Solving the Prepa puzzle: will robust regulation secure lower rates?

Editor’s note: The following article originally appeared in the March 22-28 print edition of Caribbean Business.

SAN JUAN — Using the experiences of other U.S. jurisdictions as a barometer, a robust and independent power regulator that would oversee Puerto Rico’s energy sector, which is headed for deregulation, is still not a guarantee to achieve affordable electricity rates or prevent corruption.

The Puerto Rico government has decided to sell off the island’s Electric Power Authority (Prepa) through a plan in which power generation would be sold off but transmission and distribution would be put under a concession or a preferential allowance. The entire process, which will be completed without the oversight of the energy regulator, the Puerto Rico Energy Commission (PREC), is expected to take 18 months.

Unlike Puerto Rico’s public electric utility, in U.S. states, mostly private energy suppliers are overseen. (CB Photo)

In the United States, energy regulators oversee private or investor-owned utilities. These energy regulators go by different names, such as the Public Utilities Commission or Public Service Commission. The commissions set the retail rates charged by private energy utilities for their services and ensure they respond to customer service requests and maintain the infrastructure. Public utilities—owned by the government, cities or cooperatives—are generally exempt from supervision by state regulators, but a few states do subject them to regulatory oversight.

Who has the power?

Contrary to what is seen in most states, Puerto Rico’s government created PREC to oversee Prepa, the latter of which has a monopoly on energy service, to put a stop to decades of mismanagement, bring power rates down and make it more efficient. PREC, however, is having problems exercising its oversight over Prepa and is embroiled in a legal dispute with the Financial Oversight & Management Board (FOMB) to assert its jurisdiction over the power utility. PREC does not want Prepa to have to follow FOMB orders that go against what PREC has dictated. The problem is that there are conflicting laws on the matter.

As part of the court dispute with PREC, the Oversight Board insists it has broad powers over Prepa by virtue of representing the power utility, which has $14 billion in liabilities and is in a bankruptcy process under Title III of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa).

The FOMB says it has the power to accept or reject Prepa’s contracts, prevent the transfer of properties and issue debt for the utility. The Oversight Board rejects the idea of having to coordinate with PREC the contents of Prepa’s fiscal plan, arguing that a 2017 law delegated to the P.R. Fiscal Agency & Financial Advisory Authority (Fafaa) the task of coordinating with the FOMB the sustainable use of resources and the fiscal plan.

Puerto Rico fiscal board postpones certification of Commonwealth, Prepa and Prasa’s revised fiscal plans

“This case may have repercussions over the regulation of electric utilities in Puerto Rico because the Oversight Board may try to get control over what the energy regulator does because of the impact that energy service has on the island’s economic development. PREC has to stand firm in its jurisdiction, and that may turn out to be a problem,” a source within PREC said.

The substitute bill that created PREC in 2014 was not being adequately applied to Puerto Rico’s market, which was different from what has been done in other jurisdictions. The goal of having PREC was to reduce power rates, but so far, it has not accomplished that goal.

It was the Alliance of Active & Retired Prepa Employees who pointed out in 2014 that the PREC bill was not going to result in lower rates because the contents of the legislation merely called for periodic hearings every two years to review rates and ensure they represent the true costs to run the utility. The island’s basic energy rate continues to be about 20 cents per kilowatt-hour (kWh) despite the existence of the Energy Commission.

Although the FOMB wants PREC to be independent, the House voted this week to merge it with the public service commission.

A glance at energy regulators

Energy markets are divided into two kinds: regulated and unregulated. In a regulated market, businesses and residents can only receive power from the local utility company and pay whatever price is offered. Unregulated markets include those in which consumers can choose their energy suppliers, allowing for competition and price flexibility.

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In a regulated market like Puerto Rico, Prepa would be what is known as a vertically integrated utility because it owns and controls the entire flow of electricity, including generation, transmission, and distribution.

“The distinction is important because the only intention of [the Energy Commission] is to change Puerto Rico’s market from one that is regulated to one that is deregulated,” Ángel Figueroa Jaramillo, president of the Irrigation & Electrical Workers Union (Utier by its Spanish acronym), said at the time.

As a result of the U.S. energy crisis in the 1970s, deregulation began with the passage of the Public Utilities Regulatory Policies Act (Purpa), which created a structure for Independent Power Producers. But the market opened in 1992 with the Energy Policy Act, which eliminated restrictions on prices that would be charged for wholesale electricity.

