By The Star Staff
The Financial Oversight and Management Board (FOMB) said that while the Puerto Rico Electric Power Authority’s (PREPA) debt adjustment plan would preempt some laws, it would not impede the transition to renewable energy or preempt the rate-setting authority of the Puerto Rico Energy Bureau (PREB), the island’s energy regulator.
The Plan of Adjustment to reduce more than $10 billion of total asserted claims against PREPA by about 80% identifies certain laws, rules and regulations preempted by the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), the oversight board said in a statement Tuesday.
“Preemption does not mean those laws, rules, or regulations would be entirely invalidated or changed,” the oversight board said. “Preemption means that to the extent certain laws, rules, and regulations of the Commonwealth of Puerto Rico, or portions thereof, are inconsistent with PREPA’s obligations under the debt restructuring, and thus inconsistent with PROMESA, the Plan shall prevail. The preemption is limited to what is sufficient for implementation of the Plan of Adjustment.”
The oversight board said the debt adjustment plan does not nullify Act 17-2019, does not impede the transition of PREPA’s power generation to renewable energy sources as defined by Act 17, and does not seek to preempt the rate-setting authority of the PREB.
The plan calls for a legacy charge or fee that would be added to customers’ bills to pay bondholders.
“The plan specifically states that PREB must approve the Legacy Charge in accordance with Act 17,” the oversight board said. “Under existing Puerto Rico law PREPA’s electricity rates must be sufficient to allow PREPA to meet its obligations, including the significantly reduced debt payments,”
Certain provisions of Act 101-2020 are preempted to the extent that they subject PREPA’s issuance of bonds under the plan to the approval of entities other than the oversight board as the representative of PREPA in the proceedings under Title III of PROMESA. Certain provisions of Act 4-2016 are preempted to the extent that they are related to restructuring agreements between PREPA and certain creditors before PREPA filed for proceedings under Title III of PROMESA.
Similarly, certain provisions of Act 106-2017 are preempted to the extent that they affect PREPA’s retirement system. Under the debt adjustment plan, PREPA will provide funding to pay retirees all pension benefits earned through the plan’s effective date, and active employees will be moved into defined contribution accounts. PREPA’s defined benefit pension system will be frozen and cost of living adjustments will be eliminated.
“The plan is a significant win for the people of Puerto Rico, reducing the principal and interest payments to financial creditors from about $20 billion under their asserted claim, to about $5 billion,” the oversight board said. “Puerto Rico’s energy system cannot fully improve with PREPA in bankruptcy. The plan provides a path to end PREPA’s bankruptcy. PREPA will remain a sustainable utility, continue critical investments, and complete the transformation of Puerto Rico’ energy system to provide reliable energy and support Puerto Rico’s economic growth and fiscal stability.”