LUMA contracts its parent companies as possible amendments to deal are in the works
By The Star Staff
Despite public allegations of ethical conflicts, LUMA Energy, the private operator of the Puerto Rico Electric Power Authority’s (PREPA) transmission and distribution system (T&D), has hired its parent companies to perform work for the power utility as it faces possible amendments to its operating contract and the possibility of a court battle.
The Electrical Industry and Irrigation Workers Union (UTIER by its Spanish acronym) this week was expected to submit numerous amendments to the contract as LUMA Energy refuses to recognize their collective bargaining agreement.
The contract has been criticized as being onerous because PREPA assumes the lion’s share of risks and costs. Organizations such as the Center for a New Economy, the Puerto Rico Bar Association and the Engineers, Architects and Surveyors Association have also expressed misgivings.
Critics have said the contract is costly because the island government will have to cough up $894 million to PREPA to help execute the contract and will put PREPA’s retirement system at risk of insolvency as early as next year when the number of workers contributing to the system is expected to go down. The government is evaluating changing PREPA’s pension system to a PayGo structure, a move that will cost $300 million to the bankrupt power utility on top of the $125 million PREPA must pay LUMA Energy in service fees.
The Unsecured Creditors Committee (UCC) objected to part of a petition filed in court recently that would grant priority rank over other debt to the payments PREPA must make to LUMA Energy LLC, and LUMA Energy ServCo LLC, a subsidiary created by LUMA Energy to operate services under the agreement. LUMA Energy is taking over the utility’s T&D and other services under the terms of a supplemental agreement that will cover the interim period between June 1 and until the utility’s debt adjustment plan is confirmed, or 18 months after the commencement. The supplemental agreement was drafted because PREPA is still in bankruptcy to restructure about $10 billion in debt.
The presiding judge imposed an April 12 deadline to object to the petition for administrative claim. The UCC and UTIER, as well as the PREPA Retirement System, have expressed certain objections to the administrative expense or priority rank petition because the government parties have said no discovery is needed.
“The Committee submits this reservation of rights, however, to make clear that it does not necessarily agree with the Government Parties’ position in the Scheduling Motion that no discovery is necessary,” the UCC said. “Although the Committee’s analysis of the administrative expense motion remains ongoing, based on its preliminary review, the Committee has identified a number of questions for the Government Parties and their advisors relating to the relief being sought.”
The UCC said it is hopeful that those questions can be resolved through informal diligence but cannot at this time rule out the need for limited formal discovery. To the extent that the UCC serves discovery, it expects the government parties to provide responses in a timely manner consistent with the briefing schedule they have proposed, the committee said.
One of the issues that has been raised against LUMA Energy by the unions as well as by PREPA’s board of directors is that LUMA Energy is not being transparent about how it is spending the public funds to finance its operations. The Puerto Rico Energy Bureau had to order LUMA to submit detailed invoices of its expenditures. While the invoices contain the names and payments to contractors, they do not detail the purpose of the transaction.
An examination of the documents shows that LUMA Energy has hired its parent companies Quanta Services and ATCO for work. The STAR found 608 different sums of money in Quanta’s invoices totaling millions even though the contract with LUMA Energy is still in the front-end transition stage. Amounts for ATCO appeared 578 times.
LUMA Energy President Wayne Stensby has said he needs 3,800 workers to operate PREPA’s T&D but has declined to say how many workers he has hired from the power utility.
While LUMA Energy does not recognize UTIER’s collective bargaining agreement, UTIER President Ángel Figueroa Jaramillo has said LUMA may be bringing in another union, as workers training in Texas have been approached by other unions.
The company appears to be making offers to workers. As part of those offers, LUMA Energy eliminated the probationary period for new workers.
The documents examined by the STAR were for a lineman worker who was offered $84,856 per year. The benefits include a 401k pension plan, 15 days vacation and 12 days of sick leave, which is less than what is provided under the collective bargaining agreement. Health care benefits are similar to what PREPA provides under the collective bargaining agreement but LUMA Energy has the discretion to change them. PREPA workers’ health insurance has already been budgeted for the entire year so “it makes no difference to them.”
“One has to respect colleagues who view LUMA Energy as an option or the best option.
However, they have tried to create animosity toward UTIER by saying that UTIER does not want to talk to LUMA,” Jaramillo said. “No official from LUMA Energy has approached UTIER, not even a text message or a phone call, to talk to us, so it is not right to say we refuse to talk.”
UTIER has called for a 24-hour strike starting on April 5 over the contract.
While Gov. Pedro Pierluisi Urrutia has said he is open to amending the contract, the federal Financial Oversight and Management Board said the amendments are not needed.
UTIER’s lawyer, Rolando Emmanuelli, said the island Legislature can clarify the public-private partnership law to say that companies like LUMA Energy must respect collective bargaining agreements and labor protection laws.
“That is a way we can say that this contract is null and void,” he said.
Emmanuelli also said that under the contract LUMA Energy obtained control of the Monacillos Power System Control Center, which is where decisions on what energy to use and economic dispatch are made, a situation that could create problems with the contract.
Economic dispatch is defined as the operation of generation facilities to produce energy at the lowest cost to reliably serve consumers taking into account any operational limits of generation and transmission facilities. Rep. Luis Raúl Torres, chairman of the House Committee for Economic Development, Planning, Telecommunications, Public-Private Partnerships and Energy, has said the Monacillos Center should be under the direct control of the governor’s office.
“We cannot give LUMA Energy control of the Power System Control Center in Monacillos,,” Torres said. “That is where decisions are made whenever there are problems with the energy load or outages. That is the center where decisions are made regarding the distribution of energy to homes and businesses.”
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 consortium will also oversee customer service and billing as another company called LUMA Energy Servco starting in June. 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, 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.