submit to PREB those records, data, documents, and plans that 

are necessary to attain the public policy objectives of Act 57-2014, as amended by Act 17-2019. 

■ Renewable energy portfolio standards – supporting investments in generation and 

related resources directed at reaching Puerto Rico’s RPS of 40% by 2025, 60% by 2040, and 

100% by 2050. Following PREPA’s delay in conducting the renewable energy resource 

procurement processes, PREB will also execute the second tranche and future renewable 

generation procurements through an independent coordinator.139

■ Net metering – establishing and periodically updating Puerto Rico’s net metering program 

so that it both promotes cost-effective investment in renewable energy systems and ensures 

appropriate recovery of costs among customer classes.

■ Wheeling and cost unbundling – establishing and enforcing the rules and regulations for 

the unbundling of PREPA costs and the proposal of new industry structures to introduce 

competition among generators to provide services, primarily to large industrial customers.

139 PREB Resolution & Order issued on October 29, 2021. See NEPR-MI-2020-0012.

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■ Contributions in lieu of taxes (CILT) – ensuring full compliance by PREPA and the 

municipalities with the establishment of CILT-eligible consumption levels and the billing, 

collection, and payment of amounts relating to electricity consumption by municipalities in 

excess of the CILT-eligible consumption levels. On October 22, 2020, PREB completed and 

approved the study for the Puerto Rico Legislature on alternatives for optimizing the value 

and benefits of the CILT structure to municipalities and PREPA, as required by Act 17-2019. 

PREB completed and approved the study for the Puerto Rico Legislature on alternatives for 

optimizing the value and benefits of the CILT structure to municipalities, as required by Act 

17-2019.

140

■ Energy Efficiency (EE) – adopting regulation to establish framework promoting the 

adoption of energy efficiency measures in a manner that enables Puerto Rico an opportunity 

to reach the goal of thirty percent (30%) cumulative reduction in energy usage from energy 

efficiency by 2040 compared to PREPA’s FY 2019 net utility sales, using an array of energy 

efficiency programs that will be available to all customer classes, including municipalities. 

PREB adopted a regulation for Demand Response (DR) on December 10, 2020, and EE on 

January 21, 2022. The adopted DR and EE regulations utilize similar program approaches for 

development, administration, implementation, and funding. PREB has resolved that LUMA 

should launch pilot programs no later than July 1, 2022. Formal first three-year EE Plans shall 

be filed triennially on March 1 and cover three-year periods, beginning on March 1, 2024.

Currently, PREB is the power sector’s regulator and obtains its powers from the Legislature. 

The Oversight Board has ultimate responsibility under PROMESA on Certified Fiscal Plan and 

budget issues for the Commonwealth, PREPA, and other covered territorial instrumentalities. 

PROMESA provides the Governor and Legislature may not enact or implement any statute, 

regulation, policy, or rule that impairs or defeats the purposes of PROMESA as determined by 

the Oversight Board. Because PREB is a territorial entity, it is subject to the same constraints 

as state agencies and public corporations. Therefore, in the event PREB’s actions impair or 

defeat PROMESA’s purposes, as determined by the Oversight Board, the Oversight Board can 

enforce PROMESA’s constraints by directing PREB and seeking judicial intervention when 

necessary. To ensure PREB becomes a best-in-class regulator, the Oversight Board has 

included a few structural changes in the 2022 Commonwealth Certified Fiscal Plan.

141

Guiding Principles for Ratemaking

To achieve an optimal rate structure, PREB is required by law to consider the following nonexhaustive set of guiding principles for Ratemaking:142

■ Just & Reasonable: PREB must ensure that rates are just and reasonable and consistent 

with sound fiscal and operational practices which result in a reliable service at the lowest 

reasonable cost

140 Investigation Into Contribution in Lieu of Taxes. Case No. NEPR-IN-2019-0003, October 22, 2020.

141 2022 Commonwealth Certified Fiscal Plan, Chapter 10, “Power Sector Reform”

142 PREB’s authority to review rates and approve modifications or temporary adjustments are established under Section 2.8 of Act 

57-2014, which amends Section 6(B) of Act 83-1941. 

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■ Fiscal responsibility: Rates must be sufficient to cover payment of, among other things,

fuel and purchase power costs, and the costs of electric utility operations, including operating 

costs, capital requirements, and other obligations.

■ Affordability: The Ratemaking process should account for customer socioeconomic factors 

(e.g., consideration of subsidies and other cost-allocation measures).

■ Cost causation/cost of service allocation: Customer electricity rates are based on the 

cost of providing service to a specific type or class of customer, except where otherwise 

mandated by law (e.g., subsidies for low income, hotels, senior citizens).

■ Transparency: Rate components and calculation methodology must be clearly 

communicated (fixed monthly and volumetric customer consumption), providing customers 

with detailed information on the costs covered by rate components. 

■ Policy alignment: Customer behavior is incentivized to be consistent with energy public 

policy (e.g., promote improvements in energy efficiency, reward customers for reliability 

benefits associated with customer-owned resources, encourage achieving renewable portfolio 

standards). 

PREPA’s Current Rate Structure

The current rate structure was established and approved within PREB’s Resolution and Order in 

case CEPR-AP-2015-0001 dated January 10, 2017143. The Initial Budgets, and the now proposed 

Annual Budgets filed by LUMA with P3A and PREB on April 1, 2022, were within the limits of the 

base rate approved by PREB and implement methodologies consistent with riders associated with 

the 2017 Rate Order. LUMA is not seeking a base rate increase or revision in connection with or 

because of the LUMA Annual Budgets. The 2022 Certified Fiscal Plan’s FY2023 through FY2025

expense forecast reflects LUMA’s Annual Budgets as proposed to P3A and PREB on April 1st, 

2022.

Overview of PREB-Approved Rates

The 2017 rate order establishing PREPA’s new rate structure marked a meaningful step toward 

greater transparency by separating CILT and subsidy riders from the fuel and purchased power 

rate components. In FY2023, the projected rate components 5% for CILT and other subsidies, 

24% for base rate, including utility operating and maintenance costs, and 71% for power 

generation costs (

143 Amended in part and affirmed in part on March 8, 2017.

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EXHIBIT 47). 

EXHIBIT 47: FY 2023 OVERALL RATE COMPOSITION 

Significant work remains to achieve a rate structure that covers relevant operational, 

maintenance, and capital expenditures for the benefit of customers and consumers while also 

encouraging sustainable economic development. The regulatory reform that has been set in 

motion will allow Puerto Rico’s electric system to better serve its customers reliably and cost 

effectively. 

Overview of CILT Reform

The Government of Puerto Rico has made significant changes in the treatment of the CILT by 

enacting Act 57-2014 and Act 4-2016. Under the revised rate structure, PREPA recovers the cost 

of CILT via the CILT and a subsidies rider on customer bills. The CILT rider provides greater 

transparency and accountability for customers and establishes incentives for improved municipal 

energy efficiency. Any additional reductions or amendments would require further legislation. 

Actions taken to implement CILT reform include the following:

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• Transparent billing: CILT costs are shown as a separate line item in customer bills.

• New treatment for ineligible service accounts: Removed municipal for-profit and 

other ineligible entities from receipt of the CILT electric service credit. 

• Municipal consumption cap: Legally established total consumption (kWh) cap was 

implemented during FY 2017 on the municipal CILT per municipality and reduced by 15% 

over following three fiscal years (5% each year). 

• Energy efficiency incentives: A mechanism that promotes energy efficiency and 

additional savings above the mandated total consumption cap imposed on municipalities 

by Act 57-2014; municipalities would receive a payment from PREPA for the value of the 

difference between the mandatory total consumption cap and actual consumption, which 

would only be payable if all municipalities, in the aggregate, comply with their respective 

caps.

In FY 2021, the CILT rider amounted to approximately 2% of the average customer rate. 

• Excluded Consumption and Consumption Above the Consumption Cap: In FY 2017, the 

first year of the CILT consumption cap, municipalities’ consumption in excess of the 

eligible consumption cap and consumption at ineligible (e.g. “for-profit”) facilities was 

approximately $20 million. In FY 2020, this figure declined to $17.0 million and declined 

further in FY 2021 to approximately $12.8 million.

• Eligible Consumption Below the Consumption Cap: The total cost of eligible municipal 

consumption declined from $81.0 million in FY 2017 to $63.9 million in FY 2020. Actual 

municipal consumption during FY 2020 was 279 million kWh, 23% below the cap of 363 

million kWh. During FY 2021, the eligible municipal consumption decreased further to 

$63.9 million and 271 million kWh, 25% below the cap.

Act 17-2019 required PREB to study “the implementation, effectiveness, cost-benefit, 

reasonableness, and economic impact of the contribution in lieu of taxes (CILT)” to determine the 

need for reform. Specifically, under Section 1.18 thereof, PREB was required to conduct a study 

on the implementation, effectiveness, cost-benefit, reasonableness, and economic impact of the 

CILT to determine the need and convenience, if any, of reforming this mechanism and the 

subsidies. The results of this study were completed by October 2020 and published144 and 

submitted to both Houses of the Legislative Assembly for contemplation and consideration of any 

necessary legislation145. 

The key milestones completed for CILT reform are described in brief below:

• October 21, 2020: as required by law, PREB completed, and its commissioners 

approved, the study regarding the implementation, effectiveness, cost-benefit, 

reasonableness, and economic impact of CILT and other subsidies.

• December 15, 2020: PREPA completed development of a process to categorize properly 

municipal accounts as eligible or ineligible for CILT and has implemented the process for 

municipalities to pay for electricity consumption not covered by CILT and to file 

complaints related to CILT before PREB.

144 https://energia.pr.gov/wp-content/uploads/sites/7/2020/10/Resolucio%CC%81n-y-Orden-NEPR-IN-2019-0003.pdf

145 Act 17-2019, Section 1.18

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The Role of PREB and Regulatory structure after T&D 

transformation

Pursuant to Act 57-2014, as amended, PREB has jurisdiction over PREPA and all other electric 

service companies operating in Puerto Rico. Act 17-2019 broadened PREB’s authority and 

increased its budget substantially. Of particular relevance to the ongoing transformation efforts, 

Act 17-2019 entrusts to PREB oversight responsibility for electric system planning and operation, 

including the evaluation and approval of IRPs, and for approval of power purchase agreements 

and of Partnership Contracts implementing the transformation process defined in Act 120-2018. 

Under the T&D OMA, LUMA is the agent for PREPA in regulatory proceedings before PREB 

related to T&D O&M Services and in making all relevant required filings and applications for 

Governmental Approvals.

146 For the avoidance of doubt, LUMA does not set the energy policy of 

Puerto Rico. Furthermore, the T&D OMA requires LUMA to comply with the public policy and 

regulatory framework for transforming the Puerto Rico electric system. LUMA is required to 

interact, support, work, and comply with PREB on several processes and roles including, but not 

limited to, (1) rate cases, (2) IRPs, (3) power purchase agreements (PPAs), (4) environmental 

compliance, (5) energy efficiency mandates, (6) renewable portfolio standards, (7) resource 

procurement (e.g., support through interconnection studies), and (8) customer complaints.

The T&D OMA further guarantees that PREB retains all rights, responsibilities or authority over 

the T&D System, Owner, or Operator.147 PREB’s regulatory authority and oversight, as outlined 

and summarized in this chapter, is and will continue to be, highly relevant for LUMA, and for any 

other private operator that may be selected as part of the ongoing PREPA legacy generation O&M 

public-private partnership. The safeguards provided by a strong, independent regulator like 

PREB will remain firmly in place following the T&D transformation.

Federal Environmental Law Requirements & Compliance

As an electric utility, PREPA must comply with different environmental laws and regulations, 

including the Clean Air Act (CAA), which is the comprehensive federal law that regulates air 

emissions from stationary and mobile sources. Among other things, this law authorizes EPA to 

establish the national ambient air quality standard (NAAQS) to protect public health and public 

welfare and to regulate emissions of air pollutants, including hazardous air pollutants.

Under Section 107(a) of the CAA, each state, territory, or local air district has the primary 

responsibility for submitting a state implementation plan (SIP) for specifying the manner in 

which NAAQS will be achieved and maintained within each of its air quality control regions. 42 

U.S.C. § 7407(a). The CAA also requires that the EPA review and approve SIPs that meet the 

requirements of the Act. In the case of Puerto Rico, compliance with the CAA requires the 

146 Puerto Rico Transmission and Distribution System Operation And Maintenance Agreement, p. 66, Section 5.6: System 

Regulatory Matters. (a) General. From the Service Commencement Date and during the duration of the Term thereafter, Operator 

shall function as agent of Owner, and Owner hereby irrevocably authorizes Operator to (i) represent Owner before PREB with 

respect to any matter related to the performance of any of the O&M Services provided by Operator under this Agreement, (ii) 

prepare all related filings and other submissions before PREB and (iii) represent Owner before any Governmental Body and any 

other similar industry or regulatory institutions or organizations having regulatory jurisdiction.

