Serious concerns arise about PREPA, Genera and LUMA performance
4 min read
The performance and financial condition of the Puerto Rico Electric Power Authority, its generation operator Genera and its transmission and distribution operator LUMA have raised concerns, by the entities themselves as well as outside observers in the past few weeks.
PREPA said it will run out of money to pay its pensioners in January though it has since revised this to March, Genera said in a quarterly filing it may not be able to continue to operate, and the chair of the Puerto Rico Energy Bureau warned LUMA it may get fined for its poor operating record.
In November, PREPA warned it would not be able to pay pensions in December if a solution wasn’t found, before revising the timing to March this week after receiving a $75 million Federal Emergency Management Agency reimbursement.
LUMA told the energy bureau in October that PREPA failed to fund operating accounts at two-thirds of the required amounts.
A PREPA spokesman said Wednesday the authority is looking for other measures to be able to extend payment.
“The need for reform of PREPA’s pension system is unavoidable and urgent,” a Puerto Rico Oversight Board spokesman said. He noted the board last year approved a $300 million loan for PREPA “to continue to pay pensions because PREPA was unable to provide a solution.”
The board spokesman said the board would work to assure the pensions were paid.
The group of PREPA bondholders and insurers criticized the board. “Under the board’s oversight, PREPA has been unable to improve its performance according to industry-accepted metrics, enhance its financial transparency, or — perhaps most disturbingly — meaningfully access the unprecedented $15 billion in congressional funding aimed at upgrading and hardening the power grid in Puerto Rico.”
The board has “never filed a fiscal plan that requires rates to be raised sufficiently to fund pensions or pay debt service,” said Cate Long, Puerto Rico Clearinghouse principal.
Feldesman Leifer Senior Counsel Phillip Escoriaza questioned whether PREPA was set up to fail, with operating accounts funded at unrealistic levels. Escoriaza, who owns homes in Puerto Rico, noted the lack of accountability because the board and PREPA share oversight.
PREPA is more than seven years into a
Separately,
NFE’s long-term debt has a B2 rating from Moody’s Ratings and B-plus rating from Fitch Ratings, both on review for possible downgrades.
NFE, in response to a Bond Buyer inquiry, pointed to a statement it made November 26 that it successfully completed the first step of a $2.7 billion issuance of senior secured notes due 2029. The transaction, which will be followed by a second expected to be completed this week, will refinance $2.4 billion of existing bonds, including much of the bonds maturing in next few years, extend the maturity of 90% of the company’s $1 billion revolving credit facility, and raise $325 million for liquidity.
The board said it was monitoring NFE’s financial status and would work with PREPA to avoid disruption in power service if New Fortress were to file for bankruptcy.
“Inability to remain a going concern is a serious matter and would signal fundamental flaws in the private outsourcing pathway undertaken here, bifurcating transmission and generation, and calling into question estimates/projections/contingencies relied on in structuring these complex operations and reflecting perhaps unrealistic reliance on squeezing consumers,” Escoriaza said,
U.S. District Court “Judge [Laura Taylor] Swain denied hearing an adversary case about the conflict of interest of Oversight Board’s local attorney O’Neill & Borges also representing New Fortress,” Long said. “This was a missed opportunity to untangle the conflicts that likely exist in the choice of New Fortress to run the generation assets (while also supplying fuel).”
Finally, the chairman of the Puerto Rico Energy Bureau Edison Avilés Deliz told representatives of LUMA in late November he was considering fining LUMA for poor operating performance.
Since LUMA gained responsibility for PREPA’s transmission and distribution system in June 2021, complaints continued about
“Any evaluation of metrics must be based on realistic, fair, and transparent targets that account for the challenges LUMA inherited, the available resources to improve service to customers, and the real progress we’ve achieved,” LUMA told The Bond Buyer. “LUMA inherited a highly politicized electrical system, with decades of neglect impacting its performance. … In the last quarter ending in September, we reduced the duration of outages experienced by customers by nearly 6% and reduced the frequency of outages by 17% compared to the same quarter a year earlier. There is much more work to do.”
LUMA said earlier this week it wouldn’t connect a major solar field to the electric system until 2026, even though the owner of the field has committed to providing the electricity to the system next year, according to the El Nuevo Día news site.
Escoriaza said whether the bureau should fine LUMA depends on the original contract. Suits in federal or state court against LUMA would be other possible approaches.
The board said the issue of fining LUMA was one for the bureau to decide upon.
The bureau did not respond to requests for comment.
