Monday, June 25, 2018

Bill to privatize Puerto Rico power utility doesn’t factor in its bankruptcy

By on June 13, 2018

Editor’s note: A version of this article, which has been updated to reflect the legislature’s passage of the privatization bill, first appeared in the June 7-13, 2018, issue of Caribbean Business.

The bill passed to privatize the Puerto Rico Electric Power Authority (Prepa) does not address the utility’s fate under the bankruptcy process and would create a public energy measure separate from the utility’s proposed integrated resource plan (IRP) that is due in October.

As a matter of fact, Siemens, the company hired to create the IRP, which is Prepa’s blueprint for the use of resources for the coming years, began hearings and meetings to receive feedback on the document, which some stakeholders described as a trampled and confusing process because they were not provided any background or information on which to base their opinions.

Ramón Luis Nieves, San Juan’s former Popular Democratic Party senator, who is now a lawyer in private practice, said the privatization bill does not even discuss the bankrupt utility’s $9 billion debt.

“No one has talked about the bankruptcy. Ever since the government filed for bankruptcy, the subject of the debt has been thrown under the rug and is not discussed as much as it was in 2015. That is a problem with this bill. What would happen if, during a negotiation with the private sector to sell Prepa, Judge Laura Taylor Swain comes up with an important decision with respect to Prepa?” he asked.

He was referring to decisions about who would pay the utility’s debt or how much money bondholders would receive and how that will impact rates.

If enacted, the legislation would create a working group that must produce a document within 180 days to define the island’s energy public policy and its regulatory framework. While the government will be able to ascertain the market in which to sell Prepa, the Puerto Rico Energy Commission (PREC) must certify that the sale’s contracts comply with the documents created by the working group.

Citigroup Global and Rothschild, the advisers in charge of Prepa’s sale, recently announced they were seeking input on Prepa’s transformation. While the government wants to sell Prepa’s generation facilities and put the transmission and distribution systems under a private concession through a public-private partnership, the administration is also open to other possibilities to transform the utility.

The privatization bill increases the number of PREC members from three to five. PREC is given about 15 days to give its green light to a possible sale, which is a ruling that can be appealed. The Legislature will also have the final say on Prepa’s sale.

Pedro Nieves, manager of the law firm Vidal, Nieves & Bauzá, said he did not see the reason behind the creation of a regulatory framework because “it is already there.” He said energy’s public policy needs to be defined.

After Hurricane Maria, the definition of energy resiliency has changed and is different from the U.S. mainland, which now wants to save coal and nuclear plants. “Ours [definition] is the use of renewable energy and batteries,” Nieves said.

Josen Rossi, chairman of Aireko Enterprises, questioned the need for an energy-policy definition because there are already laws in place that address that area.

Regarding the IRP, the island’s Financial Oversight & Management Board prepared Prepa’s fiscal plan with an IRP developed by Prepa that PREC rejected. Prepa is now preparing a new IRP and Siemens is gathering stakeholder opinions.

Nieves told Caribbean Business that the discussion at a recent meeting centered on the process of creating the IRP and its objectives and challenges.

While another source complained there was no background in which to make a comment, Nieves said it was an initial meeting. “The strategy is to come up with different scenarios for an IRP and then pick one…. But there was no background document,” he said.

While the government is interested in selling Prepa’s power-generation assets and completing a transmission and distribution concession, a document released by the Public-Private Partnerships Authority says the private companies in charge of Prepa’s privatization, Citi Global and Rothschild, are willing to examine other options to transform the public utility.

“If alternative transformational structures are more attractive, Citi and Rothschild would be interested in exploring them, taking into account certain key objectives,” the document reads.

The utility’s transformation will take place in connection with Prepa’s ongoing Title III bankruptcy case under the Puerto Rico Oversight, Management & Economic Stability Act, as well as the bill, the document said.

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