LUMA Energy’s requirement to local contractors to hire unionized labor from the International Brotherhood of Electrical Workers (IBEW), at the rates the pay in the US could jeopardize not only the construction labor market in the island, but the reconstruction of its electric network.
“LUMA is requiring their contractors to sign an agreement that forces them to hire from their labor union [the IBEW] in the US, at the same rates they pay there. Of course, that creates a problem in Puerto Rico’s construction labor market, but more importantly, it also increases the cost of the reconstruction projects authorized after [Hurricane] Maria,” said Eduardo Pardo, president of the Association of General Contractors (AGC).
According to Pardo, if contractors in Puerto Rico want to bid in any of the anticipated hundreds of contracts for the reconstruction of the electric network, they must sign the agreement, which would effectively make wages three times higher than the ones currently being paid by the industry.
“This has an immediate effect in construction costs, which are already thru the roof when you consider the shortages in materials, transportation and an affected supply chain, all caused by the Covid-19 pandemic.”
Pardo pointed out that the Federal Emergency Management Administration (FEMA) has established the approximate salary cost, of any of its construction projects, to be 30% of their total cost.
“Under LUMA’s agreement, salaries could be 40% of the total cost of any local project, if not more,” said Pardo, while pointing to the inevitable increase of the total cost of the project.
Pardo, a professional engineer with his own construction company, argued that, while “this sounds good for the workers” that fact is it would create “an inflation” in the construction labor market, while creating two distinct classes of workers.
Labor market disruption
The engineer exemplified the situation with a contractor that has a renovation project for some building and at the same time, he is awarded a contract with LUMA. The contractor would need electricians, masons and carpenters, among other construction workers, for both projects. But, while all would be working for the same contractor doing the same type of work, the ones in the LUMA project would be getting some $40 an hour, while the ones in the private construction project could be getting just $15.
“The consequence is evident… we won’t be able to hire anyone for projects other than government commissioned”, Pardo said. “They will be holding out for similar salaries, and the industry is in no condition to pay those salaries.”
Questioned about the effect the salary increased imposed by President’s Obama administration –a $10 an hour minimum wage to workers of projects financed with federal funds– Pardo said the impact of that executive order was not that big and “as a matter of fact” the industry is now paying more.
“The starting salary of a regular unskilled construction worker is now around $10.95. That is also why the recent increase in the minimum wage from $7.25 to 8.50 an hour didn’t affect us. We are paying more than that,” he said.
To illustrate the disparity between LUMA contract workers and non-LUMA, Electrical Industry and Irrigation Workers Union (UTIER, for its Spanish acronym) president Ángel Figueroa Jaramillo said a worker hired by one of LUMA’s contractor for the pruning of trees makes some $4,000 a week.
“These workers are being guaranteed 12 hours of work a day, six days a week, and get a $150 non-taxable daily stipend,” Figueroa Jaramillo said.
But most seem to simply dismiss the subject –particularly LUMA’s executives– saying federal relief funds already allotted for the reconstruction of the island’s electric grid could very well absorb the cost increase.
In a December 28, 2021, press release, FEMA confirmed that “to date, FEMA has allocated over $25.7 billion in federal funds, of which more than $19 billion are for permanent work.” It would seem then, that there is enough money to cover the salary increase.
Pardo, on his part, questioned “what’s going to happen when it all ends?”
Last September, Governor Pedro Pierluisi admitted he had talked with LUMA’s CEO, Wayne Stensby, about AGC’s concerns.
“They [the general contractors] tell me that it can disrupt the entire [labor] market in Puerto Rico if all contractors are forced to pay that type of salary [the same as in the US] to the entire workforce working on the entire network project,” Pierluisi allegedly told Stansby, while asking him for the possibility of making some exceptions.
Pierluisi also said then the government cannot take any measures to make LUMA desist from said contract requirement, and that he can only rely on the good faith of LUMA executives.
About the possibility that local contractors may opt not to bid in any of LUMA’s construction projects, thus opening the door to construction companies from the US to flock to Puerto Rico seeking reconstruction funds, Pardo squarely said “that’s not going to happen.”
“The number of projects here is significant, but there is a whole lot more work in the US, and better paid. Granted, LUMA has brought several workers from the mainland, but they are not nearly enough. Even with those they kept from PREPA and the ones the managed to pirate from UTIER, they are still shorthanded,” said Pardo.
The AGC president also dismissed the possibility of FEMA funds being redirected projects that could end up costing more than originally planned.
“In a meeting last week with José G. Baquero, Federal Disaster Recovery Coordinator for Puerto Rico, he distinctly said the funds already allocated for recovery projects are to be used in the projects they were allocated for, no more no less,” Pardo recalled. “That means that, if any project goes over budget, the [Commonwealth] government will have to pay for the difference.”
And while said difference may not be considered significant, when compared to the total cost of the project, Pardo pointed to PREPA’s current fiscal situation and its multibillion-dollar debt still to be resolved.
As a matter of fact, LUMA has admitted it has an accumulated $32 million operational deficit from its first three month managing PREPA. In its first quarterly report, LUMA stated “the main reason for the budget variation in operating expenses is related to labor.” More specifically, the company had to bring in employees from the US to stabilize the network and “fulfill the task of training and upgrading the existing workforce in terms of general work.”
Taking these in consideration, Pardo anticipated the much-dreaded energy rate increase could be only way to cover the difference in costs that the wages imposed by LUMA to its contractors.