Puerto Rico Board may move solo on PREPA restructuring

The Puerto Rico Oversight Board has discussed completing the Puerto Rico Electric Power Authority restructuring without a local law supporting it, since members of a Senate panel appear opposed to such legislation.

The board reached preliminary terms with the bondholders on a Restructuring Support Agreement in spring 2019. As currently proposed, the Puerto Rico Senate and House of Representatives would have to pass a law to support it and the governor would have to sign the law. At this point legislative approvals appears to be a much greater obstacle, since they believe the law would lead to excessively high electric rates.

At a Tuesday hearing of the Senate Committee on Energy and Strategic Projects, most of the senators seemed opposed to the board-supported legislation, said Tom Sanzillo, director of finance at the nonprofit Institute for Energy Economics and Finance.

This month the party with the most legislators in the Puerto Rico House of Representatives, the Popular Democratic Party, introduced a bill that would bar any electricity rate increases this year.

In May 2019, the Puerto Rico Oversight Board and the body representing the local government, the Fiscal Agency and Financial Advisory Authority, filed a joint motion in the authority’s bankruptcy to approve the RSA.

Since then, the government parties have repeatedly asked bankruptcy Judge Laura Taylor Swain to postpone consideration of the motion and she agreed.

Earlier this month, the board again asked for a postponement. “The terms of the RSA require certain legislation, including legislation to establish the securitization structure of the proposed new bonds, the transition charges needed to support the prospective debt service, and certain protections against the diminution of transition charge revenues caused by reduced demand for energy provided by PREPA,” the board, FAFAA, and PREPA told Swain in a filing.

“Whether the Puerto Rico Legislature will support the RSA remains an open question,” the government parties continued. “The Oversight Board has discussed the legislation needed to implement the RSA with certain legislative leaders, who indicated they will be in a position to evaluate it in February.”

The government parties said the board hoped to file a PREPA Plan of Adjustment by the end of March. Board Member Justin Peterson said Thursday the board hopes to complete the restructuring of PREPA this year.

On Friday, the government parties told Swain Puerto Rico House leaders had told the board “the Legislature is now dealing with various measures to implement the commonwealth’s plan of adjustment. Accordingly, the Oversight Board will re-engage with House leaders, and make the case for the required [PREPA restructuring] legislation, once this process is finished.

“The Oversight Board has a draft of the required legislation ready to be provided to the Legislature … The success of these efforts, however, is largely outside the control of the Oversight Board,” the government parties continued.

“In the event necessary legislation is not enacted to implement the RSA, the government parties will evaluate alternatives without new legislation,” the government parties told Swain on Jan. 19.

Puerto Rico House Speaker Rafael Hernández Montañez said his chamber is currently focused on looking at the next fiscal year’s budget but he expects to look at PREPA’s restructuring legislation around Feb. 15.

PREPA and Puerto Rico’s P3 authority are taking steps toward shifting the authority’s generation assets to private operators. In December the authority’s governing board approved separating generation, real estate, and hydroelectric assets into separate subsidiaries. This is required by the Operations and Maintenance Agreement that PREPA signed with LUMA Energy LLC, which is handling the transmission and distribution system.

The Puerto Rico Energy Bureau must approve the separation before it goes forward.

PREPA had total debt of about $9.9 billion in May 2020 and about $3.8 billion in unfunded pension liabilities.

Leaders of Puerto Rico’s Senate did not immediately respond to a request for comment.