Judge Swain reserves her decision on PREPA-LUMA deal
By The Star Staff
U.S. District Court Judge Laura Taylor Swain on Wednesday postponed making a decision on a Puerto Rico Electric Power Authority (PREPA) request that seeks to give preferred status to the payments the power utility must make to LUMA Energy, the operator of its transmission and distribution system.
Per a contract signed about two months ago, PREPA must pay LUMA a fixed annual compensation that will start at $70 million the first year and go up each year. PREPA could end up paying up to $125 million a year if LUMA meets certain goals.
Opponents of the administrative expense priority claim, such as PREPA’s workers, retirees and fuel line lenders, said giving payment priority to LUMA Energy will hurt the claims of pensioners and other unsecured creditors.
The LUMA Energy contract is being challenged in the commonwealth Appeals Court because one of the individuals who approved the contract, Edison Avilés, also heads the Puerto Rico Energy Bureau, which is the energy industry’s regulator on the island.
Abid Qureshi, a lawyer for Cobra Energy, insisted that the court must respect the principle that similarly situated creditors be treated the same. Unlike Cobra, which helped repair the energy grid after the 2017 hurricane season destroyed it, LUMA Energy has not performed any work.
Carmen Conde, the legal counsel for Whitefish, said that after Hurricane Maria the Montana-based firm fixed some 200 miles of power lines and energized hospitals but has not been paid for its service.
Swain, meanwhile, authorized PREPA to reject 27 non-operational renewable energy projects after companies opposing the petition withdrew their objections. PREPA said the projects had not progressed to an advanced stage of development and have become a burden to the utility.
Swain also denied a request from the Unsecured Creditors Committee (UCC) to lift the bankruptcy stay on challenges to general obligation (GO) bonds’ priority in the payment of debt, arguing that it would hurt efforts to reach a debt settlement for the commonwealth of Puerto Rico.
Swain said during an omnibus hearing that the COVID-19 pandemic, hurricanes, the nomination of new Financial Oversight and Management Board members to replace two that left the board recently, elections and a the prospect of a new governing administration coming into office in January in Puerto Rico could delay the plan of adjustment, but that continuing the stay for at least six months should not create a burden.
The UCC, through its lawyer, Luc Despins, said it was not seeking to modify the stay, only that it be allowed to move forward with an objection to claims that GO bonds have payment priority because they are guaranteed by the island Constitution’s full faith and credit.
The UCC said the oversight board had no intention of moving forward with the commonwealth debt settlement because the new economic reality post-COVID-19 is that the commonwealth cannot afford to distribute nearly $14 billion in value to holders of GO bonds as contemplated under the proposed plan of adjustment. GO bondholders said their $18 billion in claims must be paid before other unsecured debt.
The UCC says that would leave unsecured creditors with as little as 3 percent left to pay its claims.