Fiscal board takes step toward confirming PREPA debt adjustment plan
By The Star Staff
As representatives of various sectors of society and experts in legal, energy and financial issues came together to make a call to stop rate hikes, the Financial Oversight and Management Board filed a proposed order Tuesday to confirm the plan of adjustment of the Puerto Rico Electric Power Authority (PREPA) that may do the opposite.
Separately, in an adversary proceeding, the oversight board and PREPA’s bondholders were presenting arguments to determine the amount of the bondholders’ claim following a ruling in March in which U.S. District Court Judge Laura Taylor Swain decided they had no lien on the authority’s revenues, which could result in bondholders recovering as little as 0.21% of their principal. PREPA’s experts estimated that the unsecured net revenue claim of the bondholders is $2.1 billion as of July 2, 2017, the claim estimation date, an amount bondholders say is too low.
PREPA’s confirmation hearing, meanwhile, is scheduled for July 17. If the plan of adjustment is confirmed, the utility would be allowed to exit bankruptcy that began in 2017.
The order to confirm the plan would depend on the Puerto Rico Energy Bureau (PREB) approving a rate increase that will allow PREPA to meet its new obligations. The legacy charge, which must be covered by the PREB-approved rate increase, will not be considered an available resource of the commonwealth. PREPA’s bondholders, who are seeking payment of over $8 billion in bonded debt, have objected to the plan on a number of grounds, including that PREPA’s debt settlements with National Public Finance Guarantee and the fuel line lenders aren’t allowable. They argue that National should not get a higher payout because its claim is identical to bondholder and other insurer claims. The oversight board argued that because National agreed to drop the lawsuits related to the security of the debt, it could be placed in a different category.
Swain, meanwhile, has urged parties to negotiate, saying that confirmation is far from assured and has warned she could dismiss the case.
Some 20 organizations such as the Puerto Rico Manufacturers Association; Condominium Owners Association; Chamber of Marketing, Industry and Food Distribution (MIDA by its Spanish acronym); League of Cooperatives; Social Work Professionals Association; Sierra Club of Puerto Rico; Citizen Commission for the Audit of Public Credit; and the Puerto Rican Workers Union, among others and over a dozen individuals such as economists Dr. José Alameda and Dr. José Caraballo Cueto; the director of Financial Analysis at Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo; and Dr. Ramón Cao, who is an economist and witness in federal court for the Institute for Economic Competitiveness and Sustainability (ICSE by its Spanish initials), signed a letter to the oversight urging a smaller payout to bondholders. The endorsements also include representatives of the religious sector such as Roberto González Nieves, OFM, archbishop of San Juan, and Rev. Hilda E. Robles Floran, general pastor of the Disciples of Christ Church, among others.
“Five years ago, the fiscal oversight board set a goal of reaching a rate below 20 cents per kilowatt-hour by 2023 to improve the island’s weak economy,” said Ramón Barquín, president-elect of the United Retail Association. “However, the average rate in the last year has been above 28 cents, more than double the average in the U.S.”
Barquín pointed out that the plan to restructure PREPA’s debt proposes to impose three new fee charges for the next 35 years or more.
“The plan, as proposed, would worsen a service and system that are already defective, in addition to causing -- as the CUD [United Retailers Association] has already expressed -- the closure of more than 12,000 small businesses, layoffs, and migration, further risking the economic recovery of the island,” he said.
Methodist Bishop Lizzette Gabriel Montalvo insisted that the plan as presented couldn’t have come at a worse time historically for Puerto Rico.
“At the moment the electrical system does not have sufficient resources to meet basic reliability standards; PREPA’s pension plan -- which represents the monthly income of more than 10,000 retired employees and their families -- will run out of funds in July; and the [oversight] Board itself projects, in the most recent fiscal plan, that the economy of Puerto Rico will once again enter a prolonged period of contraction beginning in 2027 or 2028,” Gabriel Montalvo said. “Imposing an unpayable charge like the one proposed would severely affect our economy and lead to future bankruptcy of the electrical system.”
The signatories of the public statement sent to the oversight board chairman proposed that any future plan to restructure PREPA’s debt should, at a minimum, prioritize and guarantee capital and operational resources for Puerto Rico to achieve a stable, reliable and resilient electrical system. The rates should be lower than 20 cents per kilowatt-hour.
Puerto Rico Bar Association President Manuel Quilichini urged citizens and merchants to express to Swain, who is overseeing Puerto Rico’s Title III bankruptcy cases, how the increases can negatively affect them, by filing objections to PREPA’s debt adjustment plan in federal court before next Monday’s (June 12) deadline.