147 "[N]otwithstanding anything to the contrary..., no provision of this Agreement shall be interpreted, construed or deemed to limit, 

restrict, supersede, supplant or otherwise affect, in each case in any way, the rights, responsibilities or authority granted to PREB 

under Applicable Law with respect to the T&D System, Owner or Operator." Section 20.17, OMA Agreement, p. 165.

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Department of Natural and Environmental Resources of Puerto Rico (DNER) to submit a SIP for 

EPA’s approval in relation to the 2010 1-Hour Sulfur Dioxide (SO2) NAAQS.

The EPA designated the Guayama-Salinas and San Juan air districts as nonattainment areas for 

the SO2 NAAQS, effective April 9, 2018. EPA’s nonattainment designation was based on SO2 

modeling results from modeling performed on these air districts. On May 2016, the Government 

of Puerto Rico decided to use the EPA’s approved air dispersion model (AERMOD) as the strategy 

to demonstrate compliance with the SO2 NAAQS.

The air district of Guayama-Salinas includes part of the municipalities of Guayama and Salinas. 

In the case of the San Juan air district, it includes the municipality of Cataño and part of the 

municipalities of San Juan, Guaynabo, Bayamón, and Toa Baja. These air districts cover the area 

where PREPA’s Aguirre, San Juan, and Palo Seco steam plants are located.

Given the nonattainment designation by EPA under the CAA, DNER must submit a final SIP for 

EPA approval, which shall provide for attainment of the 2010 1-Hour SO2 NAAQS in the 

Guayama-Salinas and San Juan nonattainment areas by April 9, 2023. The deadline to submit 

the SIP to EPA was October 9, 2019. DNER missed the October 9, 2019, deadline, and on 

November 3, 2020, EPA issued Findings of Failure to Submit (FFS) SIP Required for Attainment 

of the 2010 1-Hour Primary Sulfur Dioxide (SO2) NAAQS, with an effective date of December 3, 

2020. 85 Fed. Reg. 69,504 (Nov. 3, 2020). Per the RRS, there are certain deadlines that must be 

met to avoid mandatory EPA-imposed sanctions. 

According to the current Puerto Rico SIP process, EPA must determine completeness of DNER’s 

SIP by June 3rd, 2022, to avoid the imposition of “2-to-1” offset sanctions in the nonattainment 

areas. If the EPA does not determine that DNER has made a complete SIP submittal by June 3rd, 

each new ton of SO2 emitted from any new or modified source in the nonattainment areas must 

be offset by a two-ton reduction. In addition to PREPA’s power plants, the “2-to-1” offset sanction 

applies to all facilities considered as emissions sources in the nonattainment areas. To achieve 

compliance with EPA’s regulations, the “2-to-1” offset sanction will require that all owners and 

operators of emissions sources in the nonattainment areas implement emissions control 

measures, assuming a doubling of their actual emissions. This sanction would increment the 

operational and maintenance costs of operating industrial and commercial facilities in the 

nonattainment areas, affecting the economic development in these areas.

Furthermore, if EPA does not determine that the SIP is complete by December 3rd, 2022, 

additional sanctions will apply, consisting of a moratorium on roads and highways funds for all 

projects in the nonattainment areas (except for projects related to safety). In general, these 

projects include new roads or improvements to existing roads and highways. Puerto Rico depends 

on receiving federal funds for developing roads and highways projects, which can exceed $144 

million annually. These federal funds or part of such funds would enter in a moratorium if the 

SIP submitted by the DNER is not declared complete by December 3, 2022. 

As part of the development of the SIP, the DNER has modeled the SO2 emissions in the GuayamaSalinas and San Juan air districts and found that these areas cannot achieve attainment if PREPA 

continues using Bunker C and regular Diesel fuels in the generating units located at Aguirre, San 

Juan, and Palo Seco. When modeling combustion turbines using ultra-low sulfur diesel (ULSD), 

the emissions are reduced but not enough to achieve attainment. In the absence of retiring 

generation units in the short run in full, timely compliance with the PREB approved IRP, PREPA 

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and the DNER have indicated that achieving attainment in the relevant air districts may require 

burning natural gas in existing steam units located at Aguirre, San Juan, and Palo Seco.

Considering the joint priorities of providing reliable electricity and meeting the SO2 NAAQS, the 

DNER and PREPA have identified the following action items as feasible strategies for achieving 

attainment:

• Integration of renewable energy as mandated by the Approved IRP and Modified 

Action Plan.

• Substituting fuels used in existing thermal generating units, such as ULSD.

• Development of an SO2 monitoring network within the designated nonattainment 

areas for demonstrating attainment with the NAAQS.

• Consistent with these actions, in the short term, PREPA will:

o Complete the Tranche 1 procurement process and continue working diligently to 

support PREB with the remainder tranches mandated in the IRP Modified Action 

Plan.

o Substitute regular diesel with ULSD fuel at combined cycle units, combustion 

turbines, and the aeroderivative machines located at the San Juan, Palo Seco, and 

Aguirre Power Plants.

o Comply with the DNER’s requirements for the development of an SO2 monitoring 

network.

PREPA incurred a number of delays in conducting the Tranche 1 Renewable Energy and Storage 

Procurement Process and the launching of subsequent tranches, which led to PREB assuming the 

execution of future tranches in order to facilitate compliance with Puerto Rico RPS targets and 

the IRP. Specifically, fossil fuel generation unit retirements may be set back in case of delays in 

the integration of renewable energy generation sources. If such delays continue, to adequately 

maintain a safe and reliable electric service, PREPA may need to propose executing certain actions 

to keep its steam units operational and in compliance with applicable environmental regulations. 

DNER and PREPA modeling results indicate that achieving attainment with the SO2 NAAQS, 

while maintaining the current steam units running (in the case of further delays in renewable 

integration), would require burning natural gas at existing steam units instead of Bunker C fuel. 

Thus, in the short and medium term, pursuing the substitution of Bunker C fuel with natural gas 

in the steam units located at San Juan, Palo Seco, and Aguirre may be necessary to achieve an 

EPA compliant SIP and avoid the above-mentioned penalties while maintaining serviceable 

generation load levels. However, lack of an amendment to the PREB approved IRP and the 

required funding to produce such conversion may cause implementation issues for these 

initiatives and thus be deemed an incomplete SIP subject to potential adverse action by the EPA. 

As such, any unit conversions should not be contemplated without approval from PREB in the 

form of leave, waiver or amendment from the PREB approved IRP. 

To that end, on February 11, 2022, PREPA submitted before PREB a motion titled Petition to 

Conduct Work in PREPA’s Steam Units for Environmental Compliance, seeking leave from the 

PREB to pursue the conversion of San Juan units 7-10 to natural gas to achieve attainment with 

the 2010 1-Hour SO2 NAAQS in the San Juan air district and, consequently, avoiding costly 

sanctions, and achieving compliance with the MATS required by EPA, 40 CFR 63 Subpart U -

National Emission Standards for Hazardous Air Pollutants which became effective on April 16, 

2012, at the San Juan site. PREB has yet to issue a determination on PREPA’s motion.

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138

Chapter 11. Summary of Financial Projections

The following chapters of the 2022 Certified Fiscal Plan provide an overview of PREPA’s projected 

financials, both for the near term (next 5 years) and the longer-term (next 30 years). These 

projections reflect the potential impact of external factors (e.g., projected changes in fuel prices 

and the macroeconomic outlook for Puerto Rico), as well as the potential impact of internal 

developments (e.g., the Legacy Generation P3 RFP and the planned and initiated integration of 

renewable generation capacity, to name a few). The projections reflect the expected positive 

impact of PREPA’s ongoing transformation, including the initiatives and operational measures 

that are in implementation or planned for by PREPA and LUMA. For example, the expense 

projections incorporate LUMA’s April 1, 2022, Budget filings, which outline efficiency gains and 

factor in additional expense measures such as fuel cost reduction initiatives. For this reason, the 

next three chapters also show three separate entities that will make up PREPA in the future –

HoldCo, GenCo, and GridCo. Expenses will be split according to their specific roles and 

responsibilities. Chapter 3 (Transformation), as well as Chapters 9 (Operational Measures) and 

7 (LUMA Improvement Portfolios), outline the impact of PREPA’s transformation as well as 

specific operational measures. The projections in this and the following two chapters are 

consistent with the macroeconomic assumptions underlying the Commonwealth Certified Fiscal 

Plan and assume full compliance with Act 17-2019 and IRP resource planning mandates. 

Baseline rate and Revenue Requirement

To project and measure the impact of PREPA’s ongoing transformation and of additional financial 

and operational initiatives and to estimate the resulting improvements in rates, this chapter 

describes the baseline rate projection. This baseline projection does not assume the restructuring 

of legacy debt and pension obligations, and instead includes the full cost for unrestructured debt 

and pensions. As such, the baseline rate reflects the hypothetical state of the world in which 

PREPA does not proceed with the transformation or debt restructuring.

All rates in this Certified Fiscal Plan are based on revenue requirements. This means that the rates 

approved by PREB should provide PREPA with the revenue that it requires to pay for all the 

projected costs to provide adequate service to customers. FY 2021 is the last fiscal year in which 

consolidated expenses for PREPA are presented for reporting. For FY 2022 onwards, the Certified 

Fiscal Plans and Budgets present the three component units – GenCo, GridCo, and HoldCo. 

Baseline rate projections are shown in Exhibit 48 below. They show that absent any 

transformation of PREPA, and without the benefits of any financial restructuring or operational 

improvement initiatives, customers are projected to increase by 11 to 16 c/kWh, when compared 

to FY 2021 rates.148 Over the next thirty years, baseline rates without the positive impact of 

PREPA’s ongoing transformation are expected to increase as high as 42.5 c/kWh largely driven 

by declining demand, as fixed cost are spread across a lower number of kilowatt-hours. The high 

and increasing baseline rates shown below illustrate the need for a comprehensive transformation 

of PREPA, as outlined in Chapter 3 (Transformation), and Chapters 9 (Operational Measures) 

and 7 (LUMA Improvement Portfolios).

148 FY 2021 has been used as the base year to determine rate comparisons.

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139

Several additional major factors beyond the initiatives and the transformation mentioned above 

could potentially have a large effect on future rates. They can be broadly categorized into expense 

related and demand related factors. 

• Expense related factors: As explained above, as rates are based on revenue 

requirements, if PREPA’s expenses go up, rates will have to increase to ensure PREPA has 

the funds to cover these expenses. Most of PREPA’s utility operating costs can be projected 

in a predictable manner based on the PREPA and LUMA base cost expenses with inflation. 

Some costs, however, are dependent on third party process and political outcomes and 

market factors, and this cannot be projected in a predictable manner. These include, 

among others:

o A 10% cost-share requirement that PREPA must cover for federally funded capital 

expenditures. PREPA currently assumes that it can cover the cost-share 

requirement by funds from HUD-CDBG (see Chapter 6 on Capital Plans and 

Federal Funding). If the cost-share cannot be covered by CDBG, rates will need to 

increase.

o The market price for fossil fuel. At this point in time PREPA is still highly reliant 

on diesel, heavy-fuel oil, and coal, which are subject to price volatility.

• Demand related factors: If demand increases, PREPA’s fixed costs, such as

administrative costs, debt, and pensions, among others, that are not dependent on how 

much power is generated (e.g., fuel), – are spread across a higher number of kilowatthours, reducing the rate per kwh. Conversely, if demand decreases, rates per kwh go up. 

Therefore, several factors related to electricity demand have a potentially high impact on 

future rates. Key factors include, among others, usage of and electricity demand from 

electric vehicles, energy efficiency, and distributed generation. Electric vehicles have the 

potential to increase demand as more customers charge their vehicles by connecting to the 

power grid. Energy efficiency initiatives (e.g., transition to higher efficiency air 

conditioning units and other appliances) will result in a lower demand per customer or 

less power required from the system to support the same customer activities. Installation 

of distributed generation (e.g. rooftop solar on residential homes) will decrease demand 

in the system as these customers generate their own power for at least some of their needs. 

Electric Vehicles represent a source of new demand that could partially offset load losses 

from other drivers. Chapter 12 provides a discussion of the Puerto Rico load and rate 

impact of the factors.

