LUMA Energy sues P3A, PREPA to save its operation and management agreement

Energy Czar Josué Colón Ortiz

By The Star Staff

LUMA Energy LLC has sued the Puerto Rico Public-Private Partnerships Authority (P3A) and the Puerto Rico Electric Power Authority (PREPA) to settle disagreements related to the interpretation of the June 22, 2020 transmission and distribution operation and management agreement (T&D OMA).

LUMA, the private operator of PREPA’s transmission and distribution (T&D) system, filed the action late Monday within PREPA’s bankruptcy process because it is related to the utility’s ongoing bankruptcy. The contract (T&D OMA) that governs the operation of PREPA’s assets, as well as the collection and distribution of funds on behalf of and by PREPA, is integral to PREPA’s restructuring and fiscal plan.

The suit comes after Energy Czar Josué Colón Ortiz in July fired off an 81-page missive listing things LUMA has done wrong and threatening to cancel its operation and management agreement (OMA). The letter is a Notice of Disputes, listing six disputes and a detailed exposition of the nature of those disputes, together with the corresponding formal demands served upon LUMA.

The suit filed Monday appears to be an attempt by LUMA to stop the cancellation of its contract.

LUMA said Article 15 of the operation and management agreement provides two separate paths for dispute resolution depending on the nature of the dispute. Disputes defined by the agreement as “Technical Disputes” are to be adjudicated in an expedited proceeding by a technical expert whose decision is final and binding. Disputes other than Technical Disputes -- which are termed “Disputes” -- follow a more traditional path of mediation and litigation.

“Thus, in order for the Parties to know which dispute-resolution path they must follow, there must first be a determination whether a particular dispute is actually a Technical Dispute or a Dispute,” LUMA wrote. “To the extent the Parties disagree about how a dispute is classified -- like they do here -- that disagreement is itself a Dispute (Threshold Dispute) subject to mediation and, if necessary, litigation.”

The P3A, as administrator for PREPA, recently notified LUMA of six issues of dispute. (Colón Ortiz, the energy czar, is also the executive director of the P3A.)

“Defendants assert all six are Technical Disputes. LUMA asserts none of them are Technical Disputes. Defendants’ misclassification of issues as Technical Disputes is designed to have the issues decided through a confidential, final, and binding process that was never intended for these sorts of issues,” LUMA said. “This is part of what has revealed itself to be a coordinated effort to manufacture a pretext to push LUMA out of the T&D OMA and return to the old days when PREPA acted as a monopoly and was subject to political control.”

Despite the fact that the parties agree that they have a Threshold Dispute to which a dispute-resolution path applies, LUMA said, the defendants have refused to resolve the Threshold Dispute through the procedures in Article 15. Instead, they have stated that they intend to unilaterally classify their issues as “Technical Disputes” and initiate the procedures for resolution of Technical Disputes, the private grid operator said.

“That would be acceptable if everyone agreed they actually were Technical Disputes. But LUMA does not agree. And that disagreement is therefore a key threshold issue, a Dispute, that must be resolved before the Parties can move forward pursuant to the terms of the T&D OMA,” LUMA said. “The method for resolving the Threshold Dispute is the same as any other Dispute that is not a Technical Dispute: mediation and, if unsuccessful, the court. Although Defendants previously admitted so in writing, now they inexplicably refuse to even mediate the issue. That refusal constitutes a breach of Section 15.5 of the T&D OMA.”

LUMA asked the court to compel the defendants to mediate the Threshold Dispute and to enjoin the defendants from invoking the Technical Dispute procedures until the Threshold Dispute has been decided.

“Lastly, in the event that mediation is unsuccessful or is ultimately determined to be futile, LUMA requests that the Court issue declaratory relief construing the Parties’ rights and responsibilities under the T&D OMA -- specifically, to declare whether the issues set forth in P3A’s July 22, 2025 Notice of Dispute are Technical Disputes or not,” the private operator said.