Legislative leaders: PREPA disclosure statement gets it wrong on LUMA extension
House Speaker Rafael Hernández Montañez
By THE STAR STAFF
House Speaker Rafael Hernández Montañez and Senate President José Luis Dalmau Santiago objected to the Puerto Rico Electric Power Authority’s (PREPA) disclosure statement on Tuesday, arguing that information on energy transmission and distribution (T&D) operator LUMA Energy is incorrect.
Contrary to what has been the lived experience of PREPA customers since LUMA took over the operation of PREPA’s T&D system on June 1, 2021, the legislative leaders said, the Financial Oversight and Management Board posits that the entity will transform Puerto Rico’s electrical system into a more modern, resilient and efficient one.
“While both of the appearing parties strongly disagree with the [oversight board] on that policy position, the instant motion is not about subjective policy decisions but rather about the objective failure to abide by applicable law in extending the partnership with LUMA,” they argued in their objection filed in PREPA’s Title III bankruptcy process.
While acknowledging that it is beyond dispute that PREPA and LUMA reached an initial agreement to have the latter run the T&D operations for a 15-year period, the lawmakers argued that the contract is not yet in effect, as it is contingent upon a “conditional obligation,” in that it depends on uncertain future events materializing.
One of the conditions that must be met before the “commencement date” comes about, they said, is that “[a] final plan for the reorganization of PREPA into GenCo and GridCo shall have been approved by the applicable governmental bodies, and the GridCo-GenCo PPOA [power purchase and operating agreement] shall have become effective,” which the lawmakers said has not happened.
LUMA Energy’s contract with PREPA expired in November 2022, the legislative leaders said. While the oversight board said in PREPA’s disclosure statement that the contract was extended, it was not because it didn’t have the necessary legislative approvals, the lawmakers argued.
“Because such an extension required the enactment of legislation, it is null and void under Puerto Rico law,” they argued.
The lawmakers asked the court to amend PREPA’s disclosure statement to reflect the lack of a valid contract between PREPA and LUMA Energy.
“The Legislative Assembly is as interested as anyone else in the confirmation of a viable debt restructuring plan for PREPA. This obviously does not mean that the House and the Senate are willing to relinquish their statutory authority and duty to consider extending public-private partnerships,” the lawmakers said. “Article 10(e) of Act 29 (Public Private Partnership Law) clearly establishes a check on the Executive Branch’s ability to maintain a privatization arrangement beyond the date in which it would have otherwise expired. But for the agreements reached by LUMA, the [oversight board], the [Public-Private Partnership] Authority and PREPA on November 29-30, 2022, we would now be in the back-end transition period of an expired partnership. Puerto Rico law clearly allowed the Legislative Assembly to weigh in the decision to extend the partnership and on the terms under which an extension was acceptable.”
To the extent that Act 29 was not followed, the legislative leaders argued, the disclosure statement should be corrected to reflect that the LUMA agreement was not validly extended.