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An arrest warrant, a fugitive CEO: Puerto Rico’s effort to privatize its electrical grid is off to a rocky start

Demonstrators in San Juan, Puerto Rico, protest electrical company Luma Energy last month. (Carlos Giusti/AP)

A phalanx of armed deputies wearing bulletproof vests descended on the corporate offices of the company hired to fix Puerto Rico’s antiquated power grid. They were looking for Luma Energy chief executive Wayne Stensby, who had been labeled a fugitive by local lawmakers for refusing demands to turn over documents related to the company.

The deputies didn’t find Stensby, and the warrant that had been issued for his arrest was suspended after he handed over a memory drive with thousands of documents that leaders of the territory’s House of Representatives are reviewing as part of a probe into Luma’s use of public money. But the drama that unfolded last week was the latest chapter in the almost-biblical saga of the island’s efforts to fix its failing infrastructure as its more than 3 million residents face an increase in extreme-weather events.

“It’s a story that goes back forever, involves thousands of players, involving many sins and many calls to ‘come to Jesus,’” said Tom Sanzillo, director of financial analysis for the nonprofit Institute for Energy Economics and Financial Analysis, which has studied the island’s power grid.

A gamble for power

The hiring of Luma last year marked a new beginning for the island: a 16-year, $1.5 billion experiment with privatization. Luma, a venture created by two energy companies — Alberta, Canada-based ATCO and Houston-based Quanta Services — was contracted to distribute electricity to 1.5 million customers and make badly needed upgrades to the power grid. The Federal Emergency Management Agency has allocated nearly $10 billion in taxpayer funds for the effort. The Puerto Rico Electric Power Authority (PREPA), the state-run utility provider, now only manages the generation of electricity.

But in the five months it has been in charge, problems have worsened, by many measures, including numerous sustained power outages and rate increases that have infuriated customers and lawmakers.

In his first extensive interview since the events of last week, Stensby said his focus has been on Luma’s more than 3,200 employees and their mission to improve the power grid. He blamed decades of underinvestment and neglect for the problems, saying his workers are dealing with the “same poles and wires” in place before Luma’s takeover. The outages in recent months, Stensby said, were the result of “generation shortfalls.”

“This really isn’t about me or it’s not about our executives,” said Stensby, who declined to address the arrest warrant or his whereabouts last week. “This is about the broader transformation and what I understand is people’s frustration with what is a very fragile electricity system in Puerto Rico.”

Puerto Rico is not alone in its struggle with a deteriorating electrical grid. The entire U.S. power infrastructure is feeling the strains of age and the stress of extreme weather caused by climate change. In the four years since Hurricane Maria left Puerto Ricans without power for months, weather disasters have hit several states, including California, Texas and Louisiana, prompting urgent calls for greater investment in the U.S. grid.

Last year, the average American home endured more than eight hours without power — more than double the outage time five years ago — according to the U.S. Energy Information Administration. Experts say much of that increase is due to hurricanes, drought, wildfires and other climate emergencies.

Puerto Rico’s woes are compounded by the fact that its budget is managed by an oversight panel created by Congress in 2016 to rescue the island from a financial crisis created when its government was unable to pay its more than $70 billion debt. PREPA accounted for $9 billion of the debt, and government leaders who had long pushed for privatization saw their chance to create a new public-private model.

By hiring Luma, officials were betting the private sector could come up with solutions where government had for decades failed. What they discovered, however, was a private contractor with its own problems, said Cathy Kunkel, energy program manager for the nonprofit group Cambio Puerto Rico.

“It was a knee-jerk response,” Kunkel said. “People just said, the public system failed so let’s make it private and that will fix it. But it was not thought out.”

The problem, Kunkel and others say, is the lack of transparency in such deals. While its parent companies are publicly traded and required to share details about their finances with investors, Luma was set up as a private consortium, with little obligation to disclose details about the business to the public. The company has relatively few assets of its own and plans to maintain and improve Puerto Rico’s power grid solely from federal funds and by raising new revenue from customers.

In many places in the United States, power grids are operated by publicly traded companies, which are required to disclose their finances in quarterly earnings statements, and reveal compensation for top executives annually. Chief executives typically earn millions a year.

Critics also are concerned ATCO and Quanta will have an unfair advantage in competing for subcontracting work for Luma. That would mean fewer contracts for local businesses, Kunkel said.

On a call with Wall Street analysts last year, Quanta chief executive Earl C. “Duke” Austin Jr. said the Luma contract could lead to additional business opportunities for Quanta on the island.

“The government of Puerto Rico has embarked on a plan to rebuild, modernize, harden, and enable a green power grid — the majority of which is expected to be funded by U.S. federal disaster relief agencies and managed by Luma,” Austin said on the call.

Stensby said federal and local safeguards are in place to ensure accountability and transparency when Luma begins awarding contracts for more than 65 FEMA-approved projects now in the early stages of development. But he did not say whether Luma’s parent company is planning to bid for them.

