Government must focus on PREPA pension payments to avoid rate hikes
Tomás Torres Placa, the consumer representative on the Puerto Rico Electric Power Authority’s governing board
By THE STAR STAFF
After U.S. District Judge Judge Laura Taylor Swain ruled this week that Puerto Rico Electric Power Authority (PREPA) bondholders have a $2.38 billion unsecured net revenue claim, a fraction of the estimated $8.3 billion they were claiming, officials said they must focus now on convincing the government to provide funding for PREPA’s pension claims to avoid a 2-cent hike in energy rates.
Under bankruptcy law, pension payments are considered a priority. PREPA’s pension system has a structural deficit of about $4.7 billion, but the head of the PREPA retirees, Johnny Rodríguez Ortiz, has said that if the government pays up some $930 million in total owed to the retirement system since 2014, the estimated fee of two cents needed to pay pensions won’t be added to the rates.
“That is why people should go to the march planned for [today],” noted Tomás Torres Placa, the consumer representative on the PREPA governing board, during a radio interview.
The goal of the march is to protest rate hikes.
Rolando Emmanuelli, a lawyer who represents the PREPA retirement system, said the cut of the bondholders’ debt to $2.38 billion is not enough because the rates required a fee for pensions. He also noted that bondholders will have priority in payment over retirees, who also must be paid.
“When you include the pensions, you have to increase rates,” he said.
Following Swain’s ruling on Monday, the Financial Oversight and Management Board is amending its plan of adjustment, slated to be filed by July 14, to give bondholders as little as 12.5% of their allowed claim in new bonds.
The judge previously had ruled in March that the bond debt was an unsecured claim that had to be liquidated based on the value of future revenues, which bondholders had insisted was about $8.4 billion. The oversight board had said it was much less, and Swain agreed.
The judge also said bondholders failed to prove that the receiver that they could have appointed outside of bankruptcy would have been able to raise rates enough to cover the debt because it would be limited by Puerto Rico’s laws and the island Energy Bureau, as it would have stepped into PREPA’s shoes.
However, Swain found that Puerto Rico law, and not New York law, governed the appointment of a trustee. New York law limits collections to 20 years. Puerto Rico law has no specific limit. Swain set it at 100 years.
Because of certain risks involved in the appointment of a receiver, the judge cut the bondholders’ claim by 20%, which placed it at $2.38 billion.