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140

EXHIBIT 48: REVENUE REQUIREMENT RATE INCLUDING PAYGO PENSION AND OPEX AND 

UNRESTRUCTURED DEBT (C/KWH) VERSUS LOAD (GWH)

FY 2022 Baseline and Future Revenues and Expenses

Financial Projections for FY 2022 and FY 2023

The Oversight Board approved a revised compliant FY 2022 budget for PREPA on July 1, 2021. 

The certified budget included the revised amounts for GenCo and HoldCo labor costs, and notably 

included amounts for pension funding that were substantially lower than prior year employer 

contributions. For years prior to FY 2022, PREPA had typically budgeted an employer 

contribution amount based on a percentage of employee salaries, approximately ~35% or $70-80 

million per year. For FY 2022, the Oversight Board approved $26.5 million in employer 

contributions for GenCo and HoldCo employees, or approximately ~65% of budget salaries. 

For the FY2023 period, the Certified Fiscal Plan does not project a deficit.

Forecasted Revenues

PREPA’s revenues are expected to follow a gradual decline in line with the projected decline in 

sales (Exhibit 49). The combined effects of energy efficiency and distributed generation are 

expected to further decrease overall electricity consumption. Chapter 13 discusses the load impact 

of EE, DG, and electric vehicles in more detail.

20.8 

12.2 12.6 13.4 15.2 17.3 20.3 22.3 24.0 

7.1 

6.9 6.7 5.9 

7.1 

8.1 

9.7 

10.7 

11.5 2.1 

2.3 1.8 1.8 

2.0 

2.5 

3.0 

3.3 

3.5 

1.1 1.8 1.9 

2.3 

2.7 

2.9 

2.7 

2.5 

6.4 6.8 7.0 

8.0 

9.5 

11.0 

30.1 28.9 29.7 30.0 

34.6 

40.1 39.0 

41.5 

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

0

5

10

15

20

25

30

35

40

45

FY23 FY24 FY25 FY26 FY31 FY36 FY41 FY46 FY50

(GWh)

(c/kWh)

F&PP Non-F&PP Operating Expenses CILT & Subsidies

Pension Cost Debt Cost Load

(c/kWh)

47.0

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141

EXHIBIT 49: 30-YEAR SALES AND REVENUE PROJECTIONS (GWH AND USD MILLION)

Forecasted Expenses

Overall expenses are projected to decrease substantially between FY 2023 and FY 2024 driven by 

two principal factors – a projected decrease in fuel prices and the dispatch modeling approach, as 

further explained in the Assumptions table on Chapter 13.2. 

On the long run, it is expected that overall expenses would decrease in real terms. This is partially 

driven by decreasing labor and non-labor operating costs. Additionally, specific budget line items 

including Title III expenses and costs will likely decline after FY 2023, due to the expected exit of 

PREPA from Title III bankruptcy.

Most notably, however, the overall decline in expenses is driven by decreasing generation cost as 

renewable power replaces outdated and inefficient oil-based generation linked to volatile oil and 

gas prices. As the share of renewable generation capacity is increasing over the coming years, the 

cost associated with non-renewable fuel and power is expected to decline quickly until FY 2027. 

As cheap but polluting coal generation is projected to be phased out in FY 2028 (Exhibit 50) nonrenewable fuel expenses are projected to increase again. However, thereafter, fossil fuel related 

costs are projected to decline steadily as more renewable generation comes online. Expenses for 

renewable PPAs is projected to increases over the same time period, consistent with Act 17-2019’s 

mandate to increase the share of renewable generation. Chapter 13 (Expenses) provides a more 

detailed discussion of PREPA’s expense projections. 

16,510 16,212 

15,222 14,752 14,325 

12,553 

10,603 

9,219 

8,446 7,959 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0

5,000

10,000

15,000

20,000

FY2023 FY2024 FY2025 FY2026 FY2027 FY2032 FY2037 FY2042 FY2047 FY2051

$M

GWh

Other sales (in GWh) Industrial sales (in GWh)

Commercial sales (in GWh) Residential sales(in GWh)

Projected Revenues

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Exhibit E Page 142 of 185
142

EXHIBIT 50: CONSOLIDATED FORECAST EXPENSES UNTIL THE END OF THE IRP, EXCLUDING 

DEBT SERVICE (USD MILLION, NOMINAL DOLLARS)

5,001

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143

Chapter 12. Revenue

Understanding load, electricity sales, revenues, and the underlying drivers is crucial for utilities 

as it enables accurate planning for investments into generation and the T&D System. This chapter 

provides an overview of PREPA’s revenue compared to its budget, and discusses load projections, 

the underlying drivers, including emerging drivers like electric vehicles, as well as key 

assumptions that impact revenue projections. PREPA’s revenues are expected to follow a gradual 

decline in line with the projected decline in sales (Exhibit 49). 

FY 2022 Actual Revenue Against Budget

According to the latest financial results for FY2022 through March, PREPA’s gross revenues, i.e., 

revenues from electricity sales without Other Income or other adjustments, were $3.1 billion 

versus budget gross revenues of $2.6 billion. The difference is driven by higher than projected fuel 

prices and resulting fuel and purchased power charges.

During the first three quarters of FY2022, PREPA’s gross revenues149 were approximately 20% 

above the projected amount (see Exhibit 51). The FY2022 YTD sales / consumption figures are 

approximately 2% below budget overall (see

Exhibit 53), driven primarily by lower than budget industrial consumption. 

EXHIBIT 51: FY2022 YTD (MARCH) BUDGET VS. ACTUALS (USD MILLION)

149 Gross revenues include revenues collected from customers for consumption, whereas consolidated revenues include revenues 

collected from customers for consumption, revenue for other income sources, and other adjustments (bad debt expense, CILT 

and subsidies, etc.).

342

366 373

333 331 323 326

316

362

 100

 150

 200

 250

 300

 350

 400

Gross Revenues by Month

($M)

Actual Budget

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144

EXHIBIT 52: FY2022 YTD REVENUE VARIANCE VS BUDGET BY CUSTOMER CLASS (USD MILLION)

EXHIBIT 53: FY2022 SALES AND VARIANCE VS BUDGET (GWH, %)

Overview of Load Projections

Historical Demand and Sales Impact

As referenced in Chapter 2 (Historical Context and Current Challenges), electricity consumption 

in Puerto Rico continues to be impacted by ongoing economic distress and demographic shifts of 

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145

a declining population. Energy consumption and peak demand, which are PREPA’s most critical 

billing determinants, have been in decline for approximately 16 years (

Exhibit 54). This decline is projected to continue, consistent with the most recent economic and 

demographic projections issued by the Oversight Board in its Commonwealth Certified Fiscal 

Plan.

Exhibit 54 shows that forecasted sales and peak demand in Puerto Rico fall below FY 2000 levels, 

driven by several key factors, which will also impact future electricity consumption patterns:

• Macroeconomic indicators and demographics: The Certified Fiscal Plan

incorporate macroeconomic projections consistent with those used in the 2022 

Commonwealth Certified Fiscal Plan. They show a steady population decline over the next 

5 years, driven by a combination of outmigration and demographic factors, and they 

indicate that the previously projected rebound in economic activity driven by federal 

funding for restoration and associated short-term employment seen in 2019 was more 

than offset by COVID-19 related impacts in 2020. However, Covid-19 related fiscal 

stimulus is projected to lead to a rebound and recovery in FY 2022, that is expected to 

continue into FY 2023.

• Energy efficiency (EE) and distributed generation (DG): Expectations from 

various stakeholders and industry experts, including PREB and IRP intervenors, project 

further long-term declines in utility sales due to demand-side impacts from secular trends 

in EE and DG. Together with declining population, these factors represent the greatest 

drivers in load decline through the Certified Fiscal Plan forecast period (Exhibit 55).

One factor that could mitigate the decline of load in the future is the adoption of Electric 

Vehicles (EV). Driven by declining technology cost and regulatory support, EV sales are 

expected to increase over the next 2-3 decades and have a potentially large impact on load. The 

Fiscal Plan, in its base case, does project the impact of EVs until FY38. However, it fails to project 

further growth beyond that point.

EXHIBIT 54: HISTORICAL BILLING DETERMINANTS (GWH, MW)

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146

EXHIBIT 55: 30-YEAR LOAD FORECAST WITH THE INDIVIDUAL EFFECTS OF THREE DRIVERS 

CAUSING LOAD REDUCTION (TWH)

Macroeconomic Projections and Demographics

The 2022 Certified Fiscal Plan incorporates the macroeconomic and demographic projections 

developed for and presented in the Commonwealth Certified Fiscal Plan. The population forecast 

shows a steady decline due to the combined effects of outmigration and demographic factors. The 

pace of decline is less severe than prior year’s assumptions. The COVID-19 pandemic has 

significantly dampened previous projections of economic rebound. Assumptions underlying the 

rebound were driven principally by federal funding for restoration, which would create short-term 

employment opportunities; however, overall trends now project a population decline (Exhibit 56). 

The macroeconomic projections include the combined effects of the COVID-19 pandemic, 

ongoing austerity, population decline, natural disaster recovery, and federal funding across all 

sectors of Puerto Rico’s economy (Exhibit 57). Forecast reflecting the abrupt impact of the 

COVID-induced recession at the end of FY 2020, followed by a rebound and recovery in FY 2021 

(supported by significant federal and local disaster-related and Covid-19 related stimulus funds), 

that is expected to continue into FY 2023. Economic growth is expected to be limited (in real 

terms) between FY 2024 and FY 2027.

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147

EXHIBIT 56: COMMONWEALTH OF PUERTO RICO POPULATION PROJECTIONS, IN THOUSAND

EXHIBIT 57: COMMONWEALTH OF PUERTO RICO GNP PROJECTIONS

Energy efficiency 

The Certified Fiscal Plan load forecast assumes that PREPA achieves the target set forth by 

legislative mandate in Act 17-2019 of a 30% reduction in load attributable to energy efficiency by 

2040 (compared to PREPA’s FY 2019 net utility sales). The annual reduction in load is consistent 

with the IRP projections with an adjustment for the program starting year. The energy efficiency 

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Exhibit E Page 148 of 185
148

programs listed in the table below are consistent with the PREPA IRP, which included these 

programs as illustrative options for achieving the target energy efficiency results based on a 

screening assessment of programs used in other jurisdictions. 

TABLE 13: ENERGY EFFICIENCY PROGRAMS

EE Program Description Assumption TRC150

Residential 

A/C (Air 

conditioning)

Incentivizes higher efficiency A/C 

systems in homes

Participation rates, energy 

savings, program costs based on 

comparable programs

3 – 5

Residential 

Lighting

Provides free LEDs to residential 

customers

Participation rates increase to 

2.5% annually

4 – 6

Commercial 

A/C

Incentivizes high efficiency A/C 

systems in commercial buildings

A baseline average commercial 

A/C size is accurately assessed

1 – 2

Commercial 

Lighting

Incentivizes high efficiency 

lighting in commercial buildings

Annual kWh savings per 

participant based on comparable 

programs

3 – 4

Public Street 

Lighting

Full conversion to LED lamps Public funding is available to 

support this program

n/a

The cumulative energy savings through implementing these programs is expected to be 

approximately 1,200 GWh in FY 2026. The biggest contribution to the savings comes from 

lighting improvements in commercial buildings, which was determined to be the highest impact 

and lowest cost potential program for PREPA to implement, followed by additional savings from 

streetlight conversions to LED151 and installation of higher efficiency air conditioning systems in 

homes. 

As these energy efficiency programs and implementation projections are purely illustrative, there 

could be many other combinations and types of programs implemented to achieve the target 

result. Actual energy savings from energy efficiency depend on the uptake of these measures 

among customers. As Act 17 compliant projections in the Certified Fiscal Plan are based on 

optimistic assumptions regarding participation rates and savings potential, the observed impact 

of such measures might be lower.

To comply with statutorily mandated EE targets, PREB, on April 22, 2021, started a new 

proceeding and released a draft regulation on EE to explore viable funding mechanisms for energy 

efficiency program implementation. Notably, to the extent these efficiency measures are delayed 

or not achieved there will be a more gradual decline in electricity demand.

150 Total Resource Cost (TRC) estimates cost efficiency of energy efficiency programs. The TRC is calculated as the present value

of the avoided energy cost (energy savings x average rate) to the present value of the program costs. 

151 LUMA, as T&D operator, will address repairing and replacing existing public lighting with LED within its Distribution Streetlight 

Program as detailed in LUMA’s IRP.

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149

EXHIBIT 58: CUMULATIVE ENERGY EFFICIENCY SAVINGS BY PROGRAM (GWH)

Distributed Generation (DG) 

Deployment of distributed generation (i.e., rooftop solar and combined heat and power 

generation) is expected to grow and is projected based on the same methodology used for the IRP. 

