Senate Passes Prepa Bill Despite Numerous Concerns
SAN JUAN – The Puerto Rico Electric Power Authority (Prepa) Revitalization bill was approved Wednesday following a long debate in which opponents warned it would bind the government for the next 30 years, increase the utility’s debt and result in an increase in utility bills.
The legislation, which is essential to the restructuring of Prepa’s $9 billion debt, was approved with 16 votes in favor and 10 against. Popular Democratic Party (PDP) Sens. Cirilo Tirado and Mari Tere González joined the minority in voting against the bill. Sen. Itzamar Pena did not vote.
The bill, which faces an uphill battle for approval in the House, contains a disposition that will prevent lawmakers from amending its contents if it becomes law.
It also comes amid questions about the legality of the debt as the Securities and Exchange Commission is conducting an audit of more than $4 billion in bond issuances authorized by Prepa between 2000 and 2012.
The proposal would create a separate corporation that will issue new bonds that will be exchanged for the Prepa bonds that are currently on the market. It will overhaul Prepa’s board, create a new structure of contribution in lieu of taxes with cities and promote a revision of the utility rates. As part of the deal, bondholders are accepting a cut of 15% in their investment.
During the debate, the PDP senators recognized the political cost of the legislation. However, they argued that there is no alternative at the moment that could stop bondholders from suing Prepa.
Sen. Ramón Luis Nieves, chairman of the Energy and Water Resources Committee, said the measure was the result of three months of extensive discussions between the Senate, the House of Representatives, Prepa and bondholders.
He said that while no one is entirely happy with the bill, the alternative is worse because bondholders can go to court and request the appointment of a trustee, who would have broad powers to increase electricity rates.
He said the bill ensures the Energy Commission has final approval of all rate changes.
Senate President Eduardo Bhatia noted that it will be more costly for Puerto Rico to avoid the restructuring of Prepa’s debt.
“There are two options, either we negotiate with those entities that want to negotiate with Puerto Rico, or go to plan B, which is literally the war, which is the fight, which is the stage that they judicially anticipate that we will lose,” Bhatia said.
Senate Minority Leader Larry Seilhamer said the measure is too biased in favor of the investors and that minority lawmakers were not allowed to provide feedback. He said there was only one hearing on the bill, which was introduced at the last minute in the past session.
Seilhamer said the legislation will increase Prepa’s debt to $11 billion from $9 billion because it includes a $2.4 billion financing for projects.
The legislation will lead to a hike in utility rates and the subsequent collapse of the economy, he said.
Seilhamer said the legislation sets a bad precedent for future negotiations with creditors to restructure other island debt.
Government Development Bank President Melba Acosta is proposing a bond exchange and is urging bondholders to accept a 30% to 40% cut, including bondholders of general obligations, which are guaranteed by the constitution.
“No one, but no one, is going to accept a cut of more than 15% in the debt,” Seilhamer said.
On the other hand, he noted language in the proposed bill that would bar future laws that can go against the agreement with bondholders.
He criticized a disposition in the bill that calls for the governor to select the six board members from a list provided by a headhunter, hindering the powers of the Senate to provide advice and consent.
The board members will agree on their own salary, which according to the bill, must be sufficient enough to attract qualified candidates. “This hurts Prepa workers who saw their salaries cut because of Act 66,” he said.
Puerto Rican Independence Party (PIP) Sen. María de Lourdes Santiago criticized that the board will have a series of broad powers to implement savings specified in the restructuring agreements. “But we do not know what those savings are. This bill could be limiting materials or maintenance and cutting pensions and salaries,” she said.
The PIP senator also criticized the fact that the bill will inevitably lead to a hike in rates.
The legislation, she said, would authorize a transition charge to pay for the costs of financing the new restructuring bonds that the legislation would create. She said that would lead to the paradox of consumers paying more in their utility rate even if they try to cut their use of electricity.
Santiago warned that Prepa’s pension system, which has a $68 million deficit, is in danger under the bill because the payment of pensions is not a priority.
“We have to say that although the majority is celebrating a 15% cut in the debt as part of the restructuring, in the private sector the norm is to reach agreements that are more beneficial,” she said.
In a written statement, Prepa Executive Director Javier Quintana Méndez said, “We thank the Senate for its leadership and appreciate the significant efforts of all those involved in this legislative process. The approval of the bill by the Senate demonstrates the continued progress we are making to transform Prepa. Through this transformation, which our Governing Board began more than a year ago, we can solve our financial situation, invest more than $2.4 billion in infrastructure to modernize operations, improve customer service and provide a safe working environment for our employees.
“This legislation gives the authority the tools necessary to make Prepa become the public corporation that Puerto Rico needs and deserves. We hope that the legislative action will allow Prepa to continue offering the people of Puerto Rico reliable, clean and safe electricity.”