Asked Monday about Luma and competition for future contracts in Puerto Rico, a spokeswoman for Luma provided a statement on behalf of all three companies. The statement did not indicate whether Luma plans to award any contracts to its parent companies. It said the three companies were “committed to building and operating the next generation electric power transmission and distribution system that Puerto Ricans expect and deserve.”

“Throughout this process, we will be very transparent about the actions we take, the challenges we face, and the reasons for them, and we will keep our regulators, legislators and customers aware of how we are delivering an electric power grid they can depend on,” spokeswoman Marién M. Amézaga-Pantoja said in the statement.

Public distrust

The government’s deal with Luma was criticized from the moment it was unveiled by the former governor in June 2020, with little public input, observers said.

Decades of documented neglect, corruption and mismanagement by PREPA had eroded public trust. After the hurricanes of 2017, PREPA entered a deal with Whitefish Energy, a tiny Montana-based company that won a no-bid contract to repair the grid. The contract was canceled after withering criticism. Later, two FEMA employees who led power restoration in Puerto Rico were charged with bribery and fraud for allegedly helping its replacement, Cobra Energy, win contracts to fix the island’s collapsed system.

Fermín Fontanés, executive director of the Puerto Rico Public-Private Partnerships Authority, defended the process and in October reassured members of Congress who expressed concern that the procurement process was “transparent and robust” and that Luma was the best choice over four other bidders.

But there was little reason for Puerto Ricans to believe Luma’s contract would be anything more than a boondoggle, some experts said.

Critics such as Sanzillo, a former comptroller, said at least one of the officials who reviewed and approved Luma’s contract also is in charge of regulating the company as chairman of the Puerto Rico Energy Bureau. The agreement’s benchmarks for performance and Luma’s lack of investment in the system it is seeking to transform, have all been targeted for scrutiny by lawmakers, industry experts and engineers.

Luma had a year to familiarize itself with Puerto Rico’s complicated and outdated system, which generates power from its former industrial south and carries it across rugged mountain ranges and steep ravines to population centers in the north. But since the company took over in June, blackouts have become noticeably more frequent and prolonged for many customers on the island. The Center for Investigative Journalism in Puerto Rico obtained internal documents describing worsening service interruptions since Luma assumed full control.

“Underinvestment and neglect in the system has occurred over many, many years. We spent time with PREPA. We understood PREPA. We did all of the planning work,” Stensby said in response to questions about the outages. “There have been a number of issues, including some very large generation shortfalls in both August and September. But again we are making the system better. The system is better today than it was last year, and it’s better today than we took over in June, and we’re super proud of that.”

But when the power went out, appliances were ruined, health was threatened and people hit the streets in huge protests. Similar demonstrations ousted the former governor two years ago.

Sergio Marxuach, a researcher with the San Juan think tank the Center for a New Economy, said it is true that the system was in bad shape, but Luma knew that going in. It’s likely, he said, that the company underestimated the scale of the work and has failed to engage the public for support.

“People want to know what’s going on because they have suffered, he said. “Some even lost their lives because they didn’t have access to electricity. Many of the deaths were not attributed to [Hurricane] Maria’s winds or water, but to people not having access to their medicines or proper ventilation after the hurricane because they didn’t have power. It’s a very sensitive topic.”

Kunkel said that instead of hiring employees who worked for the state-run utility, a majority of those hired by Luma were new, with no experience with the island’s infrastructure.

Lawmakers sued to access documents detailing compensation, time sheets and other details about worker assignments, Puerto Rican Rep. Luis Torres Cruz said at a news conference. Critics suspect Luma pays lower wages to electrical workers, while offering large salaries to executives — beyond what previous Puerto Rico utility executives were paid. Stensby declined to specify his salary during his interview with The Washington Post, but the company has said he receives more than $500,000 annually.

“It’s particularly insulting to Puerto Ricans and people who have to deal with all of the problems that have been caused by Luma’s poor service to know that the CEO is making at least $500,000 a year,” Kunkel said.

Stensby said in an interview Friday that the company has hired some PREPA employees and others who “never had a chance to join PREPA.” He said he is most proud of the technical college Luma opened to train Puerto Ricans as apprentice line workers.

“We are absolutely committed to safety and absolutely committed to training,” he said. “We’re committed to putting safety first and people first and creating long, meaningful careers for Puerto Ricans. That’s what this is all about.”

Angel Figueroa Jaramillo, president of UTIER, the union that represents PREPA workers, said his members were offered jobs with Luma, but the working conditions were inferior to what they had fought for under the collective bargaining agreement with the state. Many would lose seniority and pension benefits, and Luma could change their health plans. The majority decided not to go with Luma and instead were reassigned to other government agencies, he said.

“Luma had an opportunity to recognize the collective bargaining agreement and there is precedent for it in other privatizations, but they chose not to,” Figueroa Jaramillo said. “So only a small group of my colleagues decided to work for them. Several of them have since resigned.”

Lawmakers said they intend to make the documents Luma provided public after ensuring personal information, such as addresses and phone numbers, is redacted. Meanwhile, Gov. Pedro Pierluisi has said he has no plans to cancel Luma’s contract.

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