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

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.