Executive Summary

The Puerto Rico Energy Bureau (PREB or NEPR) continued its evidentiary hearings in docket NEPR-AP-2023-0003, examining the budget requests, staffing levels, administrative systems, and contract-management practices of LUMA Energy, PREPA, and Genera PR.

LUMA presented significant increases tied to outsourcing and finance-department staffing; PREPA described escalating compliance risks tied to inadequate staffing and outdated systems; and Genera PR faced questions over its bonus structure and project-management tools.

Together, these topics illustrate the interdependence of workforce capacity, administrative controls, and contract oversight—all core components of the rate-design process and its impact on customer costs.

Key Issues Reviewed in the December 4 Hearing

1. LUMA Energy

Finance Department Expansion

LUMA requested $15.5 million to add 34 new finance positions for FY2026.
LUMA stated that operations would continue if not approved, though efficiency would decline. However:

• LUMA did not quantify the operational risk of not filling the positions.
• No cost-benefit analysis was provided.
• The justification relied principally on the experience of leadership, not empirical modeling.

Outsourced Capacity & Technical Services

LUMA’s FY2026 outsourced capacity request is $204 million, nearly three times FY2025 levels, driven largely by vegetation management.

• Non-legal technical/professional services rise from $5 million to $10.6 million by FY2028.
• No BCA or quantified analysis supports the increased use of technical contractors.
• LUMA reiterated that outsourcing is used only as a last resort due to higher cost.

Compensation & Incentives

• Certain executive positions—including CEO and CFO—remain under ManageCo, not LUMA.
• Executive bonuses: 40% of base salary, based on corporate metrics.
• Employee bonuses: funded by ratepayers, tied to performance evaluations (including meeting budget).

2. Puerto Rico Electric Power Authority (PREPA)

Staffing Crisis and Legal Compliance

PREPA requested 100 new employees (30 for HoldCo, 3 for Retirement System, 67 for HydroCo), citing:

• A minimum staffing need of 386–387 employees to meet legal, operational, and regulatory obligations.
• HydroCo’s staffing shortages:
  • Some facilities are operated by only one employee, making continuous 24-hour operation impossible.
  • Absences require redeployment from other locations, increasing system vulnerability.

Comptroller Compliance Gap

In PREPA’s Finance division, the director and controller jointly perform the treasurer’s role—an arrangement that does not comply with Comptroller separation-of-duties requirements.
PREPA acknowledged that staffing requests were based on operational necessity, not supported by BCAs.

Technology Modernization

PREPA plans to discontinue the Asset Suite AVV system, migrating contract management, job tracking, and workforce systems (ADP, Kronos) to Oracle.

• Costs were not provided but are estimated in the tens of millions, based on PREPA testimony.
• Oracle will consolidate financial, workforce, and contract-management functions.

3. Genera PR

Budgeting & Workforce Systems

Genera PR presented a bottom-up budgeting methodology, using:

• ADP for workforce management (~$18,000/month)
• ProCore for project and contractor monitoring, especially for federal projects

Bonus Structure & Ratepayer Treatment

Genera’s bonus structure drew extensive questions:

• Bonuses range 25–50% of base salary, based on performance and budget availability.
• Bonuses are ratepayer-funded as part of labor costs—not paid from incentive pools.
• Genera does not include bonuses in savings calculations when reporting fiscal-year savings under the OMA.

Conditions for Bonus Payment

• Bonuses may be paid if metrics are met and the labor budget category reflects savings.
• Genera testified that this distinction aligns with budget structure:
  • Bonuses = pre-budgeted labor cost
  • Savings incentives = separate OMA mechanism

4. Joint Insurance Procurement

LUMA, PREPA, and Genera jointly procure insurance, with LUMA acting as administrator.
Each entity funds its own portion of insurance premiums through its individual budget, though consolidated procurement is intended to produce cost and administrative efficiencies.

Why This Matters

Each entity’s budget proposal, staffing needs, contractor strategy, and administrative systems will shape the rate design ultimately approved by NEPR.

Today’s testimony highlights several crosscutting themes:

• Staffing and compliance gaps remain central for PREPA and HydroCo.
• Quantification gaps—across LUMA and PREPA—limit NEPR’s ability to assess financial prudence.
• Administrative systems are shifting toward major enterprise platforms (Oracle, ADP, ProCore), suggesting long-term capital and operating impacts.
• Bonus structures across operators continue to raise policy questions about cost recovery, ratepayer burden, and performance alignment.

Photo by Nikola Johnny Mirkovic on Unsplash

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