When a new version of the adjustment plan for the Puerto Rico Electric Power Authority (PDA-PREPA) is filed, the Fiscal Oversight Board (FOMB) will also present an informative statement specifying the source of funds that would allow confirming a payment plan for the public corporation, but taking resources away from other government programs, the agency warned.

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According to Prepa’s fiscal plan, this source of revenues would have to be used to pay Prepa’s bondholders and other creditors who, in the process of modifying debts under Title III of the federal Promesa law, would receive their payment through a new issue of Prepa’s bonds.

The course to be followed by the FOMB to put an end to Prepa’s bankruptcy is included in the fiscal plan of the electric company certified last February 6, which states that, as a result of the new projections of expenses that the state-owned company will have and the consequent increase in electricity rates, “there is no longer room (headroom)” to include an item to pay bondholders or other creditors in the electricity rate.

“There is no better alternative,” reads the conclusion of PREPA’s fiscal 2025 plan.

In certifying the new fiscal plan, the FOMB insisted that PREPA will not be able to pay more than $2.6 billion to its creditors, a figure that the utility’s objecting bondholders have repeatedly questioned.

“PREPA, relying only on its own resources, will not be able to afford to issue new debt on its own to finance the recovery in a (PDA-PREPA) if it also has to pay all of its non-debt expenses,” the document reads.

According to the FOMB, the new source of proceeds to pay PREPA’s restructured obligations “will allow the FOMB to maintain recoveries with creditors in agreement materially in line with those (recoveries) offered in the February 2024 PDA,” states the document, which acknowledges that certain changes will need to be made to the covenants already entered into between the parties.

The PDA-PREPA that was discussed in March of last year has the support of 44% of the public corporation’s creditors, among them, part of PREPA’s institutional and individual bondholders, the firms that administer the credit lines for the purchase of fuel and the Unsecured Creditors Committee (UCC).

According to the document, the new payment plan will include an item to pay the objecting bondholders, once their claim is admitted by the Title III court.

However, in its analysis, the FOMB recognizes that the new solution envisioned to bring PREPA out of bankruptcy “will likely affect resources that would otherwise be dedicated to providing much needed improvements to other government functions or to making critical investments to improve the quality of life of the people of Puerto Rico.”

“All of us who see the same scenario objectively are supposed to reach the same conclusions,” said former Consumer Representative to Prepa’s governing board, Tomás Torres Placa.

“It would have been better to coincide earlier,” the engineer added.

In 2019, Torres Placa -using the per diem payments he received as a Prepa director- hired economist Ramón Cao to analyze the finances of the state-owned company and the impact that the implementation of a volumetric charge (so it was initially known) or a legacy charge would have on the pocket of consumers, businesses and economic activity, in general.

Cao then concluded that PREPA’s obligations exceeded $17 billion, or nearly four times what the value of the utility’s assets might have been. He also concluded, in a subsequent review, that paying off PREPA’s modified debt through the electric bill would have multiple effects, including the loss of up to 25,000 jobs.

Torres Placa then demanded that the FOMB identify a mechanism outside of the status quo to pay PREPA’s pension and restructured debt. Organizations such as the Institute for Competitiveness and Energy Sustainability (ICSE) endorsed the study’s recommendations.

Torres Placa noted that the new fiscal plan certified by the FOMB includes premises that are not supported, such as a projected increase in maintenance expenses by the operator LUMA Energy that would triple in approximately five years.

But according to the engineer, the fiscal plan recognizes that the resources allocated to the electricity system are insufficient.

Although Torres Placa welcomed the FOMB’s change in strategy, he said it came too late.

“If the suggestions we made had been implemented, we would have achieved more with electric energy projects,” said the engineer, adding that not only renewable projects would have advanced, but also fossil generation projects that have been part of the Integrated Resources Plan since 2020.

For his part, Rolando Emanuelli, legal advisor to the Union of Electrical and Irrigation Industry Workers (Utier) and the Prepa Retirement System (SRAEE) regretted that the FOMB now accepts what has been said over and over again.

“There is nothing in that plan that was not known before, that was not known in March of last year during the confirmation hearings,” Emanuelli said, adding that it was known that PREPA did not have sufficient revenues to fund its operations and therefore did not have the resources to pay the bondholders.

According to Emanuelli, the FOMB wasted valuable time by articulating as a solution to PREPA’s bankruptcy a legacy charge that was unaffordable.

Prepa’s new fiscal plan not only discards the legacy charge, but also admits that it will be necessary to find a source of income to pay the pensions outside of the electric rate, but does not specify where it would be paid from.

Emanuelli said it is “unfair” that the FOMB recognizes the priority nature of PREPA’s commitments to its workers and retirees, but does not specify a solution.

According to the First Circuit Court of Appeals’ determination, pensions and workers’ pay would have priority over PREPA’s bonds. This, because such obligations would be part of the ordinary expenses of the public corporation. The bondholders, the appellate forum has said, would collect their share of the electric company’s net income, if any.

Emanuelli, who questioned whether the central government has the economic capacity to put $2.6 billion on the table, said the FOMB squandered the opportunity to get the backing of Prepa’s workers and retirees. He said that after a first round of talks last year, the agency withdrew from the negotiating table.

“The offer that was made would have served to address the situation of the Retirement System,” said Emanuelli, while indicating that now, both PREPA’s financial situation and Puerto Rico’s economic situation is more precarious than it was a year ago.

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This content was translated from Spanish to English using artificial intelligence and was reviewed by an editor before being published.