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Puerto Rico extends Luma Energy contract despite concerns over power outages

Despite calls from residents to cancel the contract following recurrent outages and electric rate increases, Gov. Pedro Pierluisi said, “Canceling the contract makes no sense right now.”
LUMA workers try to restore energy in San Juan, Puerto Rico, on Sept. 20, 2022.
Luma workers try to restore energy in San Juan, Puerto Rico, on Sept. 20.Jose Jimenez / Getty Images

The Canadian American private company in charge of Puerto Rico's power transmission and distribution will continue operating in the U.S. territory despite facing criticism questioning its ability to improve the fragile electric system.

Luma Energy secured an extension on its temporary contract Wednesday following a 4-1 vote by the Puerto Rico Electric Power Authority’s board. The sole dissenting vote was cast by a member representing the public’s interest.

The temporary contract was approved despite worsening power outages that prompted the U.S. government to intervene this month and start securing barges and land-based generators to ease blackouts.

Luma Energy, a consortium made up of Atco in Canada and Quanta Services Inc. in Texas, started operating in Puerto Rico in June 2021 as part of the privatization process of the crumbling electrical grid.

Four years earlier, the Puerto Rico Electric Power Authority, the public corporation previously in charge of the entire electrical grid, had declared bankruptcy following years of low liquidity, limited access to capital markets and taking on long-term debt to fund daily expenses.

A few months after the 2017 bankruptcy, Puerto Rico was hit by Hurricane Maria, one of the biggest and deadliest natural disasters on U.S. territory in 100 years, further deteriorating the already-fragile power grid.

Government officials promised Luma Energy and the partial privatization of the power grid would improve electric services. Instead, residents experienced frequent outages, longer service restoration times, poor customer service and voltage fluctuations that often damaged appliances and other home electronics, according to a recent analysis.

When faced with Hurricane Fiona in September, the grid was unable to withstand the Category 1 storm, triggering an islandwide blackout that took more than two weeks to undo.

In between Luma Energy's starting date and the hurricane, multiple fires had left hundreds of thousands of customers without power, with the biggest incident taking place in April of this year. On other occasions, Luma Energy blamed outages on bad weather and sargassum, a type of seaweed.

Customers have also faced seven electric rate increases in one year, even though people in Puerto Rico already pay about twice as much as mainland U.S. customers for unreliable service.

The events resulted in Puerto Ricans calling for the cancellation of Luma Energy's contract.

But those calls were rejected Wednesday, with Puerto Rico Gov. Pedro Pierluisi saying, “Canceling the contract makes no sense right now.”

The contract states Luma Energy will be paid some $122 million next year, up from the $115 million it has received so far. Pierluisi attributed the increase to inflation costs.

Luma said Wednesday that it has reduced outage frequency by 30% over the past year and initiated 251 federally funded projects to permanently rebuild the patched-up grid following hurricanes Maria and Fiona.

Government officials also warned that canceling Luma Energy’s contract could cost up to $600 million, an amount Puerto Rico cannot afford since it just exited the biggest municipal bankruptcy in U.S. history.

Still unresolved is the bankruptcy proceeding for the Puerto Rico Electric Power Authority, which owes nearly $9 billion, the largest debt of any government agency. The power authority still operates generation plants on the island.

Luma Energy's provisional contract will remain in place during negotiations to restructure the power authority's debt.

As soon as a federal judge approves a debt restructuring plan for the power authority, Luma Energy's contract will become permanent for 15 years. Under this contract, the company would be subject to bonuses or penalties depending on its performance.

Luma Energy celebrated its temporary contract extension Wednesday, saying it provides additional time for Puerto Rico’s power authority to resolve its bankruptcy “without delaying or disrupting the progress that has been made to transform and modernize the electric grid across the island.”