Campamento Contra Las Cenizas En Peñuelas, Inc. v. Fin. Oversight & Mgmt. Bd. for P.R. (In re Fin. Oversight & Mgmt. Bd. for P.R.)

• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Citation: 9 F.4th 1
• Docket Number: No. 20-1685, No. 20-1709, No. 20-1710,20-1685
• Parties: IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; The Financial Oversight And Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight And Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Public Buildings Authority, Debtors. Campamento Contra Las Cenizas En Peñuelas, Inc.; Alianza Comunitaria Ambientalista De Sureste, Inc.; Amigos Del Rio Guaynabo, Inc.; Cambio P.R.; Coalición De Organizaciones Anti-Incineración, Inc.; Comité Yabucoeño Pro-Calidad De Vida, Inc.; Comité Diálogo Ambiental, Inc.; El Puente De Williamsburg, Inc., Enlace Latino De Acción Climática; Sierra Club Puerto Rico, Inc.; Mayagüezanos Por La Salud Y El Ambiente, Inc., Interested Parties, Appellants, v. The Financial Oversight And Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors, Appellees. In re: The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Public Buildings Authority, Debtors. Union De Trabajadores De La Industria Electrica Y Riego (Utier), Interested Party, Appellant, v. The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors, Appellees. In re: The Financial Oversight And Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Public Buildings Authority, Debtors. Windmar Renewable Energy, Inc., Interested Party, Appellant, v. The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors, Appellees.
• Decision Date: 12 August 2021

9 F.4th 1

IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; The Financial Oversight And Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight And Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Public Buildings Authority, Debtors.

Campamento Contra Las Cenizas En Peñuelas, Inc.; Alianza Comunitaria Ambientalista De Sureste, Inc.; Amigos Del Rio Guaynabo, Inc.; Cambio P.R.; Coalición De Organizaciones Anti-Incineración, Inc.; Comité Yabucoeño Pro-Calidad De Vida, Inc.; Comité Diálogo Ambiental, Inc.; El Puente De Williamsburg, Inc., Enlace Latino De Acción Climática; Sierra Club Puerto Rico, Inc.; Mayagüezanos Por La Salud Y El Ambiente, Inc., Interested Parties, Appellants,
v.
The Financial Oversight And Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors, Appellees.

In re: The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Public Buildings Authority, Debtors.

Union De Trabajadores De La Industria Electrica Y Riego (Utier), Interested Party, Appellant,
v.
The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors, Appellees.

In re: The Financial Oversight And Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Highways and Transportation Authority; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA); The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Public Buildings Authority, Debtors.

Windmar Renewable Energy, Inc., Interested Party, Appellant,
v.
The Financial Oversight and Management Board for Puerto Rico, as Representative for the Commonwealth of Puerto Rico; The Financial Oversight and Management Board for Puerto Rico, as Representative for the Puerto Rico Electric Power Authority (PREPA), Debtors, Appellees.

No. 20-1685
No. 20-1709
No. 20-1710

United States Court of Appeals, First Circuit.

August 12, 2021

Jessica E. Méndez Colberg, with whom Rolando Emmanuelli Jiménez and Bufete Emmanuelli, C.S.P., were on brief, for appellant UTIER.

Fernando E. Agrait for appellant Windmar Renewable Energy, Inc.

Daniel Desatnik, with whom Martin J. Bienenstock, Mark D. Harris, Paul V. Possinger, Ehud Barak, Timothy W. Mungovan, John E. Roberts, Adam L. Deming, and Proskauer Rose LLP were on brief, for appellees.

Before Lynch and Kayatta, Circuit Judges, and Woodcock,^** District Judge.

KAYATTA, Circuit Judge.

This PROMESA case turns on the Financial Oversight and Management Board's authority to assume certain long-term power supply contracts on behalf of the Puerto Rico Electric Power Authority (PREPA) under 11 U.S.C. § 365 and 48 U.S.C. § 2161. The appellants -- PREPA's primary labor union, an energy company that has other contracts with PREPA, and several environmental groups -- contend that the Board abused section 365's assumption procedure to avoid the competitive bidding process ordinarily required for such contracts under Commonwealth law. The Title III court disagreed and granted the Board's motion to assume the contracts. We affirm.