Because of the deregulation, states used existing public service commissions to supervise private energy suppliers. The oversight of public utilities was done by consumers, who elect the utilities’ governing members.

In Puerto Rico, as a matter of fact, a 1940 Supreme Court ruling stated the Public Service Commission (PSC) is the entity in charge of regulating the energy industry, citing a 1917 law. The PSC is a member of the National Association of Regulatory Utility Commissioners. The latter is one reason Utier and other unions said there was no need to spend about $3 million to create a separate energy regulator. They also said at the time that only by allowing the public to intervene in the decisions made by Prepa, would a reduction in utility rates be achieved.

Puerto Rico gov’t to fund power utility with other agencies’ money

Nonetheless, the government created the Energy Commission, whose structure was also incorporated in the federal Promesa law as one of the entities that must give the green light in approvals of critical energy projects.

Private utility oversight sometimes fails

With the reality that energy regulators in the U.S. oversee investor-owned utilities, or private utilities, have their supervision resulted in lower energy rates and more efficient companies? Not always.

Read the rest of this article in Caribbean Business’ epaper here.

 




Bickering erupts between Oversight Board and Cofina Rep. over law interpretation 

The Financial Oversight & Management Board (FOMB) has accused its FOMB-appointed representative to the Puerto Rico Sales Tax Financing Corp. (Cofina) of “circumventing procedures” and “the authority granted to her” over her insistence to have the Commonwealth Supreme Court decide Cofina’s constitutionality. 

Bettina Whyte says the Puerto Rico Supreme Court, and not a federal court, should decide Cofina’s constitutionality because the subject is guided purely by Puerto Rican law and not federal. Against the orders of her boss, the Oversight Board, she submitted a motion asking Judge Laura Taylor Swain, of the U.S. District Court for the District of Puerto Rico, to refer five questions about Cofina to the commonwealth Supreme Court. 

“This litigation seeks to resolve whether state law transferred ownership of state-created property to a state-created entity, and whether that state-law transfer of property is valid as a matter of state constitutional law.These are issues of first impression under Puerto Rico law, will determine the outcome of this litigation, and are fundamentally important to the Commonwealth and its citizens. The Commonwealth-Cofina Dispute was commenced to resolve the question of [whether], after considering all procedural and substantive defenses and counterclaims, including constitutional issues, the sales & use taxes [(IVU by its Spanish acronym), which was] purportedly pledged by Cofina to secure debt, are property of the Commonwealth or Cofina under applicable law,” she said. 

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The discussion is part of an adversary proceeding brought by the Official Committee of Unsecured Creditors of the Commonwealth against Whyte, the Oversight Board and Cofina. The Official Committee argues that IVU funds should be part of the general fund revenues to operate the commonwealth, and not separate. 

The questions Whyte filed, in essence, asked the Commonwealth Supreme Court to interpret Cofina’s enabling law to determine if the transfer of sales & use tax collections should be deposited in the Dedicated Sales Tax Fund or not, and whether the transfer of such funds is invalid. She also asked the court to determine if IVU tax revenues should be considered “available resources” under the Puerto Rico Constitution. 

“Indeed, the U.S. Supreme Court has repeatedly instructed federal courts to respect the federalist system and refrain from declaring state law unconstitutional, before a state’s highest court has been afforded the opportunity to resolve relevant state law issues,” she said. This Court is being asked to interpret a Puerto Rico statute that has never been interpreted, and then declare it unconstitutional under the Puerto Rico Constitution. The Court should not take that drastic step without guidance from the Supreme Court of Puerto Rico,” she said. 

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The FOMB, however, says the court should deny Whyte’s motion because she had signed a stipulation stating the Title III court would resolve the Cofina-Commonwealth dispute. The Oversight Board says it appointed Whyte to serve as its Cofina representative for purposes of resolving the issue about whether sales & use tax revenues are property of the Commonwealth or Cofina, under applicable law. 

Now, the board says Whyte “seeks to circumvent these procedures, as well as the authority granted to her by the Oversight Board, by mischaracterizing the question to be determined as one of territorial law, [and] not [of] federal law, [which] must be certified to the Puerto Rico Supreme Court.” 

While the FOMB says Whyte makes a strong argument that territorial law provides that certain taxes are not available resources of the Commonwealth, it noted the proposed certification would delay the resolution of the Commonwealth-Cofina dispute. 

Whyte’s request, however, is supported by Cofina Senior Bondholders and the Mutual Funds Group. 

