Case to replace Puerto Rico electrical distributor remanded to local court

Bloomberg News

A lawsuit seeking the removal of LUMA Energy from handling the transmission and distribution of Puerto Rico's electricity has been remanded to local court, a move that may affect the finances and operating efficiency of the Puerto Rico Electric Power Authority, observers said. 

U.S. District Court Judge Laura Taylor Swain ordered the remand Friday, a win for Puerto Rico Gov. Jenniffer Gonzalez Colon and a loss for the Puerto Rico Oversight Board. 

"Many people said we would never be able to prevail against LUMA" because under the Puerto Rico Oversight, Management and Economic Stability Act, "these cases would be moved to federal courts," which "would supposedly protect the company," said Gonzalez Colon. "I promised the people of Puerto Rico that I would defend the interest of everyone living on the island who suffers from the poor electric service." 

After Swain's action, the governor filed motions in the Puerto Rico Court of the First Instance seeking to invalidate a letter that sought to indefinitely extend LUMA's contract and will attempt to end LUMA's role in handling the distribution and transmission of electricity.

Puerto Rico-based attorney and commentator John Mudd said it was hard to say how Swain's ruling would affect the PREPA bankruptcy. 

"Changing the operator per se would not affect the Title III case but the transition to a new one could," Mudd said. "At this time, the commonwealth does not have an operator on standby. Moreover, the press release from the board emphasizing that the grid must be operated by private entities shows that it suspects that the governor is inclined to return to PREPA as operator." 

He added, "It is well known that the Energy Czar [Josué Colón Ortiz] prefers that option." 

Puerto Rico's government said it was seeking a new "private operator" for the system. 

The Oversight Board said, "Any dispute between the government and the private operator must not affect the maintenance and modernization of the energy system, the reconstruction of the grid and the flow of federal funds."

Selecting a new operator "must follow a transparent and competitive process," the board said. 

LUMA took over the transmission and distribution in June 2021. The Puerto Rico Public Private Partnership Authority and PREPA commenced a lawsuit in local court in December 2025 to declare an extension letter, signed in November 2022, invalid. The governor and the Puerto Rico government filed a similar suit a few days later. 

Shortly after the latter filing, LUMA filed action that moved the case from local court to the U.S. District Court under Swain. 

In the ruling, Swain said, "the actions ... are within the police or regulatory power exception to section 306(d)(1) of PROMESA," and added, the issues raised "are required by the subject contract to be litigated in the Commonwealth Court of the First Instance."

LUMA said in a press statement, "Our legal team is reviewing the document and evaluating all available legal options. We reiterate that, regardless of the forum where the litigation is ultimately addressed, the supplemental contract is valid under the applicable legal framework, as confirmed by the local authorities who participated in its execution and by the public recordings in which the matter was discussed."