Prepa Revitalization Corp. Presents Transition Rate Case
The Puerto Rico Electric Power Authority’s (Prepa) restructuring brigades filed late Thursday afternoon its rate transition case and the supporting materials before the Puerto Rico Energy Commission (PREC), in the wake of turbulence generated by the Puerto Rico Emergency Moratorium & Financial Rehabilitation Act, commonly known as the debt moratorium law.
The Alejandro García Padilla administration’s most recent maneuver—enacting a law to provide the government with a mechanism to selectively suspend debt payments whenever the governor deems essential services run the risk of interruption—is said to be a salvo that could blow Prepa’s current restructuring support agreement (RSA) to kingdom come.
The RSA struck by Prepa with a majority of its creditors hinges on successfully implementing the securitization mechanism, which is essential to achieve investment-grade rating of new bonds that would be exchanged with creditors.
“This action represents an important step to allow for the issuance of securitization bonds, which is necessary for Prepa to execute on its recovery plan,” Chief Restructuring Officer Lisa Donahue explained. “The calculation methodology to the securitization charges is also the first phase of Prepa’s new rate structure transformation.”
Prepa explained that under the RSA, the Prepa Revitalization Corp., a special purpose public corporation and governmental instrumentality of the commonwealth of Puerto Rico created under the Prepa Revitalization Act, will issue bonds to refinance the utility’s existing debt, as well as certain other purposes that should generate substantial reductions in Prepa’s debt service obligations.
Following the signing of the debt moratorium law, Prepa announced Wednesday that it was extending the deadline for the bond purchase agreement contained in the restructuring support arrangement.
“The creditors essentially asked for a week to be able to draft legal opinions to proceed with the bond purchase agreement,” said a Caribbean Business source with knowledge of negotiations. “There is a disposition in the law that allows room for the governor to denominate as ‘unaffected debt’ those new credits that are being issued under the current RSA. That would appease creditors to be more comfortable to do the re-lending backed by the transition charge.”
Sources insisted that the decision to extend the bond repurchase agreement — as Prepa went forward with the rate transition case for securitization — was a tactical move to provide the authority a litmus test of the commission’s acceptance of the math contained in the proposal.
The Prepa Revitalization Corp. submitted the petition and related materials to the PREC, including the calculation methodology to assess securitization charges in connection with Prepa’s restructuring.
In the utility’s securitization framework that was presented, the so-called “transition charge” is intended to be “a per service agreement charge for residential customers and a per kilowatt-hour [kWh] charge for other customers.”
The estimated charge per residential customer is $11.98, or 12.1% of 2015 monthly revenues, while the estimated charge per kWh for non-residential customers is $.03055, or 11.6% of average revenue per kilowatt hour. In Prepa’s financial analysis, “the charges are less than that which would have been charged to customers on account of Prepa’s existing debt, and there is no double billing.”
Shortly after submitting the petition, Prepa released an official statement on the matter. “In seeking to create a transparent energy bill, the proposed securitization charge will be included in the bill as a line item separate from other charges so that our clients clearly know what they are paying for,” said Prepa Executive Director Javier Quintana Méndez in the release.
“In general terms, the securitization charge for residential clients will be a fixed charge while industrial and commercial clients will pay a charge per kilowatt hour,” he added. “The securitization charge will be revised and adjusted on a regular basis (at least every three months) to cover debt service payments.”
PREC Chairman Agustín F. Carbó declined to comment regarding the rate structure petition, but stated, “According to Act 4-2016, the Puerto Rico Energy Commission (PREC), has five days to determine if the petition is complete. Twenty four hours after its filing, the Act requires a summary of said petition to be posted on our web page as well as on the Puerto Rico Electric Power Authority’s web page. As this is an adjudicative process, the PREC’s commissioners are ethically bound to abstain from making public expressions about the case evaluation process. In due time, resolutions will be made about the procedural instructions related to public participation for said process.”