Only 1,500 public employees approved for P.R. Govt’s Incentivized Resignation Plan 




Judge Swain approves a $300M loan to Puerto Rico power utility

Prepa has only restored between 35% to 45% of its customer billing capability and while it expects to resume collections by March 31, the utility says they will not be at pre-hurricane levels because of outmigration and the sluggish economy. (File Photo)

SAN JUAN – U.S. District Court Judge Laura Taylor Swain on Monday approved allowing the Puerto Rico Electric Power Authority (Prepa) to borrow $300 million from the commonwealth in interim financing to avoid a shut down of services.

Earlier Monday, Judge Swain said she would be issuing a ruling based on the motions and cancelled the hearing set for Tuesday.

At issue in the motions was the adequacy of the loan at a time when the commonwealth is facing financial difficulties and Prepa’s ability to repay. The judge granted the loan as requested by the government and the island’s Financial Oversight and Management Board.

“The loan will mature and become due and payable on the date on which all the loans and other obligations thereunder have been indefeasibly repaid in full in cash; or the effective date of a confirmed plan of adjustment in the Title III case or the date of termination of the commitment and/or acceleration of any outstanding extensions of credit under the facility following the occurrence and during the continuance of an ‘Event of Default,'” the loan terms section reads.

The commonwealth will have a superpriority status over all creditors, which means it gets paid first. The status will continue through the Title III case. As requested, the loan has a 5% interest rate.

Prepa has said in court documents it may file another request for a larger financing contending that the $300 million will not be enough to operate.

Puerto Rico power utility begins ramping down service despite filing $300 million interim financing

Prepa has only restored 35% to 45% of its customer billing capability and while it expects to resume collections by March 31, the utility said it will not be at pre-hurricane levels because of outmigration and the sluggish economy.

While public corporations alone owe the utility about $233 million, Prepa said many of them are disputing the debt and are also having financial difficulties that prevent them from becoming current with Prepa. About $164 million of the debt is more than 120 days old and difficult to collect, according to the government.

In objections that were filed over the weekend, creditors said Prepa could get financing from other sources.

National Public Finance Guarantee Corp., a monoline insurer and one of six creditors objecting the $300 million loan, offered into evidence an exhibit that showed the government owes Prepa about $1.4 billion, suggesting that the government’s debt to Prepa is much larger. The exhibit includes “Wholesale Government Metered Service” owing $356,078,518.79; “Government Unmetered Service” owing $128,563,808.90, and “Deferred Municipal Balances,” owing $864,863,098.36.

Puerto Rico governor urges US Treasury action before power utility runs out of fuel

“Moreover, by looking from left to right in these rows, one can see that large portions of these governmental accounts receivable are actually years overdue,” National said.

Another exhibit lists eight pages worth of outstanding balances owed to Prepa by various government entities. The total amount owed by the public corporations, agencies and other government entities listed in this particular chart is $257,892,369

“(Government officials) have identified no evidence to controvert these substantial amounts owed to Prepa by government customers. To the contrary, they have repeatedly admitted that substantial amounts are owed,” National said.

Last week, Judge Swain rejected Prepa’s request to borrow $1 billion from the commonwealth, a 30-year loan that creditors objected because of the commonwealth’s fiscal state. Creditors also objected to the loan because it gave the commonwealth a priming lien over Prepa’s revenues and also superpriority over other creditors in payment. The revolving credit line had an initial zero interest rate that rose to 3%, which opponents said is below market value for a bankrupt utility.

[Column] The Board’s Feigned Attempt at Transparency

Prepa and the fiscal board submitted a new request for a lower loan of $300 million with a 5% interest rate. The new loan goes not give Prepa a priming lien over revenues but kept the superpriority provision.

Prepa’s trustee, U.S. Bank National Association, filed a limited objection to the loan proposing some changes. The main change calls for loan payments to the commonwealth prior to the termination date of the loan, which are either “the effective date of a plan of debt adjustment, termination of Revolving Credit Commitment or acceleration of the loan,” be paid to the extent cash flows support it.

The Ad Hoc Group of Bondholders had objected the new loan contending that its provisions did not resolve its opposition to the commonwealth’s “squandering of its own resources to subsidize Prepa, which it said was a distinct legal entity with its own assets and creditors.

“Once again, the Commonwealth has offered to extend financing to PREPA on terms that are manifestly unfair to the Commonwealth (and its own creditors). The proposed interest rate of 5 percent is well below market for an unsecured loan to a financially distressed instrumentality such as PREPA, and the proposed 30-year maturity term is unheard of in the context of debtor-in-possession financing,” the Ad Hoc Group said.

