Fiscal board rejects bill requiring gov’t entities to start paying debts with PREPA within 30 days
By The Star Staff
The Financial Oversight and Management Board has rejected Senate Bill 728, which would require all public agencies, corporations, municipalities and entities to submit payments owed to the Puerto Rico Electric Power Authority (PREPA) within 30 days of the legislation’s enactment.
The oversight board said the bill, which would also permit PREPA and public entities to institute payment plans for debts in excess of $5 million, goes against the fiscal plan.
PREPA has been in bankruptcy since 2017 to restructure some $9 billion in debt. U.S. District Court Judge Laura Taylor Swain, who is presiding over PREPA’s Title III bankruptcy case, recently ordered mediation and litigation of some issues to resolve the bankruptcy and ordered the oversight board to submit a plan of adjustment in December.
The PREPA Fiscal Plan notes that “[c]ommonwealth agencies and public corporations hold accounts payable to PREPA in excess of $200 million for past due energy services” and requires PREPA to “work with LUMA [Energy, the private operator of PREPA’s transmission and distribution system] during the new FY 2023 in a process of reconciling aged accounts with debtors in the upcoming years.”
The oversight board also noted inconsistencies in the legislation. In a letter dated Oct. 7, the board said Section 1 of the bill provides that past-due debt payments from public entities must be remitted to PREPA, while another section provides that such past-due payments on accounts that are more than two years old be directed to the Treasury Department.
The legislation would also provide for funding to the PREPA Stabilization Fund from collections of past-due debt from public entities, appropriations, and federal funds; delegate to the Puerto Rico Energy Bureau (PREB) authority over the PREPA Stabilization Fund and empower the regulatory entity to collect debt and manage debt collection; and transfer debt obligations still in dispute as of May 30, 2021 to the PREPA Stabilization Fund’s balance sheet.
It would also prevent rate increases, including as needed to cover operating expenses and, implicitly, any debt restructuring for PREPA, except as a last available option.
“While the Oversight Board acknowledges the Legislature’s intent to prioritize the collection of outstanding accounts payable owed to PREPA by public entities, the bill as currently constructed is inconsistent with the Fiscal Plans and would impair and/or defeat PROMESA’s [the Puerto Rico Oversight, Management and Economic Stability Act’s] purposes,” the oversight board said.
The legislation, which has passed the Legislature and is on Gov. Pedro Pierluisi Urrutia’s desk, “purports to control the disposition of PREPA’s property — funds collected from certain outstanding accounts receivable — by requiring payment within a specified timeline notwithstanding alternative payment terms previously agreed to by PREPA, designating a specific fund for deposit of collections from delinquent accounts (the PREPA Stabilization Fund), and interfering with PREPA’s use of its property by designating a specific use of the proceeds,” the oversight board pointed out.
“As such, the Bill conflicts with the Bankruptcy Code, as incorporated into Title III of PROMESA, and the Fiscal Plans,” the board continued. “Specifically, requiring such payments is an impermissible attempt by the Legislature to exert control over the debtor’s property in violation of the automatic stay in PREPA’s Title III case.”
Primarily, the bill would put some of PREPA’s assets under the control of PREB because the bill grants PREB control over the PREPA Stabilization Fund.
The oversight board reminded the Legislature that it shouldn’t be intervening with PREPA’s assets during the bankruptcy stay, noting that Judge Swain directed the president of the island Senate to withdraw his complaint filed on behalf of the upper chamber contesting the validity of the Puerto Rico Transmission and Distribution System Operation and Maintenance Agreement because the complaint sought to nullify and enjoin the O&M Agreement, which is the property of a Title III debtor, in violation of the automatic stay.
The bill is also inconsistent with the fiscal plans and certified budgets of affected entities covered by PROMESA because it would require the commonwealth and other public entities to make payments not included in the Commonwealth Fiscal Plan or their respective certified budgets.