The Puerto Rican government has recently introduced a bill that will allow Puerto Ricans to be reimbursed for appliances that may have been destroyed during power outages. The bill would require the Puerto Rico Electric Power Authority (PREPA), LUMA Energy, a private energy company, and Genera PR, an independently managed subsidiary of the energy company New Fortress Inc., to pay the Puerto Ricans for damaged appliances. This proposed law has become controversial, as the Financial Oversight and Management Board (FOMB) is arguing the bill will inevitably force the price of electricity to rise and violates PROMESA [the Puerto Rico Oversight, Management, and Economic Stability Act] as it would disrupt the territory’s fiscal plan and require additional allocations for the reimbursements.
The House Joint Resolution 231 (HJR) divides the approach to reimbursement by appliance price into two groups. One group includes appliances with a value under $300. The government has decided that, in these situations, the cost of the appliance will be repaid, as well as an additional 10% of the appliance’s value. On the other hand, the procedure for reimbursement of appliances with a value over $300 is yet to be chartered. If the bill passes, PREPA will need to come up with a process to rectify these cases within 90 days of the bill’s enactment.
FOMB believes that, by paying for the damaged appliances, the rates of electricity on the island will rise as a result, making electricity less accessible. Moreover, they have acknowledged that the passage of this bill may lead to difficulties with the oversight of PREPA. “Further, by mandating a credit program and specific terms of such program, HJR 231 would impair the Puerto Rico Energy Bureau’s (PREB) oversight of PREPA,” the board added.
The board continued by pointing out more concerns they had regarding the negative fiscal effect the HJR 231 will cause, saying “Any bill that has a negative fiscal impact without corresponding savings or new revenues is not fiscally responsible and, therefore, is inconsistent with the applicable Fiscal Plan and Budget, and violates PROMESA.” PROMESA was passed in 2016, allowing Puerto Rico to gain fiscal responsibility and restructure its debt under the guidance of FOMB. The board concluded their statement by saying, “The Bill would become law effective immediately upon enactment and would necessitate a reprogramming to pay for the unbudgeted reimbursements.”
At this point, the bill has been approved by the Senate and House of Representatives on the island and is now awaiting approval by Governor Pedro Pierluisi (NPP, D). The board has asked the legislature not to send the bill to the governor and for the governor to not sign the bill into law. Decisions regarding the future of the bill will likely be made in the coming weeks.
PREPA has been bankrupt since 2017 and is currently dealing with bankruptcy proceedings. In 2020, the board opted for a private-public approach to energy because of the bankruptcy. Luma Energy was given a contract to provide electricity for Puerto Ricans. However, many argue that this contract has been far too generous, as it receives a fixed management fee regardless of whether it keeps the lights on, and can charge PREPA for any unexpected operational costs. Critics say that Luma does not spend enough of the money they have been given for improvements, which exacerbates issues with electricity in the territory. The oversight board has now acknowledged that the contract for Luma Energy was overly generous; however, the contract still has not been revised.PROMESA mandates that the governor submit any new law, executive order, joint resolution, rule, or regulation to the Oversight Board for review. The governor then includes an estimate of the impact the law will have on the expenditures and revenue of the Puerto Rican government. The board will then take the opportunity to review the law they are presented with to determine whether it aligns with the Fiscal Plan for the territory. If the board determines the law is inconsistent with the Fiscal Plan they have the ability to stop the government from enacting the law. If the Governor does approve HJR 231 there is a chance that the board will take these steps to prevent the implementation of the law.
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