“Especially given that PREPA, AAFAF [Fiscal Agency and Financial Advisory Authority], and the Oversight Board appear to have conducted no analysis whatsoever to determine whether such favorable terms are necessary for PREPA to maintain its operations—and there is no plausible reason to think that they are—the proposed repayment terms represent an unjustified transfer of resources from the Commonwealth to PREPA,” the group added.



Aprobacion Prestamo $300M AEE (Text)




Judge Swain rejects $1 billion loan to Prepa

U.S. District Court Judge Laura Taylor Swain ruled against allowing the commonwealth to give the Puerto Rico Electric Power Authority a $1 billion loan but left the motion open to allow the parties to submit another loan petition to the court.

She said the loan could be unsecured but could not be larger than $300 million. Taylor Swain added that the commonwealth should not have a super priority in payment over other creditors. The loan terms should not preclude bondholders nor the court from participating.

Prepa officials insisted during the Prepa omnibus hearing that unless they get the loan, the utility will have to start cutting power as early as this weekend.

Government officials and their advising firm Rothschild testified that they did not conduct an analysis to determine if the commonwealth could lend $1 billion to the Puerto Rico Electric Power at terms that were less favorable to the utility.

Loan conditions called into question during Prepa omnibus hearing

The revolving credit line was lowered from the original $1.3 billion to $1 billion by the Financial Oversight and Management Board late Wednesday.

Earlier this morning, Puerto Rico Fiscal Agency & Financial Advisory Authority head Gerardo Portela as well as Rothshild Executive Dustin Mondell admitted that they represented both Prepa and the commonwealth in the transaction despite the two entities being in opposing sides of loan. Therefore there was no “arms length” type of negotiation.

This is a breaking news story.  Stay connected to caribbeanbusiness.com for further details.




Puerto Rico Senate president: Fiscal board request for power utility loan ‘too late’

SAN JUAN – Puerto Rico Senate President Thomas Rivera Schatz said Monday that it is “too late” for the island’s Financial Oversight & Management Board to request a loan authorization to prevent the Electric Power Authority’s (Prepa) closure next month, after the Legislature approved a loan for the public corporations last week.

“We addressed that issue. The board was late. We passed legislation precisely to address this. The Joint Resolution [196] that was approved is a loan to the Electric Power Authority and the Aqueduct & Sewer Authority [Prasa] to address the liquidity problem. The governor presented it, we handled it and it’s done,” Rivera Schatz said.

He said the resolution was passed by both legislative bodies and was approved by the governor last Friday. The resolution allows the Legislature to be notified about the use of state and federal funds, and grants a cap of $550 million for Prepa and $80 million on Prasa. The disbursement can be carried out until June 30.

Puerto Rico fiscal board requests $1.3 billion general fund loan for power utility

Meanwhile, the fiscal oversight board filed an urgent motion with U.S. District Judge Laura Taylor Swain to authorize that the general fund lend some $1.3 billion to Prepa to correct a deficit of about $1.2 billion, and thus avoid the corporation’s closure next month. The parties have until Feb. 1 to express themselves, while on Feb. 7 there will be a general hearing in which the issue will be addressed.

Rivera Schatz said, from his point of view, the board’s determination is academic: “I believe with the approved amounts, they will give breathing room to the authority and will allow it within that term for CDL [Community Disaster Loans] funds to arrive, to fuel the [power authority’s] finances even more and will not require greater amounts of additional money…. I believe there should be no problem with that.”

Rivera Schatz made his remarks after his usual meeting with Gov. Ricardo Rosselló to discuss the legislative agenda.

The Senate president said they also discussed issues such as the reorganization plans and the tax reform. He indicated that next Thursday, the Treasury secretary will explain the proposal’s scope and concepts. “I now that he spoke with Migdalia Padilla and Rep. Tony Soto, who are the ones that work with the budget issue. That is also on track,” he added.

Another issue addressed was the designation of Sports & Recreation Secretary Adriana Sánchez, who does not face opposition, to be discussed further during Monday’s session.




[COLUMN] Et tu, Ricky and José?

