Sunday, October 22, 2017

Puerto Rico electric utility seeks procedures to reject power purchase agreements

By on September 13, 2017

SAN JUAN – On behalf of the Puerto Rico Electric Power Authority (Prepa), the island’s Fiscal Agency and Financial Advisory Authority (FAFAA) has asked the federal court for an order establishing procedures for the utility to reject power purchase agreement, fuel supply and other commodity contracts.

The public corporation, which filed for Title III bankruptcy on July 2, is a party to more than 60 power purchase and operating agreements (PPOAs) with renewable energy developers, in which it agreed to purchase power from them.

The public utility entered into PPOAs in response to the island’s government having enacted Renewable Energy Portfolio Standards (REPS) that required Prepa to supply 20% of retail electricity sales from eligible green energy resources by 2035.

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“Prepa and its professionals are in the process of evaluating PPOAs, along with other fuel and commodity contracts, to determine whether certain Energy Contracts should be rejected as unfavorable to Prepa. To that end, PREPA seeks to implement the Rejection Procedures,” the utility said.

An investigation by Caribbean Business in August found that of the 68 renewable PPOAs Prepa signed with several entities between 2008 and 2012, only 58 remain in effect as of June this year but construction on 47 of those is up in the air.

Of the 58 PPOAs remaining in effect, eight are in commercial operation, three are in pre-operation and the rest have not commenced. The 11 projects in operation or pre-operation would provide 272 megawatts from wind, sun and landfill gas sources. Of the 47 that have not begun construction, 15 were renegotiated, including the proposed Energy Answers project in Arecibo while 32 have not been renegotiated.

If the court dismisses the procedures to reject the PPOAs, Prepa said it would be required to file separate motions to reject the energy contracts, resulting in incremental costs and administrative burdens, according to the document.

The model of the procedures filed by Prepa calls for the utility to send a rejection notice to the affected parties and the effective date of the rejection. The companies will then be given time to file objections to the determination no later than seven days after the date Prepa files the rejection notice so it can be included in the court’s docket.

If no objections to the contract rejections are filed on time, each contract listed in the notice will be rejected. Prepa will then file a proposed order with the court seeking formal rejection of the contract.

If an objection were filed but not resolved, Prepa may file a notice for a hearing to be held at the next omnibus hearing to consider the objection. If the objection is overruled by the court or withdrawn, the energy contract will be rejected.

Prepa also seeks to be able to withdraw a rejection notice at its discretion.

Claims arising out of the rejection of the energy contracts must be filed 35 days after the court gives the green light to the rejection.

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