The effect of DG is more significant in the later years of the 30-year projection, as the Certified 

Fiscal Plan assumes that DG will continue to rise because of declining costs for DG technology 

and increasing electricity rates. As the transformation process for the energy system advances, 

this trend is likely to continue.

The adoption of DG is expected across all customer classes (Exhibit 59). While commercial and 

residential customers are more likely to adopt rooftop solar generation, industrial customers are 

more likely to build combined heat and power generation (CHP, 

Exhibit 60). The assumptions for CHP are based on customer survey and data gathering used in 

the IRP and updated by PREPA Planning and T&D personnel. Because CHP is expected to be 

customer owned and associated with industrial processes there is no cycling of these units to 

accommodate renewable generation in the financial projections. CHP generation is assumed to 

be economically dispatched by customer-owners relative to available system generation costs 

(e.g., if system generation is cheaper than CHP, customer-owners use system generation).

55 118 

911 

1,216 

1,522 

2,849 

4,190 

4,848 4,848 4,848 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

FY23 FY24 FY25 FY26 FY27 FY32 FY37 FY42 FY47 FY50

GWh

Public Street 

Lights

Commercial 

Lighting

Commercial A/C

Residential

Lighting

Residential A/C

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150

EXHIBIT 59: 30-YEAR DISTRIBUTED GENERATION FORECAST BY CUSTOMER CLASS (TWH)

EXHIBIT 60: 30-YEAR DISTRIBUTED GENERATION FORECAST BY SOURCE (TWH)

Electric vehicles

Driven by technological development and regulatory support, the penetration of electric vehicles 

is expected to significantly increase in the upcoming decades. For instance, some estimates project 

that by 2040 EVs could reach nearly 60% of total vehicles sales in the US.152 While these numbers 

depend on a variety of factors, including battery cost developments, regulation, and customer 

preferences, a significant uptake in EV sales will have an impact on electricity demand, both on 

average and peak load and has the potential to offset the effect of EE and DG. To understand the 

effects on average and peak load on a local level, and identify potential T&D investment needs, it 

is crucial to develop a thorough perspective on EV uptake. Nevertheless, PREPA must follow 

PREB’s guidance to include the impact of electric vehicles in future IRPs.

152 Bloomberg NEF, Electric Vehicle Outlook 2020

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151

Load Projection Sensitivities

Overview

The Certified Fiscal Plan Base Case (the “Base Case”) developed by PREPA and LUMA includes a 

load scenario that is based on assumptions for key gross load drivers (GNP and population 

projections consistent with Commonwealth Certified Fiscal Plan) and for key net load drivers 

related to energy efficiency (EE), distributed generation (DG) adoption and electric vehicle (EV) 

uptake. The net load driver assumptions in the Base Case are based on Act 17 compliance (EE 

achieving 30% target by FY 2040) and basic assumptions of future growth based on historical 

growth (DG and EV).

These assumptions in the Base Case do not fully capture the actual constraints and realities in 

Puerto Rico or the state of current programs and plans in place to support these assumptions. 

This has implications on resource planning. Please refer to Section 5.1.2 for a discussion of the 

associated implications.

An alternative forecast based on a bottom-up approach, that uses the current situation in Puerto 

Rico as the starting point, that is not constrained by Act 17, that incorporates the latest data 

available on current and future costs, and that is supported by driver specific models provides a 

perspective on a potentially different load forecast (the “Alternative Forecast”). This Alternative 

Forecast is subject to change in law and regulation, changes in price and cost trajectories and 

other factors. 

1. Comparative View

In general terms, the Alternative Forecast projects a net load that is 2.1 TWh higher than the Base 

Case by FY 2050. This difference results from different projection for EE, DG, and EV. In terms 

of EE, the Alternative Forecast projects savings of 1.5 TWh less than the Base Case by FY 2050. 

Regarding DG, the Alternative Forecast projects the load impact to be relatively close to the 

projection in the Base Case (0.1 TWh increase). Lastly, in terms of EV, the Alternative Forecast 

projects EV load to be 0.6 TWh higher than the Base Case by FY 2050. Figure 1 showcases the 

overall outcome of the Base Case and the Alternative Forecast.

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Exhibit E Page 152 of 185
152

Figure 1 - Net Load Forecast FY23-50, Twh

2. Key Differences and Assumptions

Fundamentally, the Base Case projections are based on top-down assumptions, while the 

Alternative Forecast approach is based on a bottoms-up perspective.

The Base Case projects EE load to reach the FY 2040 30% EE target established by Act 17 while 

the Alternative Forecast assumes organic growth of EE through incremental year-over-year

technology efficiencies without considering legislation or program investments. More specifically, 

the Base Case starts with a top-down target and assumes that the 30% reduction by FY 2040 – as 

put forth in Act 17 – is achieved in time. Also, the Base Case assumes a constant yearly EE load 

increase of ~2% to get there. It is important to highlight that there are currently no programs, 

implementation plans, or funding incentives in place to support an energy efficiency program. 

The load decrease through EE is unlikely to be achieved only through commercial, industrial and 

residential lighting, equipment, and appliance replacements. On the other hand, the Alternate 

Forecast projects yearly load savings independent of any target through a bottoms-up model that 

uses as inputs – among others – equipment natural life cycles, yearly energy efficiency gains, and 

customer uptake.

Regarding DG, the Base Case forecasts DG load based on historical uptake rates, while the 

Alternative Forecast projects DG load based on adoption curves for different payback periods, 

calculated based on DG installation and O&M cost projections.

The Base Case forecasts EV load based on historical growth assumptions, while the Alternative 

Forecast projects EV adoption based on total cost of ownership (TCO). The TCO model includes 

a cost comparison of ownership for both EVs and combustion engine vehicles and customer 

preference, such as ease of purchase, maintenance, and availability of charging stations.

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153

3. Specific Assumptions in the Alternative Forecast – Energy Efficiency

The EE forecast in Alternative Forecast is based on replacement life cycles, savings from energy 

efficiency gains, and customer uptake. For example, each equipment type is assumed to have a 

projected useful life/natural replacement cycle (e.g., residential lighting CFL is expected to be 

replaced every 4.7 years and LED lighting every 14.8 years). Additionally, the Alternative Forecast

considers yearly efficiency gains specific to each equipment type from technology innovation (e.g., 

residential ACs are expected to have 0.3-0.4% annual efficiency gain), which is forecasted to be 

lower in Puerto Rico than in the US mainland. Finally, the Alternative Forecast also accounts for 

the yearly customer uptake based on the level of behavior change required and purchasing 

decisions (e.g. 40% uptake for residential LEDs and 60% uptake for commercial LEDs due to 

increased costs of technology). Figure 2 showcases the net difference that these assumptions 

generate in the projection of net load. 

Figure 2 - Energy Efficiency Load forecast FY 2023-50, in TWh

4. Specific Assumptions in the Alternative Forecast – Distributed 

Generation

In terms of DG, the projections from the Alternative Forecast are based on adoption curves for 

different payback periods, calculated based on projected DG technology costs. For instance, the 

Alternative Forecast assumes a payback period that continues to improve due to decreasing CapEx 

and O&M costs, in line with NREL ATB projections adjusted for Puerto Rico. As an example, this 

scenario assumes that the cost of installing residential PV systems is expected to decline 10% yearover-year from 2022 to 2040. It also assumes that Capex is expected to decrease from $2.7k/kW 

in 2019 to $0.9k/kW in 2040, in real terms. Furthermore, O&M costs are expected to decrease 

from $27/kW/yr to 12/kW/yr over the same period. When adjusting for other costs on the island, 

the scenario assumes that Puerto Ricans are forecast to face a higher cost (+16%) when installing 

DG systems compared to the US mainland due to various constraints (e.g. Jones Act).

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Exhibit E Page 154 of 185
154

The Alternative Forecast also includes several additional assumptions. It assumes 100% net 

metering for customers who adopt DG until 2024, followed by policies covering the marginal cost 

of generation for new customers beyond 2024. It also assumes that batteries are not required to 

adopt PV systems, as examples from the mainland US show. For example, Michigan has the 

highest battery storage penetration, with 7% of solar DG adopters also having a co-located energy 

storage unit. Another important assumption considers that the eligible household’s baseline is 

represented by 85% of customers per an NREL estimate. Puerto Rico's housing characteristics are 

more attractive for DG adoption compared to the US, California, and Hawaii (e.g. more singlestructure housing units and fewer renters as a share of total).

Figure 3 - Alternative DG projections for Puerto Rico, in TWh

5. Specific Assumptions in the Alternative Forecast – Electric Vehicles

The EV forecast in the Alternative Forecast is based on economic incentives (total cost of 

ownership) and customer preferences. It projects 33% of cars in Puerto Rico to be EVs by FY50. 

These assumptions were generated by leveraging historical sales and scrap rates to forecast future 

ones and combining these projections with the historic number of cars in Puerto Rico to project 

the number of registered cars on the island per year. As a result, it assumes that the number of 

cars is projected to decrease over time as the population declines. It also assumes that the number 

of vehicles per capita stays relatively constant over time.

Another fundamental set of assumptions were generated by leveraging the FHWA National 

Household Travel Survey data for the average distance driven per year. As such, the Alternative 

Forecast assumes a decreasing technology cost, specifically with respect to batteries. It accounts 

for the total cost of ownership of EV models by using Puerto Rico-specific estimates. For instance, 

it includes Puerto Rico-specific gasoline prices, electricity rates, and the average US vehicle cost 

adjusted for Puerto Rico import duties and fees. Furthermore, the Alternative Forecast

incorporates customer sentiment and evaluates energy grid readiness through PREPA’s SAIDI 

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155

and SAIFI scores. Figure 4 highlights the difference in EV penetration in the Alternative Forecast

contrasted with the Base Case. Figure 5 contrasts the overall difference in net load projections 

from the Alternative Forecast and the Base Case.

Figure 4 - Puerto Rico EV penetration estimates (in %)

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156

Figure 5 - Puerto Rico EV load projections (in TWh)

Other assumptions impacting revenue

Overview of Fuel and Purchased Power

Projections are based on fuel price forecasts using the IRP methodology for natural gas at the 

Henry Hub, crude oil (West Texas Intermediate or WTI), oil-derivate products of diesel (No. 2 

fuel oil), and residual fuel oil (No. 6 fuel oil with 0.5% sulfur). The forecast has updated refined 

fuel prices for the near term based on financial futures pricing as of March 2022 and current 

effective PREPA contract adders. Prices for crude oil and refined oil products are projected to

decrease substantially from FY 2023 to FY 2024, and then rise steadily at rates above general 

inflation.

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157

EXHIBIT 61: FUEL PRICE FORECAST153 (USD/MMBTU)

Price Elasticity

The PREPA IRP and Certified Fiscal Plan do not model customer price elasticity as a single 

variable or explicitly by customer class. Looking forward, the effects of higher utility power costs 

and declining costs of alternative sources of electric energy on customer behavior are captured 

through the assumptions on customer participation in energy efficiency programs, long-term 

efficiency improvements captured in macro-coefficients, and the selection of and switching to 

behind-the-meter distributed generation options. The base long-term forecast assumes large 

majority of Puerto Rico’s remaining industrial load is lost to DG and EE, along with substantial 

portions of residential and commercial sales.

Rate Structure

The 2017 PREB-approved rate structure implemented on May 1, 2019, is assumed to remain in 

place for the forecast period. Projections include annual adjustments to base rates are calculated 

based on corresponding annual revenue requirements. Note, however, the forecasted rates do not 

include any increases required for debt service of pension funding under a Title III plan of 

adjustment. 

Transformation

The Certified Fiscal Plan base case financial projections assume that LUMA Interim Period Ends 

during FY 2023 and that achieves service commencement during FY 2021 by satisfying all 

conditions precedent to achieve the Service Commencement Date, or at least the Interim Service 

Commencement under the Supplemental Agreement. Unbundling or separation of Generation 

153 Siemens Energy Business Advisory, commodity futures pricing as of 04/26/22 for April 2022-Sep 2023. 18 month blend to longterm forecast starting in April 2025

14

10 10 10 10 10 10 10 10 11 11 11 11

23

12

10 11 12 12 13 14 14 15 16 16 17

28

18

16 17 18

19 20

21 22 23 24 25 26

4

6 5 5 5

0

4

8

12

16

20

24

28

FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35

Fuel Price, USD/MMBtu LNG Bunker-C (D6) Diesel (D2) Coal

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158

and T&D functions are expected to be completed during FY 2022, and PREPA Generation is taken 

over by one or more third party operator(s).