Most Puerto Ricans are familiar with the “Insular Cases,” a series of decisions by the U.S. Supreme Court that say Congress may do with Puerto Rico as it pleases, given its territorial status, with the exception of alienating fundamental rights. The most ubiquitous of these decisions is the 1901 Downes v. Bidwell decision, which is now at the center of the legal theory being used by Gov. Rosselló and the Fiscal Oversight & Management Board to defend Promesa, the P.R. Oversight, Management & Economic Stability Act, against claims by both creditors and a local union that the appointment of the members to the Board violates the Appointments Clause of the U.S. Constitution.

For context, all parties to the Appointments Clause litigation agree on one point: The only thing at issue in that litigation is whether, as the challengers claim, the President should have a free hand to appoint the Board members subject to Senate confirmation, or whether, instead, the incumbent Board members, who were effectively picked by four members of Congress, should be allowed to keep their positions and be spared Senate confirmation. Neither asset manager Aurelius nor Utier, the Irrigation & Electrical Workers Union, have sought to throw out Promesa or change any of its provisions other than the one dealing with how Board members are selected, and even then, they just suggest minor surgery on that one.

Attorney John Mudd

The Downes v. Bidwell decision is not a simple business decision handed down by the U.S. Supreme Court at the turn of the century; it is a pinnacle moment in U.S. legal history that provides a picture-perfect example of our nation’s past rooted in racism and colonialism. Let’s put this into context: Downes, which was written by the same Court that upheld racial segregation in Plessy v. Ferguson, states that “if the conquered are a fierce, savage, and restless people, [Congress] may […] govern them with a tighter rein, so as to curb their ‘impetuosity, and to keep them under subjection.’” The decision gives Congress the right to create such organizations as “it may deem best,” and “to deprive such territory of representative government if it is considered just to do so, and to change such local governments at [its] discretion.”

Furthermore, citing Downes as a reason to support the Board as “good law,” the Government of Puerto Rico accepts that U.S. citizens born in Puerto Rico are not protected by the U.S. Constitution, and are fundamentally seen as second-class citizens. More specifically, the Downes decision actually states that the 14th Amendment contains a “limitation to persons born or naturalized in the United States, which is not extended to persons born in any place,” with Puerto Ricans excluded from the protections of the 14th Amendment by this limitation.

Downes has been cited by Gov. Rosselló and his administration, as well as the Board, in its opposition to the Aurelius and Utier constitutional challenge to the Board’s appointment.

I can understand why the Board cites Downes in its legal arguments because its members will do anything to justify their continued existence. However, what depressed me is to see the Government of Ricardo Rosselló, who I had always regarded as the standard bearer of the

Statehood movement, invoking the most despicable judicial decision in history regarding Puerto Rico’s status.

Adding insult to injury, we are forced to reasonably conclude that the Board Chairman, José Carrión III, a leading proponent of Statehood, had final sign-off on the use of Downes in the legal motion. In doing so, Carrión signaled his support for a racist legal doctrine that claims Puerto Ricans are inferior and second-rate citizens in order to uphold his appointment on the Board. Shame on him.

(Juan J. Rodríguez / CB)

As a practicing federal lawyer, and Statehooder myself, invoking Downes is troubling enough; however, what makes it even more difficult to grasp is that it was unnecessary to rely on the Insular Cases to argue against the Aurelius/Utier challenge. Aurelius does not mention these cases in their claims at all. Gov. Rosselló could have rejected Downes and argued that Puerto Rico was an incorporated territory, to which Downes does not apply, as Judge Gelpí decided in Consejo de Salud de Playa de Ponce v. Rullan. This way Puerto Rico could continue to argue in favor of the Board’s legitimacy but without the inherent discrimination allowed by the Downes decision. So, the Puerto Rico government is raising questions about its own autonomy on their own volition and, in doing so, reinforcing the idea that the Board should have power over all Puerto Ricans rather than their own elected government.

Moreover, the government’s motion supports the ludicrous idea that the Board is merely a “territorial”—and not federal—government entity. As those of us in Puerto Rico know, that is laughable. The reality is that the Board has extensive powers over the Puerto Rico government that no other local agency has: Indeed, neither the Governor nor the Legislature may “exercise any control, supervision, oversight, or review over the Oversight Board or its activities,” as Sec. 108(a)(1) of Promesa states. Puerto Rico has no way of holding any member of the board accountable for the decisions they make.

Even worse, if Judge Swain were to side with the Board and the government of Puerto Rico, Puerto Rico could not later challenge the Downes case, and this bad law born of an era of racism and discrimination.

Why? The doctrine of “judicial estoppel,” which states that if a party argues one point and gets favorable treatment by the Court on that issue, it is precluded from subsequently arguing the contrary. How can Puerto Rico challenge this racist doctrine down the road if it is citing its principal case with approval?

