Governor pledges to work with union on concerns over Prepa, LUMA deal
Will review legal analysis that questions validity of contract for T&D operation
SAN JUAN – Gov. Wanda Wanda Vázquez Garced pledged on Tuesday that she would review a legal analysis prepared by the Puerto Rico Electric Power Authority’s (Prepa) largest labor union, which questions the validity of the public-private partnership (P3) contract the government awarded LUMA Energy LLC to manage and operate the public utility’s transmission and distribution system (T&D).
The legal analysis, written by attorney Rolando Emmanuelli, who represents the Irrigation & Electrical Workers Union (Utier by its Spanish acronym) and the Prepa Active & Retired Employees Alliance, argues that the P3 contract is “null and void” because it not only fails to protect utility workers’ and retirees’ rights under Act 120 of 2018 (Puerto Rico Electric System Transformation Act), but was negotiated behind closed doors without public scrutiny.
After coming out of a meeting with union and alliance leaders at the La Fortaleza governor’s executive mansion, Vázquez said she agreed to follow up on the concerns raised regarding the fate of the collective bargaining agreements, workers’ acquired rights and retiree benefits under the P3 contract with LUMA, which was announced by the governor last week.
“We received a report prepared by Utier’s legal representation and we have seen the arguments that they have made,” the governor said in a press conference. “We agreed to examine the study of the contract that they made and we want to ensure that all rights are guaranteed.”
Vázquez said that another meeting was scheduled for next week between Utier’s legal representation and that of the government to discuss the labor union’s analysis of the P3 contract and concur on the “concerns that must be presented to LUMA.” The meeting will be followed by another at La Fortaleza between labor union leaders and LUMA executives to present to them these concerns and “clarify all of these doubts,” she said.
The governor said that the contract, which was approved earlier this month by the Puerto Rico Energy Bureau (PREB) and has been signed by the government and LUMA, allows for amendments that must be discussed and accepted by the U.S.-Canadian LUMA consortium.
First in decades
The company, which was incorporated locally in January, is a joint venture between Quanta Services (Quanta) and Canadian Utilities Limited, an ATCO Ltd. Co. (ATCO), in conjunction with Innovative Emergency Management Inc. (IEM) for the 15-year operation and maintenance agreement. Quanta and ATCO each own 50 percent of LUMA.
The agreement involves the more than 18,000-mile T&D system on the island following a one-year transition period.
LUMA is the first private venture to directly manage and operate Prepa infrastructure since the public utility was established 79 years ago. The last time a P3 contract was concluded with a private company to operate a public utility was in the late 1990s and early 2000s when French companies PSG-Vivendi and Ondeo were granted contracts to operate the Puerto Rico Aqueduct & Sewer Authority. Both contracts were canceled for noncompliance.
Utier President Ángel Rafael Figueroa Jaramillo reiterated that the contract with LUMA does not acknowledge or recognize or guarantee the labor union’s collective bargaining agreement.
“There are two parts to this: compliance with labor rights and the collective bargaining agreement; and how this might benefit the people of Puerto Rico. What we have analyzed is that the contract has many clauses that exclusively benefit only the private company and, according to the law and the constitution, that makes it a one-sided contract,” Figueroa said. “The governor will evaluate within law our analysis in its two components, not only the concerns of the workers that are not covered by the contract, but also from the point of view of benefits to the people of Puerto Rico.”
Emmanuelli said that the contract was submitted to PREB under a “limitation of powers” and neither the public nor the press was notified. The contract was examined behind a closed-door “technical conference,” after which the information discussed there was classified as confidential, he said.
The Utier attorney said that he filed a motion last week before PREB requesting that the entity hand over this information. He said that public scrutiny of the contract before it was signed would have revealed that it does not comply with Act 120 in terms of protecting utility workers’ rights.
Emmanuelli noted that when the Puerto Rico Public-Private Partnerships Authority (P3A) submitted the contract to PREB, the bidding process had concluded, and, therefore, there was “no pressing interest” to keep PREB’s deliberations confidential. He said that Utier as well as the general public was excluded from this process.
P3A Executive Director Fermín Fontanés Ramírez has defended the contract, saying that the deliberation and selection process followed procedures established in Act 120 as well as in Act 29 of 2009 (Regulation for the Procurement, Evaluation, Selection, Negotiation and Award of Participatory Public-Private Partnership Contracts).
Emmanuelli contended that the courts could declare as unconstitutional this confidentiality requirement at this stage of the P3 approval process. Moreover, he questioned PREB Chairman Edison Avilés’ participation in the P3A committee that selected LUMA, before it was submitted to PREB for approval, calling it “strange.” He explained that Utier will challenge Avilés’ participation in the committee and will seek to annul the approval of the PREB certificate that was granted to LUMA Energy.
“There is a principle of law that is very basic, and that is, a judge must maintain his impartiality, but not only his impartiality, but the appearance of partiality,” the bankruptcy attorney said. “One of the most serious violations of due process of law is when you are before a judicial or administrative process where there is no impartiality. And it has been resolved that prior contact with the evidence is an element that forces the inhibition of a judge or examining officer or allows the parties to challenge it.”
Emmanuelli said that while Avilés did not cast a vote in the PREB meeting that approved the LUMA contract, only two of the entity’s four commissioner’s voted in favor, given that one commissioner cast a vote against the deal. The attorney contended that this vote can be considered “null and void,” given that the law that created PREB says that decisions must be approved by a majority of the votes.
“[The vote] being null and void, the certificate is not valid and therefore, was not approved by [PREB], which is one of the requirements of Act 120,” Emmanuelli said.
In fact, the attorney said in an interview with Caribbean Business that the economic foundations of the deal could also be “in jeopardy” because it relies on federal funding to permanently rebuild the Prepa grid that has yet to be obligated and disbursed. In addition, he said, any restructuring support agreement (RSA) with creditors will affect the utility’s cash flow as well as the continuing drop in electricity demand.
“The agreement is conditioned on the restructuring of Prepa’s debt. The fundamental concern here is the viability of Prepa, given that the agreement calls for the utility to shell out $125 million annually when it currently is not contributing to the workers’ pension fund or paying its debt. And it does not have the money for reconstruction,” he said. “In that sense, the LUMA agreement is in jeopardy because the conditions for Prepa recovery are far off.”
Emmanuelli contended that “the most direct way” LUMA will achieve pledged efficiencies is by firing workers because the consortium intends to substitute the current utility management. Only management jobs with a certain expertise and experience will be kept.
“They may hire existing workers, but this may not be the case because if they hire them then they would have to accept the benefits and salaried currently being paid. So these supposed efficiencies could result in layoffs,” the attorney said. “They have said they want to learn how Prepa is run, so after they do they will not need as many employees. These dramatic cuts would require cuts in jobs and services to customers to balance out the numbers.”
He added: “The RSA proposes to pay bondholders 60 percent of the debt, so when you add this to the Prepa budget, where will they get the money for LUMA? You would have to increase rates.”
LUMA executives have said that Prepa employees have the choice to work under LUMA without losing acquired rights under their collective bargaining agreement. This process would be completed before bringing in consortium workers from outside the island.
The P3 deal sets payments to LUMA starting at $70 million the first year to $125 million starting in the third year of the 15-year contract, which includes $25 million in incentive payments, and covers billing and services to utility clients.