Comparison to Prior Certified Fiscal Plans

PREPA’s sales forecast for the near term predicts accelerated decline due to energy efficiency and 

distributed generation impacts. From FY 2023 to the end of the Certified Fiscal Planning period 

FY 2027, the total reduction in sales is projected to be approximately 10% (Exhibit 62).

EXHIBIT 62: PREPA CERTIFIED FISCAL PLAN NET UTILITY SALES IN GWH

 11,000

 12,000

 13,000

 14,000

 15,000

 16,000

 17,000

 18,000

 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 FY 25 FY 26 FY 27

Sales, GWh April 2017 Fiscal Plan Aug 2018 Fiscal Plan

June 2019 Fiscal Plan May 2020 Fiscal Plan

May 2021 Fiscal Plan May 2022 Fiscal Plan

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Exhibit E Page 159 of 185
159

Chapter 13. Expenses

This chapter provides an overview of the projected expenses for the electric utility, i.e., the cost 

that customers will have to cover. PREPA’s overall expenses are made up of nine (9) expense 

categories:

▪ Non-renewable fuel: Cost of fossil fuel, e.g., coal, diesel, heavy fuel oil

▪ Conventional power purchase and operating agreements (PPOAs): Expenses 

for non-renewable power purchased from 3rd party providers (e.g., EcoEléctrica and AES)

▪ Renewable PPOAs: Expenses for renewable power purchased from 3rd party providers 

– in the future this will include power from over 3GW in renewable capacity that PREB

has ordered PREPA to bring online

▪ CILT & subsidies: Expenses for “contributions in lieu of taxes” and other subsides that 

benefit e.g., low-income rate payers

▪ T&D System Operating and Capital costs: Expenses for labor, non-labor / other 

operating costs and necessary maintenance expenses as defined in the T&D OMA

▪ Labor operating cost: Expenses for labor associated with operating generation assets 

and the T&D System

▪ Non-labor / other operating cost: Expenses other than labor, e.g., supplies, rent, 

transportation, bad debt expense, etc., associated with operating, maintaining, and 

administering generation assets and the T&D System

▪ Necessary maintenance expenses: Expenses for maintaining generation assets and 

the T&D System. This includes repairs and associated materials, among others

▪ PREPA ERS pension charge: Expenses to fund pension benefits and OPEB for retirees

▪ PREPA debt service: Expenses to cover PREPA’s debt obligations

As outlined above, PREPA’s expenses are used by PREB, the regulator, to determine rates, i.e., 

rates are based on revenue requirements, such that they provide PREPA with the revenue – or 

funds – that it requires to pay for all the projected expenses needed to provide adequate service 

to its customers and pay its obligations. This chapter gives an overview of the 9 major expense 

categories described above that make up PREPA’s revenue requirement and outlines how these 

categories are projected to develop over time. The focus of this chapter is on the near term, i.e., 

the next 5 years until FY 2027, as within this time-period the first major financial impact of 

PREPA’s ongoing transformation is expected to materialize.

Overall, due to the impact of the ongoing transformation and additionally driven by declining 

load, PREPA expenses are expected to decrease over the next 5 years:

▪ Non-renewable fuel, the largest expense category in FY 2023, is expected to decline 

quickly over the next years, as PREPA’s generation mix shifts from owned and operated 

fossil fuel powered generation to third-party provided renewable power

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160

▪ Conventional PPA expenses are projected to decline in absolute terms, as generation shifts 

from conventional to renewable sources

▪ Expenses for renewable PPOAs are expected to increase quickly as outlined above, amid 

the shifting generation mix

▪ CILT & subsidies are expected to decrease over time

▪ Labor operating expenses are projected to decline in absolute terms, as generation assets 

are transitioned to private O&M operators that are expected to realize efficiencies

▪ Similarly, non-labor operating cost are expected to decline due to future efficiencies from 

private operators

▪ Necessary maintenance expenses are projected to decrease slightly in absolute terms, but 

keep their share of total expenses

▪ ERS pension expenses – not separately included in the FY 2023 rate in the absence of a 

determination of pension reform – are expected to make up a larger share in FY 2026. 

Overview of Expense Projections 

For FY2023 through FY2027, Exhibit 63 gives an overview of the expense categories and their 

projected relative shares. 

Expense projections have been developed using a set of assumptions and inputs, including 

macroeconomic projections, load related assumptions, and inputs for specific expense categories, 

e.g., existing contracts for non-labor expenses, as well as capital plans, and PREPA’s IRP, among 

others. Furthermore, the projected expenses shown below are “post-measure” in the sense that 

they already account for the expected effects of certain improvement initiatives. Those include the 

ones outlined in Chapters 9 (Operational Measures) and 7 (LUMA Improvement Portfolios). The 

projections therefore also already account for the benefits of moving PREPA’s generation assets 

and T&D System to private operators. Without these effects, expenses - and as a result rates –

would be higher, as outlined in Section 11.1 on baseline rates in Chapter 11 (Summary of Financial 

Projections).

The expense overview furthermore illustrates where additional future efficiencies can be 

expected. While LUMA and, in the future, one or more other private operator(s) for PREPA’s 

generation assets are expected to realize efficiencies in labor and non-labor cost, the biggest 

remaining opportunity will be related to fuel and purchased power. Chapters 9 (Operational 

Measures) and 7 (LUMA Improvement Portfolios) provide more details on initiatives addressing 

these opportunities that are already in progress and incorporated in the expense projections 

below, including PREPA’s fuel-related operational measures, and the procurement of 3.75GW in 

renewable generation capacity.

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161

EXHIBIT 63: FY 2023 VS. FY 2027 REVENUE REQUIREMENT PROJECTED BREAKDOWN BY 

CATEGORY (INCLUDING ERS PENSION PAYMENTS, EXCLUDING DEBT PAYMENTS) 

Overview of Expenses by Entity

During the forecast period of this Certified Fiscal Plan, PREPA’s vertically integrated operations 

will be, as mandated by law, disaggregated into Generation and T&D System functions – GenCo 

and GridCo, respectively. Additionally, there will be an entity that will be responsible for certain 

non-operational functions and associated payroll activities, along with paying Title III and advisor 

fees (HoldCo). Chapter 3 (Transformation) provides an overview of the future structure of PREPA.

As a result of the transition to GenCo, GridCo, and HoldCo, expenses will also be split across the 

three entities, too. Exhibit 64 shows the post-transition expense split for the next few years. ERS 

pension contributions after FY 2023, as well as bad debt, CILT/subsidies, and expenses for 

purchased power are separated. These expenses, including any employer contribution required to 

be made to the PREPA ERS for employees of these three entities, bad debt, CILT/subsidies, and 

purchased power are pass-throughs and cannot be considered part of the expenses per entity.

As illustrated above in Section 13.1, overall expenses are expected to decline to meet declining 

load and operational efficiencies. Additionally, GenCo expenses are projected to ramp down over 

time as PREPA’s units are retired and power is procured through PPOAs, which will be negotiate 

with Independent Power Procedures (see Chapter 3 (Transformation) for an overview of the roles 

and responsibilities after the transition to private operators). HoldCo expenses are projected to 

decrease quickly, too, especially after providing support for the transition of GenCo to private 

operators in FY 2023. GridCo expenses are projected to decline slowly over time, driven by the 

realization of efficiencies.

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162

EXHIBIT 64: CONSOLIDATED PREPA EXPENSE BREAKDOWN154 (USD MILLION)

Assumptions for expense projections are provided in the table below, consistent with underlying 

assumptions for the revenue and load projections in the previous chapter. 

TABLE 14: ASSUMPTIONS FOR GENCO, GRIDCO, AND HOLDCO EXPENSES

Input General Assumptions

Fuel and 

Purchased 

Power Costs

■ Fuel and Purchased Power cost projections are based on an hourly generation 

dispatch model forecast that uses capacity expansion consistent with the PREB 

approved IRP and Modified Action Plan and recent market pricing and 

projections for refined fuel products.

■ For FY 2023, a PROMOD simulation was used to estimate Fuel and Purchased 

Power expenses. Projections for FY 2024 onward are based on an Aurora 

capacity expansion model simulation which assumes an optimal economic 

dispatch, without the capacity to consider transmission constraints, which 

yields Fuel and Purchased Power projections that are significantly optimized 

compared to PROMOD’s projections. Therefore, absent changes on inputs, 

Aurora provides expense projections that are significantly lower than 

PROMOD.

GridCo Labor ■ FY 2023, FY 2024, and FY 2025 are in line with the LUMA filed budget for 

GridCo

■ FY 2026 and beyond is projected using budget spending levels with an inflation 

factor 

■ Benefits expenses are based on historical spending levels and performance

GridCo NonLabor Other 

Operating

■ FY 2023, FY 2024, and FY 2025 are in line with the LUMA filed budget

■ FY 2026 and beyond is projected using historical spending levels with an 

inflation factor 

154 PPAs between GridCo and GenCo are excluded to avoid double counting. New reporting structure for PREPA – split into GridCo 

and GenCo – is assumed to begin in FY 2022 for the purposes of presentation and discussion in the 2021 Certified Fiscal Plan.

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163

Input General Assumptions

■ Cost of service includes T&D operator management fee for the forecast period

GridCo 

Maintenance ■ Based on historical spend and as outlined in LUMA's filed budget

■ Maintenance costs are expected to return to historical averages as operational 

improvements reduce and are in place to support capital expenditure Federal 

funding is assumed to be available to cover a substantial amount of capital 

required for system rebuild and maintenance. Puerto Rico is requesting a costshare adjustment for future FEMA program amounts under the Stafford Act. 

The projections in this Certified Fiscal Plan assume that Community 

Development Block Grant-Disaster Recovery (CDBG-DR) funding will be 

available to cover any matching requirements under the Stafford Act

GenCo Labor ■ FY 2023, FY 2024, and FY 2025 are in line with the filed budget for GenCo

■ FY 2026 and beyond is projected using budget spending levels with an inflation 

factor 

■ Benefits expenses are based on historical spending levels and performance

GenCo NonLabor Other 

Operating

■ FY 2023, FY 2024, and FY 2025 are in line with the filed budget

■ FY 2026 and beyond is projected using historical spending levels with an 

inflation factor 

GenCo 

Maintenance ■ It is expected that the exit from Title III should result in a return to the capital 

markets to finance capital improvements and improved counterparty risk to 

attract private investment into the generation system

■ Federal funding is assumed to be available to cover a substantial amount of 

capital required for system rebuild and maintenance. Puerto Rico is requesting 

a cost-share adjustment for future FEMA program amounts under the Stafford 

Act. The projections in this Certified Fiscal Plan assume that Community 

Development Block Grant-Disaster Recovery (CDBG-DR) funding will be 

available to cover any matching requirements under the Stafford Act

Overview of GenCo Expense Projections

From 2012 to 2021, PREPA’s generation workforce fell by over 50% due to the loss of 871 

employees. This reduction was caused by several factors including austerity measures related to 

Act 66-2014 and Act 26-2017, among others. PREPA’s leadership is acutely focused on ensuring 

that PREPA can retain and hire the necessary employees to responsibly operate legacy generation 

units, however, unpredictable retirement patterns without available substitutes to assume the 

roles of skilled personnel eligible for retirement are driving a critical situation that could 

potentially cause major operational disruptions. To that point, PREPA’s generation directorate 

currently faces a (i) shortage of key operational personnel and (ii) a high proportion of key 

personnel eligible for retirement. 

In order to address the issues mentioned above, PREPA’s projected spending on labor expenses 

is consistent with facilitating the transition to private operation via the P3 process currently 

underway and is designed to retain and hire/train the necessary employees to allow for the 

continuous and safe operation and maintenance of legacy generation assets. This is also relevant 

and necessary to enable PREPA’s implementation and orderly transition to renewable energy, as 

mandated by Act 17-2019 and the approved Integrated Resource Plan. 

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164

The non-labor expense category includes the purchase of non-capitalizable services, equipment 

and tools and materials that are essential and critical to carry out technical activities. This is 

essential to ensure a safe and reliable operation and maintenance of the generating units that 

make up the legacy generation fleet, and to meet the energy dispatch and load reserve 

requirements required during hours of regular and peak demand, as well as the hurricane season.

The budget for non-labor expense was developed by the PREPA generation directorate and 

executive management to ensure that generating units are available, reliable and in compliance 

with the requirements of the EPA Consent Decrees, as well as any operational and power plant’s 

condition requirements under PREPA’s property and casualty, business interruption, and other 

insurance policies155. The FY 2023 GenCo budget includes amounts sufficient to ensure that 

PREPA can undertake the necessary non-capitalizable maintenance and repair activities to 

comply with operational, environmental and insurance related requirements. For discussion on 

GenCo NME projections please reference Section Error! Reference source not found.