The unintended consequence is that Gov. Rosselló, with the help of José Carrión III, will have undone 50-plus years of fighting for equality and Statehood to protect the Board, and for reasons that are not even necessary.

All this for the sake of the Commonwealth’s Title III bankruptcy. In the eyes of the Board and Gov. Rosselló, it is better to have 100 more years of colonialism and discrimination than to have to pay the island’s debt. This is the “unkindest cut of all.” Et tu, Ricky and José?

— John Mudd is an attorney and legal analyst in Puerto Rico with over 30 years of experience. He is admitted in Puerto Rico, the U.S. District Court for Puerto Rico and the First and Fourth Circuit Courts of Appeals. For more than three years, he has been analyzing the possibility of a control board for Puerto Rico. You can follow him on Twitter @muddlaw and on his blog www.johnmuddlaw.com.




Puerto Rico public employees to receive Christmas bonus earlier

SAN JUAN – Despite the difficult fiscal situation Puerto Rico is going through, in addition to the severe blows from hurricanes Irma and María on the island’s economy, Gov. Ricardo Rosselló Nevares announced that public employees will receive their statutory Christmas bonus shortly.

“Our public employees have done an admirable job for the recovery of the island. Without them, this work would be impossible and we must provide their Christmas bonus on time. These are difficult moments, but we have the commitment of our public service,” the governor said in a press release.

Puerto Rico’s fiscal board postpones furloughs following Hurricane María

It is unclear if the announcement implies that the island’s fiscal control board has withdrawn its request that the bonus be eliminated, an issue left on the table Aug. 4 during the ninth public meeting of the panel created by the Promesa federal law. That day, the implementation of a two-workday-cut a month for public employees was announced and Sept. 30 was set as the day when a final determination on the bonus would be made.

It was precisely on Sept. 30 when Chairman José Carrión stated in writing that “the Board is postponing any discussion of furloughs until next fiscal year and it is withdrawing its related lawsuit,” after the the devastation wrought by Hurricane María.

The law requires the Christmas bonus to be paid by Dec. 20. However, the governor said “it is important we advance this well-deserved payment to help our public employees and foster the economy, which faces great challenges.”

Puerto Rico Secretary of State assures Christmas bonus won’t be eliminated

Meanwhile, Treasury Secretary Raúl Maldonado said public workers will begin to receive the money owed to them from the Christmas bonus starting Nov. 24.

In the case of its payment to public corporation employees, the governor requested each entity evaluate its fiscal situation and make the disbursement as soon as possible.

As for private sector employees, Labor Secretary Carlos Saavedra informed on Nov. 3 that employers have until Thursday, Nov. 30, to request an exemption from payment of the bonus to their employees pursuant to Act 148 of 1969.

Saavedra explained that to qualify for the exemption, employers must have sustained financial losses or not obtained sufficient earnings from Oct. 1, 2016, to Sept. 30, 2017. Another element that takes effect this year is the bonus can be credited to other compensations received by the employee, as long as they occurred before Oct. 1.

Last year, 944 private sector employers requested exemption from paying the Christmas bonus, or 20 fewer than in 2015, when the Labor Standards Division received 964 applications.




Puerto Rico gov: We collaborate with the board, but not at the expense of democratic powers

SAN JUAN – The chairman of the U.S. House Natural Resources Committee, Rob Bishop (R-Utah), said the intention of Congress is to give Puerto Rico the federal funds it needs to rebuild after Hurricane María; however, the government must collaborate with the fiscal control board.

“We will collaborate with the board…but not at the expense of the democratic powers [of Puerto Rico],” Gov. Ricardo Rosselló Nevares warned Tuesday, once again urging Congress not to broaden the powers of the entity created by Promesa.

“We want to collaborate together in the Title III process, in the revision of the fiscal plan, in providing the necessary transparency and information. But, again, the roles have to be very clear,” said the governor while emphatically rejecting that the board be granted new administrative powers. (Screen capture)

During a hearing of the committee in charge of legislation related to the island, the governor assured he would administrate, with complete transparency, the federal funds Puerto Rico receives for long-term recovery efforts after María’s impact. Preliminarily, the government estimates it will need $94 billion for the reconstruction process.

“That’s a lot of money,” Bishop said. Although willing to help getting the necessary funds, the committee chairman said changes would be needed in government and the collaboration between the Rosselló Nevares administration and the fiscal board.

