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LUMA Energy took over the transmission and distribution operations of Puerto Rico’s power authority on Tuesday, which has struggled with blackouts and bankruptcy, corruption and mismanagement.

An estimated 2,200 LUMA workers officially began working on Tuesday, including 350 linemen. LUMA also has staff and resources on hand from its parent company, as part of the service commencement.

In recent weeks, there have been a number of power outages across the island, affecting as many as 40,000 customers. On Tuesday morning, around 19,000 customers were without power.

Meanwhile, protests continued against the LUMA contract, with manifestations being held in San Juan, Ponce and Caguas, with some violence being reported. Some union leaders have vowed to continue the fight throughout the summer.

While Puerto Rico’s electrical system has been “fragile” for years, it is unclear what is causing the periodic outages. There has also been speculation that some of the outages could be caused by disgruntled electricity workers who are against the LUMA deal. LUMA officials said if evidence is found of sabotage or trespassing, then charges would be filed against those allegedly involved.

The takeover by LUMA Energy under a 15-year contract coincided with the beginning of the Atlantic hurricane season, with many across Puerto Rico worried about the transition and whether the new company can handle a severe storm. The U.S. territory is still struggling to recover from Hurricane Maria, which destroyed most of the power grid in September 2017.

“It is extraordinarily fragile and in very poor condition,” warned Wayne Stensby, CEO of LUMA, a consortium made up of Calgary, Alberta-based Atco and Quanta Services Inc. of Houston.

However, Stensby said the company, which will serve all of the island’s roughly 1.5 million clients, has enough resources to handle a Category 2 hurricane and can bring in more equipment and workers if a stronger storm hits.

The agreement approved by the territory’s government and a federal control board calls for LUMA to spend billions of dollars in upgrading the battered system — with most of that money coming from the U.S. Federal Emergency Management Agency — while receiving hundreds of millions of dollars for managing the system.

Officials are betting the private operator can do better than the Puerto Rico Electric Power Authority (PREPA), which has struggled to restore the storm-battered electrical grid and keep power flowing while trying to cope with $9 billion in debt — more than that of any other government agency in Puerto Rico.

Even with privatization, most analysts expect the government and control board will be forced to agree to an eventual power rate increase to meet the demands of bondholders.

Unresolved Blackouts a Priority

LUMA has inherited the unresolved blackouts, which is its immediate priority, along with strengthening the transmission system, improving the worst performing feeder lines, and installing street lights in many areas that remain in the dark.

“We don’t wish to go into June 1 with a large backlog of outages, but it’s going to be what it’s going to be,” Stensby said.

Puerto Rico chose LUMA in June 2020 to operate and modernize the island’s transmission and distribution system.

Gov. Pedro Pierluisi said the company has pledged to reduce power interruptions by 30 percent, the length of outages by 40 percent and cut workplace accidents by 50 percent. “We’ve had a bankrupt... [and] incompetent public utility for too long,” he said. “The transformation that is underway will make a difference.”

But critics have called on the government to cancel the deal. A Texas-based nonprofit, the Institute for Energy Economics and Financial Analysis, complained that LUMA would not be penalized for failing to save money or meet renewable energy goals.

It said the control board “is turning a blind eye to some of the same fiscal practices that led the commonwealth into bankruptcy,” wrote Tom Sanzillo, the nonprofit’s director of financial analysis. “These include politically driven contracting processes, poorly documented cash transfers between commonwealth entities, lack of clarity and accountability for budgetary savings initiatives, failure to prioritize renewable energy and costly and shortsighted labor management.”

The Puerto Rico-based Center for a New Economy, a nonpartisan think tank, also criticized the deal, saying, “There are no guarantees that the process to modernize and transform [the electric authority] will be successful.”

But the federal board said the effort must go forward. If the Electric Power Authority is not transformed, the economy will shrink, said David Skeel, the board’s chairman. “Some people are not happy with it, but it is the way forward,” he said of the contract. “It is absolutely essential, in my view.”

Puerto Rico’s power generation units average 45 years old, twice those of the U.S. mainland, and a fiscal plan approved by the federal board foresees LUMA spending some $3.85 billion through fiscal year 2024 to revamp the transmission and distribution system.

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