PREPA asks bankruptcy judge to declare Luma transition expenses as administrative

By The Star Staff

The Puerto Rico Electric Power Authority (PREPA) has asked the judge in its bankruptcy process to declare as an administrative expense the current transition payments to be paid to LUMA Energy LLC and LUMA Energy ServCo LLC under the contract to operate the power utility’s transmission and distribution system.

Under bankruptcy law, administrative expenses have priority over other debt payments, leaving less money for payment to other creditors. The request made by PREPA would change payment priorities in its $9 billion bankruptcy process.

The petition, which was filed late Monday, provided an overview of the contract payments. The motion, which states that the transition period will last 12 months, says PREPA must pay $136 million, which is an amount higher than the $125 million government officials have said the contract will cost.

PREPA’s fiscal plan says the utility may have a $132 million budget deficit next year because of the service fee it must pay under the contract.

On June 22, PREPA put $59 million in a designated account for use toward the payment. The balance of the pending front-end transition fee is $77 million, an amount that may vary depending on different factors such as whether LUMA Energy and the Public-Private Partnership Authority can commence operation and management services in less than a year.

The Electrical Industry and Irrigation Workers Union (UTIER by its Spanish acronym) has threatened to hold a work stoppage on July 15 and engage in other actions to force the government to cancel the contract, arguing that it will result in layoffs and higher utility rates.

The motion says the government believes the contract is needed to ensure Puerto Rico’s energy system is one that is safe, reliable and affordable. The contract with LUMA was signed on June 22 after months of negotiations.

“Transitioning the operation of PREPA’s aging and outdated transmission and distribution system to a qualified and experienced private operator is widely acknowledged as key to the success of PREPA’s transformation,” the motion states.

Under the contract, LUMA Energy will also handle customer service and be in charge of administering the $18 billion in federal reconstruction funds. The Financial Oversight and Management Board has requested a hearing on the motion for later this month.

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