PREPA-LUMA contract appears likely to take effect June 1 despite lingering questions

By The Star Staff

How much would the LUMA Energy operation and management contract cost the people of Puerto Rico? And is the private consortium ready to take over the Puerto Rico Electric Power Authority’s (PREPA) transmission and distribution (T&D) system eight days from now, on June 1?

As of press time Sunday, LUMA had yet to obtain approval for its system remediation plan, its system operation principles, its proposed bill and its terms of service from the Puerto Rico Energy Bureau (PREB), whose commissioners are not constrained by the June 1 start date.

A plan that would divide PREPA’s operation into GridCo, to be managed by LUMA Energy, and GenCo, consisting of the power plants that will remain in PREPA’s hands, has yet to be approved. PREPA has yet to create the subsidiary, which must be submitted to the PREB for approval.

In the proposed budget filed with the PREB, LUMA is proposing to set aside $625 million in T&D, $774 million in its capital budget, $288 million in the generation budget and $146 million for other expenditures, including bad debt and costs of bankruptcy, for the first year of operation. The budget expenses will be billed to PREPA. The budget does not include the costs of shared services.

In addition to a $1 billion PREPA reserve, including $750 million to execute the LUMA Energy and other expenditures, PREPA will pay up to $115 million to LUMA Energy in a fixed service fee to operate the T&D as well as everything related to customer service and billing.

The budget does not include the costs of the front-end transition phase that began in June 2020 and ends May 31. As of May 10, LUMA had invoiced PREPA during the front-end transition some $130 million. The May 10 invoice totaled $13.7 million just for the month, of which $5.7 million consist of salaries to executives.

A vice president at LUMA Energy is paid $325 per hour, senior director $300 per hour, director $275 per hour, senior manager $210 per hour, field crew leader $205 per hour, trainer $200 per hour, manager $200 per hour, field technician $195 per hour, senior analyst $160 per hour, engineer $160 per hour, field supervisor $160 per hour, analyst $125 per hour, and administrative support $50 per hour.

While the salary of LUMA Energy President Wayne Stensby has not been disclosed, in his former position as the executive vice president of corporate development at Canadian Utilities, he earned $1,146,340 Canadian dollars.

The contract is slated to go into effect as most hurdles to its execution have been removed.

U.S. District Court Judge Laura Taylor Swain last week denied a request from the Electrical Industry and Irrigation Workers Union (UTIER by its Spanish acronym) for an injunction to stop the LUMA Energy contract, arguing that it was unlikely that the union would prevail on its merits and invalidate the contract.

UTIER’s arguments in its April 20 request included that the operating contract between LUMA Energy and the government of Puerto Rico was void because it was leonine, due to its interference with the collective bargaining agreement rights of PREPA employees, and that it violated the constitutional prohibition of impairment of contracts in several aspects, mainly due to the effect it has on PREPA’s Employee Retirement System (SREAEE by its Spanish initials).

The judge determined that UTIER has standing to present some of the claims, but that it is not likely to prevail in any of them, so the requirements were not met for the court to issue an injunction that would stop LUMA’s takeover of PREPA’s T&D on June 1.

Regarding arguments that the contract was leonine, the judge pointed out that the union does not have the standing to challenge it legally on those grounds because that challenge concerns disagreements with the Legislature’s decisions on Puerto Rico’s energy policy, or grievances that are widely shared with the people of Puerto Rico rather than injury to individual plaintiffs.

Swain also said there is no contractual right to have perpetual employment at PREPA. Therefore, the plaintiffs could not demonstrate the possibility of success on the merits of their claim that they have suffered legal damage through an interference with their collective bargaining agreement. Act 120 of 2018, on energy transformation, protects the workers’ acquired rights, she said.

Under the LUMA Energy contract, the private firm gave priority in job hiring to PREPA workers but was not required to hire them. Act 120 called for PREPA workers that do not take jobs with LUMA to be transferred to other government agencies. One of the concerns raised by the workers in deciding not to pursue jobs with LUMA Energy is that the private firm offered 401-K types of pensions, which is different from what the pension system at PREPA offers. The SREAEE said workers who resign from PREPA to get jobs with LUMA Energy, can no longer participate in PREPA’s pension system.

There is still pending a suit filed by SREAEE that seeks to obtain payments for the pension system and another filed in the local courts by career workers against the transfer program that sends PREPA workers to other government agencies.

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