The San Juan Daily Star
Fiscal board seeks court order allowing PREPA to make priority payments to Genera during transition
By The Star Staff
The Financial Oversight and Management Board has asked the federal Title III bankruptcy court for an order that would allow the Puerto Rico Electric Power Authority (PREPA) to pay the so-called “mobilization period” expenses to Genera PR, which is taking over the utility’s legacy power plants under a public-private partnership contract that went into effect last month.
Genera, a subsidiary of PREPA’s fuel supplier New Fortress Energy, would receive priority payments for its initial 22-week transition period of operation and maintenance from PREPA to Genera. The contract period began on Jan. 24.
While the oversight board said PREPA intends to satisfy its obligations under the generation contract on a timely basis and in the ordinary course, government parties seek an order granting to Genera an allowed administrative expense claim for any accrued, due, or unpaid obligations to PREPA. An administrative expense claim is one incurred with bankruptcy court approval for the actual and necessary costs of preserving the estate, after the filing of an order for relief.
The generation contract requires that PREPA seek Title III court approval for administrative expense treatment for mobilization obligations, which are those related to the transition period before the private firm takes over control of the legacy power plants. Without those services, PREPA and its stakeholders cannot realize the benefits of the generation contract, which is a key component in PREPA’s ongoing transformation, the oversight board said.
“Genera has identified several opportunities that will benefit PREPA early in the contract term, including reviewing and executing emergency response drills and plans, optimizing existing fuel contracts, achieving better risk and credit terms on existing oil contracts, and making operational changes to increase fuel efficiency,” the board said in a motion filed Tuesday. “By incurring the Mobilization Obligations, PREPA is able to obtain the substantial benefits of the Generation Contract.”
Genera is set to take over PREPA’s “aging and outdated base-load generation plants and gas turbine peaking plants” for a payment of up to $15 million over the 22-week period.
Pursuant to the contract, PREPA is obligated to fund 4.5 months of the mobilization service fee in advance into a designated account upon the execution of the agreement. PREPA is required to replenish the account monthly to maintain the 4.5-month estimated balance throughout the mobilization period.