This week the agency in Puerto Rico that manages public-private partnerships announced that the newly formed Luma Energy will take over management of the island’s grid from its publicly owned utility, after an 18-month selection process.
Luma, a joint venture between infrastructure company Quanta Services and Canadian Utilities Limited, signed a 15-year contract with an initial 10- to 12-month transition period. The contract is valued between $70 million and $105 million per year plus an annual "incentive fee." The company, which is now working to set up shop in San Juan, told Greentech Media it’s ready to build the grid that Puerto Ricans want.
But a group of local electrical engineers, environmentalists and union leaders has been advocating for a distributed grid, and some participants have criticized the selection process for its lack of transparency and a continued focus on centralized electricity generation.
In 2017, Hurricanes Irma and Maria destroyed Puerto Rico’s grid. Many on the island were forced to live without electricity for months, renewing a debate over whether centralized or distributed generation should serve as the backbone of the island’s electricity system. Along with working toward achieving a newly passed 100 percent renewable portfolio standard, Puerto Rico is in the midst of a controversial integrated resource planning process that has become a focal point in debates on the speed of the island’s energy transition.
Both Quanta and ATCO, the parent company of Canadian Utilities, have “substantial natural-gas businesses,” acknowledged Luma President and CEO Wayne Stensby. He envisions a future in Puerto Rico that includes wind, solar and natural gas and that takes an approach “somewhere down the middle” between a decentralized and centralized grid.
“It makes no sense to abandon the existing grid,” Stensby told Greentech Media. “You don’t get to start from a fresh sheet of paper. Our role is to effectively optimize that reinvestment. I’m very confident that the bulk system will receive upgrades and improvement, but any given transmission line may well still exist when we’re all done five or 10 years from now.”
The distributed vs. centralized grid debate
That view has already ignited criticism from those who want to see Puerto Rico shift toward distributed solar-plus-storage to boost resilience in the face of hurricanes and power outages.
“I don’t know how they’re going to gain people’s trust by doing more of the same,” said Ruth Santiago, a lawyer at Comité Diálogo Ambiental, a local environmental group. “People here know their transmission line by number because those lines have not been properly maintained.”
Under the terms of the agreement, the Puerto Rico Electric Power Authority will continue to own Puerto Rico’s grid; Luma will harden the grid and operate and maintain transmission and distribution. The new joint venture will also manage the ratepayer relationship, including billing and communication with customers. Though PREPA will retain control over its own generation, Luma will help with future resource planning.
Costs for updating the system have not yet been calculated, but Stensby said the company plans to rely on funds from the Federal Emergency Management Agency. To help gain access to that funding, the joint venture has contracted with Innovative Emergency Management, a consulting firm that in 2004 won a contract to craft a simulated hurricane response plan that FEMA later used as a model in responding to Hurricane Katrina.
Though Luma plans to hire some PREPA lineworkers and other employees — Stensby recognized the “significant talent and expertise” within PREPA — the company also differentiated its work from the utility and said it wants to build back trust that has been eroded by years of alleged mismanagement. The company will also open a school for training lineworkers.
“We are not PREPA; we are Luma Energy,” said Stensby. “We are going to work hard with our customers to earn their trust every single day and do that in an open and transparent way.”
Concerns about public participation
Those concerned about the selection process, such as Santiago, say Luma has already “started off on the wrong foot” in Puerto Rico.
“This is a major issue that will affect every single person on this island,” Santiago told Greentech Media. “To have gone through with it without any opportunity to have public input is totally unacceptable, undemocratic.”
In January, Puerto Rico’s Public-Private Partnerships Authority announced Duke Energy, Exelon Corporation, PSEG Services Corporation and the Luma joint venture as potential concessionaires for PREPA’s grid. This week it announced the contract, a decision that caught many stakeholders off-guard. Neither that agency nor the Puerto Rico Energy Bureau, which approved the decision, responded to request for comment on concerns about the lack of public input.
José Román Morales, former president of the Puerto Rico Energy Bureau — formerly known as the Energy Commission — and now a consultant on distributed generation, said it is unusual that regulators did not include the public in the process, especially for such a highly anticipated announcement.
“You need to have stakeholder participation,” he told Greentech Media. “It doesn’t seem that’s happened, and that’s very surprising.”
Agustín Irizarry-Rivera, a professor of electrical engineering at the University of Puerto Rico-Mayagüez who has served on the PREPA board, called the process "opaque" and questioned why details of the selection process were not made public. Tomás Torres Placa, the consumer representative on PREPA’s board and the executive director of the Puerto Rico Institute for a Competitive and Sustainable Economy, also criticized the process for lacking transparency, according to reporting from Caribbean Business.
The contract with Luma is not the first to receive scrutiny post-Hurricane Maria. Whitefish Energy Holdings was awarded a $300 million contract in 2017 to repair the island’s grid. After criticisms of the no-bid deal, the contract was canceled.
By contrast, Luma’s contract was awarded through a competitive process open to private bidders; the public-private partnership authority announced five bids in late 2018. Stensby described it as “the most rigorous process” that Quanta, Canadian Utilities and ATCO, which have worked together for decades, have ever participated in.
But clean-energy proponents remain skeptical — and not just about the process. Environmentalists like Santiago want to see Puerto Rico move to distributed solar-plus-storage now. Research has shown that distributed systems prove more resilient to dangerous power outages in the event of another significant hurricane. Intense storms are becoming more likely due to climate change.
The current integrated resource plan, which is awaiting regulatory approval, includes small gas peaking units as well as building out solar and storage. In 2019 the island received just over 2 percent of its electricity from renewables, according to the U.S. Energy Information Administration, despite a renewable portfolio standard of 15 percent by 2020.