Error! Reference source not found..

GenCo expenses are projected to decline over the Certified Fiscal Plan period as PREPA-owned 

generation units are retired, and the mix shifts to third-party owned generation, specifically 

renewable generation, which will be contracted through PPAs. PPA and fuel expenses are 

considered pass-through charges and are therefore not included in GenCo’s expenses. PREPA will 

however transition O&M activities to one or more private operator(s) for its legacy generation 

units. This transition is expected to be completed in FY 2023. Labor, non-labor, and necessary 

maintenance expenses associated with operating and maintaining PREPA’s legacy generation 

assets are expected to decrease from its current levels, as units are being retired. Exhibit 65 shows 

that the expense categories most closely correlated with the number of legacy generation units 

and their capacity - labor and necessary maintenance expenses - are expected to decrease between 

FY 2023 and FY 2027 by ~50% and ~70%, respectively. Non-labor and other expenses - which 

include expense sub-categories like the shared services agreement between LUMA and GenCo -

are less correlated with legacy generation capacity than for instance labor as it includes insurance 

and IT cost, is expected to decrease less rapidly (~21%) over the same period.

155 Note that the cost of insurance premiums for the various insurance policies mentioned here is included in the cost of Shared 

Services with LUMA, not in Generation Non-Labor Expenses.

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165

EXHIBIT 65: FIVE-YEAR EXPENSE FORECAST FOR GENCO156 (USD MILLION)

Overview of GridCo Expense Projections

GridCo expenses are projected to decrease slightly over the next 5 years, as the Title III process is 

completed and initiatives begin execution phase, leading to efficiencies. Labor costs are projected 

to slightly increase between FY 2022 and FY 2023, while the process of hiring LUMA’s workforce 

is being completed. After FY 2023 labor expenses are projected to stay stable in real terms. Nonlabor/other expenses are expected to decrease over time, as future efficiencies from the transition 

to a private operator are being realized. These efficiencies have already been reflected in the 

projections shown in Exhibit 66 below. Necessary maintenance expenses are projected to increase 

over the forecast period as work begins on the execution of grid modernization and strengthening 

projects outlined in the T&D roadmap (see Chapter 7 (LUMA Improvement Portfolios) for 

details). 

156 Full transition to the private generation operator(s) is expected to take place by FY2022. Excludes ERS pension expense after

2022

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166

EXHIBIT 66: FIVE-YEAR EXPENSE FORECAST FOR GRIDCO (USD MILLION)157

Overview of HoldCo

Exhibit 67 shows HoldCo’s expense projections over the next 5 years. Expenses are projected to 

decrease by approximately 50% between FY 2023 and FY 2027, as in FY 2022 HoldCo will still 

provide some transition support to GenCo (e.g., administrational support, etc.), but will transition 

these support activities to GenCo in FY 2023. Additionally, Title III related costs are expected to 

decrease in this time period, too, as PREPA is expected to leave Title III bankruptcy in FY 2023. 

After FY 2024, HoldCo expenses are expected to decrease further, as more and more activities 

from GenCo will be shifted to private operators, which will further decrease the support HoldCo 

will have to provide to GenCo. As HoldCo will not be responsible for any O&M work related to 

PREPA’s generation assets or the T&D System, HoldCo will not have any necessary maintenance 

expenses and will only have to cover its labor and non-labor expenses. As outlined above, nonlabor expenses include Title III costs, advisor fees and P3A transaction costs, which will decrease 

between FY 2023 and FY 2024 and between FY 2026 and FY 2027, as PREPA exits Title III.

157 Full transition to LUMA is expected to take place by FY 2022.

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167

EXHIBIT 67: FIVE-YEAR EXPENSE FORECAST FOR HOLDCO (USD MILLION)158

158 Full transition to LUMA is expected to take place by FY2022. Excludes ERS pension expense after 2022.

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168

Chapter 14. Debt Service

Overview of PREPA Debt

As of May 2017, PREPA was burdened with approximately $9 billion in bond and other debt 

obligations, along with an unsustainable repayment schedule. To pay full debt service on these 

obligations, PREPA would have been required to increase rates by approximately 6 to 8 c/kWh in 

real terms over the next twenty years. PREPA’s unsustainable capital structure reflects decades of 

borrowing to fund operating deficits. In February 2014, three major credit-rating agencies 

downgraded Puerto Rico’s public debt to below investment grade. In late June 2015, the debt was 

downgraded a second time when it became clear that the Island’s debts were unpayable.159 

Finally, in the spring of 2016, as the investment community viewed default on nearly all of Puerto 

Rico’s debt as a “virtual certainty,” PREPA lost access to credit markets – thus eliminating debt as 

a means of funding necessary capital spending and operating deficits. 160,161

In July 2017, in the interest of ensuring PREPA’s future financial sustainability, and at the request 

of the Government of Puerto Rico, the Oversight Board filed a voluntary petition on behalf of 

PREPA for protection under Title III of the Puerto Rico Oversight, Management, and Economic 

Stability Act (PROMESA) in the U.S. District Court. Since then, a group of PREPA creditors, the 

Oversight Board, the Government, and PREPA negotiated a consensual debt restructuring 

support agreement. However, as a result of the uncertain and unpredictable effects of COVID-19 

on PREPA and its customers, the Oversight Board and the Puerto Rico Fiscal Agency and 

Financial Advisory Authority (AAFAF) requested, and the court granted a pause in the Title III 

process to assess and understand the implications of COVID-19.

On March 8, 2022, due to concerns regarding affordability and sustainability of the electric system 

(among other reasons) AAFAF terminated the PREPA restructuring support agreement, an action 

supported by the Oversight Board. As a practical matter, the Oversight Board had the contractual 

right to terminate the agreement on its own. The termination terminated the agreement as to all 

parties such that the restructuring support agreement is no longer in effect.

Any future, successful restructuring scenario is dependent on achieving a compromise with one 

or more prepetition creditor groups, which include asset managers, insurers, and other financial 

institutions that allows for sustainable rates and affordable debt service. Sustainable rates and 

affordable debt service will both underpin PREPA’s ability to operate in a financially viable 

manner, avoid undue burden on ratepayers, and provide a fair recovery to creditors. 

159 D. Andrew Austin, Puerto Rico’s Current Fiscal Challenges, (U.S. Library of Congress, Congressional Research Service, R44095, 

2016), 4, https://fas.org/sgp/crs/row/R44095.pdf.

160 “An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ’CC’ rating is used when a default has not yet occurred 

but S&P Global Ratings expect a default to be a virtual certainty, regardless of the anticipated time to default.”, “S&P Global 

Ratings Definitions,” S&P Global Ratings, last modified September 18, 2019, 

https://www.standardandpoors.com/en_US/web/guest/article/-/view/sourceId/504352.

161 D. Andrew Austin, Puerto Rico’s Current Fiscal Challenges, 4.

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169

Implications of Unrestructured Debt on Projected Rates 

Without restructuring its debt and other liabilities, PREPA would need to repay approximately 

$3.2 billion of scheduled legacy debt service obligations over five years from FY 2023 to FY 2027 

before considering the roughly $4.1 billion of unpaid past and currently due amounts through FY

2022. Fully funding PREPA’s unrestructured debt service obligations in the near term would 

require rate increases of approximately 6 to 8 c/kWh in real dollars (Exhibit 68). In the longer 

term, PREPA’s estimated annual debt service obligation is approximately $1 billion162 per year 

based on amortization of all long-term financial liabilities at a 5.25% interest rate over 20 years.

Absent restructuring of the debt, PREPA and its customers cannot afford to meet these obligations 

unless rates are increased by up to 8 c/kWh and collected which faces obstacles such as imposing 

higher rates on a poor population, incentivizing users to convert to solar power, deterring business 

investment, and spurring out-migration.

Payments for unrestructured debt service directly translate into higher customer bills. For 

instance, for a typical customer with a monthly electricity consumption of 500 kWh in FY 2022, 

including payments for unrestructured debt in the electricity rate (on top of the pre-measure rate 

that does not include any debt payments) would increase the customer’s average monthly bill in 

FY 2025 by ~30% from $94.9 to $123.5. This illustrative calculation assumes energy efficiency 

improvements in compliance with Act 17-2019 (as included in PREPA’s IRP), unrestructured 

pensions, and no demand increasing effects from, for example, electric vehicles or other 

technologies.

EXHIBIT 68: RATE WITH UNRESTRUCTURED DEBT ADDED (IN NOMINAL 2022 C/KWH)

162 This includes bond principal, bond interest, fuel line principal, fuel line interest, and UCC payments.

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170

Debt Sustainability Analysis

The debt sustainability analysis (DSA) included here provides a framework for assessing PREPA’s

long-term capacity to pay debt service.163 PREPA’s debt levels need to align with the objective of 

recovering capital market access to fund ongoing and future infrastructure capital investment 

and/or refunding savings and ensuring sustainable electric system with affordable energy prices 

for the Commonwealth and its residents. The following debt sustainability analysis describes 

PREPA’s capacity to pay current and projected debt.

The DSA assesses PREPA’s long-term capacity to pay debt service. The analysis must take into 

account that raising rates to pay legacy debt is subject to persons’ and businesses’ ability to pay, 

alternatives available to them if rates increase beyond their ability or willingness to pay, and the 

negative impact higher rates have on a generally poor population and the Commonwealth’s ability 

to attract new investments to grow its economy and provide jobs for a population having a high 

unemployment rate. Exhibit 8, the “share of wallet” of electricity costs for the average Puerto Rico 

household, is far above the average for U.S. and comparable island markets even without the 

recent surge in fuel prices. PREPA’s debt levels also need to align with the objective of recovering 

capital market access at reasonable rates to fund essential ongoing and future infrastructure 

capital investment and/or refunding savings, ensuring a sustainable electric system with 

affordable energy prices for the Commonwealth and its residents, and avoiding the consequences 

to PREPA of accelerating load defection to solar and other alternative energy resources, along 

with electricity theft. This debt sustainability analysis incorporates PREPA’s capacity to pay 

current and projected debt through a rate increase that accounts for these concerns and PREPA’s 

statutory mission and duties. Thus, the analysis, of necessity, incorporates objective and 

subjective judgments and concerns concerning fairness to Puerto Rico residents, fairness to 

creditors, carrying out PREPA’s statutory mission, and risks of demand loss from multiple causes.

The DSA matrix illustrates PREPA’s implied debt capacity at varying coupon levels and

hypothetical levels of net revenue (TABLE 15). The DSA assumes a 30-year term and level debt

service (i.e., 1.0 times coverage). Restructuring is imperative to achieving a sustainable solution 

to PREPA’s debt obligations and paving the way to regaining its investment grade rating and 

ensuring a fiscally sustainable future for the Puerto Rico energy system and Puerto Rico residents.

TABLE 15: ILLUSTRATIVE DEBT CAPACITY SENSITIVITY (Values in $000’s)

Sensitivity Analysis – Implied Debt Capacity

c/kWh 1.500 2.000 2.500 3.000

PV Rate %

5.000% 2,804,419 3,739,225 4,674,031 5,608,838 

5.500% 2,673,610 3,564,813 4,456,016 5,347,219 

6.000% 2,552,796 3,403,728 4,254,660 5,105,592 

6.500% 2,441,019 3,254,692 4,068,365 4,882,038 

163 PROMESA Section 201(b)(1)(I) mandates that the Certified Fiscal Plan include a debt sustainability analysis.

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Chapter 15. Pension Reform

Historical Background and Organizational Structure

The PREPA Employees’ Retirement System (PREPA ERS) was originally created through 

Resolution 200 of PREPA’s Governing Board in accordance with the terms of a Collective 

Bargaining Agreement executed in 1942 between the Puerto Rico Electrical Industry and 

Irrigation Workers Union (“UTIER,” by its Spanish acronym) and the Water Resources Authority, 

now known as PREPA. PREPA’s Governing Board adopted the resolution establishing the PREPA 

ERS as of July 1, 1945. Through the years, the PREPA ERS expanded its scope to cover other 

PREPA employees. Since its inception, the PREPA ERS has been governed by its bylaws, as 

amended, which are contractual in nature, known as the “Electric Power Authority Employee 

Retirement System Regulations” (the “ERS Regulations”).

The PREPA ERS is a public pension system. Its assets are dedicated for the benefit of the active 

members, retired members, and their beneficiaries. PREPA is the plan sponsor, contributes to the 

PREPA ERS, and pays for all the administrative costs of the PREPA ERS, which total 

approximately $4.7M per year. The ERS Regulations establish a Board of Trustees (the “Board of 

Trustees”) to administer the PREPA ERS. That Board is comprised of eight (8) members, of which 

one (1) member is the Executive Director of PREPA, three (3) members are active members of the 

PREPA ERS and are elected by the active members of the PREPA ERS, three (3) members are 

appointed by the PREPA Governing Board, and one (1) member is elected by the retired members 

of the PREPA ERS.

