AAFAF filing shows chasm between proposals by fiscal board, PREPA bondholders in debt deal talk
By The Star Staff
The Financial Oversight and Management Board and the Puerto Rico Electric Power Authority (PREPA) bondholders differ widely in their proposals to negotiate a deal to restructure $9 billion in power utility debt, according to a filing in the Electronic Municipal Market Access (EMMA).
The oversight board expressed an interest in PREPA bonds paying a 6.00% coupon, while bondholders proposed a 6.75% rate. The bondholders include monolines Assured Guaranty, National Public Finance Guarantee and Syncora Guarantee, according to presentations disclosed in the Sept. 17 document filed with EMMA by the Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials).
The presentation made a comparison between an oversight board proposal dated Sept. 13 and a bondholders’ proposal dated Aug. 4. Last week, the board ended negotiations to restructure the utility’s $9 billion debt, and is asking the court to allow litigation in certain matters, including the security of PREPA bonds.
The oversight board proposed a volumetric charge equivalent to 2.596 cents per kilowatt-hour (kWh) for PREPA customers, while the bondholders group proposed an increase of 2.87 per kWh on fiscal year (FY) 2021 consumption growing at the rate of inflation, plus a contingent charge of 0.67 per kWh, according to the report.
To the extent the oversight board wished to lower the rates that would otherwise be charged, the bondholders suggested that the board and the AAFAF could eliminate PREPA subsidies, such as the contribution in lieu of taxes with municipalities, or require the commonwealth to reimburse PREPA for the subsidies.
“PREPA ratepayers have long been required by the Commonwealth to pay for subsidies to municipalities, business, agriculture and PREB [the Puerto Rico Energy Bureau], with little to no justification or benefit to PREPA,” the report said. “In FY 2022, these subsidies are forecasted to cost ratepayers $191 million, or 1.14 cents per kWh for residential ratepayers.”
The existing net metering laws represent a policy choice by the island government to subsidize solar adoption by increasing the cost of electricity paid by other consumers, the report noted.
“To the extent the Commonwealth wishes to subsidize solar adoption as a matter of public policy, the Commonwealth should be required to pay for such subsidy itself rather than effectively asking bondholders to bear the cost,” the report said regarding the bondholders’ proposal.
The oversight board proposed bonds with a final maturity of 50 years with an expected amortization of 43 years, while bondholders proposed maturities of 35 years with a 50-year final maturity. The report included other differences on the contingent value instrument and exchange ratio percentages, among other issues.
According to the PREPA Fiscal Plan, paying the PREPA pensions in full will cost ratepayers an average of 1.9 cents per kWh. To the extent that the commonwealth nonetheless wants PREPA pensions to be paid at higher recoveries than bonds for public policy reasons that benefit the commonwealth more generally, the report said, it should be the commonwealth’s obligation to fund those obligations.