For the governor, that collaboration is born with each side recognizing its role. In the case of the board, its role is limited to balancing budgets, representing the government in bankruptcy cases under Title III of the Promesa federal law and efforts to return the island to capital markets, Rosselló Nevares said.

Bishop questioned whether the government actually works hand in hand with the fiscal panel, to which Rosselló Nevares replied affirmatively and recalled it was the board that decided to go to court against the government when it appointed Noel Zamot to take the reins of the Puerto Rico Electric Power Authority (Prepa). The court rejected the board’s action this week.

“We want to collaborate together in the Title III process, in the revision of the fiscal plan, in providing the necessary transparency and information. But, again, the roles have to be very clear,” said the governor while emphatically rejecting that the board be granted new administrative powers.

US Senate questions Puerto Rico gov’t decision to contract Whitefish

Echoing his earlier statements during a Senate hearing on Puerto Rico as well, Rosselló Nevares gave a breakdown of the island’s state and recovery efforts to date, particularly those for restoring the electric grid. He also mentioned some of the corrective actions he has taken such as changes to the contracting process and efforts to reduce the size of the government.

On several occasions, he called on Congress to provide equal treatment to Puerto Ricans, emphasizing they are U.S. citizens, as well as flexibility in the use of funds approved for the island.

The Rosselló Nevares administration expects that Congress will approve a new financial aid package before the end of the year that would provide the island with the billions it needs to rebuild public infrastructure and boost the economy.

Who controls the federal funds?

In response to questions from committee members, Rosselló Nevares assured it is up to the local and federal governments—not the fiscal board—to determine and control the use of federal funds received by Puerto Rico in response to the disaster caused by María.

“The board doesn’t have that power,” the governor stressed and proceeded to speak about the new Central Recovery & Reconstruction Office (OCRR by its Spanish initials), which would have control over receiving, channeling and monitoring federal funds for Puerto Rico.

When questioned about how the OCRR would interact with the board in the handling of federal funds and possible conflicts that may exist, Rosselló Nevares said, “There is no versus,” because the board has no power under Promesa in this matter, he added.

“I think it should continue doing what it’s supposed to do,” the governor replied to a question from Rep. Raul Labrador (R-Idaho)—a native Puerto Rican—about what the board’s role should be in response to Hurricane María.

Energy matter persists

Meanwhile, the issue of Prepa, its contract with Whitefish Energy Holdings and the future of energy on the island was also brought up in the House hearing.

For the second time that day, Rosselló Nevares said he was unaware of irregularities with the Montana firm’s contract, defended his decision not to ask for help from other states through mutual aid agreements and assured that everything possible has been done to restore electric service in the shortest possible time.

Bishop steadfast in quest for greater oversight of funds in Puerto Rico recovery

Upon the cancellation of the contract with Whitefish, the government recently gave way to mutual aid agreements that will include mobilizing repair crews from states such as New York and Florida to assist in the grid-restoration efforts.

However, the governor admitted that more than a week after making the decision, some of these agreements have not been finalized.

With regard to Energy Answers and the Arecibo incinerator, Rosselló Nevares indicated that his administration has to evaluate the environmental impact of the project before supporting it.




Puerto Rico gov calls fiscal board request for more power ‘unacceptable’  

SAN JUAN – Inconceivable, unacceptable, at a loss for words. That was some of the language Puerto Rico Gov. Ricardo Rosselló Nevares used to describe the most recent moves by the island’s fiscal control board.

“Going to Congress and on two occasions telling them to condition the funds for the recovery of Puerto Rico on the determination that the board have more powers…is simply inconceivable,” the governor said Thursday afternoon during a press conference in La Fortaleza.

Gov. Ricardo Rosselló Nevares (Juan J. Rodríguez / CB)

In a congressional oversight hearing Tuesday, the executive director of the fiscal board, Natalie Jaresko, told the U.S. House Natural Resources Committee that her panel would welcome any legislative action that reaffirms and clarifies its powers under the Promesa federal law. She added that it would help avoid costly litigation against the Government of Puerto Rico whenever there are differences of opinion and interpretation about what the board can or cannot do.

For his part, Rosselló Nevares recognizes that the entity has “its role and powers,” particularly in the budget process, access to markets and representation of the government in bankruptcy cases and before its creditors.

“From that to coming to administrate the people of Puerto Rico simply goes beyond its powers, is unacceptable and the premise is insulting,” said the governor, who on Tuesday will attend a second House hearing on Puerto Rico.