Article 7 of the ERS Regulations provides that the powers of the Board of Trustees are subject to 

the limitations that the Governing Board of PREPA may prescribe. Further, Article 11 of the ERS 

Regulations provides that the ERS Regulations may be amended by the Board of Trustees, 

provided that said board notifies the PREPA Governing Board thirty (30) days in advance of its 

intention to amend the ERS Regulations. PREPA’s Governing Board may, within said thirty-day 

(30) period, veto the proposed amendment. Additionally, Article 9(2) of the ERS Regulations 

provides PREPA’s Governing Board with the ability “upon recommendation of the Board of 

Trustees” to modify contributions to or terminate the PREPA ERS “for reasons that affect its 

development and normal operations as a solvent entity, discontinue, suspend or reduce its 

contributions.” Article 9(3) allows PREPA to terminate operation of the PREPA ERS “based on 

causes or circumstances that are outside of its control”.

The ERS Regulations provide for PREPA to make an employer contribution to the PREPA ERS in 

the amount of the actuarially determined contribution (ADC), which is an actuarially determined 

amount reflecting the cost of benefits earned during the year (“normal cost”) plus the amortization 

of the unfunded status of the plan over a fixed number of years. The ADC is the amount needed, 

if contributed consistently based on each year’s actuarial calculation, to fully fund all of the 

benefits payable by a plan, so long as it is based on a set of assumptions that accurately represents 

expected future costs of the plan. The ERS Regulations impose on the Board of Trustees the 

obligation to approve its actuarial reports and financial statements annually. Up until the June 

30, 2016, actuarial valuation that the actuary for the PREPA ERS provided PREPA with an ADC 

that was demonstrated, in hindsight, to be based on overly optimistic assumptions regarding 

payroll, life expectancy, and return on system assets. As a result, the ADC that has been 

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historically approved by the Board of Trustees was too low to maintain the health and funded 

status of the PREPA ERS. An actuarial revision was performed by the ERS actuary in 2018, with 

the intervention of the PREPA Governing Board, which updated many key economic and 

demographic assumptions, and significantly increased the ADC beginning with the June 30, 2017, 

valuation reports (i.e., FY 2019 ADC). Under its bankruptcy status, however, PREPA continued to 

fund the ERS plan at the lower levels calculated from the ADC before such ADC was revised to 

more realistic assumptions.

Pension Benefits Background 

PREPA ERS undertook a significant pension reform in 1993 including, most notably, an increase 

in the minimum retirement age and the imposition of a cap on pension benefits through the 

establishment of a maximum annual compensation limit of $50,000 as the base for the 

calculation of the pension benefit (i.e., in comparison to pre-1993 employees who would receive a 

merit-based pension of 75% of the highest three years of compensation without any cap). The

maximum amount of annual pension benefit that a post-January 1, 1993, hire could earn, 

therefore, is $37,500 (75% of $50,000). Such reform notwithstanding, the Cost-of-Living 

Adjustment (COLA) remained in effect and applies to all retirees, providing for an increase to 

benefits every three years. Additionally, effective June 30, 2002, and June 30, 2003, an annual 

$400 Christmas bonus and a $100 Summer bonus were added to retiree benefits. As of June 30, 

2004, a lump sum Funeral Benefit of $1,000 was also established. 

Key retirement provisions are itemized in the table below, both for employees hired before and 

after January 1, 1993.

TABLE 16: KEY RETIREMENT PROVISIONS

Defined 

Benefit Hired Before January 1, 1993 Hired On or After January 1, 1993

Eligibility for 

Full 

Retirement 

Benefit

▪ 30 years of service ▪ Age 55 and 30 years of service

Maximum 

Compensation

▪ Average of the three highest annual base 

salaries

▪ Average of the three highest annual 

base salaries, but capped at $50,000

Annual 

Benefits

▪ Merit annuity is 2.5% of compensation times years of service up to 30 years

▪ Accrued benefit annuity is 1.5% compensation for each year of service, plus 0.5% of 

compensation for each year of service after 20 years

▪ Maximum benefit at retirement is $37,500 for those hired on or after January 1, 1993

Employee 

Contributions

▪ Employee contributions are generally 

9.06% of salary ▪ Employee contributions are 11% of salary

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Cost-of-Living 

Adjustment

▪ Every three years: 8% increase for monthly pension of up to $300; 4% increase for 

monthly pension between $300 and $600; 2% increase for monthly pension in excess 

of $600

Other Benefits

▪ Annual bonuses of $500 ($400 for Christmas and $100 for Summer); Funeral benefit 

of $1,000 paid as a lump sum; Lump sum of one year’s pay at death while active or 

retired

Furthermore, surviving spouses of retired members are entitled to receive a life annuity equal to 

30% of the annual pension level at the time of death. 

Other Post-Employee Benefits (OPEB)

For Other Post-Employment Benefits (OPEB), PREPA provides postretirement medical benefits 

outside of the PREPA ERS (i.e., not paid from pension trust). The eligibility for receiving medical 

benefits is 30 years of service. Currently, PREPA provides medical coverage for retirees through 

a contract with Triple-S. This benefit is completely unfunded and is included in the PREPA 

operating budgets, costing approximately $12 million annually under the current contract. There 

are approximately 8,200 retirees that receive the OPEB medical benefit.

Distribution of Active Participants by Age and Years of Service

As of June 30, 2020, there were approximately 12,480 retirees (12,336, as of April 2022) that 

receive an average monthly pension benefit of $1,815, and 5,524 non-retired participants (3,592

as of May 2022164) that participate in the pension system. The exhibit below sets forth the 

distribution of active participants by age and years of service (as of June 30, 2020).

164 The 3,592 includes over 2,000 former PREPA employees that transferred to Commonwealth agencies at the time of the 

formation of LUMA. PREPA ERS and the Oversight Board are engaged in on-going conversations related to the continued 

accruals of additional pension benefits in PREPA ERS for these employees.

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EXHIBIT 69: NUMBER OF PARTICIPANTS AND TOTAL SALARY

Funded Status

As of March 31, 2022, the PREPA ERS total asset value was $539 million, of which approximately 29% or 

$157 million was invested in “illiquid assets,” such as venture capital and partnerships, as well as employee 

loans/mortgages (i.e., Other Assets). The exhibits below show the pension system’s assets declining rapidly, 

primarily due to (a) significant outflow resulting from benefit payments, (b) an insufficient employer 

contribution, and (c) a significant decrease in headcount leading to a reduced amount of 

employee/employer contributions. As also shown in Exhibit 75 below, based on the depletion rate of trust 

from FY 2022, there are approximately 19 months remaining until the liquid assets are depleted (or a 

projected asset depletion date in October 2023). Note that investment returns, administrative expenses, 

and employee contribution withdrawals, including any by employees that have transferred to LUMA, could 

potentially accelerate the time until liquid assets are depleted.

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EXHIBIT 70: PENSION ASSETS AS OF MARCH 31, 2022

EXHIBIT 71: PENSION FUNDED STATUS AS OF JUNE 30, 2020

The exhibit above illustrates the funded ratio of the PREPA ERS plan for FY 2016-FY 2020. 

Historically, the funded ratio of the plan has steadily declined since 2008 when the plan was 67% 

funded. As of June 30, 2020, the pension liability was $4.3 billion compared to an asset value of 

$762 million, representing a funded ratio of eighteen percent (18%), which drops to twelve 

percent (12%) when excluding illiquid assets. A funded ratio of 18% means that all pension assets, 

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including those that may not be liquid, cover 18% of the actuarial accrued liability associated with 

the PREPA ERS Plan. The steady decline in funded status demonstrates a long history in 

mismanagement of pension costs resulting in significant underfunding of the plan.

From FY 2017 to FY 2021, PREPA budgeted and contributed an approximate average of $80 

million per year as the employer portion of the pension system contribution, with the FY 2022 

contribution decreasing to ~$27 million. For FY 2023, the Certified Fiscal Plan reflects 

contributions of ~$18 million. 

Implications of Full Funding of ADC vs. PayGo Funding 

The PREPA ERS ’s current policy for calculating the ADC was established as of June 30, 2010, for 

the Unfunded Actuarial Accrued Liability (UAAL), to be fully amortized over a 30-year period on 

a closed basis. The UAAL is amortized as a level dollar amount, and, as of June 30, 2021, the 

remaining amortization period is 20 years. 

PREPA estimates that for FY 2023 (July 1, 2022, to June 30, 2023), the full ADC will be $313 

million, based on the remaining 20-year amortization period. The expected benefit payments for 

the same period are estimated to be $283 million, which represents over 1/2 of the market value 

of assets (liquid plus illiquid) as of March 31, 2022. 

EXHIBIT 72: PROJECTED PAYGO COSTS AFTER PROJECTED PREPA ERS ASSET DEPLETION

If PREPA ERS assets are depleted and PREPA employer contributions are insufficient to cover 

pension benefits, PREPA would need to find resources to pay for pensions and employee 

contribution withdrawals on a Pay-As-You-Go (“PayGo”) basis, or risk non-payment of benefits 

to pensioners. At the current rate of funding, the PREPA pension system plan assets could become 

depleted PayGo during FY 24, requiring an emergency electric rate increase to fund pension 

obligations on a PayGo basis. Exhibit 72 shows the projected Paygo payments and the associated 

cost to ratepayers after PREPA ERS assets are exhausted Under PayGo, employer contribution 

would continue decades beyond the year 2050 until all benefits are paid. Possible solutions to 

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avoid such outcome include but are not limited to: (i) a future payment, potentially through the 

issuance of debt, made under the plan to PREPA ERS; (ii) or new pension trust from a transition 

charge established under the Plan; (iii) a separate stream of PayGo payments to pensioners 

directly (net of any distributions from residual PREPA ERS assets); or (iv) pro rata share of the 

unsecured creditor distribution under the Plan to PREPA ERS, requiring PREPA ERS to reduce 

pension payments to retirees pro rata.

Structural Pension Reform Considerations 

Because the PREPA-ERS trust is significantly underfunded a reform must be adopted to 

structurally support the ongoing needs of pensioners, while balancing the impact on power rates 

given the expected future reductions in electricity demand from the grid in future years. PREPA 

must determine the method by which these benefits will be funded, and the level of benefits that 

will be provided in the future (e.g. whether to apply a freeze, COLA elimination, cut etc.). The 

overarching decision that needs to be made relates to the pension funding vehicle. Currently, 

pension contributions are made to the PREPA ERS trust with benefits and administrative costs 

paid from the trust’s accumulated assets. Current contributions to the plan are insufficient and 

will result in the trust becoming insolvent in the near future. If PREPA ERS assets are depleted, 

the payments will need to be converted to PayGo. A decision is needed whether to maintain a 

trust structure and rebuild the funded status of the plan to avoid the need to convert to PayGo, or 

simply accept the conversion to PayGo. In either case, additional decisions are needed in the areas 

outlined below to consider not only the contributions needed to appropriately fund the plan, but 

the impact of these costs on electricity rates.

Short term pension funding considerations

If benefits are funded through a pension trust (either PREPA ERS or a newly established trust), 

PREPA will consider how best to reduce the negative impact of significant variations in the 

surcharge from year to year on customers. While rates would need to be reviewed annually to 

adjust for any losses occurring during the year, potentially adversely affecting long term adequate 

funding of the trust (for example variation in actual demand levels versus projected demand, 

unfavorable asset returns, etc.), funding benefits through a trust should allow the rate to be more 

even, providing increased stability in electricity rates over the years.

If pensions are paid via PayGo, the risk of fluctuation of revenue from the pension surcharge in 

electricity rates is even greater. Ideally, retirees need to be able to count on a stable monthly 

retirement income from PREPA ERS. Therefore, unlike other expenses which may be delayed for 

a period of time under challenging business conditions, a retirement system plan must be in place, 

with confirmations each month, to ensure that retirees receive their monthly pension checks in a 

timely manner. This may involve, for example, structuring the surcharge to collect revenue in 

advance for benefits that will be payable at some point in the future, so that if revenue is less than 

expected in the short term (e.g., lower demand due to natural disasters or general seasonal 

fluctuations), there is time to adjust the surcharge to generate the level of revenue necessary to 

pay benefits to retirees.

