• The Star Staff

UTIER to ratchet up fight against PREPA-LUMA contract it says is likely to double in cost

By The Star Staff

The Electrical Industry and Irrigation Workers Union (UTIER by its Spanish acronym) says it will strengthen its fight against the LUMA Energy management contract, whose cost may be doubled if the firm fails to obtain several tax exemptions.

“LUMA is looking for a tax exemption that as a practical matter it will not get, and it will double the cost of the contract by $100 million and, you know it will come from our salaries and rates,” UTIER Vice President Freddyson Martínez said on the union’s radio program while remarking on a STAR report.

The Puerto Rico Electric Power Authority (PREPA), which is already in bankruptcy to restructure $9 billion in debt, may have to pay $100 million more than it currently pays to its transmission and distribution (T&D) administrator, LUMA Energy, if the management contract does not bring in certain federal tax exemptions.

The contract with the private operator has to meet the requirements of Revenue Procedure 2017-13 of the Internal Revenue Service (IRS), a provision that contains safe harbor criteria under which the IRS can conclude that a management contract does not result “in private business use of property financed with governmental tax-exempt bonds under the tax code or cause the modified private business use test for property financed with certain qualified bonds to be met.”

To meet the safe harbor requirement, the 15-year term of the LUMA Energy contract “including all renewal options, must be no greater than the lesser of 30 years or 80 percent of the weighted average reasonably expected economic life of the managed property.”

It appears it does not meet the requirement so far, according to information that came out during a recent PREPA meeting, because the T&D system that is managed by LUMA is already too old.

A legal opinion by Nixon & Peabody said an engineering firm must be selected to conduct the study on the managed infrastructure and conclude that the economic life span of the managed property is at least 19 years for the contract to be exempted under Revenue Procedure 2017-13.

UTIER also revealed that by the end of October, positive COVID-19 cases were detected in 27 workstations but that some of PREPA’s supervisors are required to work despite the risks. UTIER has requested a probe by health authorities. UTIER also urged its membership to appear at any job interviews with LUMA. The union noted that workers already work for PREPA and should not be required to apply for employment with LUMA to keep their jobs.

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