House committee calls for a halt to LUMA Energy contract

By The Star Staff

The Committee for Economic Development, Planning, Telecommunications, Public-Private Partnerships and Energy of the island House of Representatives, chaired by Rep. Luis Torres Cruz, filed House Resolution 88 on Monday, which would delay for one year the June 1 date on which LUMA Energy would take full control of the Puerto Rico Electric Power Authority (PREPA) transmission and distribution (T&D) system.

“This resolution has already been filed,” Torres Cruz said. “[Today] an executive hearing will be held to sign the second preliminary report of the investigation of the LUMA Energy contract.”

The measure would order the Puerto Rico Public-Private Partnership Authority, PREPA, the Puerto Rico Energy Bureau (PREB), and all public agencies, entities and corporations to cease the management contract until a date not earlier than Jan. 15, 2022.

The resolution was signed by all members of the House committee, including minority lawmakers.

The committee heard different witnesses on Monday, including the testimony of consumer representative to the PREPA board, Tomás Torres, who said PREPA should be transformed but the current 15-year LUMA Energy contract does not provide the path to a transformation because it needs amendments.

“From your point of view, as it is written, does this contract serve the best interests of the consumers of electrical energy in Puerto Rico?” Torres Cruz asked.

“It does not serve the best interests of consumers,” Torres replied.

LUMA Energy, a subsidiary of Quanta Services Inc. and ATCO Ltd., signed a 15-year contract with PREPA to operate the T&D system. The company will also oversee customer service and billing as another company called LUMA Energy Servco. As part of the contract, PREPA will pay LUMA a fixed annual rate that will start at $70 million the first year, increase to $90 million the second year, and to $100 million the third year. In the fourth year and for the remainder of the 15-year agreement, the annual payment to the operator will be $105 million, but if the operator meets certain metrics and yields certain savings, payments could reach $125 million per year.

Torres said LUMA Energy must meet 22 conditions before taking over control of PREPA’s T&D in June. The conditions include having a budget and rate order as well as the approval of certain performance metrics by the PREB, the industry regulator.

Those processes are just starting.

The performance metrics are needed to determine how much in incentive pay or bonuses the company will receive from PREPA because of improvements to the service. However, Torres said the metrics were eased from the original proposal. For instance, the baseline amount for the duration of power outages was increased from the proposed 625 minutes to 1,300 minutes.

“This entire contract is an expectation and an illusion that this is going to be better than what we have,” noted former board member Luis Santini Gaudier.

Torres expressed concern that wording in the contract will lead to higher costs and cautioned that there should be a cap. Section 7.1 of the contract states that fixed payments are used for a limited part of the operation or to pay the management company. These are to pay six top executives, the board of directors, administrative general costs, and a new lineman training college in addition to the one PREPA has.

The other costs related to the operation of the electrical system, according to Section 7.2 of the contract, such as employees’ salaries, come from the reimbursements of expenditures incurred by Luma Energy Servco that will be paid by PREPA.

“The income requirement of PREPA in 2017, which is still valid today, minus the purchase of fuel, was $1 billion,” Torres said. “Therefore, the expenses of the private operator must have a cap.”

Torres also expressed concern that the utility will be left without workers. PREPA employees were not supposed to be impacted by the transaction with LUMA Energy. However, workers who go to work for LUMA Energy must quit their jobs with PREPA and lose any acquired rights under the collective bargaining agreement (CBA) because the management contract exempts LUMA from recognizing the CBA.

LUMA Energy as of February had not made any job offers to any of the 4,400 PREPA workers that qualify to work for the operator.

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