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IEEFA U.S.: Poor decisions on LUMA contract put Puerto Rico’s workers and communities at risk

May 12, 2021
Cathy Kunkel and Tom Sanzillo

May 12, 2021 (IEEFA) ⎼ Why is the Financial Oversight and Management Board (FOMB) of Puerto Rico aggressively pushing a grid privatization contract that threatens to destroy the one asset the electrical system has—its workforce—while raising costs for the bankrupt island government?

LUMA Energy is scheduled to take over the non-generation functions of the Puerto Rico Electric Power Authority (PREPA) on June 1. The contract is likely to leave LUMA with an ill-prepared workforce, just in time for the 2021 hurricane season.

Only 900 job offers were made to PREPA workers by early May

The LUMA contract neither provides for the automatic transfer of current PREPA workers to positions in LUMA, nor recognizes collective bargaining agreements with the PREPA unions. As a result of these poor management decisions, LUMA had only received about 1,800 applications from current PREPA workers and made 900 offers to PREPA workers by early May, compared to the 3,800 that LUMA claims it needs.

Puerto Rican law requires PREPA workers who do not move to LUMA to be transferred to other government agencies. Experienced linemen are now receiving notifications that they are being transferred to unrelated jobs for which they may not be trained, qualified or interested.

THIS WILL INCREASE THE COMMONWEALTH’S LABOR BUDGET BY ABOUT $200 MILLION ANNUALLY. The Puerto Rico government also needs to pay an additional $750 million to PREPA before June 1 to fund reserve accounts that are required under the contract. There is no publicly available information about other budgets and services that will need to be cut to fund the new expenses.

The expenses will more than offset any electrical system savings that the contract might achieve. LUMA has claimed it will achieve $110 million in “efficiencies” by 2024. And in a hearing last week before the Puerto Rico Energy Bureau, a LUMA representative acknowledged that its number was not based on estimates of savings to be achieved through specific initiatives, but rather back-filled to provide an overall budget that would not show an increase in electric rates. If LUMA does not stay within its budget, it would only forgo an incentive payment of less than $1 million annually.

Puerto Rico’s legislature tried to delay the contract and resolve the labor and budgetary issues

EVEN SO, THE FOMB IS AGGRESSIVELY BACKING THE IMPLEMENTATION OF THE LUMA CONTRACT. Puerto Rico’s legislature passed a bill that would delay the contract implementation by six months, largely to resolve the labor and budgetary issues. The governor vetoed the measure, and the FOMB has threatened to take the legislature to court if it overrides the veto. The FOMB has also overruled the legislature’s objections to transferring $750 million from the commonwealth budget to PREPA.

The FOMB should be using its authority to bring together stakeholders and promote renewable energy-based solutions that create real savings instead of engaging in a costly and counterproductive campaign to undermine labor rights for Puerto Rico’s electrical workers.

Cathy Kunkel ([email protected]) is an IEEFA energy policy analyst.

Tom Sanzillo ([email protected]) is IEEFA director of finance.

Related items:

IEEFA: Consultants poised to make more than $1 billion from bankrupt Puerto Rico utility

IEEFA U.S.: Testimony shines light on additional problems with Puerto Rico LUMA deal

IEEFA: LUMA Energy deal paves way for Puerto Rico regulators to repeat past mistakes

Cathy Kunkel

Cathy Kunkel is an Energy Consultant at IEEFA.

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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures.

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