By The Star Staff
Although the Puerto Rico Electric Power Authority (PREPA) should be leaving bankruptcy once its debt adjustment plan is confirmed in late July, the Financial Oversight and Management Board on Thursday announced it was drafting a new fiscal plan for the utility.
PREPA has been in bankruptcy since 2017 to restructure almost $10 billion in debt.
The PREPA debt plan proposes to restructure PREPA’s debt principally through an issuance of $5.68 billion in new bonds to fund partial recoveries on creditors’ claims. PREPA owns about $8.26 billion in revenue bonds, plus some $218 million in prepetition accrued interest on such bonds. The utility also owns PREPA $700 million in fuel line loans and projects some $246 million to $4.9 billion in general unsecured claims. It also has over $3 billion in unfunded pension liabilities.
Under the proposed plan, PREPA will pay for the new bonds over a 35-year period through revenues from a “legacy charge” to PREPA’s customers. The legacy charge comprises a monthly flat fee for customers’ connection to PREPA’s power grid and volumetric charges based on energy consumption.
The oversight board determined the legacy charge by developing a view of what it deems affordable for PREPA’s customers, concluding that an affordable and sustainable legacy charge will generate only $5.68 billion in additional net revenues. The utility’s creditors, such as the Ad Hoc Group of PREPA bondholders, using their own experts, have found that the calculations are wrong.
On Thursday, U.S. District Court Judge Laura Taylor Swain, who is overseeing Puerto Rico’s Title III bankruptcy cases, asked about the fiscal plan, which the oversight board says should be completed by June 30. The oversight board and PREPA bondholders are still arguing over the real size of the bondholders’ debt, which the board wants to reduce to $2.1 billion.
As all that is going on, groups are already lobbying against the plan.
The Institute for Energy Economics and Financial Analysis (IEEFA) was the latest organization to sign its name to a letter seeking low rates.
Recently, 47 organizations and 15 individuals representing unions and other labor organizations, as well as legal, energy and finance experts, wrote to the oversight board stating their agreement that Puerto Rico cannot afford the electricity rates proposed by the current debt restructuring plan. The open letter calls on the oversight board to withdraw the plan or amend it to meaningfully reduce the unsustainable debt burden.
Six years after Hurricane Maria made landfall, Puerto Rico’s electrical system remains highly unreliable, prone to frequent outages and voltage fluctuations. Five years ago, the oversight board set a target of achieving rates below 20 cents per kilowatt-hour by 2023 to enable Puerto Rico’s future economic vitality; average rates over the past year have been above 28 cents, however, more than double the U.S. average. Customers in Puerto Rico are shifting to rooftop solar much sooner than the board has predicted in order to escape a failing grid. Even without additional rate increases, the electrical system is not economically viable.
“This letter represents something that the [oversight board] has not been able to achieve in six years: a consensus among diverse sectors of Puerto Rican society,” said Tom Sanzillo, IEEFA director of financial analysis and a signee of the letter. “The signatories to this letter include groups that have often been publicly at odds in the past, but have united in this public declaration to say that the proposed debt deal is not viable for Puerto Rico.”
It is generally agreed that imposing an unpayable debt burden will negatively impact the economy and lead to a future electrical system bankruptcy. The current high cost of electricity, combined with unstable power service, impacts all segments of Puerto Rican society, the letter to the oversight board noted.
“The proposed debt plan will only weaken an already failing system, in addition to provoking more business closures, layoffs, and outmigration, further imperiling the island’s economic recovery,” the letter said, “and therefore it should be withdrawn or drastically amended.”
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