SAN JUAN, Puerto Rico (AP) — The Puerto Rican government has sued Luma Energy, taking the first legal step to end a multimillion-dollar contract with the private power company as the U.S. territory grapples with chronic power outages, rising power bills and the slow restoration of a power grid devastated by Hurricane Maria in 2017.
The lawsuit, announced late Thursday, comes more than five years after the government awarded the contract to Luma, a consortium consisting of Calgary, Alberta-based Atco and Quanta Services Inc. from Houston. Luma, which took over Puerto Rico's power transmission and distribution in June 2021, inherited infrastructure that was crumbling after decades of neglect and mismanagement by the Puerto Rico Electric Power Authority, which is struggling to restructure more than $9 billion in debt.
“Despite the operator's expectations and statements, the electrical system has not improved with the speed, stability or efficiency that Puerto Rico deserves and that LUMA promised and lied to us about,” said Gov. Jenniffer Gonzalez.
Continued power outages, also blamed on Genera PR, the private company that controls the island's power generation, are deterring potential investors. They have repeatedly disrupted life across the United States, forcing small businesses to close and those with health problems who need electricity to seek alternative energy sources if they cannot afford generators.
“This is unacceptable”
Gonzalez noted that Luma has nearly $11 billion in federal funds available to restore the grid, but has only been able to receive about $550 million in reimbursements from the U.S. Federal Emergency Management Agency (FEMA). The agency is providing funds to help the U.S. territory restore and strengthen its power grid.
“This is unacceptable,” Gonzalez said. “They gave the people of Puerto Rico the idea that they were the experts in solving federal problems, that they were the experts working on reimbursement, but that was not true.”
The governor, elected last November, has vowed to oust Luma if she wins. She also appointed a so-called “energy czar” who began reviewing Luma's contract with a view to terminating it.
The government said it was in talks with unidentified energy companies on the U.S. mainland and vowed to ensure a smooth transition if the contract is ultimately terminated.
The Puerto Rican government has two main agreements with Luma: one for operations and maintenance, and an additional agreement that was necessary because the island's power company had not yet begun the debt restructuring process.
Both deals were set to expire in November 2022, prompting the government to extend the additional agreement through an extension letter.
“This letter provided LUMA with perpetual control—with no time limit—over the operation of the transmission and distribution system,” Gonzalez said.
She said the extension “was granted in violation of the law and the principles of sound government” and that it bound “the people of Puerto Rico to an open-ended contract, with no mandatory performance measures and without an adequate accountability mechanism for such an important service as electricity.”
Electricity bills may rise
Luma has received nearly $5 billion since the contract was awarded, Gonzalez said.
Luma said in a statement that the company is exploring its legal options while “remaining committed to Puerto Rico's energy transition.”
The company said it cleared vegetation, replaced utility poles, installed new transformers and breakers, maintained substations, replaced damaged power lines and invested more than $2.4 billion in federally funded projects.
“We are proud of the measurable progress we have made, but there is still much more to be done,” Luma said, adding that he believes the lawsuit is politically motivated.
The lawsuit comes as the Puerto Rico Energy Bureau is holding key hearings on requests for fee increases from Luma and Genera PR.
If the requests are approved, the average housing bill in the U.S. territory could rise by at least 40% on an island with high poverty rates and a rising cost of living.
Puerto Ricans are angry about continued increases in energy bills, noting that power supply is unreliable, with major power outages hitting the island on New Year's Eve last year and during Holy Week this year.
