The Puerto Rico Electrical Power Authority (PREPA) is currently in bankruptcy proceedings over its existing debt, continuing federal court battles since the agency declared bankruptcy in 2017 over disagreements regarding the amount of money PREPA owes to its bondholders.
PREPA accumulated over $8.5 billion in debt, mainly from providing electricity for free to residents and businesses in the territory. The territorial government declared bankruptcy in 2015, leading to the passage of PROMESA (Puerto Rican Oversight Management, and Economic Stability Act) by Congress and the establishment of the Financial Oversight and Management Board (FOMB). The board helped restructure the government to guide it out of over $70 billion in debt.
Officials and bondholders who are seeking to collect the debts have continued to disagree on PREPA’s bankruptcy plan. During bankruptcy proceedings, US District Court Judge Laura Taylor Swain believed that PREPA should only pay $2.4 billion because the amount owed should be based on the amount in a trust agreement both parties had signed. On appeal, however, the US First Circuit Court of Appeals ruled in a June 14 decision that PREPA must pay the full value borrowed along with interest to their bondholders. The appeals court also found that the money must be paid back using revenue and not assets. FOMB, which is still waiting on PREPA’s Plan of Adjustment in bankruptcy court, expressed gratitude that the money would only come from revenue but was also hoping to reduce the $8.5 billion price tag.
FOMB said PREPA will not be able to increase net revenues and pay bondholders until the district court determines the total debt owed. The Board highlighted, “PREPA does not generate any net revenues until electricity rates are increased […] the implications of the First Circuit decision and the value of the bondholders’ collateral will depend on careful consideration and additional determinations by the US District Court.”
This board has been controversial as some Puerto Ricans have argued that it weakened the economy of Puerto Rico, reducing pension and worker benefits, and reducing power from elected officials. Both Governor Pedro Pierluisi (NPP, D) and Resident Commissioner Jenniffer González-Colón (NPP, R) have expressed concerns towards the board. Governor Pierluisi has said “It is time to begin the transition towards returning the public policy decision-making responsibilities back to Puerto Rico’s elected leaders who represent our people. The time has come to look towards a future of progress and fiscal responsibility for Puerto Rico without the Board.” Resident Commissioner González-Colón has similarly spoken against the board saying, “Now that Puerto Rico has exited bankruptcy, we are ready for another chapter without an Oversight Board.”
The New Progressive Party Minority Leader in the islands’ House of Representatives, Carlos Méndez Nuñez, along with San Juan District 4 Rep. Víctor Parés Otero, are now encouraging FOMB to take the issue to the Supreme Court.
“This determination was not what was expected, even more so when we are still in the Title III process with PREPA where Judge Laura Taylor Swain is evaluating the restructuring of the public corporation with a repayment base of $2.5 billion. If this other scenario materializes — $8.5 billion — it would imply an unprecedented impact on consumers’ bills,” Parés Otero said. “We cannot allow that, that is why we call on the board and the government to go to the federal Supreme Court to request an appeal of this disastrous decision for Puerto Rico.”
“PREPA’s net gains were realized with an increase in rates for individuals and businesses,” Méndez Nuñez said. “This decision opens the doors for a significant adjustment in rates, a very heavy blow to the pockets of our people. That is something we cannot allow. We […] urge the board and the government, through the Fiscal Agency and Financial Advisory Authority [AAFAF], to carefully evaluate going to the Supreme [Court] to avoid what would clearly be a historic blow [for] our people.”
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