May 12, 2021

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A long road to reconstruction

LUMA President & Chief Executive Officer, Wayne Stensby, warned yesterday that transforming the power grid will take years, but said the expertise the company brings should result in a more reliable and robust system and that it should help boost the island’s economy.

One day after the Public-Private Partnerships Authority (P3A) announced the selection of LUMA to operate the Puerto Rico Electric Power Authority (PREPA), Stensby, along with Duke Austin Jr., chief executive officer of Quanta Services, and his counterpart at ATCO, Siegfried W. Kiefer, spoke to El Nuevo Día about the selection process Puerto Rico implemented and that made them winners of a contract valued at some $1.352 billion in 15 years.

The details of the transaction are in the report of the P3A Alliance Committee, which was in charge of selecting LUMA and PSEG, the other proponent that reached the final stage of the bidding process. Although, the process started with five companies and four reached the selection stage, both Exelon Corporation and Duke Energy did not continue in the process.

Although different voices in Puerto Rico raised the issue that the process was not transparent, Stensby described the procedure adopted by the P3A as robust and rigorous.

LUMA prevailed in the process by bidding about $30 million less than PSEG.

But, according to Austin, while price would have been a factor, what this group´s proposal added in terms of expertise in managing the transmission and distribution systems, and customer service is what will establish a “modern” system in Puerto Rico “that will benefit the entire island economically for many years.”

During the conversation with El Nuevo Día, which Madhu Beriwal, IEM’s chief executive officer, also joined, the executives assured that the companies’ experience would benefit Puerto Rico and its people.

“We saw the response to Hurricane (María) from afar, and we were not part of the largest power line contract in the world. It was frustrating for me to see people suffering on this island and that I could not do anything to help in a meaningful way,” Austin said, noting that this motivated him to look for possibilities to bring global capabilities to Puerto Rico.

After the hurricane nearly three years ago, ATCO supported pharmacist Amgen in the disaster response. That experience served to identify Puerto Rico as an opportunity. Once the government opened the P3 process, Quanta and ATCO decided to join forces and design a proposal to address “the situation” on the island.

“We learned a long time ago, perhaps more than a decade ago, that when we work together we can do something from the heart,” Stensby said, describing the relationship between Quanta and ATCO.

The most ambitious project undertaken by both companies took place in Alberta, Canada, in 2014. There, Quanta and ATCO built the longest transmission line ever developed under the P3 model, known as the Fort McMurray West project.

The bankruptcy process

However, LUMA will have to wait about a year to fulfill its promise of a better grid for Puerto Rico. That’s because the contract between the parties states that PREPA has 10 days to go to court and obtain the approval by federal judge Laura Taylor Swain so LUMA’s contract can be included among the public utility´s administrative expenses, PREPA is going through a bankruptcy process.

That way, LUMA could start operating the power grid, even if by the end of the transition period, the financial reorganization under PROMESA has not been completed.

On the other hand, according to the P3A report, if the court orders a trustee in the public corporation, as the bondholders have requested, the contract with LUMA would be canceled and PREPA would have to compensate the joint venture.

Stensby did not comment about the possibility that the bankruptcy process could complicate the agreement with LUMA. He focused on what he is doing to transform a grid battered by a lack of investment, a phenomenon that is not exclusive to Puerto Rico or PREPA.

PREPA will pay LUMA $60 million for the transition year. Among other things, LUMA must prepare a Remediation Plan and get the support from the Puerto Rico Energy Bureau (NEPR).

Although it is not yet responsible for the power grid, LUMA wants to invest the next few months in learning how PREPA has prepared for the hurricane season that has just begun and get familiar with the processes established by the Federal Emergency Management Agency (FEMA) to disburse funds for the reconstruction of the power grid. On that front, it will be IEM – which has managed some $51 billion in reconstruction funds over the past 35 years in places like Louisiana, Florida, and New Jersey – that will set the tone. In Puerto Rico, IEM advises the Department of Housing in the disbursement of funds under the CDBG-DR program.

According to Beriwal, IEM will seek to help ensure the efficient use of available funds so that people do not experience the aftermath of another natural disaster.

Unlike other public-private partnership models, the company will not have to invest its resources in permanent improvements because the federal government will pay for the reconstruction of the grid, estimated at $18 billion.

On Monday, when announcing they were selected, Quanta indicated that, in addition to this participation in LUMA, the company could compete for construction works. In that sense, the executives stressed that improvements to the grid should also have a ripple effect on the local economy, as local resources and businesses participate in the reconstruction process.

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