Private consortium to take over PREPA’s T&D system in 15-year contract
The Puerto Rico Public Private Partnerships Authority announced that LUMA Energy, LLC — a consortium comprised by Canadian firm ATCO Ltd. (ATCO) and U.S.-based Fortune 500 firm Quanta Services Inc. — has been selected to operate, maintain and modernize the Puerto Rico Electric Power Authority’s electricity transmission and distribution for 15 years.
The announcement follows an 18-month competitive bidding process. As the successful proponent, LUMA will “transform, harden and rebuild” Puerto Rico’s T&D system “for the long-term benefit of all Puerto Ricans following the devastation of hurricanes Irma and María,” the company said in a statement.
“This is a watershed win for our company and further establishes Canadian Utilities on the global stage as a leader in energy infrastructure,” said ATCO CEO Nancy Southern. “We bring our deeply held values of integrity, caring, agility and collaboration to the island as we have long done for customers and communities around the world.”
PREPA will retain ownership of the assets of its 30,000-km transmission and distribution system but LUMA Energy will operate the system, including customer service and billing. LUMA Energy will not manage PREPA’s energy generation system.
The contract includes an estimated 12-month transition period before the 15-year contract starts in 2021. The transition period can be extended if PREPA has not completed the Title III process under Puerto Rico Oversight, Management and Economic Stability Act, the Financial Oversight and Management Board for Puerto Rico said.
The Oversight Board has given the transaction its conditional approval, which remains subject to the government’s go-ahead of the proposed agreement. The Puerto Rico Energy Bureau approved the contract last week.
Under the agreement, LUMA Energy will be paid a management fee and an incentive fee structured to provide tangible improvements to PREPA’s customers. The agreement calls for a fixed payment of $70 million and $13 million in incentives if a series of conditions are met. It is not a concession, as is the case with the privatization of airport operations.
In the second year, the fixed payment will be $90 million, $100 million in year three and $105 million from year four. Incentives will increase from $13 million the first year to $20 million starting in the fourth year.
LUMA estimates it will generate cumulative net savings of $323 million during the first half of the 15-year term. LUMA’s projected average annual operating savings over the first half of the term are 27% greater than the average annual service fee it will receive, so the projected savings will more than offset the service fee, P3 Authority Executive Director Fermín Fontanés said.
LUMA is also working in conjunction with Innovative Emergency Management Inc., which will apply its federal funding expertise to interact with the Federal Emergency Management Agency and the U.S. Department of Housing and Urban Development to deploy federal aid allocated to Puerto Rico’s power systems.
“This public-private partnership places Puerto Rico on the path to achieving the reliable and resilient infrastructure that will give the people of Puerto Rico the peace of mind they deserve. For decades, our electric power system has undergone countless changes and challenges that have affected its operation and the delivery of service to its customers,” said Fontanés.
“These challenges were compounded by the impact of Hurricanes Irma and María and the recent earthquakes. The Puerto Rico Public-Private Partnerships Authority is extremely pleased with the selection of LUMA as the company that will lead the historic transformation of the Island’s electrical system,” he said.
Over the course of this PPP, LUMA will reportedly:
- Increase service reliability to improve customer well-being and foster economic development;
- Infuse a safety-focused culture throughout the entire organization to help ensure the safety of LUMA employees and the public;
- Deliver a best-in-class customer service organization;
- Improve operational efficiency and financial stability to help make electric service more affordable to all customers in the long-term; and
- Leverage the breadth of its skilled workforce to meet emergency response needs on Puerto Rico when called upon.
“We’re honored to have been selected for this historic contract, and we are excited to begin a journey that we know will bring long-term value to the people of Puerto Rico,” said Wayne Stensby, president of LUMA.
“LUMA will not only provide safe, reliable and affordable electricity service, we’ll expedite this electricity transformation in a way that delivers lasting benefits to the people and communities on the island,” he said.
“Working together with the great employees and talent currently at PREPA, LUMA will create an organization that will deliver operational excellence and exceptional customer service,” said Stensby, who will oversee planning for the full transfer of the PREPA T&D operations to LUMA, which is expected to occur over the next 10 to 12 months.
PREPA has 6,000 employees, of which 41% are T&D systems workers. LUMA Energy plans to hire those that pass an interview process.
LUMA Energy will also bring a lineman school to Puerto Rico to train the next generation of power employees, it announced.