Oversight board says private management of PREPA is required.

U.S. District Judge Laura Taylor Swain

By THE STAR STAFF

The Financial Oversight and Management Board for Puerto Rico said a legal fight over grid operator LUMA Energy’s contract should not interrupt maintenance, modernization and reconstruction of the island’s power grid or put federal recovery funds at risk, after a U.S. judge sent two lawsuits challenging the agreement back to Puerto Rico courts.

The oversight board said privatized management of the Puerto Rico Electric Power Authority’s (PREPA) transmission and distribution system is required under Puerto Rico Act 120-2018 and the utility’s fiscal plan, and that any change in operator should be handled through a transparent, competitive process.

LUMA said it is reviewing the decision, but that the operations and maintenance agreement is valid.

“Regardless of the forum where the litigation is ultimately heard, the supplemental contract is valid under the applicable legal framework,” the company said.

Late last week, U.S. District Judge Laura Taylor Swain rejected LUMA’s attempt to keep the cases in federal court and ordered them returned to the Puerto Rico Court of First Instance, where the contract challenge will now proceed.

Gov. Jenniffer González Colón praised the remand in a Facebook post, calling it a victory over LUMA and the oversight board.

“The government of Puerto Rico and the people of Puerto Rico were right,” she wrote.

Swain said federal court jurisdiction tied to PREPA’s Title III restructuring did not override the contract’s requirement that disputes be heard in Puerto Rico courts, and she cited the Puerto Rico Oversight, Management and Economic Stability Act’s provisions that limit federal jurisdiction over actions invoking a commonwealth government’s policy or regulatory powers.

The order covers two suits filed by the governor’s administration and Puerto Rico’s Public-Private Partnerships Authority that LUMA had removed to federal court.

Puerto Rico officials argue LUMA failed to meet key obligations and that the operations and maintenance agreement is void. They also challenged a November 2022 letter that extended the contract beyond an initial interim term, saying it lacked the required approvals and did not set a fixed term.

Swain stressed the remand does not decide whether the contract is valid or whether LUMA’s performance warrants termination; those questions will be decided by Puerto Rico courts.

“The Commonwealth’s action, whose claims invoke the policy or regulatory power of a governmental entity, was improperly removed from the Puerto Rico court and therefore must be remanded to the original forum,” Swain wrote.