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  • The San Juan Daily Star

PREPA debt plan may include preemption of local laws barring privatization of power plants

U.S. District Court Judge Laura Taylor Swain

By The Star Staff

The proposed debt adjustment plan for the Puerto Rico Electric Power Authority (PREPA) contains language suggesting that the Financial Oversight and Management Board may preempt local laws that prevent putting PREPA’s legacy power plants under private management due to legislative opposition.

On Aug. 10, 2020, the Public-Private Partnership Authority (P3A) issued a request for qualification for companies or consortia interested in managing, operating, maintaining, conducting asset management and decommissioning, as applicable, one or more of PREPA’s power generation assets. On Nov. 10, 2020, the P3A qualified eight proponents and issued requests for proposals from those respondents. The P3A is in advanced negotiations with a preferred proponent to assume operation of the generation assets and had anticipated reaching a 10-year agreement prior to the end of the current calendar year. As reported by the STAR, the preferred proponent is a consortium of companies headed by New Fortress Energy, which also supplies fuel to PREPA. Fiscal Agency and Financial Advisory Authority Executive Director Omar Marrero Díaz expects the proposed public-private partnership (P3) for PREPA’s legacy plants under a private operator to come to fruition in the first six months of 2023. He said the process is a complicated one that requires approvals from the P3A, the Puerto Rico Energy Bureau, PREPA and the oversight board.

The proposed legacy generation P3, meanwhile, is opposed by the Legislature, which has instructed P3A board members Eduardo Ferrer Ríos and Liza Ortiz Camacho, who represent the public interest on behalf of the Legislature, to oppose the proposed P3. Their votes are required for a P3 contract to be valid.

The debt adjustment plan (PAD by its Spanish acronym) contains language on how the proposed P3 will be moved forward despite legislative opposition.

The PAD states that prior to or as soon as practicable following the reorganization of PREPA, the utility must be operationally restructured “including that PREPA shall, as required by the Fiscal Plan and applicable law: take all necessary actions to complete the competitive procurement process for substantially all of PREPA’s generation assets and complete ongoing efforts to transfer operation and maintenance of existing PREPA generation assets to professional and independent private operators, and maintain operation and maintenance contracts with private operators for the transmission and distribution system, provided that such contracts” do not impact new bonds for the reorganized PREPA.

The PAD states that provisions of commonwealth laws, rules or regulations that affect PREPA or “Reorganized PREPA” and are inconsistent with the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which created the oversight board, may be preempted. The oversight board does not dismiss the possibility it could force the Legislature to move forward with the proposed P3 subject to U.S. District Court Judge Laura Taylor Swain’s green light.

“While the Oversight Board could seek to exercise its powers under PROMESA to enjoin such legislative actions it believes are inconsistent with the purposes of PROMESA, under PROMESA § 108, there is no certainty the Title III Court will grant the foregoing judicial relief, or that it would be upheld on appeal,” the PAD notes.

Swain has said in judicial documents that she publicly hopes to approve a PAD for PREPA next summer. If she approves the PAD with language enjoining the Legislature to move PREPA’s transformation forward, the question is whether the Legislature will be obligated to do so.

“We don’t know. It would be a first,” a STAR source said on condition of anonymity because they are involved in the process.

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