Tensions between bondholders and the Puerto Rico Electrical Power Authority (PREPA) over its recent bankruptcy proceedings have reached an all-time high, as a federal judge has recently ordered urgent mediation from all parties involved. PREPA, a territorial agency mired in over $8 billion of debt, had been the subject of widespread criticism in Puerto Rico before going bankrupt in 2017. Despite a recent decision by the First Circuit Court of Appeals, granting bondholders $9 billion in claims, PREPA has no income to pay back these holders. As a result, District Judge Laura Taylor Swain was tasked with finding the maximum monetary damages that PREPA could afford to pay.
The bondholders and the board of PREPA are supposed to meet in mediation to reach a compromise. Despite Swain’s authorization of a two-month pause on litigation with hopes of bringing both sides together in the spirit of agreement, matters seem to be at an impasse, with hopes for a compromise remaining slim. According to Swain, “Movement is necessary to resolve this […] I need response with alacrity.”
Puerto Rico, having endured severe weather emergencies including Hurricanes Irma and Maria in 2017 and Hurricane Fiona in 2022, continues to face challenges, even after private company LUMA Energy took over the power grid post-PREPA bankruptcy. The residents, grappling with prolonged power outages and seven separate increases in energy costs over the past three years, are increasingly disillusioned. LUMA has been met with backlash comparable to that faced by PREPA. This frustration was evident in the statement of US House Natural Resources Chair Raúl Grijalva (D) after Hurricane Fiona. Grijalva wrote, “I want to make it abundantly clear that the people of Puerto Rico deserve an electrical grid and other critical infrastructure that is built to endure these kinds of natural disasters and other effects of climate change. But for too long, they have been living with a power utility that hasn’t delivered on that obligation. Recovering from this disaster is a first and foremost priority, but I do intend to continue my efforts to hold PREPA and LUMA accountable.”
Given the persistent issues with the electrical system, Puerto Rican mediation groups are rejecting the proposed debt-restructuring plan. The plan, which calls for another hike in power bills to repay bondholders, is seen as a diversion of funds from the urgent need for system maintenance and investment. A letter from Puerto Rican civil society groups to Judge Laura Taylor Swain underscores this point: “The electrical system is in dire need of maintenance and billions of dollars of investment, beyond the federal funds available, just to provide adequate service. Diverting these funds to pay bondholders will only perpetuate a dysfunctional electrical system.”
The letter warns of the disastrous consequences that higher rates may impose upon the Puerto Rican economy and populace, emphasizing the unacceptable conditions of Puerto Rico’s current power status. Yet, with negotiations at a standstill despite varied mediation efforts, bondholders and PREPA seem unlikely to reach a compromise, leaving the question of yet another raise in electricity rates for Puerto Ricans up in the air.
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