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  • Writer's pictureThe San Juan Daily Star

PREPA union: Report explains why debt adjustment plan won’t fly

By The Star Staff

Electrical Industry and Irrigation Workers Union (UTIER by its Spanish acronym) President Josué Mitja González said Sunday that UTIER has filed a report prepared by Thomas Sanzillo, finance director of the Institute of Energy Economy and Financial Analysis, explaining the reasons why the power utility’s debt adjustment plan (PAD) to restructure its $10 billion debt is not viable.

The UTIER president said the modified Title III Plan of Adjustment would raise power rates and hurt the economy. The Puerto Rico Electric Power Authority (PREPA) has been in bankruptcy since 2017 to restructure some $10 billion in debt. The judge in the case has set hearings to confirm a plan by the summer.

“The Sanzillo report charges that the court cannot confirm the Adjustment Plan because it is not viable since it does not allow PREPA to have adequate sources of financing to complete reconstruction, provide a reliable service based on renewable energy, and be able to pay the debt as adjusted by the plan,” Mitja said.

Sanzillo, who serves as an expert witness, will focus on the reasonableness of the financial projections, whether PREPA will likely be able to satisfy its obligations under the PAD without the significant probability of default, and the unlikelihood that PREPA will be able to provide future public services at the level necessary for the Commonwealth of Puerto Rico’s continued viability.

Sanzillo will provide expert testimony from a financial and economic standpoint supporting that the PAD is neither feasible nor in the best interests of PREPA, its creditors and stakeholders, or the commonwealth. His testimony will be focused on the financial condition of PREPA, including energy planning and priorities, and debt management, among other considerations, to demonstrate that the PAD would destroy any probability for PREPA to recover and be sustainable. Sanzillo will also provide valuable information regarding the lack of operational reforms that are necessary for Puerto Rico’s electrical system to become operationally and financially sound enough to comply with the PAD.

Sanzillo noted in his report that reasonable financial projections do not support the PAD and that the proposal to pay a hybrid charge is outside the scope of the debt sustainability analysis contained in PREPA’s fiscal plan, the UTIER leader said.

“[Judging f]rom the document submitted to the court, the PAD underestimates future expenses and overestimates the electricity rate that the economy and consumers can pay. Taking these factors into account, there is no scope to support debt repayment through a rate increase,” the union leader added. “Therefore, the PREPA Adjustment Plan is not viable and cannot be confirmed.”

Mitja stressed that, according to Sanzillo, the PAD will not allow PREPA to provide electricity service at the level necessary to support the economic viability of Puerto Rico and that it does not include a macroeconomic analysis of whether the hybrid charge is possible or can be paid by the utility’s customers.

“Rates under the PAD will be significantly above what economists have previously set,” he said. “Historically and currently, under such conditions, PREPA will not be able to execute the operational reforms and the transformation toward renewable energy necessary to guarantee reliable and affordable electricity service.”

Mitja, who will also be a witness in the case, will discuss the damages that the PAD will inflict on PREPA’s labor force, PREPA and its stakeholders. Additionally, he will discuss the Trust Agreement of 1974 and the priority of payment for current expenses, which include labor costs and pension contributions. Mitja will also testify on the damages that the rejection of UTIER’s collective bargaining agreement with PREPA would cause UTIER, its members and PREPA.

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