Topics: Bookkeeping, Accounting and Efficiencies
The Puerto Rico Energy Bureau (PREB or NEPR) continued its evidentiary proceedings in NEPR-AP-2023-0003 on November 24, 2025, focusing on the financial, bookkeeping, and efficiency issues that shape the proposed permanent rates for PREPA, LUMA, and Genera. The session examined the utilities’ ability to transition to the federal Uniform System of Accounts (USOA), the persistent challenges caused by PREPA’s legacy financial records, and the sufficiency of current reporting frameworks. Regulators and intervenors also scrutinized LUMA’s historic under-execution of capital budgets, its request for expanded budget flexibility, and questions surrounding operational efficiencies, outage-related costs, and outstanding vendor obligations. The following summarizes the key topics discussed during the hearing.
The following summarize the topics and details that were discussed in the hearing:
1. USOA Compliance and Implementation
- A Central Panel Topic: The Hearing Examiner's orders for the evidentiary hearings included a specific panel dedicated to "Recordkeeping for project costing (Uniform System of Accounts, activity-specific budget projections)".
- To date, there have been no actions taken for transitioning to USOA due to lack of historical data for accurate reporting. It was agreed in the hearing to start transitioning and compiling data for now on because it is not possible to PREPA, GENERA or Luma to recover the needed historical data.
- Luma proposed a centralized system that should be provided by PREPA for LUMA and Genera to input financial data and the need to establish a framework to input such data.
- Goal: The purpose of this discussion is to determine how PREPA, LUMA, and Genera can successfully transition to fully implementing the USOA, which is necessary to create budgets that accurately link costs to specific utility activities and desired outcomes.
2. The Legacy Accounting Problem
- PREPA's Unreconciled Balance Sheet: A major impediment discussed in LUMA's recent motions and testimony is the state of the legacy accounting records from the Puerto Rico Electric Power Authority (PREPA).
- LUMA's Constraint: LUMA has argued that its ability to fully implement the USOA and present a complete and accurate financial picture is constrained by the lack of a reconciled, current balance sheet from PREPA's legacy accounting system.
- Regulatory Expectation: The Puerto Rico Energy Bureau's (NEPR) framework for the rate case expects that accounting data be consistent, to the extent feasible, with the FERC USOA. Therefore, the remediation of PREPA's financial records is considered pivotal to the integrity and completion of the rate review.
- PREPA stated having ability to provide depreciation data from poles in an overall basis but not from a set of specific poles due to lack of data.
In short, while the USOA is expected to be the basis for cost tracking and reporting, the current debate revolves around how LUMA can overcome deficiencies in the historical bookkeeping (particularly PREPA's unreconciled balance sheet) to satisfy the USOA and NEPR's financial reporting requirements for setting new permanent rates.
3. Sufficiency of Existing Reporting
- LUMA's Argument (Mr. Balbis's Testimony): LUMA asserts that it already provides extensive reporting on performance and efficiency across multiple dockets and reports, arguing that this existing framework provides sufficient transparency. This includes:
- Quarterly Performance Metrics: Tracking over 500 measures of operational performance.
- Annual Reports: Including dedicated sections on efficiency.
- Program-Specific Filings: Covering energy efficiency, federal funding execution, and operational improvements.
- Waiver Request: LUMA argues that being mandated to provide additional duplicative reports or complex quantification of early-phase program savings would impose an unnecessary administrative burden, diverting resources from implementing the actual system efficiencies.
- LUMA is requesting to submit a yearly report within approximately 60 days instead of submitting a Q4 report to align the efforts into one final report and not dividing the resources for two reports that will have nearby due dates.
4. Monitoring Capital Expenditure (CapEx) Execution
- Under-execution: Testimony from intervenors (e.g., the bondholders) analyzes LUMA's prior reports and argues that LUMA has a documented record of significant under-execution of its capital expenditure budgets (both federally funded and non-federally funded).
- One expert testimony stated that LUMA has underspent its budgets by roughly 40% on average since 2022.
- Budget Credibility: The evidentiary discussion uses these historical quarterly and yearly reports on spending to argue that LUMA's proposed future budgets (for FY2026-FY2028) are overestimated and unlikely to be executed in the required timeframe, primarily due to persistent issues like supply chain delays and labor shortages.
In summary, the reports are not just a compliance issue; they are the data used by all parties to critique LUMA's historical performance, justify or reject the proposed new rate levels, and debate the true cost and feasibility of grid modernization.
5. The 5% Budget Flexibility Proposal
LUMA has proposed that it be allowed to reallocate up to 5% of the total funds within an approved budget category (e.g., O&M or Capital Expenditure) or move funds between certain line items without submitting a formal amendment or seeking prior approval from the PREB.
6. LUMA's Rationale
LUMA's argument for this flexibility centers on the need for operational efficiency and responsiveness in managing the electric system:
- Adaptation to Unforeseen Circumstances: In a dynamic environment like Puerto Rico's, which is prone to weather events and requires rapid system stabilization, LUMA argues it needs the ability to shift resources quickly to address high-priority, immediate needs without being delayed by the regulatory approval process.
- Faster Project Execution: It is meant to provide agility in executing projects, especially capital projects, where small, internal cost overruns in one area can be immediately offset by surpluses in another, speeding up overall execution.
7. The PREB's and Intervenors' Concern
This proposal has been a subject of significant scrutiny in the hearings and filings. Intervenors and the PREB's consultants have raised concerns that this level of flexibility could potentially undermine regulatory oversight by allowing LUMA to make significant changes to the approved financial plan without public review.
The debate is essentially balancing LUMA's need for operational agility against the PREB's statutory duty to ensure all expenditures charged to ratepayers are prudent and reasonable.
8. Efficiencies
LUMA was questioned on the efficiencies claimed in their pre-filled testimonies; it was discovered that they did not have quantifiable data to sustain the efficiencies claimed. The operator stated that they have other performance metrics that they measure aligning with the information that is usually inquired by the PREB.
9. Out of Budget Costs
LUMA stated that expenses for outages were assumed out of the approved budget and therefore not reported to PREB. These expenses were usually covered with the account that was defrayed by PREPA.
10. LUMA’s debt to vendors
As stated by LUMA, they owe around $229 million to their contracted vendors, this includes vegetation management contractors.
As PREB advances toward final decisions in NEPR-AP-2023-0003, the questions raised on USOA implementation, PREPA’s legacy accounting records, LUMA’s efficiency claims, budget flexibility, and vendor obligations will have direct implications for rate design, cost recovery, and Puerto Rico’s broader energy transition. At MZLS, our Puerto Rico Energy Law Firm team closely follows NEPR proceedings and federal funding developments to advise developers, investors, and stakeholders on regulatory risk and opportunity. For additional analysis on Puerto Rico energy regulation and related rate cases, visit MZLS Insights
