Private operator takes over Puerto Rico power service

A private company on Tuesday took over the transmission and distribution operations of Puerto Rico’s power authority, which has struggled with blackouts and bankruptcy, corruption and mismanagement.

The takeover by Luma Energy under a 15-year contract coincided with the beginning of the Atlantic hurricane season, with many across Puerto Rico worried about the transition and whether the new company can handle a severe storm. The United States territory is still struggling to recover from Hurricane Maria, which destroyed most of the power grid in September 2017.

“It is extraordinarily fragile and in very poor condition,” warned Wayne Stensby, CEO of Luma, a consortium made up of Calgary, Alberta-based Atco and Quanta Services Inc of Houston.

However, Stensby said the company, which will serve all of the island’s roughly 1.5 million clients, has enough resources to handle a Category 2 hurricane and can bring in more equipment and workers if a stronger storm hits.

The agreement approved by the territory’s government and a federal control board calls for Luma to spend billions of dollars in upgrading the battered system – with most of that money coming from the US Federal Emergency Management Agency – while receiving hundreds of millions of dollars for managing the system.

Officials are betting the private operator can do better than the island’s Electric Power Authority, which has struggled to restore the storm-battered electrical grid and keep power flowing while trying to cope with $9 billion in debt – more than that of any other government agency in Puerto Rico.

Even with privatisation, most analysts expect the government and control board will be forced to agree to an eventual power rate increase to meet the demands of bondholders.

Meanwhile, the new company will inherit unresolved blackouts, with more than 30,000 customers left without power in recent weeks.

“We don’t wish to go into June 1 with a large backlog of outages, but it’s going to be what it’s going to be,” Stensby said.

Puerto Rico chose Luma in June 2020 to operate and modernise the island’s transmission and distribution system.

Governor Pedro Pierluisi said the company has pledged to reduce power interruptions by 30 per cent, the length of outages by 40 per cent and cut workplace accidents by 50 per cent.

“We’ve had a bankrupt ... (and) incompetent public utility for too long,” he said. “The transformation that is under way will make a difference.”

But critics have called on the government to cancel the deal. A Texas-based non-profit, the Institute for Energy Economics and Financial Analysis, complained that Luma would not be penalised for failing to save money or meet renewable energy goals.

It said the control board “is turning a blind eye to some of the same fiscal practices that led the commonwealth into bankruptcy”, wrote Tom Sanzillo, the non-profit’s director of financial analysis. “These include politically driven contracting processes, poorly documented cash transfers between commonwealth entities, lack of clarity and accountability for budgetary savings initiatives, failure to prioritise renewable energy and costly and short-sighted labour management.”

The Puerto Rico-based Center for a New Economy, a non-partisan think tank, also criticised the deal, saying there were no guarantees that the process to modernise and transform the electric authority would be successful.

But the federal board said the effort must go forward. If the Electric Power Authority is not transformed, the economy will shrink, said David Skeel, the board’s chairman.

“Some people are not happy with it, but it is the way forward,” he said of the contract. “It is absolutely essential, in my view.”

Puerto Rico’s power generation units average 45 years old, twice those of the US mainland. A fiscal plan approved by the federal board foresees Luma spending some US$3.85 billion through fiscal year 2024 to revamp the transmission and distribution system.

AP