Puerto Rico governor unveils bill to fix debt-laden power utility
Puerto Rico Governor Alejandro Garcia Padilla on Wednesday introduced legislation aimed at overhauling the island’s power authority, PREPA, and facilitating a debt restructuring that would reduce its more than $8 billion debt burden.
The bill, if passed, would formalize the securitization mechanisms embedded in a deal reached last month between the Puerto Rico Electric Power Authority (PREPA) and some of its creditors, namely by providing for the issuance of new bonds and creating a dedicated line item that would be included in customers’ bills.
Bondholders and lenders of PREPA agreed last month to a 15-percent reduction in payments on their outstanding debt in exchange for new bonds with better terms. Meanwhile, the authority is continuing to negotiate a restructuring with bond insurers.
The bill also addresses demands made by creditors during negotiations. For example, it proposes more flexibility for PREPA to collect late customer fees, an attempt to remedy high delinquency rates.
“If approved, the utility would have the necessary tools to overcome a budget deficit that has been accumulating for decades, and convert into a sustainable, world-class entity,” Jesus Manuel Ortiz, Padilla’s government affairs secretary, told reporters on Wednesday.
The bill must be passed by Nov. 15, the end of Puerto Rico’s legislative session, unless the governor calls a special session.
If the bill passes in its current form, government officials would be removed from PREPA’s board. Creditors have long sought to remove political influence from PREPA’s governance.
The bill would also allow PREPA to invest in public-private partnerships to modernize its infrastructure.
Javier Quintana Mendez, PREPA’s executive director, said in a statement that the legislation would allow PREPA to “realize the debt relief and savings offered by the creditor compromises and make the changes and investments needed” to make PREPA a stable agency.
While creditors have demanded that PREPA raise its rates on customers, the bill does not impose any rate changes, Ortiz said.
Creditors are likely to continue urging that PREPA impose rate increases itself.
The bill does not include any labor reform, Ortiz added, though labor changes could arise out of PREPA’s negotiations with creditors.
“We know there are some agreements being worked on between the utility and the creditors, and we have to wait to see what comes out of this process,” Ortiz said.