Thursday, January 20, 2022

Light Shed Again on Puerto Rico’s Energy Woes at Latest Congressional Hearing

By on January 14, 2016

High energy costs, an ominous infrastructure and the troubled Puerto Rico Electric Power Authority (Prepa) are among a host of energy related challenges affecting the island that were discussed this week by the U.S. House Energy & Mineral Resources Subcommittee during an oversight hearing held Tuesday, Jan. 12.

Right off the bat, subcommittee chairman Rep. Doug Lamborn (R-Colo.) said, “this isn’t a hearing about Chapter 9,” in reference to the federal U.S. Bankruptcy Code section that would allow Puerto Rico’s public corporations to restructure their debts. The Alejandro García Padilla administration has been lobbying hard on Capitol Hill to secure access to the federal statute.

However, Lamborn’s disclosure didn’t stop some of the participants from highlighting the need to provide Puerto Rico’s public corporations, including Prepa, with access to Chapter 9.

For instance, Prepa Chief Restructuring Officer Lisa Donahue, who testified at the hearing, noted how securing access to Chapter 9 would allow the utility to complete its restructuring process with its creditors, as it would help
bring Prepa’s creditors onboard the restructuring deal it recently struck with holders of 70% of its $9 billion debt.

“Access to a restructuring regime would allow Prepa to implement the restructuring contemplated by the RSA [restructuring support agreement], without so many contingencies and open issues. In fact, the RSA contemplates implementing the restructuring transactions by using the federal Bankruptcy Code or a proceeding pursuant to Puerto Rico’s local restructuring law, if either becomes available to Prepa,” she stated in her testimony.

CB P6 1In addition to Donahue, witnesses at the hearing included: Josen Rossi, president of the Puerto Rico Institute of Competitiveness & Sustainability and chairman of Aireko; Jorge San Miguel, chair of Environmental Law, Energy & Land Use at law firm Ferraiuoli; Jaime Sanabria, co-president & general manager for finance & administration at EcoEléctrica; and Puerto Rico Manufacturers Association Chairman Carlos Rivera.

While Prepa, a “fiscal and managerial disaster” according to Lamborn, remained the focal point of the hearing’s debate, the island’s high energy costs as well as the obsolete, inefficient and environmentally unfriendly energy infrastructure were other issues extensively discussed. Failing to urgently deal with these important issues would prevent Puerto Rico from having an environment conducive to much-needed economic development.

In addition to high energy costs, Prepa’s base rate—which hasn’t been revised in decades—fails to capture its operating and debt-service costs, according to Donahue. “The ‘rate deficit’ between existing rates and the rates Prepa would need to charge to cover operational costs, including debt service over the next three years, is approximately 7.8 cents per kWh [kilowatt-hour],” she stated. Closing this deficit is critical for the utility to get back on solid footing, and the plan is to have all stake holders sharing the burden of accomplishing this, Donahue added.

“The high cost of energy for households and businesses is an obstacle for economic development and promotes outmigration, so [potential federal] legislation could include disposition to make energy in the territory cheaper,” said Resident Commissioner Pedro Pierluisi, who was invited to act as ranking member of the subcommittee’s hearing.

Pierluisi recommended several initiatives, both locally and at the federal level, that could help in lowering energy costs on the island, while he recognized there is broad consensus in Puerto Rico over the need to bring private-sector players to invest in capital-improvement projects that would improve the overall energy service.

“There is a real crisis that if it isn’t addressed will continue to get worse. Our call to Congress continues to be the same since Day 1; we need a mechanism to restructure our debts in an orderly manner. Whether this hearing will contribute to this effort remains to be seen. We hope it does,” Public Affairs Secretary Jesús Manuel Ortiz said Monday. La Fortaleza wasn’t invited to participate in the Jan. 12 oversight hearing, according to Ortiz.

“It is necessary to draw the federal forum’s attention to Prepa’s situation and CB P6 2that it becomes a priority for the U.S. Department of Energy,” said Senate President Eduardo Bhatia, who at tended the hearing in Washington, D.C.

The lower chamber’s energy subcommittee will be holding another Puerto Rico-related hearing on Jan. 26, “to discuss the possibility of creating a financial oversight board for the island,” Bloomberg reported, citing a spokesman for Democrats on the panel.

The commonwealth government is relying on congressional action, particularly over Chapter 9 access, during the first semester of the new year, as it tries to avoid additional defaults amid a debt-service schedule that becomes steeper during the summer. The commonwealth faces more than $1.5 billion in payments July 1, the first day of fiscal 2017. House Speaker Paul Ryan (RWis.) is banking on delivering a solution to the Puerto Rico issue before the end of March.

While other congressional committees are expected to follow suit in scheduling hearings to address the island’s fiscal and economic crisis, no other hearing has yet been confirmed.

BY LUIS J. VALENTÍN

l.valentin@cb.pr

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