Longer term pension funding considerations

If benefits are funded through a trust, there is more flexibility in how to structure the pension 

surcharge. Given the projected decline in future electricity demand and the long-term nature of 

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the pension obligation, a funding practice that results in a relatively stable contribution level each 

year will, as a by-product, result in continued increases in electric rates when lower demand levels 

in later years are factored in. As an alternative, a flat electricity rate could be determined that, if 

charged on current and future rates, would result in cumulative contributions at a level sufficient 

to fully fund the retirement system plan by the end of the closed amortization period.

If instead pension system expenses are funded via PayGo, there must be a recognition that 

pension payments for younger plan participants will extend decades beyond the length of the 

Certified Fiscal Plan. Therefore, a plan is necessary to make sure that these participants receive 

the pensions promised to them under PREPA pension reform as far out in years as necessary, 

even as demand may continue to decline. 

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Chapter 16. Post-Certification Reporting

Electric utilities and energy providers operate critical infrastructure, often as monopolies. To 

provide transparency and inform regulators, employees, customers, and other stakeholders, 

regulated energy and utility companies must adhere to strict transparency and reporting 

requirements mandated by different federal, state, and other regulatory entities. Such reporting 

requirements are industry standard and apply to PREPA.

Historically, it has been PREPA’s responsibility to report on its financial, operational, and 

reliability indicators. As part of the transformation of Puerto Rico’s energy sector and LUMA’s 

role as the operator of the T&D System, LUMA has continued to comply with some of these – and 

certain additional – reporting requirements, as specified in the T&D OMA. The T&D OMA 

authorizes LUMA to represent PREPA before PREB “with respect to any matter related to the 

performance of any of the O&M Services” provided by LUMA. It further specifies that LUMA will 

be responsible for all related filings and other submissions before PREB. Annex I of the T&D OMA 

details LUMA’s accounting and financial information reporting requirements, including to both 

PREB and the P3A, and mandates LUMA to aid PREPA and P3A “in connection with the 

preparation of reports and other documents to satisfy PREPA’s reporting requirements.” These 

include (among other requirements):

▪ quarterly and annual (year-end) financial reporting;

▪ monthly and annual federal agency reporting requirements;

▪ PREB reporting requirements;

▪ Budget Reconciliation Act of 2017 and other federal and Commonwealth stimulus or 

funding program reporting requirements; and

▪ Department of Energy reporting requirements.

To monitor the progress of PREPA’s operational and financial reorganization and the 

transformation of Puerto Rico’s energy sector, as well as the health and performance of Puerto 

Rico’s electricity system, the Oversight Board has historically required PREPA to submit 

additional performance and implementation-related information to the Oversight Board on a 

regular basis. PREPA must continue to meet these reporting requirements until it is no longer a 

covered territorial instrumentality as designated by the Oversight Board pursuant to PROMESA.

Going forward and as defined in their respective OMAs, the private operators of PREPA’s T&D 

and generation assets will be responsible for certain operational and non-operational measures. 

As a result, PREPA will be required to work closely with both entities to fully implement and 

complete the reorganization and transformation of Puerto Rico’s energy sector. 

The Oversight Board will use the private operators’ reports to PREB and P3A on outcome metrics 

and implementation status to supplement the information provided by PREPA and continue to 

monitor the financial health and performance of Puerto Rico’s electricity system, while reserving 

its right to request certain other reports from LUMA either directly or through PREPA. 

The sections below describe various reports and metrics that must be submitted by PREPA, 

LUMA, and any other future generation asset private operator(s). Section 16.1 below describes the 

required information and submission cadence for each non-operational report PREPA must 

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submit to the Oversight Board, or that LUMA must submit to P3A and/or PREB, and to which the 

Oversight Board will have access to, as per the agreement with LUMA. “Non-operational” in this 

context means that these reports are not tied to specific operational measures but are overarching, 

indicating the overall performance and health of the electricity system. Section 16.2 includes an 

overview of the T&D-related metrics that LUMA is submitting to P3A and PREB as per the 

OMA165, and to which the Oversight Board will have access to as per the agreement with LUMA.

The overview in section 16.3 summarizes generation-related metrics and reports that are tied to 

specific operational measures and that PREPA must submit to the Oversight Board. It reflects 

improvements to PREPA’s reporting process initiated in FY 2020. Once the transition of PREPA’s 

legacy generation assets has been finalized, the generation-related reporting responsibilities will 

move over from PREPA to the private operator. These changes will be reflected at a later point in 

time.

PREPA and the private operators will submit reports on a weekly, monthly, quarterly, or annual 

basis. The cadence and process for reporting is described in the table below.

TABLE 17: REPORTING CADENCE

Report Type Submission Timeline

Weekly Submitted on Wednesdays for the preceding week

Monthly Expected 15 days after the end of the month

Quarterly Expected 45 days after the end of the quarter in the form of a consolidated report

Annually Expected 120 days after the end of a Fiscal Year in the form of a consolidated report

Non-operational Reports

Reporting of non-operational matters, i.e., information not tied to specific operational measures 

but information that is describing the performance and health of the electricity system at a more 

general level, is divided into two (2) categories: (1) Resilience and Resource Planning, and (2) 

Financial. Resilience and Resource Planning reports provide updates on implementation of the 

Integrated Resource Plan (IRP), grid modernization, and federal funding efforts. The financial 

reporting cadence varies based on the nature of the reported metric, ranging from weekly to 

annually.

165 Final metrics subject to PREB approval

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TABLE 18: NON-OPERATIONAL REPORTS

Report Detail Cadence

Responsible 

Entity

Resiliency & Resource Planning

Implementation 

of PREB 

approved IRP 

and Modified 

Action Plan

Submission of all PREB required IRP status 

reports, including a two-year near-term 

forecast of the system’s expected capacity 

resource balance on a seasonal basis and its 

ability to meet peak load and operating 

reserve requirements with existing and 

anticipated resources at each of the 

forecasted intervals.

As determined

by PREB

PREPA/ LUMA

Implementation 

of Grid 

Modernization

Grid modernization plan must provide an 

overview of the major investment 

categories and projects that PREPA is 

considering in order to deliver reliable, 

resilient power and status of project 

delivery against milestones

Monthly PREPA/ LUMA

Permanent and 

Emergency 

Work-Related 

Federal Funding 

Report

Updates on FEMA and CDBG-DR funding 

programs for permanent and emergency

work for generation and T&D assets.

Provide the following by PW: 

■ Intended use and description of project 

portfolio

■ Obligated amount

■ Received amount

■ Cost-match requirements

■ Cost-match funded (by source)

■ Project timeline and/or milestones

Monthly PREPA/ LUMA

Budget to Actuals

(Reporting 

requirement is 

separate from any 

requirement under 

Section 203 in 

PROMESA)

Tracking of certified Budget to Actual for 

GenCo and HoldCo based on template to be 

provided by the Oversight Board:

■ Include explanation for material 

variances (greater than 10% and $30 

million)

■ Include income statement in the 

reporting package

■ Provide monthly budget reporting

Monthly PREPA/ LUMA

Tracking of certified Budget to Actual for 

GridCo, GenCo and HoldCo based on 

template to be provided by the Oversight 

Board:

■ Include explanation for material 

variances (greater than 10% and $30 

million)

■ Include income statement in the 

reporting package

■ Provide quarterly budget reporting

Quarterly PREPA/ LUMA

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Report Detail Cadence

Responsible 

Entity

Accounts 

Receivable 

(AR)/Accounts 

Payable (AP) cash 

flow reporting

Continued reporting on cash flow, payables 

and receivables by customer or vendor 

class.

Monthly LUMA

Transmission & Distribution-related Operational Measures

Per the T&D OMA, LUMA will annually submit T&D-related performance metrics to P3A and 

PREB across three categories: (1) Customer Satisfaction and (2) Technical, Safety, & Regulatory, 

and (3) Financial Performance. LUMA will also submit performance metrics on LUMA’s 

performance during a Major Outage Event. The specific metrics within each category are included 

in Chapter 8.

In addition, LUMA shall provide to the Oversight Board copies of any monthly, quarterly or 

annual report submitted to PREB, the P3A, or any other government agency, until PREPA is no 

longer a covered territorial instrumentality, as designated by the Oversight Board pursuant to 

PROMESA. Moreover, LUMA and PREPA, will complement their System Remediation Plan 

updates to the PREB (NEPR-MI-2020-0019) with information related to vegetation 

management. Specifically, LUMA will provide updates on the number of miles cleared, the 

municipalities impacted, and number or percentage of service interruptions caused by it. The 

Oversight Board will use these reports to supplement the information provided by PREPA in 

monitoring the financial health and performance of Puerto Rico’s electricity system.

Generation-Related Operational Metrics and Reports

Until the private operator for PREPA’s generation assets assumes responsibility, PREPA is 

required to report on its generation asset related operational measures on a monthly cadence for 

all operational measures. The precise reporting requirements vary by the nature of the measure, 

as outlined by the table below.

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TABLE 19: REPORTS ON GENERATION-RELATED OPERATIONAL MEASURES

Report Detail Cadence 

Fuel Supply and Power Purchase Agreements

Diesel supply 

contract

Report to include diesel purchases Year-To-Date (YTD), 

with year-over-year comparison of results. Reporting 

required on renegotiation or renewal extension process.

Monthly

Bunker fuel 

supply contract

Report to include bunker fuel purchases YTD, with yearover-year comparison of results. Reporting required on 

renegotiation or renewal extension process.

Monthly

P3 Projects and Transformation

Legacy 

generation P3

Reporting requirements to include RFP process updates 

for generation operator(s) and subsequent front end 

transition process

Monthly

PREPA 

Reorganization 

Plan 

Implementation

Reporting requirements to include a project workplan for 

execution of PREPA Reorganization Plan, including but 

not limited to:

• A clear description of PREPA’s reorganized 

corporate structure, including identifying all 

subsidiaries expected to be established in relation 

to its reorganization (GridCo, GenCo, HoldCo, 

HydroCo, and PropertyCo), as well as any other 

remaining subsidiaries (i.e., PREPA Holdings, 

PREPA Networks, LLC—now known as HUB 

Advanced Networks, etc.). 

• A description of each entity within the overall 

umbrella structure, including operational scope, 

roles, responsibilities, and required roster size of 

operations over time (i.e., Organizational Charts).

• A detailed timeline with specific milestones 

that is consistent with the goal of a timely 

completion for PREPA’s reorganization. 

• A list of clear descriptions of PREPA’s intended 

transformation with regards to each entity or 

subsidiary (e.g., processes contemplated for 

managing and divesting assets, transferring 

operations to third party operators whether 

private or public, as applicable).

Monthly

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Chapter 17. Conclusion

The 2022 Certified Fiscal Plan lays out the actions the Government of Puerto Rico

must take to accelerate and successfully complete the transformation of Puerto 

Rico’s energy system. As laid out in this Certified Fiscal Plan, as well as in the 2022 

Commonwealth Certified Fiscal Plan, the full and complete implementation of the Energy Sector 

Reform is a fundamental component of Puerto Rico’s strategy to promote economic development, 

improve its attractiveness as an investment destination, and, last but not least, improve the 

quality of life of its residents. 

The modest steps taken by PREPA to procure renewable resources and the successful transition 

to LUMA as private operator of the T&D system important achievements that together provide 

PREPA’s customers with a sense of hope that a modern, efficient and reliable energy system is 

possible. Nonetheless, the overall delays in many other initiatives, including the development of 

the 150MW of non-operational renewable resources previously approved by the Oversight Board, 

PREPA’s corporate reorganization, the deployment of federal funding and the procurement of 

renewable resources in excess of those procured in Tranche 1, among others, pose a clear and 

present risk to the progress seen thus far. Unless urgent action is taken, in particular by PREPA, 

LUMA and PREB, Puerto Rico’s residents may find themselves having to permanently rely on an 

outdated and unreliable energy system. 

Aside from ensuring the short-term reliability of its generation fleet, PREPA’s resources and focus 

should be deployed to enable the successful transition of Generation operations to one or more 

private operators, as mandated by Act 17-2019. Similarly, PREPA should continue to focus and 

enhance its efforts on facilitating the access and deployment of federal funds, both towards the 

improvement of generation resources as well as towards investments in the T&D System, by 

supporting and serving as a partner to LUMA in its efforts to improve the quality and reliability

of energy services in Puerto Rico.

In the longer term, updating and implementation of the IRP, 10-year Infrastructure Plan, and 

LUMA’s improvement programs, will be essential to building a modern, safe, reliable, and 

resilient electricity sector for Puerto Rico. The 2022 Certified Fiscal Plan sets PREPA on a course 

to fully transform the energy system with best-in-class operational technology and expertise.

Case:17-03283-LTS Doc#:23584-5 Filed:02/21/23 Entered:02/21/23 14:57:21 Desc:

Exhibit E Page 185 of 185