Although not wanting to reveal what he will request during his appearance with regard to the board’s proposals, Rosselló Nevares stressed that Congress should not make way to changes in favor of the board.

“Of course there should be no change here,” the governor said at the conclusion of the press conference.

During last Tuesday’s hearing, Jaresko also emphasized the importance of clarifying what role the board will play in the oversight and management of federal funds that reach the island for the recovery and reconstruction of infrastructure after Hurricane María.

The executive director said Puerto Rico will need $13 billion to $21 billion in additional liquidity until the summer of 2019. Given this scenario, the board has already proposed “legislative language” that would grant it the power to control any disbursement of federal funds made available for the government’s liquidity. The board assured that would be the way to guarantee that federal funds are used for María-related matters.

“To request more powers and, not only that, to request them linking it to funds for Puerto Rico…one is simply left at a loss for words,” the governor riposted Thursday.

Puerto Rico fiscal board asks US House committee for tools to appoint chief power utility officer

Meanwhile, committee Chairman Rob Bishop (R-Utah) said Tuesday that the entity established by Promesa will not leave the island until the end of its tenure and added that Congress will seek to provide it with the tools needed to do its job going forward.

Both the board and the Rosselló Nevares administration are betting on Congress approving, sometime before the end of the year, a multimillion-dollar allocation of federal funds for the long-term recovery of Puerto Rico.




Fiscal board publishes first report on Puerto Rico’s debt

SAN JUAN – Puerto Rico’s financial control board published Monday the first report on the investigation underway by law firm Kobre & Kim into the commonwealth’s debt.

“The Independent Investigator has identified potential witnesses, subjects, and targets, and causes of action, and is working to preserve relevant evidence,” reads the document dated Oct. 30.

The report states that 84 notifications of document preservation have already been sent in relation to public debt issuances made in the past 20 years. Issuing entities, advisers, credit rating companies and underwriting institutions, among others, have received them.

Puerto Rico fiscal board picks public debt ‘investigator’

Of the 84 notifications, 79 “witnesses” confirmed they have already taken measures to preserve the documents, as requested by the investigator.

“In sum, a large majority of the witnesses have expressed a willingness to cooperate in the investigation, and produce documents and information on a voluntary basis,” Kobre & Kim says in its report.

However, the document mentions that, on Oct. 27, subpoenas for information were issued for Popular Inc., Popular Securities and Banco Popular de Puerto Rico. The report does not detail what documents are required of the financial institution.

Kobre & Kim was retained on Sept. 1 to investigate all the factors that triggered the fiscal crisis in Puerto Rico, as well as all public debt transactions the government has made, as requested by the board. This includes the practices employed in the purchase and sale of Puerto Rico and its public corporations’ bonds, and the associated disclosures to market participants.

On Oct. 18, the board turned the probe into a formal procedure, as defined by its investigation protocol, given the need to use subpoenas to carry out the effort.

The board’s special committee overseeing the investigation–formed by Ana Matosantos, David Skeel and Arthur González–approved on Oct. 11 the initial plan developed by the firm. In consultation with the three board members, Kobre & Kim established the objectives of the investigation, as well as the areas to be examined and their priority level.

To date, the firm has examined documentation related to public debt issuances since 1990, the government’s certified fiscal plan and a government liquidity analysis conducted by accounting firm and board adviser Ernst & Young. Documents have also been requested of Puerto Rico’s Fiscal Agency and Financial Advisory Authority.

So far, the firm has held meetings with several people related to the board, including law firm Proskauer Rose, Ernst & Young, and ethics and risk adviser Andrea Bonime-Blanc. Likewise, it said it has met with lawyers from the official committees that represent retirees and unsecured creditors in the Puerto Rico bankruptcy cases under Title III of Promesa.

“As a result of these meetings, the Independent Investigator has already gathered substantial facts and evidence that are readily available and helpful in providing scope to the investigation and its timing,” Kobre & Kim’s report reads.

The firm said it does not expect to have a final report until the end of March, and warned it may be delayed due to the complications that could arise in the aftermath of Hurricane Maria. The special investigators assured they are accommodating witness’ requests such as extensions to document-delivery dates.

The report also indicates that priority in the investigation has focused on those aspects that affect electricity and water services and other critical infrastructure affected by the major hurricane.

During its 10th public meeting, scheduled for Tuesday, the fiscal board will discuss the debt’s investigation, according to the agenda published Monday.



Independent Investigator’s First Interim Report (Text)