Rate review case shows lack of collaboration between PREPA, LUMA & Genera, examiner says

Scott Hempling, the hearing examiner overseeing the power rate review case (LinkedIn)

By The Star Staff

The power rate review case has underscored the urgent need for a functional working relationship between the Puerto Rico Energy Bureau and the island electrical grid’s private operators, LUMA Energy and Genera PR.

Scott Hempling, the hearing examiner overseeing the case, was compelled to intervene in a discovery dispute despite the parties having already reached agreements on information sharing because “a solid working relationship evades them.”

“I must do what I can to save everyone time and money and to focus on producing the best outcome for Puerto Rico,” Hempling said. “For this proceeding to succeed, and for this entire multi-party public-private partnership to be effective, the counsel for the three companies and their principals must work better together. They must share this purpose: cost-effective performance and just and reasonable rates for PREPA’s customers. Excessive information requests and reflexive resistance to appropriate requests don’t help.”

The rate review has to be completed over the next few weeks.

Hempling, a law professor, issued an order addressing objections raised by LUMA, the transmission and distribution system operator, which resisted providing information to PREPA, arguing that the requests violated the Transmission and Distribution (T&D) System Operation and Management Agreement (OMA).

LUMA contended that the OMA restricts PREPA’s ability to seek important information, a claim the hearing examiner found to lack legal support. Genera, the private operator of PREPA’s legacy power plants, raised similar arguments in another motion.

Hempling clarified that the relationship between LUMA and PREPA is governed not solely by the OMA but also by administrative law, which preserves PREPA’s rights to question LUMA and engage in necessary discourse.

“There is more than one relationship between LUMA and PREPA,” he said. “There is the relationship governed by the OMA, which involves the control and operation of the PREPA-owned T&D assets, the transfer of funds from customers to PREPA and LUMA, and various principal-agent relationships. However, the OMA does not encompass all aspects of the relationship between PREPA and LUMA. There is also a relationship governed by administrative law, in which each entity -- and PREPA is a distinct corporate entity -- has the right, in this and any other adjudication, to question the other and comment on each other’s positions. This relationship existed before the OMA and was not negated by it.”

“Nowhere in the OMA did PREPA relinquish its rights under Puerto Rico administrative law,” Hempling wrote. “A simple hypothetical illustrates the error: Suppose a LUMA-operated truck collided with and damaged a PREPA-owned truck. Normally, the victim could sue based on tort law. Is LUMA asserting that ‘the relationship’ created by the T&D OMA prevents PREPA from taking such legal action? The OMA defines the ‘relationship’ but does not address torts or administrative proceedings.”

The hearing examiner emphasized that the relationship is one of principal and agent, and principals have the right to sue their agents.

Additionally, Hempling dismissed LUMA’s assertion that Section 3.5 of the OMA provides exclusive remedies for information access, pointing out that the term “exclusive” is absent from that section in the OMA. He scolded the parties for attempting to mischaracterize information, stating, “This statement is false. The word ‘exclusive’ nowhere appears in Section 3.5. Supplying a word that is absent from the text when that absence undermines counsel’s desired interpretation is a mischaracterization. This practice is inconsistent with counsel’s duty to this tribunal, wastes my time, and must stop.”

Hempling remarked that PREPA’s decision to ask certain questions in a rate case is not a “dispute” about the OMA, as LUMA claims.

“In fact, asking questions is not a dispute, period,” he said. “If I ask the waiter why my dinner is cold, I am not having a dispute; I am asking a question. Upon receiving an answer, I might have a dispute, but the question itself is not a dispute.”

If PREPA wishes to challenge LUMA’s rate proposal after receiving answers, no provision in the OMA prevents that action, because PREPA’s opposition to a LUMA-proposed rate is not a “dispute among the Parties arising out of, relating to, or in connection with this Agreement or the existence, interpretation, breach, termination, or validity of the Agreement,” Hempling maintained.

“A principal that asks questions of the agent is not interfering with the agent,” he asserted. “Furthermore, nothing about LUMA’s exclusive role in proposing rates affects PREPA’s administrative-law right to question the inputs into those rates -- or the rates themselves.”

The examiner also dismissed the notion that PREPA was acting in an adversarial manner.

“What is adversarial here is not PREPA’s legitimate questions, but rather LUMA’s boilerplate, insufficiently explained dismissals of those questions,” he stated.

Meanwhile, Hempling sided with Genera in dismissing certain requests for information from PREPA, such as employee rosters and compensation for all current employees, and a detailed inventory of the vehicle fleet and accounts receivable, arguing that such requests were unnecessary.