I.

Electricity satisfying approximately forty percent of Puerto Rico's baseload power demand comes from PREPA's "LNG-to-Power Program," under which liquefied natural gas (LNG) is imported and converted into power generation capacity (or energy, for short). Before 2019, the LNG-to-Power program depended in relevant part on two PREPA contracts: (1) a 1995 power purchase and operating agreement (PPOA) with EcoEléctrica, the owner and operator of a power plant in Peñuelas, Puerto Rico, and (2) a 2012 gas sale and purchase agreement (GSPA) with Naturgy, a natural gas provider that is also a majority shareholder in EcoEléctrica. Under the 1995 PPOA, EcoEléctrica purchased natural gas, converted it into energy

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in the Peñuelas power plant, and sold the final product to PREPA. Under the 2012 GSPA, Naturgy sold natural gas directly to PREPA, which would then convert it into energy in a PREPA-owned power plant known as Costa Sur. At some point, Naturgy began selling natural gas to EcoEléctrica as well, presumably pursuant to a separately negotiated agreement.¹

In 2017, the Board filed a bankruptcy petition on PREPA's behalf under Title III of PROMESA. See In re Fin. Oversight & Mgmt. Bd., 899 F.3d 13, 18 (1st Cir. 2018). As part of the debt restructuring process, the Board certified fiscal plans in 2018 and 2019 that contemplated the renegotiation of both the PPOA and the GSPA. In view of those fiscal plans, and mindful that the contracts were set to expire in March 2022 and December 2020, respectively, PREPA separately initiated negotiations with EcoEléctrica and Naturgy to amend the terms of each contract. An outside consultant assisted PREPA throughout the negotiations by analyzing the likely results of several potential strategies.

By March 2020, PREPA had successfully renegotiated both the PPOA and the GSPA. The renegotiated PPOA provided that PREPA (not EcoEléctrica) would purchase natural gas on the front end and supply it to EcoEléctrica, which would then convert it into energy for PREPA. The renegotiated GSPA expanded the original GSPA so that Naturgy would sell PREPA enough gas to supply both PREPA's Costa Sur plant and EcoEléctrica's Peñuelas plant (rather than just the Costa Sur plant). Both contracts were extended until September 2032, and both were executed subject to several conditions precedent.

One of the conditions included in the renegotiated PPOA and GSPA was that the Puerto Rico Energy Bureau (PREB) approve the terms of the agreements. PREPA accordingly sought PREB's regulatory approval of the renegotiated GSPA and PPOA, which PREB granted in March 2020. Windmar Renewable Energy, a power company that has other PPOAs with PREPA, sought to intervene in the PREB proceeding and moved for reconsideration of PREB's approval decision. Similar motions were also filed by the labor union representing most of PREPA's employees, Unión de Trabajadores de la Industria Eléctrica y Riego, Inc. (UTIER), and a number of environmental groups. As of the date this appeal was argued, PREB had not yet decided the motions for reconsideration. Nor have the parties advised us of any subsequent decision.

The other condition precedent relevant here required that the Title III court enter an order allowing PREPA to assume the renegotiated PPOA and GSPA. See 11 U.S.C. § 365(a) (providing that a trustee may choose to either "assume or reject" certain contracts with the court's approval); 48 U.S.C. § 2161(a) (incorporating 11 U.S.C. § 365 into PROMESA). Choosing whether to assume or reject a contract under section 365(a) is "one of the basic reorganizational tools available to debtors under the Bankruptcy Code." In re BankVest Cap. Corp., 360 F.3d 291, 296 (1st Cir. 2004). Assumption "accepts both the burdens and the benefits of the bargain, and any liabilities incurred in the contract's postpetition performance will be

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treated as administrative expenses with priority status." Id. Rejection "release[s] the debtor's estate from burdensome obligations that can impede a successful reorganization," leaving creditors with a general unsecured claim for contract damages. Id. (quoting NLRB v. Bildisco &...