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Bankruptcy judge OK’s LUMA Energy contract to manage PREPA’s T&D system

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U.S. District Court Judge Laura Taylor Swain approved the contract between the Puerto Rico Electric Power Authority and LUMA Energy, determining it can be considered as an administrative expense for the power utility.

The decision followed section 503 of the U.S. Bankruptcy Code, under which PREPA is covered.

LUMA will charge PREPA some $60 million a year to operate the utility’s transmission and distribution (T&D) network, during a 15-year term. The consortium will be able to collect additional payments if they meet certain performance metrics established in the contract that could push the global amount to $1.5 billion, according to published reports.

Upon learning of the court’s decision, P3 Authority Executive Director Fermín Fontanés said this determination will facilitate LUMA’s work during the transition phase.

The T&D contract contemplates a transition period prior to the start of operation and maintenance services as an essential prerequisite for the operator to be able to take control of the system, he said.

These services include: Mobilizing the LUMA Energy transition team; the management transition; employee recruitment and establishment of benefit plans for LUMA Energy employees; information technology development and transition; development of a remediation system plan and initial operating and capital budgets; preparing to take control of customer service, billing, and other financial management functions; preparing to handle federal funds; increased preparedness and response to emergencies; and evaluation of the fuel and energy supply chain.

“These are services that are substantially beneficial during the transition stage, particularly in the operator’s management to identify inefficiencies in the current T&D system; to identify and implement savings measures not related to personnel; for the preparation of the management of federal funds; for the evaluation and optimization of the fuel and energy supply chain; and to support privatization efforts in relation to PREPA’s generation assets,” Fontanés said.

Regarding the late payment charges that LUMA Energy submits, the court determined that PREPA must file a motion to approve any accumulated and unpaid amount related to the transition period.

The transition period is estimated to last about a year, which began with the signing of the contract on June 22, 2020, Fontanés said.

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This story was written by our staff based on a press release.
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